If it seems like the tower industry has been taken over by giants, consider that first and foremost, towers are real estate. Thus, the game is not necessarily played according to volume. Rather, the value of any given tower depends in large part on its location, location, location.
Still, size matters.
Global Tower Partners’ Terry Armant, senior vice president of development, opined: “The size of a company’s portfolio matters in that larger companies have more resources to offer for network buildouts that require multiple sites.”
GTP has been steadily fattening up its tower portfolio and if its deal to buy 78 towers from Chinook Wireless Communications goes through as expected, GTP will become the nation’s fifth-largest tower owner with more than 2,000 sites. The company’s growth has come largely through acquisitions, including towers from Dobson Cellular Systems Inc., American Cellular Corp., Mesa Communications Group, Tower Resource Management and TCP Communications.
Armant commented that being a mid-size company has its advantages, like being able to offer service, service, service. “We’re comfortable with our size, in that we feel we are very reactive to our client’s needs. We turn things around for them fast, putting leases into their hands as quickly as possible.”
Similar claims come from TowerCo L.L.C., a Cary, N.C.-based owner with exclusive rights to build and buy towers for Nextel Partners Inc. The company’s chief executive, Richard Byrne, said TowerCo will own more than 400 towers by the end of this year, and expects to own more than 600 by the end of next year through a deal with Nextel Partners. Byrne said that although his company has ambitious growth initiatives, he intends to “stay nimble” in order to avoid the poor-service pitfalls that he says seem to go hand-in-hand with getting bigger.
And Wichita Towers L.L.C.’s Brad Murray said his company keeps it real by keeping things local. Murray’s company owns and manages some 62 sites, and he swears he has no plans to expand beyond his current region and insists that he’s in the business because he likes it, plain and simple. Servicing the needs of clients is even a theme on the home page of his company’s Web site, which states: “Based in Wichita, Kansas, we serve the region with traditional Midwestern integrity and ethics. With nearly 30 years of hands-on experience in the communication tower business, Wichita Towers L.L.C. and Telecom Marketing L.L.C. will ensure you and your business needs are satisfied.”
Part of Murray’s appeal is his knowledge of the local tower landscape, including city, county and state officials, as well as landowners and existing sites. In Wichita, when it comes to towers, Murray wants to be the go-to guy.
“It’s not like we’re fighting over sites here in Wichita, but it’s a lot easier for the carriers to deal with us, being a small local player. They don’t have to go through all the administrative hoops like they would if they worked with a big company,” he said. “We want them as a customer, and we know that the quicker we can push the paperwork through, the quicker they can get their stuff up on a tower, and I think they appreciate that a lot.”
With so many big and small companies eager to supply carriers with tower space, it may seem at times as if the tower marketplace is saturated-but it’s not, says Jonathan Atkin, an analyst with RBC Capital Markets.
“There certainly is room and a need for multiple players, as no one company can support a single carrier on a national basis. They need to have cell sites where people live, work and travel. We have far-from-perfect networks with many dead spots, and when we get into less-populated areas, there may not be rooftops, or other third-party structures, so they have to build new towers. Based on population growth in certain areas, there is a continuing need to keep building more towers, and no one tower company can fill all those needs.”
As for new technology and new entrants into the wireless space, Atkin says growth in these areas won’t necessarily fuel the need to build new towers, but added that these factors likely will fill leases on existing towers.
But Atkin said that overall, size doesn’t necessarily matter a whole lot.
“The smaller companies do tend to offer better response times, they get leases filled quicker than the big guys. Location is always going to be the primary factor, but all factors being equal, smaller is better.”
Taking a look at recent financing deals supports Atkins’ assertion that the industry remains strong.
A few weeks ago, startup tower company Central States Tower Holdings L.L.C. said it picked up $30 million during its first round of equity financing through Sweetwater Capital and Merchants Capital Partners L.P.
The company says it plans to use the funds to develop 150 towers in the next 12 months. CST has an agreement with Cingular Wireless L.L.C. as one of the carrier’s preferred tower suppliers. By the end of 2008, CST said it expects to own and manage some 500 tower sites.
Crown Castle International Corp. recently announced that some of its subsidiaries completed refinancing of its $325 million revolving credit facility with a new $1.25 billion senior credit facility consisting of a fully drawn $1 billion term loan set to mature in June 2014, and an undrawn $250 million revolving credit facility set to mature in May 2007.
The company said proceeds of the new loans were used in part to repay its existing revolving credit facility, under which $295 million was outstanding at the time of repayment. In addition, CCI said it plans to use some of the money for its $309 million Mountain Union Telecom purchase, which is expected to close in July.
Earlier this year, SBA Communications Corp. obtained a new $160 million credit facility to replace its prior facility, which became the mortgage loan underlying its recent $405 million mortgage-backed securities issuance. SBA said the new facility is set to mature Dec. 21, 2007, and provides more flexibility than the old one. The $160 million facility consists of a revolving loan that can be borrowed, repaid and redrawn.
Around the same time, Optasite Inc. announced it obtained a $65 million credit facility, and another startup, Skyway Towers L.L.C., said it secured an initial equity commitment of $30 million from Tinicum Capital Partners II L.P. and Permit Capital Private Equity Fund L.P.
Another $30 million in financing went to TowerCo from Soros Fund management L.L.C., bringing TowerCo’s total equity capital to $60 million.
Just last week, Pegasus Tower Co. Ltd., which develops and manages wireless towers, said it raised $20 million in equity financing as part of a joint venture with two investment firms. Pegasus said it will use the money to fund site development and purchases.
Should we expect growth in the managed-tower-sites arena as well?
“Yes,” said Mike Kampen, an executive at KGI Wireless, a site leasing and management company that oversees more than 6,800 towers.
“We don’t offer any other services-we focus completely on getting the best possible leases for our clients, and they like that.”
