Comcast’s Venture Capital Wing Sets Up Wireless Tower Operator
Comcast is getting into the wireless tower business through a company just set up by its venture capital arm, Comcast Ventures. CTI Towers said it will take the 800 towers Comcast already owns and try to lease them to wireless companies. For now, CTI Towers’ holdings overlap entirely with Comcast’s service area, but the company is looking to expand its footprint either through acquisitions or developing new tower sites, said CEO Anthony Peduto.
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As fiber connections have replaced microwave links as a means of delivering TV programming to cable headends, Comcast has been left with under-used tower sites around its service area, Peduto said. Comcast’s many cable system acquisitions has left it with multiple towers in some markets. In Washington, D.C., for instance, it has three sites within the Beltway -- one in Northwest D.C., another in Capitol Heights, Md., and a third in Arlington, Va. -- according to data from CTI Towers’ website.
Plus, the towers are in prime locations, said Peduto. “By virtue of coming in through the cable systems, a lot of these towers are in strategic locations, such as some residential neighborhoods and high profile commercial areas.” Some local regulatory hurdles remain to be cleared because the towers weren’t built for commercial wireless use, he said. But local governments are generally willing to allow the shift because it may mean eliminating the need for building a new tower in their jurisdiction, he said.
Demand for tower space is high and is forecast to increase, said Clayton Funk, a managing director for Media Venture Partners who brokers transactions involving wireless towers. Bringing in a tower-industry veteran and running the CTI Towers as a separate unit within Comcast is a smart business move for the company, he said. “Instead of being viewed as a nuisance or non-core asset, it can be viewed as a separate revenue center."
It’s easy to see why Comcast would get into the tower sector, said Clayton Moran, an analyst for Benchmark Capital who follows the tower industry. “The tower industry in the U.S. is growing at about 9 percent year over year in terms of revenue, and we think it will be in high single-digit growth for several years to come.”
It’s very profitable growth, as the tower business largely fixed cost business, meaning incremental revenue can drop directly to the bottom line, said Jonathan Schildkraut, an analyst with Evercore Partners. “An independent operator can break even with a single tenant on the site, but the next tenant, maybe 90 cents of the incremental dollar falls down the bottom line.” Most leases are long term, providing steady, recurring revenue, he said. “It’s a great business and it’s unsurprising to me that Comcast Ventures would look at this and take advantage of the assets Comcast had and make them more productive."
Don’t look for clues about Comcast’s wireless ambitions in this move, Moran said. “It’s being run within their venture group and it’s obviously not part of their operating business, so they're not assuming synergies with their other” business lines, he said. “I wouldn’t read this as indicating anything about their wireless strategy."
CTI Towers could make an attractive acquisition target for some of the larger tower operators, both stock analysts said. “There’s been a pretty healthy consolidation trend for many years,” Moran said. And the number of tower operators with 500 or more sites is limited, he said. “That potentially creates a scarcity value as these bigger companies desire to continue to grow.”