Market analysts at New Street Research came out with its report on Q4 tower trends in 2018. Analysts explore the growth outlook for towers beyond 4G, allowing Inside Towers’ readers an in-depth look at the findings. In the study, the experts said organic growth is currently accelerating as carriers deploy spectrum for 4G, but they think it may slow precipitously when these deployments end around 2020.
Will 5G drive another growth cycle?
“Not like the launch of 4G did,” one of the report’s authors, Spencer Kurn said, “however, we examine two sources of spectrum that could extend the runway of growth for another five years. With consensus estimates reflecting a low-growth scenario, we think towers are well positioned to outperform.”
Kurn said many investors expect 5G to drive a growth cycle that is similar to the one driven by 4G. He disagrees for one key reason: carriers deployed 4G in conjunction with new spectrum, while 5G is being deployed alongside spectrum that is already apportioned for 4G (5G will be a software upgrade). Although there is plenty of spectrum that will be deployed for 5G over the next few years, Kurn said there are only two bands that New Street believes will drive revenue for tower companies: DISH’s spectrum and C-band.
“We conservatively estimate that DISH and the C-Band could boost organic growth estimates by 50bps and 100bps, respectively, over the next five years,” he said. “The C-Band could also prompt carriers to increase site density; this could further enhance growth by another 100bps. We haven’t included upside from these spectrum bands into our estimates because the timing is too uncertain; however, we believe the spectrum is highly likely to be deployed over the next five years.”
The report concludes with a recommendation for owning the towers because organic growth will be higher than consensus expects. Kurn and his New Street associates say the towers are on solid footing today and the 4G spectrum deployments should drive accelerating organic growth for the next two years.
The forecast thereafter is less certain,” he said, “DISH’s spectrum or the C-Band would need to be deployed to sustain above-consensus growth. Both are likely, and as visibility into the deployments rises, estimates should increase. Within the group, we continue to prefer SBAC, as we see the greatest upside to estimates and the stock trades at a discount.”
He said AMT has outperformed, as investors have rewarded their above-market growth domestically and shrugged off the problems in India. Now that the churn problems in India are largely reflected in estimates, “we are more constructive on AMT,” Kurn said, “however, we remain Neutral due to valuation.” To see more of the report click here.
March 12, 2019
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