The wireless industry had only just begun to discuss the idea of purchase leaseback arrangements last year when SpectraSite Communications Inc. forged the first such deal.
The company in August 1998 agreed to buy 47 towers from personal communications services carrier Airadigm Communications Inc. and build 125 additional towers for the carrier. Just six months later, the company announced it would buy Nextel Communications Inc.’s inventory of 2,000 towers in perhaps the most anticipated tower sale in the industry’s short history.
SpectraSite was founded in 1997 to take advantage of the emerging build-to-suit industry and was on its way to building a tower portfolio entirely from new builds when carriers last year began to examine the idea of selling their towers to management companies, said Stephen Clark, chief executive officer and founder of the company.
“By the end of 1998, if you believed that you had the organizational and financial resources to do the consolidation play, being just a build-to-suit supplier didn’t seem to make a lot of sense,” said Clark. “We certainly made a conscious decision in the fall of 1998 to change our business model from being predominantly a build-to-suit supplier to that of becoming a significant consolidator in the industry.”
In an industry where tower companies often are ranked by the raw number of towers they own, SpectraSite has a different focus. Clark said SpectraSite’s goal is to acquire large clusters of towers in the 100 largest metropolitan markets. Owning a large portfolio or a minimum number of towers is not as important, he said.
“Our view of collocation opportunities is that the greatest total number of subscribers and the greatest growth in minutes of use will always occur in urban areas first,” said Clark. “And to that end, I’m much more interested in owning clusters of towers in one of the top metropolitan markets than I am in, for example, the rural South.
“The goal we have is to have towers that have very high financial returns associated with them or asset returns, which is probably not consistent with simply owning the largest number of towers,” he said.
Clark said the company also has specific goals about making the collocation process simple and speedy for customers.
SpectraSite still has markets where it would like to add to its portfolio of 2,400 towers, and it likely will achieve that through transactions involving smaller numbers of towers, said Clark.
On the whole, Clark said he expects the industry will continue to consolidate.
“We certainly believe that the consolidation activity will continue,” he said. “I think most people believe that within the next one to two years, there will continue to be significant consolidation both among consolidators and with additional carrier portfolios coming to the market.
“I don’t have a crystal ball that tells me who will or won’t sell their towers, but I think a lot of those decisions are made by Wall Street and not by boardrooms,” he said. “I think the greatest likelihood and the safer bet is that over the next few years most large carrier portfolios will be sold, and I think similarly the safest bet is that many of the second- and third-tier tower companies will be rolled up and consolidated into one of the handful of large companies.”
With that consolidation comes challenges, said Clark.
“The acquisition of towers-be they large numbers of towers in a single carrier transaction, or large numbers of smaller transactions-is in and of itself a financial transaction, but the successful operation of the business, specifically with respect to being able to efficiently bring collocators onto your tower portfolio, is an operational and execution play,” said Clark.
Tower companies, he said, will not only have to focus on integrating the portfolios they have acquired, but also learn how to ease collocation and understand how to offer value-added services that are meaningful to carriers.
“Much of the focus in 1999 from Wall Street, from the industry and certainly from the media has been a focus on the latest deal, and deal making is very different from execution and operation,” said Clark. “Just because you have the wherewithal to go buy a big bunch of towers does not necessarily mean you’re going to be a successful operator of that portfolio.
“I think the focus really needs to be-and I think it will naturally become-less on total tower count and less on how many deals you’ve done and much more on execution and operation, and I think that’s healthy for the industry.”
