Despite the 5G talk, investment in LTE will see plenty of runway in 2019, which is leading to more new tower builds, tower executives say. T-Mobile is building coverage sites for its low-band 600 MHz and 700 MHz spectrum, and AT&T is contemplating a network improvement project as well as its FirstNet-related project. Both of which involve ample new sites, Alex Gellman, CEO, Vertical Bridge, told AGL eDigest.
“We are in a renaissance period for good old macrotowers in the next few years ahead of 5G,” Gellman said. “The reason I feel that way is we are seeing a lot of rings for new towers. The economics and speed of collocations is hard to beat, but there will be new builds as well.
Ron Bizick, CEO, Tarpon Towers, described the new-build business as “vibrant.” It is bringing good times to the independent tower companies.
“There are a lot more towers being built in the rural areas to fill out the white spaces, particularly for AT&T’s FirstNet,” he said. “We are seeing the other carriers build out their coverage, as well. We have targeted some rural areas where we think a second tenant is possible, but only a second tenant.”
With that said, carrier capital expenditures are a quarter-by quarter-question mark. In the first quarter of 2019, tower owners will be looking closely at the capex budgets of AT&T and Verizon after the Big Two pulled back on their spend toward the end of 2018. AT&T’s reduced capex came after the Time Warner deal closed and Verizon shaved $1 billion off its guidance after announcing 44,000 in layoffs last year. Additionally, Verizon had a $4.6B write down of Oath (Yahoo and AOL).
“They pushed capex out at the end of 2018. Was that a trend or a one-time occurrence?” Gellman said. “The layoffs and the write down may be a signal a greater focus on the network in the future.”
Last year’s big story, the Sprint/T-Mobile merger, is carrying over to this year. It was bad news for some tower companies, which saw Sprint business go away after the deal was announced. Gellman believes the quiet surrounding the deal is a portent for its blessing from the Department of Justice. In the long run, he believes the merger will be positive for the industry.
“Sprint has not spent on its network in a meaningful way for a number of years, while T-Mobile has been very aggressive,” he said. “A stronger, larger T-Mobile will be excellent for our industry. T-Mobile is solely focus on its network, while AT&T and Verizon have other places to put their capital and have sometimes invested elsewhere than in the network. If T-Mobile is the same size as AT&T, it will be more difficult for it to do that.”
Jennifer Fritzsche, senior analyst, Wells Fargo, believes the Sprint/T-Mobile merger will go through in the first half of 2019. “Our regulatory checks suggest that the DoJ/FCC approval process has been relatively drama-free thus far,” Fritzsche wrote in an Equity Research note. “We do, however, believe that T-Mobile will have to divest assets – most likely spectrum – to receive approval. The New T-Mobile plans to create a more scaled, viable competitor to AT&T and Verizon, and help turbocharge the carriers’ push to 5G.”
Towers Still a Wall Street Darling
Fritzsche has written that the towers will be remain a compelling investment for shareholders 2019, despite the possible Sprint/T-Mobile merger. Tower stocks beat the S&P index in 2018 (+4.9 percent vs. S&P -6.2 percent), and in 2017 (+40.4 percent vs. S&P +19.4 percent).
“Even with these recent moves, we believe towers will remain very topical in 2019,” Fritzsche wrote. “In our view, there exists a number of tangible catalysts (i.e., FirstNet, T-Mobile’s 600 MHz deployment, 5G densification efforts, edge computing, etc.), which should more than offset expected choppiness in international markets (particularly India) and impact from carrier M&A (namely Sprint and T-Mobile) in the short term.”
Carrier leasing activity, which has grown year over year in recent quarters, is expected to continue to increase in the coming 12 months, according to Fritzsche.
“There is much ‘naked spectrum’ that has yet to be deployed (600 MHz, FirstNet 700 MHz, AWS-3, WCS, 2.5 GHz, mmWave, etc.) – where towers will clearly play a role,” she wrote. “Most deployments are part of multi-year strategies designed by the carriers and complement what they plan to build for densification needs ahead of 5G technology rollouts.”
February 5, 2015 — Cisco has released its annual spotlight on the astounding growth of mobile data. Global mobile data traffic grew 69 percent in 2014, reaching 2.5 Exabytes per month at the end of 2014, up from 1.5 Exabytes per month at the end of 2013, according to the Cisco Visual Networking Index (VNI) Global Mobile Data Traffic Forecast Update, which presents some of Cisco’s major global mobile data traffic projections and growth trends.
Putting that number in perspective, last year’s mobile data traffic was nearly 30 times the size of the entire global Internet in 2000 when 1 Exabyte of data was transmitted.
Although the Cisco report is a global snapshot, Wells Fargo Senior Analyst Jennifer Fritzsche wrote that study provides positive long-term revenue visibility for the tower sector’s pipeline.
“We reiterate our OVERWEIGHT rating on the tower sector. In our view, [Cisco’s] findings offer tangible evidence about the continued strong demand for wireless data usage,” Fritzsche wrote. “We believe wireless carriers will need to continue to optimize their respective networks to handle the additional demands of mobile data usage.”
