Crystal ball

The news from 2015

The carriers have invested a massive $33.1 bn in tower-related investments in 2015! I know that some might think that it is only a third of the $107 bn of profit that the the top 4 carriers are expected to make this year. Still… These investments have been significant and served to address both the coverage and the capacity requirements as part of their LTE network roll-out. As AT&T and Verizon appear to have achieved their coverage target, the question is: is 2016 going to see a potential drop in tower investments…?

Positive sentiment for 2016

The preliminary views of analysts covering tower stocks is that the carriers will actually marginally increase their investments in 2016 to $34.7 bn, that’s a more than ┬árespectable increase of 4.8%. What’s a bit surprising is that AT&T will actually be a significant contributor to that growth: after a pause in tower-related investments in 2015, they intend to add c.3,000 macro sites in 2016, mostly with a view to increasing network capacity. The other contributor to growth is expected to be Sprint, who is expected to add between 3,000 to 5,000 macro sites to their network. Sprint’s network coverage is complete for 1.9 GHz but they need to build out the network for 800 MHz and 2.5 GHz as they seek to have each site effectively tri-banded.

What impact on Towercos?

This is all good news, taking also into account the revenues that are expected to come from public safety services as of 2018. Still towercos‘ revenue growth is quite differentiated: while American Tower is expected to grow by 8% in 2016, the comparable figure for Crown Castle is likely to be only +2%. Part of the difference comes from American Tower’s international exposure (30% of its revenues), mostly emerging markets. The issue is that emerging markets are not in the best shape at the moment, in particular Brazil to which both American Tower and SBA Communications are exposed to for around 10% of their revenues. There’s a clear foreign exchange risk that may weigh negatively on their growth prospects whereas Crown Castle, being 100% domestic-focused, does not have that issue.