If the recent consolidation activity among independent tower companies is any indication, size is
perceived to be an important element to a tower company in attracting deals with wireless carriers.
The rapid
consolidation of the industry was jolted into high gear in November when American Tower Corp. announced it would
acquire OmniAmerica Inc. and TeleCom Towers L.L.C. OmniAmerica itself was considered a major player and a
potential consolidator in the tower industry.
The deals, when completed, will give American tower control of 3,044
towers and make it the largest independent tower player in the industry. The company said it could reach the 5,000-
tower mark by 2000 without making any significant acquisitions or transactions, and it aims to control 10,000 towers
by 2005.
The deals also bolster the company’s ability to offer one-stop-shopping to carriers by adding
OmniAmerica’s construction capabilities.
A principal reason behind American Tower’s acquisition strategy was the
idea that a larger footprint and more complete service package would strengthen the company’s ability to attract deals
from carriers.
“American Tower has stated its belief that a national tower footprint is better for attracting
those wireless operators that are building out national networks,” said James McIlree, an analyst with
HCFP/Brenner Securities in New York.
Jim Eisenstein, chief development officer at American Tower, said the
company is interested in more than just deals with national or regional carriers.
“We’re looking for deals that
work for us,” he said. “We’re interested in transactions of any size-whether they are for a small group or a
large group of towers. At the end of the day what’s important to us is the return on the asset.”
For sure, size
has its benefits. Several industry experts agree that tower companies need to be large enough to demonstrate some
financial security and the ability to access capital in order to attract deals from carriers.
“It’s not important to
be large, but to be able to access capital or provide scale of services, you need to have some level of critical
mass,” said Thomas Lehr, vice president of finance at Airadigm Communications Inc., which has signed an
agreement to sell all of its open land sites to tower company SpectraSite Communications Inc. “They need to be
large enough out of the shoot to finance the purchase of my towers.”
“I think that there are certain
benefits to size,” said Mark Ein, a principal at the Carlyle Group, a private equity firm based in Washington, D.C.
“There’s more security in knowing that someone has the resources available to provide service.
“Scale
also gives the company better access to capital at a lower cost,” continued Ein.
American Tower’s Eisenstein
said being large doesn’t guarantee access to capital, but in many circumstances it may be helpful.
Large tower
companies may have a better ability to provide more beneficial collocation arrangements, said John Ricci, vice
president of sales and marketing at SpectraSite.
“Only a couple of carriers have a national footprint,
though,” said Ricci, who noted SpectraSite is not concerned with buying towers to bolster its numbers but is
focused on buying towers that will provide a return on its investment. “To an extent, they may feel a national
footprint is important when it comes to collocation.”
Another concern for carriers before striking deals with
tower companies is whether that company will be around in five years.
“Clearly we are looking for an
arrangement with a tower company that is going to be there long-term and not just an investment partner,” said
Airadigm’s Lehr, noting the importance of placing precious infrastructure in the hands of a trusted partner.
“Carriers want to have their cake and eat it too. They want to control their towers but not own them. It’s a
learning curve for both carriers and tower companies to figure out how to relinquish ownership and determine what
control to give up or keep.”
Tower companies have similar concerns as the wireless industry-particularly
cellular carriers-are consolidating at a feverish pace. One of the few remaining independent domestic cellular carriers,
AirTouch Communications Inc., is thought to be close to striking a merger agreement with one of several
suitors.
Consolidation among tower companies could be fueled further by wireless industry consolidation, said Ein.
As carriers become larger, they may prefer to deal with larger tower companies as well, making it more difficult for
small tower companies to compete, he said.
Large portfolio doesn’t guarantee success
The fact that a tower
company may amass a huge portfolio of towers doesn’t guarantee it will be successful at attracting deals,
however.
“The issue from a carrier’s perspective is the fact that a tower company has one or two towers in
Montana may not mean that much,” said McIlree. “It’s more important that the towers are located in the
critical areas where the carrier is building out.”
