The good times appear set to continue for the nation’s tower companies—including Crown Castle, SBA Communications and American Tower—at least according to some Wall Street analysts.
“Overall, we believe the current environment bodes well for 2019,” wrote the analysts at Morgan Stanley in a recent note to investors.
“We maintain our Overweight rating on the towers sector,” wrote the analysts at Wells Fargo in a recent note to investors. “The towers subsector was one of the strongest under our coverage universe YTD2018 (+8.0% vs. S&P -1.7%). Despite the continued multiple expansion seen in 2018, we believe further growth drivers exist as we head into 2019. We expect the U.S. market to remain strong and see a number of tangible catalysts (i.e.: FirstNet, T-Mobile’s 600 MHz deployment, 5G densification efforts, edge computing, etc.), which should more than offset expected choppiness in international markets (particularly India) and impact from carrier M&A (namely Sprint and TMobile) in the short term.”
During their recent quarterly earnings call, executives from the nation’s largest publicly traded tower companies essentially said the same thing.
“Unlimited data plans and increasing mobile video consumption continue to drive additional spectrum deployments and equipment installations by our domestic tenants to support 4G network technology, and that's leading to those elevated growth rates,” American Tower’s James Taiclet said in October, according to a Seeking Alpha transcript. “Moreover, our major U.S. customers are beginning to embark on tangible plans for 5G technology, which provides a relevant backdrop to our usual third quarter topic of technology development.”
Interestingly, one new factor in the tower company calculation is the potential for competition. In the early days of the wireless industry, towers were relatively few and far between. But today, as carriers look to densify their networks and lower costs, some have been inking tower agreements with upstarts—Tillman Infrastructure and Lendlease Group, for example—that some in the industry worry could put extra pressure on the nation’s established tower companies. But new research from Morgan Stanley indicates most tower companies may not need to worry about direct competition in terms of tower sites.
“Towers have the best business models in our coverage with our AlphaWise analysis showing that the significant majority of sites operate from a unique competitive position in their relevant trade areas,” wrote the Morgan Stanley analysts in a note to investors about their survey covering 140,000 tower sites in the U.S. “On a national basis in a 0.5-mile radius, ~65% of towers have no competitor and just ~15% have more than one competitor. Within a 1-mile radius, ~45% of sites nationally have no competitor and just ~35% have more than one competitor.”
Overall, the tower industry has been cheering many of the nation’s wireless network operators, which are looking to purchase and deploy more spectrum alongside new wireless network technologies. AT&T, for example, is in the midst of installing WCS, 700 MHz and other spectrum bands to its network—efforts that require the company to install more equipment on towers and therefore pay tower companies rental fees for the use of that additional tower space. Similarly, T-Mobile is doing the same with its new 600 MHz spectrum, while Sprint is engaging in a noteworthy build-out of its 2.5 GHz spectrum.
Further, the FCC is in the midst of auctioning off new millimeter-wave spectrum bands, which the nation’s operators likely will purchase for 5G services, again raising the prospect of additional rental payments to tower companies.