5G, COVID-19 top issues impacting wireless earnings

On wireless operators' upcoming earnings calls, analysts will be seeking an update on 5G deployment plans for 2021 and on any lingering impacts from the pandemic.

Verizon Communications Inc., AT&T Inc. and T-Mobile US Inc. spent much of 2020 accommodating the surge in network traffic as more people worked and learned remotely amid COVID-19. Each of the companies also have acknowledged that the pandemic has weighed on their equipment revenues and efforts to reduce churn. A bright spot in 2020, however, was the introduction of several 5G-capable smartphones, including Apple Inc.'s 5G iPhone.

While analysts think businesses will see more benefits from 5G than consumers will in 2021, they still expect an influx of 5G-capable handsets to drive up smartphone sales.

Recently, the top mobile operators have been busy placing bids for the U.S. Federal Communications Commission's most expensive 5G spectrum auction round to-date, with gross proceeds surpassing $80.9 billion. Specifically, the FCC is auctioning 280 MHz of spectrum in the 3.7 GHz-3.98 GHz band, a portion of the C-band. The mid-band spectrum is seen as crucial for 5G since high-band spectrum cannot travel long distances or penetrate certain surfaces and low-band spectrum has become crowded due to 4G wireless services.

The FCC is expected to reveal the C-band auction winners by late February or early March, at which time the companies will be able to place bids for frequency-specific licenses.

Cowen analyst Colby Synesael in a research report estimated Verizon spent $35 billion in the latest C-band auction, followed by AT&T with $20 billion. T-Mobile, meanwhile, is estimated to have spent between $10 billion to $15 billion. In terms of how the companies will fund such aggressive spending levels, Synesael said Verizon might need to push back any upcoming share buybacks to 2024 or 2025, but the analyst does not expect the company to alter its capital investment or dividend strategies.

Verizon CEO Hans Vestberg speaks about 5G at the tech trade show CES on Jan. 11.
Source: Verizon

For AT&T, the analyst expects the company to raise funds via debt and does not anticipate the operator will change its capex or dividend plans. As for T-Mobile, Synesael expects the company to utilize the auction to bolster its spectrum holdings in major markets like New York City, Los Angeles, San Francisco, Chicago and Boston.

Alex Besen, founder and CEO of the mobile data consulting firm The Besen Group LLC, said he expects businesses to utilize 5G services more than consumers this year, given that many of the advertised consumer use cases for the mobile technology remain a few years off.

When fully implemented, 5G promises to offer download speeds several times faster than LTE wireless networks and significantly lower latency, or the amount of time between data leaving a source and arriving at its desired destination. A key selling point for 5G is the ability to enable a new era of the internet of things — a network of interconnected electronics, vehicles and home appliances that interact and exchange data.

"When you're talking about businesses and looking at different industry segments — oil, gas, mining, energy, hospitality — these are the industries that are really going to leverage the 5G network features [in 2021]," Besen said in an interview. "So that's where I think 5G is going to make the major impact."

Jeff Moore, principal at Wave7 Research, a firm that analyzes competition in the telecom industry, expects to see a noticeable bump in purchases of 5G-capable smartphones this year, but cautioned that it will still take time before consumers reap the full benefits of 5G.

In particular, Moore is monitoring the launch of Samsung Electronics Co. Ltd.'s 5G-enabled Galaxy S21 smartphone lineup, which hits stores Jan. 29 and includes the Galaxy S21, Galaxy S21 Plus and Galaxy S21 Ultra that retail for $799, $999 and $1,199, respectively.

"There's going to be an absolute hockey stick of growth for 5G handset sales in 2021, there's no question about that," Moore said in an interview. "As far as the use cases [for 5G this year], I'm still clueless."

Among large wireless operators, Verizon kicks off earnings on Jan. 26, with AT&T following on Jan. 27.