The advance of 5G wireless communications and functions enabled by the use of Citizens Broadband Radio Service (CBRS) frequencies is changing the telecommunications tower business into a communications infrastructure business, according to Don Van Splunteren, global vice president of sales for Phoenix Tower International. He said 5G will require enormous mobile network densification, churned mostly by small cells. The big question, he said, is how a tower company can become efficient and helpful to the carriers by deploying small cells in a way that provides value to the carrier.
Speaking at the AGL Local Summit on Jan. 24 in Newport Beach, California, Van Splunteren focused on the company’s business activities in the United States. Phoenix Tower has operations in 14 countries and owns 6,500 towers, including 700 in the United States. At the end of last year, Phoenix Tower acquired Syscom Telecom, a business that manages and markets 80,000 sites for small cell and macro deployments in the United States. On March 31, Phoenix Tower took possession of 500 towers in Mexico that it purchased from Uniti Group.
In Van Splunteren’s view, the opportunity continues for building towers that satisfy wireless carriers’ requirements, along with other opportunities for growth, including small cells, distributed antenna system (DAS) networks and the placement of fiber-optic cable routes. He said there will be a demand for new towers and an opportunity for small tower developers to sell towers to larger tower-owning companies for some time to come.
Constraints on Growth
However, according to Van Splunteren, the efforts of small tower developers to grow their portfolios to a size attractive to larger companies may be increasingly difficult. The problem is high valuations for towers coupled with higher interest rates. The higher interest rates increase the cost of capital, which in turn squeezes the tower business model more than before, he said.
“We see the valuations of towers pretty high out there,” Van Splunteren said. “This sounds great because you can sell the towers for a high value. But then, fewer buyers may be interested.
“As the carriers become more focused on what they’re serving their customers — including data, content and media — they may defocus from their networks,” Van Splunteren said. The wireless carriers need partners among wireless infrastructure companies to help them deploy 5G technology, DAS and towers, he said. By way of example, he pointed out that Verizon Communications announced it is giving 10,400 employees an incentive to leave the company this year. At the same time, Verizon Communications said it will spend $10 billion to roll out 5G technology at its subsidiary Verizon Wireless.
Tower companies can capitalize on the carriers’ moves to densify their networks. Van Splunteren explained how Phoenix Tower intends to take advantage of its purchase of the 80,000 Syscom Telecom sites to better serve carriers.
“Fiber already is, and will continue to be, the main mechanism to provide backhaul to our customers’ sites,” Van Splunteren said. “With 80,000 new locations, we performed an analysis to reveal the extent of existing fiber used by existing customers and available from other carrier providers. We want to provide carrier customers with a solution that is as much plug-and-play as possible. Then we can say, ‘You need a site, and here it is. It is serviced by fiber. Here is where you can attach equipment. This is your rate — a competitive rate that includes both fiber service and the attachment.’ It is compelling to carrier customers to do that in a way that is scalable. Fiber is an important part of that puzzle, especially in the small cell space.”
Focus on Foreign Assets
The focus on foreign assets has been a part of Phoenix Tower’s business model since its inception, Van Splunteren said. He said that when the company management considers diversifying its business, the large U.S. market with its dollar-based economy attracts its attention.
“We look for markets that provide the best opportunity and return on capital,” Van Splunteren said. “We also consider what the future looks like. We ask where we should be investing in the future because we look for markets where we can be a first mover and establish the independent tower model that has translated into some killer markets for the company. For investing in U.S. assets, the small cell is a key driver for growth. We are focused on fiber because of the fit with the Syscom assets, but we also focus on making sure we serve customers better than our competitors do. In the United States, that required us to have a bigger team, which we now have, thanks to the Syscom acquisition.”
In years to come, Van Splunteren said, Phoenix Tower will continue to focus on towers because they remain the largest percentage of the company’s business and profitability. He said the company will grow its small cell business to a certain percentage, with fiber to connect the small cells. He said the company is pursuing a lot of DAS business.
“Some other companies are doing a lot of DAS work, and we certainly have a strong DAS program,” Van Splunteren said. “We have built and bought some DAS networks, and DAS has is showing strong growth, along with small cells, fiber and towers.”
Don Van Splunteren will moderate a panel at the AGL Local Summit, Sept. 26, in Washington, D.C. Visitwww.aglmediagroup.com/localsummits.