(with Inside Towers Analyst: Bill Grove)
Adding massive new debt may not bode well for U.S. national carriers when it comes to debt investors. A new Bloomberg report announced the nation’s two largest wireless carriers have added $107.5 billion in new debt since 2011, practically doubling existing debt loads. As a result, Moody’s Investors Service has downgraded the outlook for the telecom sector from stable to negative.
The infighting for customers among the major carriers has resulted in price cuts affecting revenue growth and margins while the Federal Reserve is benchmarking borrowing costs from their all-time lows.
“During a period when the broader markets have performed very well, the carriers have not,” said Inside Towers Stock Analyst, Bill Grove. “Ironically, the very forces that are challenging the carriers are helping the tower operators — unlimited data plans, low prices, more and better content are all challenges to the carriers profitability, but drive data usage. And we know that there is a good correlation between data usage and demand for towers,” Grove said.
“The tower industry’s business model is much more defensible than the carriers’,” Grove said. “Communities simply will not stand for a ‘clutter’ of towers. Once you have a tower in a desirable area, you control it. It is like the game of Monopoly. And to the extent that there is increasing demand for your service, there is little reason for there to be any pricing pressure. Unless and until a technology comes along to challenge the current wireless model, the towers should be in good shape,” he said.
From a debt perspective, according to Bill Grove, the carriers are not as solid as they once were. “But, things change and a transaction (we’ve all heard the rumors) with either TMUS and/or S could clarify things in the future,” he said.
April 5, 2017
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