Last week news surfaced that U.S. wireless carrier AT&T appears poised to win the FirstNet buildout contract.
While nothing is sure yet – one competitor dropped out but another is challenging FirstNet’s decision not to consider its proposal – the presumption of an AT&T victory raises some important questions. What a FirstNet win mean for AT&T? What kind of impact, if any, would it have on the ongoing spectrum incentive auction? And finally, what can tower companies expect from such a victory?
Analysts, of course, have swooped in to the rescue to hazard some guesses.
For AT&T itself, both New Street Research and Wells Fargo agreed the FirstNet would be a positive, offering the carrier access to 20 MHz of paired 700 MHz spectrum. While that spectrum would naturally go to meet the needs of public safety users first, Wells Fargo Senior Analyst Jennifer Fritzsche noted “barring a national emergency, we estimate the spectrum will be less than 1 percent consumed by public safety uses.” That means AT&T will have access to a good chunk of incremental spectrum that can be added in with its 20 MHz of AWS-3 and 20 MHz of WCS spectrum to form a 60 MHz reserve. New Street estimated 20 MHz of low band in the current spectrum auction would cost between $8 billion and $9 billion and said “if AT&T wins the award for anything less than this, we would view the outcome positively.” Additionally, both New Street and Wells Fargo pointed out there is plenty of headroom for AT&T to grow revenue in the first responder market.
Speaking of the auction, Wells Fargo and New Street both indicated its reasonable that AT&T’s interest in low-band spectrum might be “diminished” now that it has the FirstNet spectrum in its sights. But Fritzsche said discussions with spectrum experts have pointed to AT&T still being “very much there in the auction.” Rather than AT&T’s lack of participation, she said, the low auction prices being seen are a result of the auction setup, where supply of spectrum currently outpaces demand.
The analysts also agreed an AT&T FirstNet win would be a boon for tower companies, though they disagreed on the metrics and which companies would benefit, exactly. New Street said, assuming FirstNet is deployed across 50,000 towers at an average amendment rate of $500 per month, it could generate around $230 million in incremental revenue for the big three tower companies. Fritzsche said the 50,000 tower figure is “somewhat wildly optimistic,” but concurred new tower sites will undoubtedly need to be added for the network.
“We would not be surprised to see the winner of this contract announce deals with new tower companies and/or developers to build some of said towers,” Fritzsche wrote. “While this type of announcement could feed fears there is a secular change in the tower model (and economics around it), we believe the perception of this fear will be much worse than the reality. It is very difficult for us to foresee a scenario where the towers are not touched in the buildout of a nationwide network. Recall, there are 150K towers in the U.S., and the three public tower cos (AMT, CCI and SBAC) own 96K of them (65%). We know the zoning environment has not gotten any easier and we also know that T (if deemed the winner) has 700MHz equipment already on these towers.”
While Fritzsche didn’t offer a figure, she said the benefits of a FirstNet contract awards in the first quarter of 2017 could show up in tower company financials as soon as the fourth quarter 2017.
Filed Under: Infrastructure