Communications Watch: Towering over wireless
By Dan Briody
Red Herring
October 22, 2001
redherring.com.
We've all seen them: ugly metal monoliths jutting rudely out of the natural landscape, awkwardly hung with antennae and receivers. They are the unmistakable signs of the communications age that people love to hate. They are cell towers, the eyesores of the 21st century, and they're gaining in importance every day.
One easy way to gauge the prospects of the wireless industry is to look at the tower business. It's much like real estate; a company secures land, builds a tower, and rents out space to wireless carriers for their communications equipment. It's a simple business, unburdened by prognostications about the mobile Internet or competing standards. It's also a numbers game: the more tenants per tower, the better.
In the beginning, wireless carriers built their towers themselves. But they quickly realized that it was not their core business, and began selling them off in the early 1990s to tower companies like American Tower (NYSE: AMT), Crown Castle (NYSE: CCI), and SBA Communications (Nasdaq: SBAC). Since then, in order to obtain expensive real estate in desirable neighborhoods, those tower companies have quickly built up enormous debt. But now, their bets are starting to pay off.
REACH FOR THE STARS
An average tower can hold between 5 and 8 tenants. As it stands now, the average number of tenants signed up per tower is only 1.8, but experts say that number will increase significantly over the coming months. Wall Street has taken notice. Since September 11, American Tower's stock is up 31 percent and Crown Castle is up 20 percent. Why now?
A combination of factors are contributing to the current boom in wireless tower stocks. The first, and most important, is that subscriber rates are up since the terrorist attacks. Analysts are expecting wireless penetration rates to jump from 40 percent today to 70 percent by 2005. And the number of minutes each subscriber uses is also increasing. Add that to the fact that most wireless networks are already overburdened, and you can easily see why wireless carriers need to beef up networks, adding more cell sites and renting more space on towers.
All of this bodes well for the wireless industry. And if ever there was an industry that was in need of good news, it's wireless. But it's not just the tower companies that benefit from these trends. Obviously the wireless carriers benefit, but their suppliers also will reap rewards when they start selling the infrastructure that carriers install on the towers and in the base stations. Routers, switches, servers, and communications software all will get sold as a result.
It's not going to pull us out of the economic malaise, but it's a good start. |
