5 Themes from WIA Show 2017

Graphic of sign showing two directions for tower companies and wireless carriers
Tower companies this way- wireless carriers this way.
The Wireless Infrastructure Show is the pre-eminent tower show in the US. The WIA who puts on the show consists of both tower companies and wireless carriers although it has mostly been run by the tower companies. The Show is a great show to get a chance to talk to and hear from people in the field building and operating towers and small cells. Here are the themes that we found most intriguing at the show.

1. Wireless Carriers and Tower Companies Have Increasingly Different Objectives

The dichotomy between what we heard at the show public events and what we heard directly from tower companies during the meeting is greater than we can remember. Whether related to how small cells fit in, the focus of municipal legislation, or how small and mid-size tower companies are now fulfilling the role that public tower companies did previously for wireless carriers, there is a growing divide between what were previously cohesive goals.

2. Tower Companies and Wireless Carriers Don't See Eye to Eye on Small Cell Legislation

While the WIA is supposedly an organization that works for both carriers and tower companies, the dissention between the two is most apparent in the interest both groups have in small cell infrastructure. The tower companies are quick (too quick in my opinion) to proclaim that no macro tower has ever been replaced by small cells all while intentionally failing to acknowledge the displaced Capex budgets for small cells and the declining collocation lease-up for new macrocells. The carriers secretly (or not so secretly) are pushing for small cell legislation that doesn't afford the same protections to public tower companies (or DAS companies) as it does to wireless carriers. As a result, the tower companies now have lobbyists and possibly PACs of their own to push for their own objectives but nowhere near as many lobbyists as AT&T and Verizon have retained.

3. There Are Signs of Tower Crew Shortage Already.

We asked this question over and over and received mixed responses. Some smaller tower companies (presumably those with long term relationships with vendors) indicated that they weren't having any issues. However, we heard from more than one contact that there were notable shortages especially on larger jobs. Considering that nominal repacking from the broadcast incentive auction has commenced and that AT&T hasn't yet released the flood gates of FirstNet activity, we will be watching this trend closely to determine how it impacts revenue expectations by the public tower companies and deployment activity by the wireless carriers. After closely examining the location of tower company towers in each of the 10 phases of repacking for a hedge fund client which tend to be backloaded over the next 3-year period, we suspect that the crew shortage will get worse.

4. The Impact (if not the number of towers actually relocated) of "Rip-n-replace" is Greater Than Expected.

Unsurprisingly, this really wasn't discussed at the public level at all- but 8 out of 10 of our private conversations dealt with the possibility that private tower companies are building new towers near existing towers to accommodate one or more wireless carriers relocating from the existing tower to reduce their rent. While we aren't seeing evidence of a substantive number of actual relocations as of yet, we have received an increasing number of inquiries from landowners who have been approached by one of the eight or so private tower companies who are reputed to be actively engaged in relocation efforts.

More importantly, for the first time, we heard specific and actionable efforts by the public tower companies to counter the possible threat, which tends to suggest that they are more concerned about the threat than they publicly acknowledge.

5. The Tower Industry is Optimistic About Modification Activity, but Pessimistic Regarding New Lease-Up Activity.

At least as it pertains to our checks, the tower industry seems outright gleeful about the increase in modification activity expected in the coming years. Between FirstNet, the Incentive Auction, and TMUS activity, towers should see nice revenue growth from modification activity in the next 2-3 years.

Left unsaid (or in some cases directly said) was the low expectations of collocation lease-up activity in the coming future. While FirstNet may result in some limited number of new collocations, it won't be material. Some of our tower company clients indicated that they have been seeing low lease-up while others are seeing more positive lease-up. There does appear to be a correlation between higher lease-up and to the urban/suburban/rural location of the towers. If you are looking for details on which tower companies have the most urban/suburban/rural towers and which tower companies have the fewest competing structures per tower amongst the tower companies, we recently completed an in-depth statistical analysis on this for a hedge fund client. Contact us for more details.

 

 

 

 

Comcast Wireless 2.0: This time it could actually work.

Image of cell phone with video playing
Mobile Video by Comcast
Implications for TowerCos and Construction Companies

Tickers: CMCSA, COMM, MTZ, DY, CCI, AMT, SBAC

Tags: Ken Schmidt, Wireless infrastructure

Background:

Analysts have been speculating about the winners of the FCC spectrum auction and the implications of those wins for the better part of a year. With the auction coming to a close and an announcement expected in the coming weeks, we took a look at the implications of Comcast’s (Nasdaq: CMCSA) expected entry into the wireless market.

On 4/6/2017, Comcast announced their Xfinity Wireless plans.  Much has been written on the details of those plans so we will not rehash them here other than to say that Comcast doesn't appear to be building its own network and that the plans are primarily intended to prevent Comcast customers from churning to AT&T or Verizon.   

