Tower Companies’ Disparate Views on Small Cells
American Tower speaking at REIT conference suggests that their ROI on towers is 5-6% for 1 tenant, 12-13% for 2 tenants, and 18-20% for 3 tenants.” For the first time, they are no longer emphasizing their top 50 or 100 BTA number of towers- instead saying that not being in urban areas reduces their risk of disintermediation. I had to look that word up- it means “reduction in the use of intermediaries between producers and consumers, for example by investing directly in the securities market rather than through a bank.” In other words, AMT is alluding to the same concept that we have been preaching- that tower companies don’t add much value to the small cell market for the wireless service providers. AMT gets 3% of their revenue from small cells. A strong indicator of this is that Verizon is doing everything in its power to pre-empt the tower companies from getting to municipalities first and signing small cell master lease agreements so that they aren’t locked out by the CCI and AMT’s of the world.
On the other hand, Crown Castle is suggesting that they see plenty of upside. As a previous post of ours mentioned though- they are primarily talking about DAS not small cells. CCI gets 7% of the revenue from DAS – they don’t break down what comes from standalone small cells. CCI was obviously worried enough about the wireless service providers doing small cells directly (and “disintermediating” the tower companies from between them and landowners or structure owners that they wisely purchased fiber provider Sunesys.
Sunesys controls a moderate amount of fiber in dense urban areas. Crown alleges that at this time their efforts in small cells are not cannibalizing their macro business. This is a bit disingenuous as there is no way to know yet whether it is or isn’t. It is simply too early to tell. With AT&T, Sprint, and T-Mobile pretty much inactive in new macrocell development, saying that small cell deployments aren’t cannibalizing the macrocell development doesn’t mean much of anything. Furthermore, since most tower company macrocell leases have at least 8 years remaining before the wireless service providers can terminate for convenience, the tower companies won’t know whether there is decommission risks for most of their existing macrocells for that amount of time.
Don’t get us wrong- we are bullish on the tower sector especially for 2016. We just tend not to believe every statement that CCI and AMT make at these types of conferences. Please note we don’t own any AMT or CCI stock nor do we intend to purchase any anytime soon
