May 25, 2016 — Executives from five tower companies spoke at the “View from the Top” session at the Wireless Infrastructure Show in Dallas yesterday. Jonathan Adelstein, president and CEO of the Wireless Infrastructure Association, led the session, which included Alex Gellman, cofounder and CEO of Vertical Bridge Holdings; Steven Marshall, American Tower’s executive vice president and president of its tower division; Ben Moreland, president and CEO of Crown Castle International; Jeff Stoops, president and CEO of SBA Communications; and David Weisman, president and CEO of InSite Wireless.
Asked how the migration to 5G cellular technology would affect businesses owning large wireless telecommunications towers, sometimes called macro towers, Moreland said the important thing is that the industry continues to evolve. He said Crown’s business varies up and down by 20 percent over periods of years, and that currently, it’s in the middle.
“Evolution in the business comes with capital investment by carriers,” Moreland said. “The FCC broadcast incentive auction is an example, and so is the FirstNet public safety wireless network. The critical thing is that we started with a value proposition of sharing, of collocation, first on towers, and now on small cells. That’s an advantage for carriers. As long as we’re committed to that, 5G will be a good change.”
Marshall said that carriers already are spending $30 billion or more on infrastructure in the United States, and 5G will require even more. He said that spending may include more investment in siting, which is central to what tower companies do, and that the spending won’t be short-term. “4G has 50 percent penetration, and it was launched five years ago, he said. “It takes time to migrate from one technology to another. The 5G experience will be similar, but with more investment.”
For his part, Stoops said that the experience of the past 20 years has been instructive. He said that when wireless communications demand increases and when spectrum is limited, solutions come from infrastructure. “5G will fall in line with the historical trends of latency, speed and throughput,” he said. “We don’t know what the network architecture will look like, but the traditional relationship between operators and tower companies will continue.”
Antenna collocation is a critical business, according to Weisman. He said when a wireless infrastructure company builds a tower or a distributed antenna system, it has to do the hard work of understanding the competitive environment and network requirement. Tower companies protect themselves by carefully selecting locations.
Gellman said the shift from 3G to 4G cellular technology represented a shift from voice to data. “Now, we’re in data,” he said. “It’s about cost per megabit of delivery. Whatever part of the ecosystem you participate in, if you focus on delivery, whatever lowers the cost per megabit, that’s where the carriers are going to try to go.”
Adelstein asked the executives about capital expense (capex) spending by carriers. Moreland said it ebbs and flows as part of a long-term evolution. Referring to his observation that Crown’s results tend to vary up and down by 20 percent, he said from an investor and financial perspective, that variation represents little change in outcome — a 1 to 2 percent cash flow difference. “That’s what makes it attractive to investors,” Moreland said. “The business model is sharing antenna sites, which is economical and efficient for carriers.”
Marshall said that as new technologies come along, they drive more investment on American Tower’s sites. “New technology and carrier aggregation resulted in more equipment on the tower and more for our revenue stream,” he said.
In Stoops’ view, the variation in spending by wireless carriers is part of a normal cycle. “Our customers spent less money on capex in last 12 months than in the prior 12 months,” he said. “The highs of spending in 2012 and 2013 didn’t represent the normal, either. What we’re seeing isn’t a secular change, it’s the ordinary comings and goings in capital spending.”
Weisman said his observation over a period of 18 to 20 years is that wireless infrastructure is a long-term investment business. “Ebbs and flows are natural,” he said. “As a private company, we talk with our investors about a longer-term view. We now have all of this undeployed spectrum, some owned by Dish Network and other spectrum yet to come from the ongoing on 600-MHz auction underway. This is a pipeline that has to find its way to our industry.”
The LTE rollout brought boom years, according to Gellman. Since then, the carriers have been trying to obtain a return on their investment. He said AT&T is near the end of the cycle of what it can squeeze from its spectrum. “Now comes 5G, and we don’t know what it will looks like, but I hear it will be from good to really, really good,” Gellman said. “But it won’t be that fast. This is the third year when people ask will it pick up this year. No, I don’t think so, but it will pick up. When the big carriers slow down, it takes a while before they pick back up. But they will. They have to infill their 4G network and overlay a 5G network.”
Adelstein asked what future role small cells and DAS will have, and Moreland said Crown had thousands of small cells in the pipeline that it’s building. Yet, it’s an evolution, he said, with 90 percent of Crown’s business involving macrosites. “We have an interest in seeing small cells realized,” he said “We look at it as complementary. Verizon was talking this morning about 5G trials delivered largely over small cells. We think it’s a similar model with sharing aspects. We think it will be a large business over time.”
For American Tower, Marshall said the company sees small cells increasing in activity in five to 10 years. He said 5G will use more lower-sited infrastructure with higher frequencies, and that falls into small cell territory. “We have small cells in buildings across the United States,” he said. “That’s a different model from what is applied to the mega-buildings. DAS is too expensive for a smaller building. We see an increasing market opportunity in small cells.”
At SBA Communications, Stoops said the company focuses on the in-building wireless side of the business, which he said is most analogous to what SBA has in towers. As for the future of macrosites, Stoops referred to comments made that morning by T-Mobile’s senior vice president of technology, who said the further from urban centers, the less small cell options and efficiencies there are. “The future of macrosite is here for a long time,” he said.
According to Stoops, there is some confusion between the growth rates the public tower companies report and what that means for macrosites. “Although carrier capex is down, there’s a tremendous amount of touches on macrosites,” he said. “It’s different from what it was two years ago when carriers were placing new equipment at sites, and the changes generated incremental revenue. What’s going on today is a lot of refarming of 2G and 3G spectrum involving taking off old antennas. The incremental amount of revenue in this phase is not the same that it was two years ago. That shouldn’t be mistaken for a lack of commitment by carriers. They’re spending a fortune on LTE equipment and truck rolls, all the things that demonstrate to us that macrosites are important. There is more to our customers’ commitment to spending. They’re the ones to tell us how important macro towers will be in the future.”
An annual feature of the Wireless Infrastructure Show, the “View from the Top” session always includes executives from the large tower companies with shares that trade on public stock exchanges. At this time, those companies are American Tower, SBA Communications and Crown Castle International. This year, the private companies Vertical Bridge Holdings and InSite Wireless were included for the first time.