Timing:

The FCC’s broadcast incentive auction was finalized on March 30, 2017. The FCC is expected to publicly announce the winning bidders sometime in the latter half of April. 

Expectations:

We expect that Comcast bid on and will win spectrum in the auction. CMCSA’s Q3 2016 cash flow statement, which was released publicly on Oct. 26, 2016, includes a $1.8B line item listed as a “deposit”; presumably an auction deposit by CMCSA to the FCC. Some analysts have suggested that CMCSA plans to acquire 30MHz of spectrum on a nationwide basis.  We believe that the more likely scenario is that CMCSA will win at least 10MHz of 600MHz spectrum in areas where CMCSA already has fiber/coax infrastructure, as shown on the map below.   Alternatively, if CMCSA does win nationwide licenses, we believe they will focus any buildout of equipment in just their current markets they serve now, at least until a compelling business case is developed otherwise.   

Map showing the areas of the US where Comcast provides Cable and Broadband Services
Comcast Availability Map
Source: www.cabletv.com/xfinity/availability-map

CMCSA’s Likely Strategy:

If we are correct and CMCSA wins spectrum in existing service areas, Comcast will use this spectrum to provide both mobile and fixed wireless services primarily to augment their cable services and reduce churn from wireless service providers’ forays into OTT video.  We see their plans as an extension of the recently announced Xfinity Wireless strategy.

Buildout Details

We anticipate that CMCSA will utilize a combination of WIFI and unlicensed spectrum to provide indoor and outdoor coverage and capacity, while using 600 MHz licensed spectrum for wide area coverage.   This will enable CMCSA to reduce payments to Verizon under their MVNO relationship and allow them to provide mobile video to customers without incurring per GB charges from Verizon which are reputed to be in the range of $7/GB. 

Competitive Dynamics

CMCSA’s product won’t attempt to compete with either Verizon or AT&T in terms of breadth of coverage. However, its product will be attractive to existing CMCSA cable subscribers who aren’t highly mobile and who don't require 20GB or more of data.  CMCSA's Xfinity Wireless is set at a competitive price point, particularly to existing customers via a “quad” package.

Marginal Positives for Infrastructure Players

Companies like COMM, MTZ, and DY should benefit marginally from increased need for CMCSA fiber and coax to the premise to accommodate additional bandwidth (inside and outside the premise). However, near-term expectations should be tempered as broadcasters have up to 39 months to relinquish the spectrum.

Implications for the TowerCos

The impact on TowerCos should be muted for two reasons.  First, broadcasters have up to 39 months to “repack” and return the spectrum to the winning bidders, so any tower lease revenue from CMCSA won’t materialize immediately. Secondly, we suspect CMCSA will attempt to control OPEX going forward by limiting the number of collocations on public tower company towers and by emphasizing small cells especially those that are attached on-strand to Comcast's existing fiber and coaxial cable runs in public right of ways.   Ironically, if the Wireless Industry Association is successful in pushing the FCC to override local zoning oversight and fee structures for small cells, they could be enabling competitors to their own constituent wireless carrier and TowerCo members. Nevertheless, there could be a small bump to TowerCos once the FCC announces the auction winners and the winners include entities that don’t currently lease tower space. The possibility of another potential customer could increase investor interest in TowerCos.

Risks and Unknowns:

The risks to this note include:

  1. CMCSA could be outbid / fail to acquire spectrum
  2. CMCSA could be acquired by or merge with an entity that owns spectrum already, and therefore would not need to acquire spectrum or build it out
  3. CMCSA’s near-term WiFi-First/MVNO-second wireless strategy could prove to be unsuccessful and/or discontinued, causing CMCSA to divest this spectrum prior to it being made available from the broadcasters.

Important Disclosures

This report is for informational purposes only and should not be construed as investment advice. It is not a recommendation of, or an offer to sell or solicitation of an offer to buy, any particular security, instrument or investment product. Our research for this report is based on current information obtained from public sources that we consider reliable, but we do not represent that the research or the report is accurate or complete, and it should not be relied on as such. Opinions and estimates expressed herein constitute judgments as of the date appearing on the report and are subject to change without notice.  Any reproduction or other distribution of this material in whole or in part without the prior written consent of Steel in the Air, Inc. is prohibited.  Any projections, forecasts, and estimates contained in this report are necessarily speculative in nature and are based upon certain assumptions. No representations or warranties are made as to the accuracy of such forward-looking statements. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results.  Steel in the Air, Inc. accepts no responsibility for any loss or damage suffered by any person or entity as a result of any such person or entity's reliance on the information presented.