The 2018 Connectivity Expo (formerly the Wireless Infrastructure Show) just ended. I thought I would share some high-level observations as well as my (lightly edited) notes from the investor breakouts hosted by each of the Big Three public tower operators, the “View from the Top” session featuring the leadership of the five largest independent towercos, and a session with Dish Network’s Charlie Ergen.
Like last year, the overall tone of the event was quite positive. Operators, both public and private, noted leasing activity was healthy and expected that environment to continue, given both current projects and, eventually, 5G. The private towercos we spoke with all cited slightly varied trends in their businesses – for example, some said leasing was great across the board, one said that Verizon had pulled back a bit given its emphasis on small cells, another indicated that Sprint had suddenly stopped all activity – but with their smaller, non-national portfolios, their businesses are naturally lumpier than those of the Big Three and it’s oftentimes hard to draw broad-based conclusions from them. Some cautioned against getting too excited about 5G too soon, questioning the carriers’ incentives to deploy it given the lack of new revenue models; stated differently, “Where’s the beef?” We tend to agree with that commentary.
T-Mobile/Sprint was obviously a common topic of discussion, and most operators were of the view that, if consummated, the deal would result in increased investment from those two companies, with AT&T and Verizon likely to step-up spending to keep pace. A minority made the point that we shouldn’t delude ourselves – a big customer might go away, leaving only three, and that had real implications for lease-up potential and the prospects for new builds. We agree that caution is warranted, but believe the impact of a merger would be constrained.
On the topic of new builds, the view from the developer community was that it was increasingly challenging to make money; “a new world.” The carriers are adopting bare knuckles approaches to beating down pricing and escalators rather than acting like partners, new entrants are trying to win business, and lease terms have “gone out the window.” However, there was also a consensus that new entrants (Tillman, Lendlease, Eco-Site) would ultimately be unsuccessful in developing viable businesses – aside from the returns, many felt they would have trouble coping with the SG&A burden. The Big Three public towercos don’t build many towers anymore, in large part because returns on new builds have been compressed, so this backdrop doesn’t directly affect their businesses. However, it confirms that value creation above and beyond sweating existing assets will not come from domestic builds, but from overseas, from fiber investments, and from non-traditional initiatives.
All three public tower companies hosted investor breakouts. As always, American Tower struck a confident tone, noting its pipeline looked strong (interestingly, lease volumes in Q1 were down slightly YoY, but average pricing was up), argued it would emerge from a T-Mobile/Sprint deal in great shape, and was optimistic about its innovation initiatives. SBA noted the leasing environment was very strong (it did not experience what American Tower did; volumes and prices are both higher), sees a bright future irrespective of what happens with T-Mobile/Sprint, and noted in a world with higher asset prices it will remain disciplined and is not compelled to do deals, here or overseas, with share repurchases as an appealing outlet for investment. The Crown Castle discussion was primarily around small cells, with the company arguing that the demand for and returns afforded by small cells are very attractive, and we’ll look back in 20 years and say “wow, that was a great investment.” Charlie Ergen described a two phase approach to building a network – first narrowband IoT, then nationwide 5G – and talked about his enthusiasm for the project; we’re not body language experts, but he seemed genuinely passionate about it and excited about how it brought him back to the time when he was launching Dish Network.
By Nick Del Deo, MoffettNathanson
May 29, 2018
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