So, How Good is the Tower Business?

Colby Synesael, Jonathan Charbonneau, and Gregory Williams, CFA of Cowen and Company took a closer look at returns in the telecom services industry in their most recent research note. The team noted that while towers don’t have the highest ROIC (return on investment capital), they do have the lowest WACC (weighted average cost of capital), which means they have high value creation. “The low WACC is arguably a result of their lower risk profile driven by 1) blue chip customer bases, 2) Long-term contracts with escalators, and 3) high barriers of entry, which combined, provide a high level of predictability to equity and debt investors,” Cowen and Company explained. They also shared that wireless value creation is once again a case of “have and have-nots.” “AT&T and Verizon currently generate superior value creation compared to Sprint and T-Mobile as the ‘Big 2’ benefit from superior network scale as well as unparalleled access to capital. However, we anticipate improving ROICs for Sprint and T-Mobile in outer years as they both should be able to leverage investments they have been making to aggressively build out their respective LTE networks,” according to Cowen and Company.