Specifically, mobile video traffic grew to 55 percent by the end of 2014. Also driving mobile data growth was the addition of 497 million mobile devices and connections during the year, up to 7.4 billion, with smartphones accounting for 88 percent of that growth. While only accounting for 26 percent of mobile devices, smart phones represent a majority (88 percent) of data traffic on a global basis.
Attempting to keep up with the mobile data growth, cellular connection speeds grew 20 percent in 2014, increasing average download speeds from 1,387 kilobits per second (kbps) in 2013 to 1,683 kbps in 2014.
Expect the good times to keep on rolling. Cisco projects that the mobile data growth will increase exponentially during the next five years, increasing tenfold to 24.3 Exabytes each month in 2019. That would be a CAGR of 57 percent from 2014 to 2019.
September 19, 2014 — Recent estimates of 1 percent cell site growth in a CTIA survey may seem underwhelming, but to understand the health of the tower industry you should look at the revenue per cell site, which is going up at a muscular pace with both amendments and collocations increasing, according to Jennifer Fritzsche, managing director in the Equity Research department at Wells Fargo Securities.
Fritzsche gave the track chair address at the Tower and Small Cell Summit last week in Las Vegas, where she drilled down and shared her analysis of wireless infrastructure deployment activity at all four major carriers.
“While small cells will show a higher growth rate, we believe macrocells will continue to increase in absolute numbers,” Fritzsche said. “AT&T, when it announced Project Velocity IP in 2012, said it would add 10,000 macrocells. While Verizon has not confirmed it, it will have as much growth or more. It is the consistent spender in the industry.”
Verizon Wireless is well into its 4G network deployment with 308 million LTE POPs in the 700 MHz band, more than 500 markets with LTE coverage, and 76 percent of total data traffic on its 4G LTE network. But it’s not done yet.
“The Verizon Wireless CFO says don’t expect wireless capex to come down anytime soon, even though they are — quote-unquote — done with the LTE build out,” Fritzsche said.
“Verizon is known for the quality of its network,” Fritzsche said. “It has been very aggressive with its backhaul. Sources say they are aggressively deploying dark fiber to the cell sites, which gives them more control and they can light them up as they see the demand.”
Their future network plans are definitely focused on network densification, investing in small cells, DAS and in-building coverage. They plan to deploy LTE on 1700-MHz and 2100-MHz AWS spectrum, and their stated goal is to deploy VoLTE by the end of the year.
“Even Verizon’s LTE network covers more than 308 million LTE POPs [U.S. population equals 310 million], the Verizon CFO says the wireless capex will not come down any time soon, even though the LTE build out is completed. It speaks loudly to the densification that has yet to occur,” Fritzsche said.
AT&T has LTE coverage of 300 million in population on 700-MHz spectrum and more than 600 markets with 4G LTE coverage. Two-thirds of its postpaid smartphones are LTE-capable devices, and 84 percent of postpaid subs use a 4G-capable device.
In the future, the carrier plans to deploy LTE on Advanced Wireless Services and Wireless Communications Service (2.3 GHz) spectrum. It has already begun refarming the 1900-MHz Personal Communications Service spectrum. Additionally, it will begin rolling out LTE Advanced carrier aggregation technology later in 2014.
“There have been a lot of questions about the stops and starts of capital spending at AT&T,” Fritzsche said. “I think we have to look at the fact that they spent more than what was expected in the first half of this year. The guidance is for $21 billion in capex in 2014. To state the obvious, that is a huge number. I don’t see AT&T backing away from its investment in wireless or their commitment to their network.”
Sprint is catching up with the other carriers, with coverage of 255 million LTE POPs in 500 markets. A key part of its strategy is the deployment of Spark in major markets, using the old Clearwire spectrum at 2.5 GHz. The company has set its guidance for 100,000 POPs of 2.5-GHz Spark coverage by the end of 2014. It should complete to rollout LTE on 800-MHz spectrum by year-end 2015 and on 2.5 GHz over next 3 years.
“Sprint is my wild card company,” Fritzsche said. “The Network Vision deployment has been a hard slog for Sprint, but hopefully we are seeing the light at the end of the tunnel.”
The iPhone 6, which was announced during Super Mobility Week, is the first Apple handset to operate on 2.5 GHz and holds the key to unleashing the power of Network Vision, according to Fritzsche.
“With 2.5 GHz being the cornerstone of Sprint’s strategy, this phone is a really big deal. Essentially, Sprint can now move iPhone users from a 5×5 channel for LTE to multiple 20×20 channels. This is a game changer for Sprint,” she said.
Sprint also launched an unlimited data plan with no throttling for $50 a month and a leasing arrangement for $20 a month. The question is when there will be a network to back up that subscriber plan. Fritzsche called the plan “transformational.”
