Wells Fargo Securities analysts downgraded the entire tower sector, saying that carriers are beginning to balk at traditional network contracts in advance of the FCC's incentive auction and the development of 5G standards.

"Bottom line -- we believe the industry is facing some growing pains right now in the U.S.," the firm wrote in a research note. "Will it pass? Yes, we believe so. Does the public tower companies' guidance reflect these growing pains? Yes, we think so. But will the stocks outperform in this period of growing pains? Probably not.

"At the heart of it," Wells Fargo continued, "we believe the carriers are pushing back and new incremental growth will be harder from here as we wait for the spectrum auctions, FirstNet, and 5G decisions and standards all get sorted out."

The analysts added that AT&T -- which is "a top 2 customer for every tower company" -- has cut back spending on its wireless network as it invests in fiber. And its rivals are looking to trim their infrastructure budgets as they struggle to maximize margins from wireless services and prepare for the upcoming auction.

"Carriers definitely appear to be pushing back on the structure of amendments and pricing of its tower contracts," according to Wells Fargo. "One may even suggest that the carriers enjoy working more with the smaller portfolios. Carriers' wireless pricing and ARPU are being pressured, demands on the network are higher than ever, and many unknowns remain about their capital decisions (how much will spectrum cost?)."

The analysts also noted that operators often decrease network investments as they prepare for the emergence of next-generation technologies. That trend may be magnified with the evolution to 5G, which will see carriers employ a variety of new technologies and strategies to provide connectivity to an ever-increasing number of devices.

"There is typically a pause in spending as carriers transition between different technologies (i.e.: 2G, 3G, 4G, etc.)," Wells Fargo wrote. "Now the industry is on the cusp of 5G. There are many unknowns around the technology path here to follow. With that backdrop, it does make sense that carriers may hit the pause button a bit to see what will be needed from a RF and architecture standpoint before jumping feet first."

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