The COVID-19 Impact on Accessing Capital for Wireless Infrastructure Builds

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Connect (X) Coverage

Recent earning performance among tower companies (towercos) was largely in line with expectations. Despite a modest slowdown in the short term, growth is anticipated through the rest of this year and into 2021.

That is the takeaway from a Connect (X) panel titled, “Crisis and Finance: Accessing the Capital Markets in the Pandemic Age.” The financial analysts and equity investors on the panel acknowledged that the wireless business is holding up well through the pandemic.

The panel included Inside Towers Business Editor John Celentano, who served as moderator, along with Jennifer Fritzsche, Wells Fargo Securities; Abhishek Rampuria, M/C Partners; Colby Synesael, Cowen; and Bo White, Macquarie.

The panel’s outlook for wireless carrier capital expenditures (capex) was mixed. AT&T will delay network builds into the summer as network usage is down with the pandemic, and as the company grapples with broader financial difficulties.

Verizon upped its 2020 guidance by $500 million and is deploying 5G in small cells in millimeter wave (mmW) bands, with Crown Castle as its main infrastructure provider for small cells. Now that the merger with Sprint is done, T-Mobile is going “great guns” to integrate the two networks and speed up its 5G rollout particularly in 2.5 GHz and 600 MHz.

The panel agreed that the Big 3 towercos – American Tower, Crown Castle and SBA Communications – are very well positioned serving mainly the Tier 1 carriers. More importantly, the panel discussed how these towercos are moving beyond the traditional tower lease model to become versatile infrastructure companies.

Towerco cash flows are stable with current master lease agreements (MLAs) in place with the major carriers. Beyond that, the carriers are looking to the towercos to provide additional services to help build out the network while offloading some capital investments.

Fritzsche pointed out that edge computing offered by the towercos is moving into prime time, but it depends where you define the “edge,” whether at a data center, cell site or in autonomous cars.

This space is worth watching from two perspectives, according to White. In the short to medium term, the CBRS 3.5 GHz band build-out will create incremental revenue streams for the tower companies. In future, as virtualized radio access network (vRAN) and Open RAN (O-RAN) concepts develop, the towercos could supply vRAN or O-RAN equipment at their sites, creating potential new revenue streams.

Tower deals are still being made. Rampuria indicated that, despite the pandemic, his firm recently closed a deal and that tower valuations are holding up well. Synesael confirmed that valuations among the Big three towercos are reaching “new highs.”

The discussion overall was informative and enlightening, drawing on the experience and expertise of each of the panelists.

In closing, Fritzsche remarked that the current environment was “GFT – good for towers” and that [business] model “will shine.”

“Private equity feels comfortable in this area,” says Rampuria. Even with short term slowdowns, the long-term prospects are good.

White considers wireless infrastructure a “very robust space” that has proven itself through COVID-19. He is bullish on the space both with the existing carrier/towerco agreements and the potential for the towercos to pivot into other services especially if the carriers become capital constrained.

Compared to other REITs, Synesael suggested that towercos may be a little more attractive given growth in adjusted funds from operations (AFFO) in the high single digit or low double-digit percentage range while delivering solid stock returns

The entire discussion can be viewed on replay at Connect(X) website.

By John Celentano, Inside Towers Business Editor

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