A large portfolio of towers increases the likelihood a tower
company will have some towers that meet the needs of certain carriers. But becoming too large and having too many
tower assets could cause a tower company nightmares in maintaining all of its sites and remaining responsive to
customer needs.
“When you start having to worry about running and maintaining 2,000, 3,000 or 4,000
towers, it becomes a daunting task,” said Rich Berliner, president and chief executive officer of Berliner
Communications Inc. “Some of those towers are going to get lost in the sauce.
“There is a level of
critical mass beyond which it may be monstrous to handle, and you get into a situation where you are so large that you
may be unwieldy,” continued Berliner. “A company with a smaller base of assets might be able to provide
better customer service. The question is at what point does it become such a huge task that there is a drop-off in
service? We’ll have to wait and see the answer to that question.”
Thinking small
Working with smaller
tower companies might afford carriers a level of comfort that the company will provide them with a higher level of
service.
“Size and vertical integration can be bad if it makes you slow and bureaucratic,” said Dan
Behuniak, president and CEO of UniSite Inc. “To smaller companies, the 20-tower deals or the 200-tower deals
are very important. They’ll focus on that deal to the highest level of the company.
“The larger organizations
know they can slip up in one or two markets, and they can make it up somewhere else,” said Behuniak.
Even
with thousands of towers under its control, however, American Tower said it is able to maintain its sites in a cost-
effective manner by either keeping a local staff or hiring a local maintenance company to maintain all of its sites in a
given area. Despite its size, American Tower said it resists the image that it is a large, unwieldy tower
company.
“We try to think like we’re small and act like we’re small. We want to be as nimble, if not more
nimble than anyone else,” said American Tower’s Eisenstein. “We feel like we have to get up every
morning and earn it just like everybody else.”
That strategy may be the key for any large tower company to
win the trust and confidence of carriers. Smaller tower companies typically have the advantage of local knowledge and
expertise, said Ein.
“Larger carriers can be big and take advantage of the benefits that scale brings, but at the
same time they have to try to bring in the positive attributes that smaller companies provide, sort of like building
smaller companies within a big company,” he said. “They can have the benefits of scale, but the key is
going to be retaining the local market knowledge.”
Spread too thin?
Part of the tower industry
consolidation has centered around tower companies adding more services to their abilities. While many industry
experts agree that type of vertical integration can be convenient for carriers, more often carriers are spreading their
contracts out among several vendors, they said.
“Carriers have consistently demonstrated that they want
multiple vendor agreements whether it be for handsets or for infrastructure,” said McIlree. “I don’t see why
build-to-suit would be any different.”
A likely scenario, said McIlree, is that large carriers approve a handful
of tower companies and allow local decision makers to choose with whom they want to work.
American Tower’s
Eisenstein said many carriers, particularly carriers that have been building out for years, have established relationships
with site acquisition, construction and other vendors with which they may prefer to do business.
When a large tower
company enters the scene, “Carriers have a certain level of concern that they are not going to get the level of
service they are used to,” said Eisenstein. “Our job is to build trust and confidence and show a particular
carrier that we have the ability to get the job done.”
Certain managers could be attracted to a one-stop-shop
process, said UniSite’s Behuniak. However, UniSite has won contracts specifically because it doesn’t offer the full
range of services, he said.
Instead of going to one company for all of its buildout needs, carriers can pick and choose
from the available vendors to create an ‘A’ team, said Behuniak.
“With one-stop-shopping where the tower
company has absolute and utter control of where and how fast towers are built, how they are maintained and the level
of service, that kind of control scares carriers to some extent,” said Berliner. “Carriers still want the ability
to move things at their own pace.”
“We’ve noticed a trend on carriers’ part to outsource BTS to many
companies,” said Paul Spurgeon, president and founder of NationsMedia Partners, a company that represents
selling firms in tower deals. “They don’t want to put all their eggs in one basket, and they don’t want to be
subjected to dealing with one tower company at the end of their lease because it will be difficult to renegotiate rents at a
true market value.
“Because of that, carriers want to see several strong tower players emerge,” said
Spurgeon.