T-Mobile has 233 million LTE POPs on AWS spectrum, 325 markets with 4G LTE coverage and nationwide VoLTE coverage over 200 million POPs.
“You have to give T-Mobile credit, a lot of credit. I have learned that it is a mistake to bet against Neville Ray [T-Mobile CTO],” Fritzsche said. “Since the breakup of the AT&T merger and with rumors of a merger with Sprint flying back and forth, T-Mobile has quietly built a very good network. The MetroPCS merger has proven to be a very logical move.”
Future network plans for T-Mobile include covering 250 million LTE POPs by year-end 2014 and more than 280 million POPs by mid-2015. It has begun the 700-MHz A block rollout, and 60 percent of its MetroPCS spectrum needs to be re-farmed and integrated. Additionally, wideband LTE is being deployed on 15×15 and 20×20 channels.
“I don’t expect most of this deployment to be done until the end of next year, so maybe the iPhone 7 will be able to operate on T-Mobile’s spectrum in the 700-MHz A block,” Fritzsche said. “T-Mobile has the easiest spectrum position footprint, because it is not bringing in a really high band spectrum.”
Never mind the World Cup dominating the stage in Brazil, American Tower has claimed more turf in the largest country in South America, purchasing BR Towers, a Brazilian company with 2,530 towers and the rights to 2,110 additional towers for $978 million.
American Tower anticipates that the towers will generate $131 million in annual run rate revenues and $81 million in annual gross margin. The deal is expected to close in the fourth quarter of 2014.
Wells Fargo values the deal 12x tower cash flow and $210,000 per tower, and it increases American’s Brazil exposure by 69 percent. The buy adds to the 6,753 towers American already owns in the country. While some question the stability of the Brazilian economy and American’s expansion there, Wells Fargo takes a favorable view of the country.
What is most interesting to Wells Fargo analysts is that a large percentage, 60 percent, of the wireless infrastructure in Brazil is still 2G. There is also the promise of telecom expansion to handle the coming Olympics.
“With the coming of the Olympics in 2016 (and the not so smooth experience with the World Cup) we believe there will be a great sense of urgency by players to update the wireless infrastructure before this event,” Jennifer Fritsche, senior analyst wrote. “Clearly, towers would play a major role in this process. In our view, those tower companies that have a large foothold in the area are best positioned to capture much of this future spending.”
More Brazilian Action Coming?
The American Tower deal may not be all that is cooking. Bloomberg reported a rumor last week that as many as $4 billion in wireless assets are being sold in three different auction processes. In addition to BR Towers SA, Grupo TorreSur, owned by Providence Equity Partners LLC, and Tim Participacoes, the mobile-phone provider owned by Telecom Italia, may also be selling their towers.
With site leasing revenue growth of 12 of percent, tower cash flow growth of 16 percent and AFFO per share growth of 22 percent, SBA Communications had a strong fourth quarter and increased its expectations for 2014.
Jeffrey Stoops, president and CEO, said, “Our U.S. business was very busy, with our wireless customers continuing the strong pace of equipment installation that we have experienced all through the year. With continued expected strength in organic growth and material portfolio growth, we are able to increase key elements of our 2014 Outlook. We are expecting another strong year for SBA in 2014.”
Amendment activity contributed more than half of incremental leasing revenue in the fourth quarter. Additional collocation leases contributed more than 40 percent of new leasing revenue, compared with 15 percent in the fourth quarter of 2012. The tower company’s leasing backlog remains at record levels.
“Interestingly, [collocations as a percentage of new leasing revenue] is down from the prior quarter. However, and very importantly, the absolute number of leases was up from Q3,” Jennifer Fritzsche, Wells Fargo senior analyst, wrote. “The percentage was down given the high amount of amendment revenue SBAC also continues to see.” Amendments are being driven by the efforts of AT&T and Verizon to increase the density of their networks, as well as to deploy additional AWS spectrum, she added.
AT&T and Verizon represented well over half of SBA’s new business in the quarter. Sprint continues its Network Vision project and has just begun its 2.5 GHz build out, and T-Mobile continues its 4G upgrade, although not in the 700 MHz band on SBA towers.
“We had a very busy quarter with respect to new leasing business,” Stoops said. “And we signed up another high number of both new tenant leases and amendments. Our customers are requesting larger equipment loads, which has a favorable impact on rate.”
During the fourth quarter of 2013, SBA purchased 2,138 communication sites for $321.1 million and built 119 communication sites. As of December 31, 2013, SBA owned or operated 20,079 communication sites. Total cash capital expenditures were $403.9 million, including $398.2 million for new tower builds, tower augmentations and communication site acquisitions.
“With respect to portfolio growth, we had another strong year, exceeding the high end of our portfolio growth goal in 2013. We’re off to a very strong start in 2014, and we anticipate exceeding the high end of our annual goal by the end of the first quarter,” Stoops said. “We will continue to look for additional opportunities certainly in our existing markets and potentially some new markets, although our preference currently is to stay in the Western Hemisphere.”