Consolidation among heavyweights in the telecommunications industry, including some of the wireless sector’s largest carriers, has grabbed the headlines during the last several months. Meanwhile, the tower industry has been experiencing a rapid consolidation of its own.
Since the beginning of this month, American Tower Corp. has added 322 towers to its portfolio in four separate transactions, and Crown Castle International acquired more than 100 towers in the United Kingdom.
Smaller-scale deals also abound, like Spectrum Resources Towers L.P.’s announcement last week that it acquired a 375-foot tower in Baltimore, Md., that supports the antennas of Sprint Spectrum L.P., Nextel Communications Inc., Paging Network Inc., Metrocall Communications Inc. and Skytel Communications Inc.
Tower-industry experts say the trend of large companies acquiring in this fashion the tower assets of small companies and mom-and-pop operations has accelerated during the last 18 months.
“Consolidation in the tower industry really started around 1994 or 1995 with the advent of new technologies such as [personal communications services], [enhanced specialized mobile radio] and digital TV,” said Jim Eisenstein, chief development officer at American Tower, which has become one of the largest tower companies in the wireless industry by building its own towers as well as acquiring other towers through large and small transactions. “There was excitement that more business was coming to the tower industry and more towers would be needed.
“Communities also were beginning to make it more difficult to build sites,” continued Eisenstein. “The industry was ripe for consolidation.”
That has led to a situation today where a handful of large tower-management companies that own a significant number of towers and also provide a full scale of services dominate the industry.
“The non-carrier towers have been pretty well consolidated over the last couple of years,” said Mark Ein, a principal with the Carlyle Group, a private equity firm based in Washington, D.C. “There are three or four large companies that in total probably have bought hundreds of companies.”
The tower industry also is consolidating in the service sector, as the emerging large, full-scale companies try to add skill sets and geographic presence to their existing businesses. Berliner Communications Inc., for example, last week announced it acquired Southern Cross Communications Inc., an Atlanta-based wireless construction company covering the southeast region of the United States. And SpectraSite Communications Inc. said it acquired GlobalComm Inc., a wireless collocation company.
Some analysts say this activity is part of the first phase in a multiphase consolidation that will characterize the tower industry. The second phase, which analysts expect will gain momentum soon, is the consolidation of carriers’ tower assets into the hands of independent tower owners.
While a handful of smaller deals between carriers and tower companies have been announced-such as Airadigm Communication Inc.’s letter of intent to sell its open-land sites to SpectraSite this summer-the much-anticipated big deals have yet to materialize.
“Carriers haven’t sold lock, stock and barrel their whole infrastructures,” said Ted Miller, chief executive officer of Crown Castle. “But there are enough of these deals on the sale block, so to speak, that you can kind of feel it coming.”
Wall Street concerns
The recent turmoil on Wall Street could be putting a chill on some of the deals rumored to be in the works. Transactions marrying large and small tower companies also are hitting speed bumps. Industry watchers say several deals that were on the verge of closing when the stock market began to drop have yet to be consummated.
“When-over the course of this year-tower companies have gone public, it has raised the prices,” said Ein of the Carlyle Group. “A lot of companies that had not wanted to sell decided to cash in on the higher prices.
“As of now, though, very few-almost none- of those deals have been consummated,” continued Ein. “It’s a lot harder to raise money, and it’s a lot harder to close those deals.”
“The financial climate has made capital more scarce in the high-yield debt, equity and bank markets,” said American Tower’s Eisenstein. “That could limit the number of larger deals because there are only so many companies that have the financial depth to make those deals work.”
The Wall Street turmoil, however, has added sanity to a situation that over the summer had driven the selling prices of tower assets to as high as $1 million each, said analysts.
“Given the Wall Street situation, build-to-suit companies are taking a new look at the financial aspects of tower transactions,” said Rich Berliner, president and chief executive officer of Berliner Communications. “They’re asking themselves, `What is the payback period on these transactions?’ That is something Wall Street also is interested in understanding in these situations.
“In some respects this is a good trend. It’s making people look at their bottom lines and be less imaginative and more realistic in their financial dealings with carriers,” continued Berliner. “All chaos creates opportunity.”
One such opportunity, said Berliner, is carriers that need capital to bolster their core businesses may be more willing to monetize their tower assets now that raising money in the public markets has become more difficult.
Sellers’ concerns
Another factor that has slowed transactions is the selling companies’ concerns about what will happen to the towers once they are sold.
“With a lot of the mom-and-pop companies, the owners have a lot of blood, sweat and tears in the company, and sometimes they have family working for them,” said Paul Spurgeon, president and founder of NationsMedia Partners, a company that represents selling companies in wireless tower, direct broadcast satellite and telecommunications transactions. “They are worried what will happen to the assets and whether their family members will remain employed.
“The carriers have different concerns. They are going to look at several factors before selling to the highest bidder.”
“Carriers are in the service business, and they want to be able to continue the level of service they are providing now,” said Crown Castle’s Miller. “They are looking for things like whether the company has the human resources capability to take care of that system.
“They have put lots of money into building their infrastructure assets. It’s a new paradigm for these engineers to let go of their baby to someone who doesn’t understand it as well as they do.”
Buyers’ concerns
With new competition created through the emergence of a handful of large tower companies, downward pressure on the rents they charge carriers could become an issue, say some analysts. Tower companies could create a perilous situation for themselves by drastically reducing the rent on a tower to get an anchor tenant while hoping other carriers will follow on.
“Rents in some cases have escalated, and some have gone way down,” said Michael Budagher, chief operating officer at OmniAmerica Inc., formerly Specialty Teleconstructors. “There is still some pricing inconsistency. It’s such a new industry, and everyone is still trying to figure out what the real price should be.”
Another factor tower companies and carriers alike need to consider is how high prices for tower assets may affect the buying company, said Budagher.
“In light of the fact that carriers are handing over such a significant asset, it needs to be maintained by the right company that is going to be around for a long period of time,” said Budagher. “If the price is too high, carriers are almost ensuring the company is not going to be around.
“The towers shouldn’t be priced at too high of a multiple because that impairs the financial capability of the company they’re sold to moving forward.”
Tower assets are valued on a variety of factors including their location, their current and future potential revenue stream and how much competition is in the area. Two of the most important factors when valuing a tower asset, say analysts, are whether there is a moratorium in the area and if the tower can support additional carriers.
Budagher said many tower companies are upgrading existing sites to accommodate collocation and that trend will increase in the future. “Traditionally carriers have not built structures with collocation in mind,” he said. “They built structures to a bare minimum to maximize the use of their dollar.”
