Way OT - Telecom Towers and the Future

[slowandsteady]

Anyone on the forum well versed in the telecommunications market and the future of cell site towers located in cities.

I know it seems like an odd question but i'd like a little insight on this as I currently host both an AT&T and Verizon cell array site on one of my building in New York City.

I basically want to know if you think it is worthwhile to hold on to the leases for them or sell them. i.e. will they still be using these types of cell sites in the next 5, 10, 20 years or is the industry moving in another direction or with a different, new technology?

Would love to chat with you for 5 minutes when you have a moment...

-Matt-

[crownjewelwl]

I'm no technology expert, but I cover the publicly traded stocks (CCI, AMT, etc.) which have performed VERY well off the bottom.

The near-term growth opportunity still seems great i.e., more smart phones = more data = more demand for towers. It is actually pretty difficult to get approval for new towers (esp in NYC), so more cell arrays are going up on the same towers which means more rent for you.

Longer-term you have to worry about new technology like WiMAX which allows for more data density i.e., fewer towers needed. But I don't think this change is happening any time soon. McCaw is making a push with Clearwire, but I think this is the case were early guys spend a lot of money and lose a fortune first, then the companies get recapitalized and do ok.

That said, have you received offers for your sites?

[slowandsteady]

I have several offers all in the 90-96 month lump sump ayment range...

[crownjewelwl]

90-96x monthly rent so 7.5-8x annual?

rent is basically cash flow for you right since you probably don't have any operating expenses associated with the towers?

public market multiples are MUCH higher. but that's the arbitrage. they buy from you on the cheap and get a higher multiple!

not sure what your financial condition is otherwise, but if you don't need the money i'd hold on.

it's like owning a billboard in nyc...you're ALWAYS gonna have someone who wants to rent it.

[swt]

.

[slowandsteady]

it's like owning a billboard in nyc...you're ALWAYS gonna have someone who wants to rent it.

That's the dilemna...if the technology changes then the "billboard" may no longer be the method of choice to deliver the message. i.e. will towers be obsolete due to a newer technology coming down the pipeline? Sounds like you are not seeing anything in the near term so i would agree with your opinion and "hold" for now.

Upside is I am paid upfront for 8 years and protected from these carriers giving 90 day notice and removing their sites and my cash flow ending abruptly.

Downside is I have the potential to lose 12 years of cash flow. The sites revert to my ownership after 20 years assuming they still exist / are needed technology.

Cash is always nice to have but not necessary right now.

Thanks for the insight. Exactly what I needed.

[crownjewelwl]

Don't know if it is worth it or what exactly the ownership structure is, but you could consider leveraging the entity that has the leases.

It would allow you to take cash out. Banks like financing towers because of the predictability of cash flows.

Just something to consider...

[veloduffer]

Don't know if it is worth it or what exactly the ownership structure is, but you could consider leveraging the entity that has the leases.

It would allow you to take cash out. Banks like financing towers because of the predictability of cash flows.

Just something to consider...

These lease streams tend to be securitized for the ABS market. Demand would be high for this collateral, given the weakness in the RMBS and CMBS markets and low yield environment.

I haven't seen anything that will replace towers in the near future. Satellites will not replace towers easily - they are much more costly (to launch) and more demand (compete with broadcasters). If anything, there is demand for more towers, particularly with AT&T trying to improve their coverage against Verizon.

If you don't need the money upfront, I would keep the rental stream but have escalators (not indexed to inflation, as we are near deflation).

[1centaur]

Higher spectrum frequencies, such as the 2.5 Ghz for Clearwire, needs greater cell tower density. Lower frequencies (700 Mhz) travel long distances and through walls better. What frequencies will smart phones/video phones be using? Net search time.

The recurring theme from telecom conferences is that everybody is very short on needed spectrum. The expectation for wireless data transmission volumes are huge. Many people expect WiMax to be out muscled by LTE (Verizon's technology), but Clearwire will tell you that they can adjust their system to become LTE if the market demands it without too much expenditure. LTE build out is just beginning and will take years (3?). That's 4G wireless. I think your sites are golden through that period at least.

The Net is filled with wireless talk - I don't know what 5G will be (or when) but I'm sure somebody out there is discussing it publicly. Keep an eye on governmental actions re: spectrum use, but again, the industry knows all the possibilities and thinks it will be spectrum short. Clearwire may sell some spectrum soon. Watch out for the price paid - it could be high, which again confirms the perceived need.

I personally have not heard a peep on cell towers going away, and those cell tower stock multiples tell me the market hasn't heard a peep either. The one thing I'll mention is that reliable, safe, predictable cash flows are getting discounted at a low rate today because rates in general are low. When interest rates rise in general, discount rates on cell tower cash flow streams will rise as well. If contracted price escalators don't keep up with rates, valuations will fall. If you're handy with Excel, model it out - in what would you invest that 8 years of upfront payment? Are you being paid at a 4% rate (let's say) but can invest at an 8% rate (willing to take that risk)? The people willing to pay you are making the same calculation and think they can make a profit from your price - can you cut out the middleman? If you're a cautious guy and would not invest in anything with a yield as high as, say, 4%, then maybe you're better off holding the cash streams. Arithmetic is a bigger consideration than technology, IMO, in the near term.

[Peter P.]

There are lawyers that specialize in tower leasing; I think it would be wise to consult with one if you're interested in maximizing your investment. See Urgent Magazine, which covers the wireless industry. There are always ads for tower lawyers in the back. I can get you some back issues if you like. Let me know.

[crownjewelwl]

Higher spectrum frequencies, such as the 2.5 Ghz for Clearwire, needs greater cell tower density. Lower frequencies (700 Mhz) travel long distances and through walls better.

clearwire is wimax and requires less tower density. a single wimax tower can cover 3k square miles...

[1centaur]

Yes I've read that, but I've also read that the CEO of Clearwire says it turns out Wimax density is similar to 3G density, and elsewhere that cell tower density is related to population density. More towers are needed for more data (population times use), so the ability of a Wimax tower to generate a signal over long distances with perfect line of sight is probably neither here nor there. Not to mention LTE will probably win, so LTE is what counts for this discussion.

All that said, I would have to dig further to figure out if any 3G technology can overcome what was viewed as a physics truism of the year 2000, that higher frequencies propagate over shorter distances than lower frequencies (a selling point for the tower companies, as I recall). I don't personally understand the relationship between technology (Wimax; LTE) and frequency. I also don't know what frequency Verizon's 4G will use. I believe each side makes claims the other side disputes.

Here's a site that explains some of it: non line of sight cell density is similar for Wimax and current cell sites. So towers in cities should hold their value better than in rural areas:

http://computer.howstuffworks.com/wimax1.htm

News is good for LTE:

LTE mobile networks will need to increase their cell site density by a factor of about four compared to today’s architectures due to coverage and capacity constraints.

http://www.connect-world.com/index.php/article/item/1087-mobile-broadband-needs-microwave-backhaul