Tower Operators Primed for Growth with Carrier Buildouts, Potential Transactions
The major U.S. tower companies, most of which had a solid Q1, are expected to continue the growth in Q2 and the rest of the year, analysts told us. They cited LTE deployments, potential tower transactions and an improved credit market. American Tower more than doubled its Q1 earnings from the year-ago period and raised its full-year earnings estimate.
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All four national carriers are building LTE networks simultaneously, significantly boosting tower leasing activities, said Evercore Partners’ Jonathan Schildkraut. He expects tower leasing activity to be up 15 to 30 percent vs. 2011. The assumption doesn’t include any potential contribution from Clearwire’s LTE network overlay or from T-Mobile, he said. The upgrade to LTE for T-Mobile hasn’t started, though the carrier has announced its network upgrade and expansion plans, he noted. Clearwire is still doing ground work and its plans to upgrade cell sites might not be a big driver of tower activity, he said. The public safety network buildout could be the “single most interesting aspect” in the wireless space, though there are still uncertainties regarding the rollout approach, Schildkraut said.
The key drivers of revenue in Q1 include AT&T and Verizon’s LTE network deployments, Sprint’s network upgrade, and continued new business from the regional carriers, American Tower Chief Financial Officer Tom Bartlett said during an earnings call Thursday. He expects tower leasing levels to be more favorable this year v. 2011. The assumption primarily reflects robust growth from AT&T and Verizon Wireless, but doesn’t include any potential contribution from Clearwire’s LTE network overlay or from T-Mobile, he said. But the company is hopeful that it could see those “materialize” in the latter half of the year, he said. In Latin America, growth was helped by customers like Nextel International and Telefonica, which are continuing to build out 3G networks in Brazil and Mexico, he said. Bartlett also noted operators like UNE in Colombia, which is building out the region’s first LTE network. American Tower 2012 profit of between $675 million and $715 million, vs. a previous estimate of $660 million and $680 million.
There’s been a lot of positive developments for tower companies this year, said Jennifer Fritzsche with Wells Fargo, citing Sprint’s Network Vision plan, T-Mobile’s network investment announcement and carriers’ LTE expansion. The momentum will continue in Q2, she said. Regarding the buildout of 700 MHz public safety network, she said there might not be any near-term impact. A bright spot and new source of revenue growth for the tower companies are distributed antenna systems, she noted. The continued deployment of DAS is expected to be a key part of improving indoor wireless systems, she said. With about 240 indoor DAS systems, American Tower has the largest indoor DAS portfolio in the U.S., she noted. Both SBAC and American Tower are well positioned to participate in the future DAS-related spending of the carriers, Fritzsche said.
Investors are underestimating the impact of strong wireless data growth on the tower businesses, Credit Suisse analysts said. American Tower’s strong Q1 demonstrated solid growth trends in the tower sector, they said. At SBAC, four main catalysts could boost its growth include a potential acquisition of T-Mobile towers and potential revenue from T-Mobile or Clearwire network upgrades, they said. Every national U.S. carrier is active, to a combined greater degree than at any time in the last several years, said SBAC CEO Jeffrey Stoops.