Back in October, when the top brass of the tower industry converged in Las Vegas for the 2000 Tower Summit and Trade Show, the room buzzed with anticipation over the new opportunities third-generation technologies were expected to bring.
Why should the tower industry care about 3G, SpectraSite Communications Corp. Chief Executive Officer Stephen Clark, asked?
“The answer starts with the appeal of new applications,” Clark said.
“More bandwidth always results in more cell sites,” he added.
Poised on the edge of a new year and (officially) a new millennium, analysts and wireless advocates agree it is time for 3G to get on track. A recent report released by The Yankee Group in Boston predicted 2.5 and 3G technologies will become more focused, but mass deployment will be delayed until the end of the year. So what does this mean for tower companies going forward?
“We believe 3G will be a key driver in 2001,” said analyst firm Tucker Anthony Capital Markets in its “Tower Industry: Year in Review” report. “While we do not expect much in the way of lease revenue from 3G, we do believe service revenues could begin to reflect 3G rollouts and valuation could benefit also.”
Tucker Anthony classifies 2001 as a “put up or shut up” year for the tower industry in terms of internal growth. In the U.S. market, operational performance, or tenant adds, will be key, but adding new tenants also is expected to become more difficult.
For the past six months, tower companies have been adding, on an annualized basis, between 0.40 and 0.60 tenants per tower, Tucker Anthony said.
“We believe part of the reason for the robust lease-up rates was the fact that most of the towers purchased for the first time became available to the market. We are uncertain how long this demand `bubble’ will last, but we doubt it will sustain the current lease-up rates through the end of the year,” said the firm.
Fresh growth opportunities for both big and small tower companies lie in fixed-wireless technologies-although that industry has been struggling as of late-and for the larger players, in international markets, where companies like Crown Castle International Corp. already have a substantial foothold. Crown Castle’s most recent international purchase included 669 towers in Australia for $130 million, bringing the company’s total tower portfolio there to about 1,400.
U.S. tower companies don’t have to be successful in international markets, but “the game is the Americans’ to lose,” said James McIlree, analyst with Tucker Anthony.
And while Crown Castle flourishes in the United Kingdom and Australia, McIlree thinks it is only a matter of time before SpectraSite and American Tower Corp. become much more influential players in the international markets.
“SpectraSite has a joint venture with Transco for U.K. towers that positions them well in that market, and they will probably use the joint-venture vehicle to go after other markets,” McIlree said.
If 2000 was any indication, this year also should see tower companies continuing to acquire towers from carriers that are increasingly being forced to allocate their resources to spectrum acquisitions and marketing and customer-service efforts.
US Unwired Inc. last week sold 127 of its towers in Louisiana, Texas and Arkansas to SBA Communications Corp. for approximately $40 million.
Commenting on that transaction, Robert Piper, US Unwired’s president and CEO, echoed carriers’ cash concerns, saying “The sale of our tower assets provides us with $40 million in additional cash, further enhancing the liquidity of our … balance sheet in a time of difficult capital market conditions.”
American Tower also recently entered an agreement with Alltel Corp. to acquire the rights to as many as 2,193 of Alltel’s towers through a 15-year sublease for up to $658 million in cash.
