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5G rollout: How the FAA, wireless carriers are responding to aircraft interference concerns

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Wells Fargo Senior Equity Research Analyst Eric Luebchow explains how the 5G rollout could disrupt airline operations and what stakeholders are doing to address this concern.

Video transcript

- Well, Boeing and Airbus are warning against a plan to deploy new 5G wireless networks next month. AT&T and Verizon are expected to roll out the new technology on January 5th. But there are serious questions about how they're likely to disrupt operations in the air.

Let's bring in Eric Luebchow, he's Wells Fargo's Senior Equity Research Analyst. Eric, I want to have you explain what the big concern is here. Because I think that a lot of people have heard 5G, potential disruption for planes. What exactly is the concern and how is that likely to delay the rollout, or is it?

ERIC LUEBCHOW: Yeah, absolutely, it's a very good question. The real issue is that some recently auctioned airwaves in the c-band are nearby some of the airwaves that the FAA and aircrafts use for radio altimeters. And this has been an issue that the FCC has explored for several years to prevent any type of interference from c-band operations and 5G with aircraft.

The FCC has studied it for several years. They have set aside a guard band of approximately 220 megahertz, which is double the minimum requirement to help protect against interference. And then, more recently, AT&T and Verizon agreed to give the FAA little bit more comfort to impose some power restrictions on c-band cell sites near major airports.

So that's the main issue. I think, in terms of whether or not this delays the 5G deployments, it's already been delayed one month. AT&T and Verizon agreed to that, this spectrum was supposed to be deployed in December.

And the latest we've heard from the carriers is that they're continuing to plan to move ahead in January. They have given the FAA a lot of data, real world data in other countries, where c-band has been operated for many years with no interference with airplanes whatsoever, in Europe, in Japan, in South Korea. And given the fact that AT&T and Verizon spent collectively about $80 billion on this spectrum, I think that they are wanting to get going as soon as they possibly can.

- Yeah, it's going to make a lot of people jittery who are about to fly, listening to this a few weeks out from this rollout. Having said that, talk to me about how significant this next phase in 5G is going to be, and your case, how big of a driver they're likely to be for some of those tower stocks?

ERIC LUEBCHOW: Sure, so in our view, true 5G will come in mid-band spectrum. And that spectrum's where you can see speeds that are at least 10 times greater than what we've seen under 4G. And so that is really, to us, the critical spectrum layer that we need for 5G.

AT&T and Verizon haven't really deployed much 5G at all on mid-band. And so this c-band rollout is critical for them. They both have plans to roll this out and cover almost 200 million people by 2023, so this will be a very quick rollout.

And they are primarily using the large tower companies, American Tower, Crown Castle, and SBA, to scale that deployment as fast as possible. They're hanging new equipment on macro tower sites across the country. And as soon as the spectrum is active, they can turn those equipment sites on and very quickly get coverage on c-band.

So they are already partnering with the tower companies. And we've called for total leasing volumes to be up 15% to 20% in 2022, and then up, potentially, another 20% in 2023, as we have those two carriers deploying 5G. In addition to T-Mobile deploying a 5G network, and also Dish, who is building a brand new Greenfield 5G network from scratch.

- If you look at the digital infrastructure overall, particularly around data centers, they haven't necessarily been immune from some of these supply chain disruptions we've been seeing, pushing costs higher as well. How is that likely to weigh on some of those names that you've highlighted and their growth prospects?

ERIC LUEBCHOW: Sure, so there's always a little bit of impact from cost inflation. I think the data centers are fairly insulated next year from it. The majority of the capital that they put into new data center sites, they've pre-contracted with large groups of suppliers at fixed prices to deliver critical equipment, such as generators, and switchgear, and power distribution units.

So largely speaking, they have the equipment on hand to continue to build. In general, we do think that cost inflation will cause a lot of these data center companies to push up pricing in the next couple of years to maintain, kind of, stable returns. But that is something that we haven't necessarily seen come through yet.

In general, pricing in data centers has been deflationary for many years. And I think the hope is that, with inflation now on the horizon, or already here in many cases, that they will start to push pricing higher.

- Eric Luebchow, Wells Fargo Senior Equity Research Analyst, good to have you on the show today.

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