Crown Castle’s 2015 outlook
The investment community had a bit of a shock on October 30 when Crown Castle revised its 2015 outlook for organic site rental revenue down, showing a 12% reduction vs 2014. Predictably the market didn’t like that and the stock plummeted by 6% within 24 hours. The question is whether there is a structural shift in the market resulting in lower growth prospects?
So what are the issues?
Crown Castle’s main issue had to do with non-renewals in 2015 which they expect to be almost twice what it was in 2014. The company expects to be negatively impacted by the decommissioning of Sprint’s iDEN technology and of the LEAP, MetroPCS and Clearwire networks. American Tower and SBA Communications are expecting to feel the pain too, albeit to a smaller extent as they have the benefit of a more internationally diversified portfolio. To be honest, all of that decommissioning business was kind of expected and makes a lot of sense: the mobile operators are cleaning up their portfolio of technologies and businesses to be fitter in a highly competitive marketplace.
What can expect in the next few years?
The US tower industry probably has to recognize that it can’t sustain an 8% growth rate as per 2014; the US wireless market is pretty mature and with 4G investments coming down, it is fair to assume growth prospects closer to 6% over the next few years according to research analysts. I grant you that it doesn’t put the industry on a par with the faster growing industries but combined with its awesome cash generating power it remains uniquely attractive to investors.
Consolidation vs. DAS
There is no doubt that the one big threat for the industry would be a consolidation of the wireless market from 4 down to 3 operators. Recent history suggests however that it may be a taller order than initially thought. I would predict that there is a better chance of a new entrant acquiring T-Mobile, which would obviously be a much better outcome for the tower industry. That is not likely to happen however if the current price war among mobile operators is sustained… The clearest source of upside for tower operators lies with the increasing adoption of DAS among mobile operators. According to towerlocation.com, there are only 7,500 towers / rooftops carrying DAS equipment deployed across the US, that is less than 3% of the total. That number is only going one way: up!