The residential real estate market is hot across the United States — and it turns out, so is the market for telecom infrastructure, especially towers, according to a panel of industry observers during WIA’s virtual Connect(X) Capital and Finance Summit 2021.
The telecom market was one that weathered 2020 well overall and saw demand for its products and services rise due to the shift to remote work, learning and digitalization overall. In addition, investors are looking ahead to scaled-up 5G deploymen; seeing the massive investment in C Band spectrum and anticipating billions in build-out, a new market entrant in the form of Dish Network and government economic stimulus funds being directed to support broadband. All that market optimism has investors wondering how they can get in on an anticipated boom in telecom infrastructure.
Jerry Sullivan, CEO of Strategic Wireless Infrastructure, which invests in telecom infrastructure with a focus on small-to-medium-sized deals, says it’s a sellers’ market right now. “If you’re a purchaser, you have to be very diligent and not let the market lift diminish the returns for your investors,” Sullivan added, saying that capital is available for companies to invest in such assets because they are seen as an appealing opportunity.
The session focused on the opportunities for small-to-medium tower companies to monetize their portfolios. The U.S. tower market has seen so much consolidation that acquiring domestic towers can be an uphill battle, which contributes to the premium prices and has led some companies, such as American Tower, to turn to buying towers overseas. Robert Paige, SVP of M&A for Vertical Bridge, said that when acquisition prices get high enough, building new towers becomes more attractive — but, he added, “you’d better have a long-term focus” and plan for a five-to-10-year time horizon for such investments to pay off because of the amount of time it takes to build and bring multiple tenants onto new towers.
Paige says that he sees a number of headwinds facing the infrastructure market: The factors driving the optimism of the market may or may not pan out as expected, and new buyers whose interest has been piqued by the specific conditions of the market right now may lose interest and move on to other things. He thinks people are underestimating the impact that the decommissioning of Sprint sites will have on the market as T-Mobile US consolidates its network. He anticipates that 5G build-outs will be a play over a long time period — five to seven to 10 years. Carriers will moderate their build-outs, Paige said, because there isn’t an obvious revenue driver yet for 5G. The potential rise of interest rates or capital gains taxes under the Biden administration could also affect the overall market, he noted.
How will the trends of edge computing and the need for more in-building wireless systems play out for small-to-medium-sized tower companies? Jesse Nichols, managing director of Alpina Capital, said that the owners of such businesses often talk about those adjacent markets and may explore them, but they generally have enough on their plates with their current businesses and their investors often prefer that they stay in their own sweet spot. It tends to be a play made by the larger tower operators. Eric Luebchow, senior analyst at Wells Fargo, said that he’s generally skeptical that edge data centers will see the type of broad adoption that some have predicted because the economic model for return-on-investment is “still very much unproven” and most edge compute requirements can be met by regional data centers. But he does anticipate that over 3-5 years, some use cases that would need edge compute at the tower base could emerge, and companies such as American Tower could make a meaningful play in that market.