Building out 5G infrastructure for the next generation of wireless technology
For 5G to live up to the hype, the telecommunications industry needs to invest in major infrastructure upgrades to the cell towers and other equipment that keeps networks functioning smoothly.
The next generation of wireless network technology, 5G, has the potential to transform the experience of using a smartphone and other devices. Promising greater reach, higher responsiveness, and most of all faster speeds, 5G has generated a great deal of buzz across the tech industry. But for 5G to live up to the hype, the telecommunications industry needs to invest in major infrastructure upgrades to the cell towers and other equipment that keeps networks functioning smoothly.
KeyBanc Capital Markets (KBCM) Vice President and Equity Research Analyst specializing in communications services, Brandon Nispel, moderated a panel of executives in the wireless infrastructure and architecture space during the KeyBanc Capital Markets Tech Leadership Forum, featuring American Power Chief Technology Officer Ed Knapp; Parallel Wireless CEO Steve Papa; and MasTec Group President Rick Suarez. From their various vantage points, these industry leaders shared insights on what’s driving massive capital expenditures, the challenges the industry faces in deploying 5G technology, and what the future of 5G will look like.
A capital-intensive buildout
KBCM forecasts that U.S. wireless capital expenditures among major carriers will increase to nearly $34 billion by 2023, up from $29 billion in 2020, and from their previous peak of $31 billion in 2013 and 2014.
Suarez describes the shift to 5G as “one of the most capital-intensive investment cycles carriers will ever face.” He cites a level of complexity above and beyond what was required for LTE and previous generations. The 5G buildout involves upgrading and rearranging the equipment on existing cell towers, while carriers are also looking to add capacity and infrastructure to keep up with demand. Additionally, as carriers gain access to C-band airwaves, their infrastructure needs will increase.
Among the biggest infrastructure changes happening during this investment cycle is the shift to massive MIMO (multiple-input, multiple-output) antennas, says Papa. “The move from passive antennas to active antennas is a generational shift as big as moving from analog to digital back in the 90s.” Given that the biggest asset on an operator’s balance sheet is their spectrum, equipment that allows them to maximize the value of that asset, such as active antennas, will be a high-priority investment. Knapp agrees that the RAN (radio access network) buildouts associated with 5G are driving a more capital-intensive investment cycle. With carriers adding capacity at multiple bands of the spectrum, there will be an elongated ramp-up in spending.
The need for speed (and new equipment)
As 5G capabilities and technology evolve, carriers will need to replace equipment in order to stay current. Knapp points out that the life expectancy of a “G,” (i.e., a generation) could be 20 years. As such, components of the equipment deployed during the first wave of 5G may not be flexible or programmable enough to adapt to unanticipated developments, which could lead to multiple equipment replacements during the 5G lifespan. Papa notes that the early equipment of the 4G generation was “fundamentally flawed,” and had to be replaced to support VoLTE voice technology. Similarly, he anticipates there will be a natural replacement cycle with 5G as more efficient equipment becomes available. Suarez observes that every time new spectrum becomes available, that extra capacity is consumed quickly - and carriers’ efforts to improve utilization of their capacity will require them to invest in new equipment as well as rearrange their existing equipment over time.
Risks and challenges facing 5G deployment
When it comes to possible hurdles on the road to 5G, Knapp points to execution. “A lot of this comes down to, ‘is there enough skilled talent? Resources? Are supply chain issues with semiconductors going to limit the amount of equipment available?’” He notes that American Tower is working closely with customers to plan in advance so that when the 5G spectrum becomes available, operators will be ready to turn services on.
For Suarez, the most significant challenge on the horizon is the shortage of skilled construction workers to build the fiber optic networks, antennas, cell towers, and other infrastructure required to support 5G technology. “Right now, it’s hard enough to find workers who can keep a restaurant running. But when you think about infrastructure builds, they all require construction workers with slightly different skill sets.”
Looking ahead to the future of 5G
5G has the potential to be a catalyst for progress in a variety of different areas. From accelerating the digitization of cellular network technology, to enabling smart cities to incorporate device monitoring and data optimization in innovative new ways, to paving the way for new devices that will overtake smartphones as our primary digital tools, 5G unlocks tremendous opportunity - not only for those who will use it, but also for those who are building the infrastructure to deliver it.
To learn more about investment opportunities related to 5G infrastructure and architecture, contact your KeyBanc Capital Markets investment banker.
To learn more about attending one of our conferences, email the Corporate Access team.
About the 2021 Technology Leadership Forum
Technology companies experienced a tumultuous start to 2021 with uncertainty around industry valuations, tax policies, COVID-19 transitions, supply shortages, inflation concerns and valuation thresholds. To assess the current market dynamics we brought together investors, executives and founders from top private and public companies, and industry thought leaders to provide insights and explore opportunities for technology as we progress toward a "new" normal. Attendees included 1,000+ institutional investors, 180+ private equity/venture capital corporate development investors, 105 public companies and 46 private companies. The agenda included 90+ Fireside Chats/Presentations, and 6 thematic panels..