Despite ‘Pricing Pressures,’ Analyst Holds ‘Positive View’ of Big 3 Towers

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cowenAfter dusting himself off from the show in Dallas, Cowen & Company telecom analyst Colby Synesael provided this insight to investors. “Carriers have become more vocal about their dissatisfaction with the tower operator fee structure, however we expect little financial impact. At the same time, while NT (near term) catalysts remain elusive we still expect U.S. growth to accelerate in 2017. We continue to have a positive view of American Tower, Crown Castle and SBA Communications.”

Synesael told investors T-Mobile’s Dave Mayo argued that the tower “fee structure” has become overly complicated and more pointedly too expensive.” The analyst felt Mayo’s first-of-the-morning presentation on May 24, “seemed to set the tone for the remainder of the conference, although his comments follow similar views that have already been expressed this year by other carriers, including AT&T.” But he also believes it’s part of the collective heightened level of “noise” from the carriers regarding “their frustration/angst with the tower model that many senior tower executives at the conference said has never felt so ‘loud’.”

The argument from carriers (excluding T-Mobile) is they are now earning revenue at a rate lower than that of the tower operators’ U.S. segments and that carriers face eroding profit margins. Without revenue growth in sight, carriers are looking to cut their costs along analysts believe carriers spend just a fraction on towers — an estimated 2 to 6 percent of their total wireless revenue, depending on the carrier.

Rather than a price reduction though, Synesael wrote, carriers appear to be asking for more flexibility/lower escalators that appear similar to the terms AT&T/Verizon struck with their sale-leaseback deals with Crown/American (ex: 27-30K sq. inches of reserved space and a 2% escalator). “This is interesting because with all the changes that 4G has required (ex: remote radio heads), the carriers have had to ‘touch’ their cell sites more often than they have historically, which in 2013/2014 drove significant amendment activity, and the expectation is this will continue with the deployment of new spectrum/5G.”

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