Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Will Bull Run Continue for Wireless Tower Operators?

The U.S. telecom industry continues to witness intense pricing competition as success depends largely on technical superiority, quality of services and scalability. Technological upgrades and breakthroughs have resulted in cutthroat price competition.

Nevertheless, one sub-segment of the telecom industry, wireless tower operators, has had a strong showing in the last one year. We believe there are several reasons for this dream run to continue in 2018. We will discuss the reasons in short.

Upcoming 5G Wireless Network

Fifth-generation (5G) superfast wireless networks will provide the primary impetus to the telecom industry. In September 2017, Moody's Investors Service stated in a report that the evolution towards 5G wireless networks will result in higher capital spending for U.S. wireless carriers. In this context, Internet-of-Things (IoT) holds the potential of becoming the numero uno factor in driving growth in the space. Upcoming 5G mobile networks will be of utmost importance in the management of exponential growth in IoT.

Massive Spectrum Deployment by Carriers

Wireless networks will be key to the future growth of the overall telecom industry. As wireless networks run on radio frequency, spectrums (airwaves) have become the most sought-after commodity in the industry. T-Mobile US has aggressively started deploying 600 MHz low-band airwaves. In 2018, AT&T will deploy 60 MHz of fallow spectrum and 600 MHz low-band spectrum coupled with its ongoing network densification project.

Furthermore, AT&T will also install its FirstNet project to build and manage the first nationwide broadband network dedicated to America's police, firefighters and emergency medical services. As part of the 25-year contract, FirstNet will provide AT&T with a swath of 20 MHz of spectrum in the 700 MHz frequency band for the entire duration. The company is expected to spend around $40 billion over the life of the contract to build, deploy, operate and maintain the network.

The market for U.S. public safety network for first responders and civil protection services is becoming intensely competitive. In August 2017, Verizon announced plans of dedicating network capacity to emergency services providers. The company will make Band 14 devices available and ensure full interoperability with any Band 14 radio access networks (RANs) deployed by FirstNet. Band 14 is the 700MHz LTE band allocated for the public-safety network.

Additionally, major U.S. telecom operators are currently exploring ways to commercialize usage of 3.5 GHz unlicensed wireless spectrum. Notably, the 3.5 GHz radio frequency is being considered in many parts of the world for the upcoming 5G wireless standard, thus increasing its chances of providing spectrum globally.

The FCC (Federal Communications Commission) at its next open meeting on Nov 16 will discuss on the proposal of making available 1,700 MHz of high-frequency spectrum for flexible terrestrial wireless use and providing 4 GHz for core satellite use.

 Entry of New Players in the Wireless Space

The U.S. wireless industry is likely to become get competitive in 2018 with the entry of cable MSOs (multi service operators) in this space. Comcast has already entered this field with its Xfinity Mobile offering. At present the company is using its MVNO (mobile virtual network operator) agreement with Verizon to use the latter’s wireless network coupled with its own WiFi network to offer mobile services. Importantly, the company acquired 73 licenses in the band of 600 MHz auctioned by the FCC. We believe that in the future Comcast will deploy this spectrum for extensive wireless coverage.

Charter Communications has reiterated its plans of launching wireless service in the first half of next year. Similar to Comcast, the company also has an MVNO agreement with Verizon as well as its own WiFi network to offer mobile services. Charter Communications has also launched experimental field trials of the 5G wireless network.

These trials come on the back of spectrum test licenses granted to the company by the FCC. The company is actively testing licensed small-cell technologies and has petitioned the FCC to release 3.5 GHz spectrum, popularly known as the CBRS band, for both licensed and unlicensed use.

DISH Network, the second largest satellite TV operator, has created an extensive portfolio of spectrum, the most important component of wireless networks. The company boasts a portfolio of 80 MHz of radio frequencies of different bands which will be utilized to deploy 4G LTE wireless network in top 100 U.S. markets. DISH Network’s CEO Charlie Ergen has hinted that the company is interested in the potential deal-making to enter the wireless industry. At the same time, Ergen also stated that DISH Network has a clear plan to build a wireless network on its own.

Strong Business Model

Wireless services are advancing fast in terms of additional features and capabilities. Much of the infrastructure and upgrades require effective site management of cell towers and equipment. Tower operators effectively address this opportunity as over 90% of its quarterly revenues come from wireless carriers. Tower operators generally have long-term (typically five - ten year) tower lease agreements with the U.S. national carriers.

Moreover, wireless consumer demand is expected to increase considerably over the next several years, driven by increased innovation and adoption of data-driven mobile devices and applications such as machine-to-machine (M2M) connections, social networking and streaming of video.

Recent trend of tower operators diversifying as fiber providers (focused on the small cell opportunity) looks impressive. Dark fiber provides abundant bandwidth which is of utmost necessity for the smooth functioning of super-fast wireless networks such as 4G and 5G. Dark fiber based wireless backhaul provides scalability and efficiency to bandwidth management. This will eventually lead the company to significantly reduce its backhaul costs.

Our Choice

We believe all three wireless tower operators, American Tower, Crown Castle and SBA Communications will maintain their ongoing momentum in 2018. Currently all the stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Tower Corp. AMT has a total of 147,873 towers of which 39,764 are domestic and 108,109 are international towers. The company has long-term (three-five years) earnings per share (EPS) growth estimate of 13.67% and it currently has a dividend yield of 1.85%.

Crown Castle International Corp. CCI operates 40,124 towers in the United States. The company has long-term (three-five years) EPS growth estimate of 15.50% and a dividend yield of 3.80%.

SBA Communications Corp. SBAC has a total of 26,764 towers of which 15,959 are domestic and 10,815 are international towers. The company has long-term (three-five years) EPS growth estimate of 16.60%.

Solid Chart

The chart below depicts how strongly all three above mentioned companies has performed in the last one year.

Bottom Line

Mobile subscriber growth has given the wireless tower industry a significant boost. 4G LTE networks and the increased usage of smartphones and tablets are creating impressive demand for tower leasing. Upcoming 5G network is expected to increase mobile device usage many fold which will turn more spectrum requirements and more tower leasing opportunities for the U.S. wireless tower operators.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
American Tower Corporation (REIT) (AMT): Free Stock Analysis Report
 
Crown Castle International Corporation (CCI): Free Stock Analysis Report
 
SBA Communications Corporation (SBAC): Free Stock Analysis Report
 
To read this article on Zacks.com click here.