NEW YORK-Tower companies are sitting pretty and poised for even greater prosperity in 2000 and beyond as domestic demand for their properties grows.
Prime movers in this rosy scenario are the “booming” cellular and personal communications services providers, whose voice traffic and subscriber numbers are “going through the roof,” said John Bensche, senior wireless analyst for Lehman Brothers Inc.
The New York-based investment bank recently accelerated its projections for 70-percent wireless penetration in the United States, he said. Lehman had expected this milestone would be reached in 2007 but now anticipates it in 2002.
Buckets-of-minutes calling plans have proven so popular that carriers like Sprint PCS are revving up their capital expenditure plans for network capacity expansion.
“That will manifest itself at the tower companies in more tenants per site,” Bensche said.
“By 2007, our expectation had been five tenants per tower, but now it is about seven per tower.”
Wireless data, now in its infancy, and new fixed and mobile wireless communications providers, hold promise for additional demand for cell sites.
“Emerging technologies, especially 3G for wireless data, likely will be implemented as add-ons to existing networks,” Bensche said.
“Carriers will be making so much money on voice that they will overlay instead of ripping out the old networks and building new ones.”
Anecdotal evidence from several large carriers Lehman Brothers has spoken with recently indicates they are hoping for “75 percent collocation to roll out data,” Bensche added.
“If you’re a tower company, that’s the greatest news you could possibly have because each carrier could become two tenants.”
The Federal Communications Commission spectrum auctions, planned for spring and summer, also bode well for the tower industry.
“700 Megahertz is dynamite real estate from a propagation standpoint, and many billions of dollars will be spent,” Bensche said.
Whether new or existing carriers win the bids, the Lehman analyst said he believes it is likely they will use the new spectrum for data communications.
“If it is a new network builder, it might be an Internet-type company flush with cash that might go into the wireless auctions or joint-venture with existing carriers,” he said.
“They will spend so much money on spectrum that they will have a predilection for collocation (on existing towers).”
Whether or not NextWave Telecom Inc. wins its battle with the FCC to retain its C- and F-block licenses covering 162 million people, “there will be another major carrier covering major cities with a new technology,” Bensche said.
Metricom Inc., Los Gatos, Calif., is another wild card that looks lucky for the tower industry.
“Metricom is building a nationwide data network on unlicensed spectrum, and it has appeared on the horizon all of a sudden,” he said.
Metricom raised $435 million Feb. 2 in a secondary stock offering of 5 million shares priced at $87 each. It sold a concurrent issue of $300 million in 10-year notes paying 13-percent interest.
In addition, expectations are that AT&T Corp. “will get very aggressive in fixed wireless, and that will require different equipment on cell sites,” Bensche said.
Location-based wireless services also will require installation of additional equipment on towers.
Down the road, the Lehman tower and satellite analyst said he also expects the FCC will “be looking to re-farm more spectrum for data.”
Tower companies are not sitting still as they respond to and anticipate these developments.
SBA Communications Corp. said it has raised its list price for rent by 8 percent in the last six months, Bensche noted.
Crown Castle International has “flagged as a possibility” the use of revenue-sharing agreements that are common practice in the real estate world, he said.
In this kind of contract, a tenant might agree to rent that is one or two percentage points higher than the typical going rate. However, the upfront payment required would be lower than normal. The difference would be paid as “a residual percentage in the out years when carrier revenues are high,” Bensche said.
“The tower industry has had a good run, but it has more to go and we are bullish on the sector,” he added.
“The supply of towers will be outstripped by demand, and the haves in this business are in the catbird seat.”
