The sale of AT&T Wireless Services Inc. is unlikely to have a long-term negative effect on the tower industry, according to tower companies and analysts in the space, who this week applauded strong 2004 tower-build expectations released by AWS and Cingular Wireless L.L.C.
Cingular said it added 750 new cell sites during the fourth quarter 2003, vs. the 1,000 it added during the first three quarters combined, and said it plans to maintain an accelerated buildout pace during 2004. Meanwhile, AT&T Wireless said it plans to increase its capital expenditures 7 percent, to $3.3 billion, in 2004.
Following those solid predictions, RBC Capital Markets said it now expects the wireless industry to see as many as 19,000 incremental site additions during 2004, vs. approximately 14,000 site additions in 2003.
“Even if Cingular and AWS were to merge, the number of sites added during 2004 should be quite robust, which would be positive for tower operators such as American Tower, Crown Castle and SpectraSite since the majority of operators’ new cell sites are colocated on existing third-part structures,” a research note from RBC read.
However, although “a merger among two U.S. network operators would not result in the removal of a meaningful number of sites,” according to Bear Stearns & Associates Inc., it likely could reduce revenue growth from leasing for tower companies in the near term.
“Achieving network synergies from two national operators is an extremely difficult problem, and the aggressive addition of sites during the resolution process would exacerbate that problem,” Bear Stearns noted.
“Near-term” leaves room for interpretation though, considering that once a deal is announced it will likely take 12 to 18 months to close, according to Raymond James & Associates Inc. The analyst firm added that AWS and Cingular “must get better GSM networks in place to compete against current No. 1 U.S. wireless operator Verizon.”
Earlier this month, American Tower said an AWS-Cingular merger would mean overlap on 350 of its sites, resulting in an overlap of up to $9 million in annual revenue, or 1 percent of overall tower revenue.
“The reality is that it is highly unlikely that very many, if any, cell sites would come down if carrier consolidation occurred,” American Tower said, pointing to technical and contractual issues that would be faced. The company added that carriers would have to wait until contracts expired to remove certain cell sites.
SpectraSite said that in a “worst-case churn scenario,” it would lose 450 leases, or 3 percent of its portfolio, by the fourth quarter of 2009, due to an AWS-Cingular merger. However, Bear Stearns said an AWS-Cingular merger would likely have the least impact on SpectraSite’s growth because out of the top three public tower companies, it has the most exposure to Cingular, while American Tower, Crown Castle and SpectraSite are all equally exposed to AWS.
Crown Castle declined to give specific numbers, but said consolidation among carriers would be good for industry.
