The Federal Communications Commission (FCC) voted this week to clarify rules limiting local governments’ say in the upgrading to 5G of existing wireless infrastructure. The move was made in order to help speed up the deployment of 5G infrastructure, coming months after analysts lowered projections for 5G smartphone shipments back in March. The FCC clarification should have an impact in particular on companies dealing directly with 5G equipment, such as ADDvantage Technologies Group, Inc. (NASDAQ:AEY), SBA Communications Corporation (NASDAQ:SBAC), Nokia Corporation (NYSE:NOK), American Tower Corporation (REIT) (NYSE:AMT), and Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC).
The rollout ramp up could have a further impact on companies of all sizes, from the largest megacorporations, down to the juniors such as ADDvantage Technologies Group, Inc. (NASDAQ:AEY) which already saw its revenue grow 101% in 2019 with $55.1 million in sales. With many of the uncertainties of the 5G rollouts in markets across the continent out of the way, ADDvantage is looking forward to improving its liquidity position, and being a meaningful participant in future 5G activity.
According to the FCC’s accompanying press release, those 5G activities will not be slowed by state and local governments. Under the new framework, a state or local government “shall approve within 60 days any request for modification of an existing structure that does not substantially change the physical dimensions of the structure.”
What the clarification does not do, is necessarily address new structures, moreso the revamping of existing infrastructure. The FCC stated that the actions taken were a crucial next step in the regulator’s ongoing efforts to remove regulatory barriers that inhibit the deployment of infrastructure critical to building 5G networks.
That deployment is going to rely on the work of many companies beyond the carriers, beginning with the efforts of those developing and installing the hardware itself.
INFRASTRUCTURE PROVIDERS TO BENEFIT
Nokia Corporation (NYSE:NOK) released new research on Wednesday, highlighting the outlook for 5G on both the enterprise and consumer sides, particularly when it comes to video and fixed wireless access (FWA). Research for the report was conducted prior to the COVID-19 outbreak, however according to VP of Marketing Josh Aroner, the pandemic only bolsters the need for 5G and its use cases.
North of the US/Canada border, Canadian mobile giant Telus announced that not only Nokia, but also Ericsson (NASDAQ:ERIC) have earned the right to take part in the deployment of its 5G network—moving away from Huawei, which it had announced it would use earlier this year.
Ericsson’s rollouts are also continuing in the UK, having partnered with O2 for a substantial network modernization program, reaching all over the entire United Kingdom. The company will deploy products and solutions from its Ericsson Radio System portfolio in the form of hardware, software and service upgrades in key cities like Manchester, Liverpool and Cardiff.
Much like the offerings from Ericsson, but perhaps on a much smaller scale, ADDvantage Technologies Group, Inc. (NASDAQ:AEY) has begun offering wireless infrastructure services for US wiresless carriers, communication tower companies, national integrators, and original equipment manufacturers. This segment also offers installation, upgradation, and maintenance of technology on cell sites, and the construction of new small cells for 5G.
TOWER REAL ESTATE BONUS
With the new FCC regulations, they clarify aspects of the 2012 Spectrum Act, which was passed to speed up the deployment of 5G by allowing telecom companies to make changes to existing cell towers to support 5G service. In particular, the new rules prevent municipalities from blocking or delaying changes, such as antenna replacements, to existing tower structures, so long as the underlying structure remains.
This is good news for many of the owners of this infrastructure, including the companies that lease antenna space on cell towers to the big carriers. The current largest REIT in the space is American Tower Corporation (REIT) (NYSE:AMT), which operates nearly 180,000 sites in 19 countries. Just last year alone, the REIT generated $7.6 billion in revenue, and $3.5 billion in adjusted funds from operations.
But even the smallest of the big three tower REITs, SBA Communications Corporation (NASDAQ:SBAC) has seen the sector’s fastest growth, powered by higher debt and stock repurchases.
Jeff Stoops, President and CEO of SBA Communications commended the FCC’s clarifications, stating that in the face of small cell regulation obstacles, the regulator’s actions “demonstrates courage and character.”
As carriers upgrade their equipment, tower REITs can expect activity to pick up. Antennae for 5G are not only larger and heavier, but they also generate more rent.
In addition to the new regulations, the FCC clarified that applicants don’t need to submit reports on environmental impact if all parties in an agreement have decided to mitigate the effects on the properties.
The FCC is seeking comment on rule changes for excavations or deployment outside of an existing tower site, and wants to know the effects of those on the speed at which 5G can be installed.
Local governments may go to court to stop the FCC decision from being carried out, according to Telecom Law Firm PC attorney Michael Johnston who represents dozens of cities. However for now, the industry has welcomed the FCC’s tower decision.
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