NEW YORK-Television programming often can be as good a barometer as hard numbers about
trends that are hot, and so it is with the wireless tower industry.
In a recent “The Simpsons,” cartoon
character Homer Simpson rented cell site space on his rooftop to the local cellular carrier in order to pay off his bills,
said Mark Ein, a principal with The Carlyle Group, a Washington, D.C.-based equity investment company. He spoke
last week at the Shorecliff Communications Inc. “Tower Industry Investment & Capital Markets
Symposium.”
For tower companies, wireless carriers seeking to off-load ownership and outsource
management of their cell sites provide an enticing revenue producing market and opportunity.
Just last week,
BellSouth Corp. sold 1,850 of its communications towers to Houston-based Crown Castle International Corp. for $610
million. In December, Crown Castle acquired 1,400 Bell Atlantic Corp. towers for $650 million. And in another recent
transaction, Nextel Communications Inc. sold 2,000 towers to SpectraSite Communications Inc., Cary,
N.C.
“Carriers have come to the conclusion that their core business is customer acquisition and
retention,” said Stephen H. Clark, president and chief executive officer of SpectraSite.
SpectraSite sees an
opportunity to add 3,500 additional broadband tenants to the towers it purchased from Nextel, Clark said. Furthermore,
it sees opportunities in Nextel’s program to deploy about 2,500 new cell sites annually during the next several years, of
which about a third will be newly constructed.
Saying that SpectraSite “prefers to deal with a smaller number
of larger players,” Clark added that SpectraSite “has a number of other things on our plate” with
respect to further tower acquisitions.
“There are about 35,000 carrier-owned towers for sale and about 50
(percent) to 60 percent of these towers are ‘acquirable’ in the near future,” said Steven B. Dodge, chairman and
chief executive officer of American Tower Corp., Boston.
“However, a good percentage of carrier towers
have no or limited capacity, some are located in tower slums where there is no demand for wireless services, some have
short or uneconomical ground leases and a percentage are located where wireless services already are
located.”
At a purchase price of about $200,000 to $275,000 each, Dodge said American Tower considers
carrier deals worthwhile.
However, he cautioned against “I can’t believe I ate the whole portfolio,”
calling it a syndrome brought on by investment bankers, whom he referred to as “tower
Tums.”
“First the bankers sell you the disease and then they sell you the cure,” Dodge
said.
“The demand for towers is real. The opportunities to build towers are abundant. The capital is flowing.
All we have to do is employ common sense, and everyone should do well,” he added.
At least one investment
banker, Robert Nabholz, a managing director at Bear, Stearns & Co. Inc., New York, offered a reality check against
irrational exuberance.
“With orderly oligopoly a natural trend in telecommunications, new applications are
seen as secular drivers of demand,” he said.
However, in the short run at least, the paging industry “has
run out of gas,” in Nabholz’ estimation. Voice paging “is in a bit of a limbo.” Several paging carriers
have rolled out two-way messaging, but tower companies need to pay attention to whether these service providers will
build out truly national networks with robust coverage.
Furthermore, it is unlikely personal communications
services providers will build out rural areas, instead opting to rely on analog technology for this coverage, he
said.
“Pay attention to the [third-generation wireless] phenomenon, because the number of sites needed to
meet [its] performance criteria is phenomenal,” Nabholz added.
The wireless tower industry is running on a
parallel consolidation track to that of the carrier sector it serves, said Salo Aizenberg, vice president of the media and
telecommunications finance group for Banque Paribas, New York.
“The larger players-ATS, Pinnacle,
Crown-are getting larger, and new large players, like SpectraSite, are being formed,” he said.
“Small
players are still numerous and will always be a niche. The (tower) industry will look like the radio industry today, with
a couple of mega-players and many, many small companies.”
Although it may seem too late for any company
that is a recent arrival or a would-be contender in the wireless tower industry, the game is far from over, said Steven R.
Bitner, vice president of Communications Equity Associates, Tampa, Fla.
“There are still about 20,000
unaffiliated towers left and plenty of opportunities to consolidate mom-and-pops that are under the radar screen,”
he said.
“The test will be whether they can build enough scale to access the capital markets before another
interruption like last fall.”
Already, at least one new entrant that is a major player in other fields has jumped
into the tower industry recently.
“The Robert Bass Group has entered a joint venture with an electric utility,
(allowing the utility) to take its towers out of its regulated rate base, so they could do the deal at lower cash-flow
multiples,” Bitner said.
“Opportunities also are available to a number of smaller players, more regional
plays, assembling groups of towers in the Midwest and, to a certain extent, even in the Southwest.”
Another
group that likely will play an important niche role, particularly for fixed wireless access providers, are real-estate
investment trusts, a form of ownership created by the 1960 Tax Act, said Barrett B. Kollme, vice president of real-
estate investment banking for Legg Mason Wood Walker Inc., Baltimore.
The role of REITs in this space likely will
be encouraged by a recent Internal Revenue Service ruling requested by Equity Office Properties. It allows
“rooftop leasing and other tenant leasing services as ‘good’ income,” Kollme said.
The term
“good” in this context refers to compliance with the federal tax law and tax code in terms of the kinds of
income
REITs are allowed to earn.
