Total bidding at the FCC's C-Band spectrum auction surpassed all expectations. Telecom companies spent nearly $81 billion for the rights to use the mid-band radio waves. They'll have to spend more still to clear those waves for use on their wireless data networks.
While the telecom giants have had to stretch their balance sheets to gain the rights to valuable spectrum, there are a couple of adjacent industries that stand to benefit from the increased investments.
Wireless spectrum doesn't do much good if carriers don't deploy it. In order to do so, they'll have to add more cell sites to their portfolio, which means new tower leases. There are two main tower companies that stand to benefit: American Tower (NYSE:AMT) and Crown Castle International (NYSE:CCI).
"The biggest correlation to our growth is our customers' capex that they're spending on our networks," American Tower CEO Tom Bartlett said at a recent investors conference. "They're not going to be spending all this capital, all this cash on C-band without the ability to spend a lot of capex on deploying it."
Ironically, Crown Castle's operations are more concentrated in the United States than American Tower's, which may prove its future results are more correlated with American carriers' spending. That said, Crown Castle's tower portfolio is concentrated more heavily in larger metro areas, and a significant portion of its business is in small cells. It's expected carriers will rely more on higher frequency radio bands and fiber in metro areas where cell towers are closer together.
Nonetheless, Crown Castle should see strong interest to deploy spectrum from its existing customers. Crown Castle could potentially gain some new tenants like cable companies looking to build in higher-population-density areas while allowing the nationwide providers to take care of rural markets.
But investors won't see a payoff immediately. For one, most of the spectrum the FCC just auctioned won't be cleared until 2023. The A blocks clear in December of 2021. Ultimately, that means carriers won't sign new leases for new equipment until late 2021 at the earliest, so the results won't show up until 2022. Even then, the ramp up in spending is likely gradual as carriers can only deploy their new spectrum so quickly and they aren't going to pay for towers they're not using.
The last piece of the puzzle for network operators is the equipment to broadcast those radio waves. Some of the top 5G equipment manufacturers are Ericsson (NASDAQ:ERIC), Nokia (NYSE:NOK), Samsung (OTC: SSNLF), and Huawei. The latter, however, is currently banned in the U.S., U.K., and Sweden. Meanwhile, there's pressure for other countries to ban the equipment manufacturer as well.
Carriers were expected to spend $3 billion to $3.6 billion on C-band equipment prior to the start of the FCC auction. Carriers may spend more if equipment providers can help produce a return on their spending more quickly through faster deployment.
Samsung may be best positioned to capitalize on Huawei's absence. It signed a $6.5 billion deal with Verizon in September. The carrier's expected to have been the biggest spender at the FCC auction earlier this year. Samsung also has the most to gain after falling well behind in the wireless equipment race in prior years. That said, the company's been heavily focused on its equipment for C-band spectrum, and it could prove a big winner with other carriers as well.
But Samsung is a massive conglomerate, and its wireless equipment business won't have a big impact on its overall business, which is more concentrated on consumer electronics. Additionally, carriers are unlikely to use only one equipment provider, so there's still a big opportunity for Nokia and Ericsson in the absence of Huawei.
The challenge for Nokia and Ericsson will be remaining cost competitive with Samsung, which is looking to take market share and has a much larger business to sustain lower prices. That could put pressure on its margins despite expected revenue growth.
There are a lot of ways to invest in 5G in the United States. The big wireless carriers are showing a willingness to spend heavily on the next generation network, so investing in the companies that serve them could be one of the best ways to profit.