In 2020, the trend gained momentum with major U.S. wireless tower owners advancing their data center strategies. In what appears to be somewhat of a “learn-as-we-go” approach, tower companies have begun investing in the data center market, specifically edge data centers. It is interesting to consider the attractiveness of the edge market to tower owners. In doing so, it is important to understand what is meant by “edge computing.”
Like all critical infrastructure, data centers, facilities holding servers which store and process digital information, or data, are typically located where needed most. Traditionally, locations were in relatively close proximity to hubs of government, financial and commercial activity accessing technology to create and receive information. Over time however, the geographic span of where digital information is demanded has spread broader. Data demands from households and SMEs have become much greater. The size and volume of transferred information has grown considerably. In addition, the nature of information or “content” has changed – video streaming today being a huge contributor to data demands.
As demand for digital information has soared, so too has the requirement that delivery of information be quick and uninterrupted. Fast and low-latency delivery depends on the distance between where information is stored and processed, and where it is required. Matt Trifiro, Chief Marketing Officer of edge data center company Vapor IO describes it well – quality data transfer “is about the shortest path through fiber for two facilities to connect.” Data center deployment has moved to the “edges” of digital communications networks, closer to where information is demanded.
As companies deploy modular edge data centers, identifying and securing strategic sites is vital. And here lies a driver of the convergence of data center and tower sectors. American Tower (AMT), SBA Communications (SBAC) and Crown Castle (CCI) control tens of thousands of strategically-located wireless towers sites across the U.S. featuring installed power, wireless connectivity and terrestrial connectivity through connected fiber, and have long-established expertise and relationships to quickly analyze, identify and secure sites.
U.S.-based Colony Capital is perhaps the best example of a company that understands the importance of controlling strategic locations. Through its separate businesses, Colony Capital owns and operates wireless towers (through its Vertical Bridge business), traditional data centers, edge data centers, and fiber, and controls a vast number of strategic locations. The convergence of communication infrastructure is a key feature of its strategy, with edge computing being a core component. Indeed, CEO Marc Ganzi has said he sees a “demand tsunami” coming in edge computing.
Tower companies see the tsunami approaching and with certain strategic advantages have begun making firm moves into edge computing. In 2020, CCI invested in Vapor IO with a plan to deploy in 36 markets. Following the acquisition of its Colo Atl data center in Atlanta, AMT rolled out an edge facility at a nearby tower site and plans to deploy further sites in strategic markets. SBA has acquired colocation facilities in Jacksonville and Chicago and has signalled plans to deploy edge data centers at its tower sites.
Tower companies appear to be taking a careful and considered approach to embarking on their data center strategies. This makes sense. Operating a data center business takes significant expertise and resources which without care could jeopardize core tower operations. Deploying data centers at towersites is but one part of a much broader strategic picture. A major strategic consideration, as SBA President and CEO Jeff Stoops has discussed, will be how tower companies play in the space – as landlords to facility owners who collocate within site compounds, owners of facilities themselves, or owner/operators of data center businesses. These questions will take time to answer and the continuously changing and dynamic data center market adds complexity to decision making.
With that said, we do see an imminent opportunity for tower site owners, including small and mid-sized companies, to add recurring cash flow to their sites through co-locating edge data centers within site compounds. These assets feature many of the characteristics tower site owners find attractive and are familiar with – contracted revenues, low correlation with broader markets, minimal if any maintenance costs, and long-term contracts or sticky customer revenue streams – and present an opportunity to add value to tower sites.
Demand for data processing at locations closer to end users will continue to grow and the trend bodes well for tower site owners. With clear synergies capitalizing on existing infrastructure these companies are making the right moves.
Pinpoint Capital Advisors(1) is a corporate finance advisory and capital raising firm focused on the mid-market communications infrastructure sectors in North America, with a primary focus on wireless towers, data centers and fiber.
(1) Securities Products and Investment Banking Services are offered through BA Securities, LLC. Member FINRA SIPC. Pinpoint Capital Advisors Incorporated, a business consulting company and BA Securities, LLC are separate, unaffiliated entities.
By Jonathan Lawrence, Associate Vice President, Pinpoint Capital Advisors