The senior vice president of mergers and acquisitions at Vertical Bridge, Robert Paige, said the company has 260,000 antenna sites, a large portion of which is billboards, and is the largest private tower company in the United States. Vertical Bridge is part of a larger family of companies that includes Digital Bridge, Digital Colony Partners, ExteNet Systems, Databank and Vantage.
Vertical Bridge saw more orders from wireless carriers last year and has seen some slowing of spending by the three carriers actually spending money, Paige said. He attributed that in part to the potential merger of T-Mobile US and Sprint. Slow spending in the first quarter is typical, though, and Paige said Vertical Bridge expects spending to be on par with what the company saw last year. He characterized 2018 as a good year, with three of the carriers investing, building new sites and adding capacity to existing sites.
Vertical Bridge built more than 200 towers last year, Paige said, and is on pace this year to do better than that. He said amendment revenue provided about half of the company’s revenue, with new revenue and collocation revenue representing about half. “We have seen a nice balance between amendment and collocation revenue,” he said. Amendments are modifications to cell towers and cell tower equipment that bring increased payments from renters.
Future Carrier Spending
“I am optimistic when I look out three to five years because that is when you will see real spending on 5G wireless communications infrastructure,” Paige said.
“Over the next couple of years, AT&T has a mandate as it relates to FirstNet,” Paige said. “They are going out to rural areas and looking at initiatives to have greater coverage and have one of the best networks. You will continue to see them invest in rural areas for two reasons: for coverage and for FirstNet. I feel good about their spending over the next few years.”
If the potential merger of T-Mobile US and Sprint takes place, Paige said, that would produce a strong third carrier with the combined company deploying equipment to use 600-MHz radio-frequency spectrum and other new spectrum. “We are thrilled with the prospect of T-Mobile investing in the short run, the long run and five years out,” he said.
“Verizon Wireless has always been spending steadily,” Paige said. There is no reason to expect them to change in the next one to three years, in five years and beyond.”
The next big uptick in business will come when 5G is really ready to deploy, Paige said. Compared with what others think about it, he said he is more pessimistic about when that will occur. He said he expects 5G deployment will take place between 2023 and 2025, not because the technology won’t be there, but because the use case and the incremental revenue is a farther out. He said he is nevertheless looking forward to it. He said he is bullish on the tower business, saying that it is a great business to be in in the short term and that, in the long term, he is optimistic.
Shared Network Infrastructure
Paige said he sees little future for wireless carriers to share their radio access networks or other active infrastructure, including antennas, but if it were to happen, it would cause a revenue problem for Vertical Bridge.
“We have to think outside of shared telecom infrastructure and think about other tall vertical pieces of real estate,” Paige said. “When we talk about 260,000 assets, a fair number of our assets are billboards. We have partnerships with a number of utilities. They have a lot of transmission structures in some really good places. It is hard to collocate and partner with them. You need to have expertise to do it, but I believe you will see a lot of those shared infrastructure models where vertical real estate already exists, and you will use it for wireless attachments, particularly as you have this proliferation of sites when you go to 5G.”
Lowest Common Denominator
What some refer to as disruptive new entrants to the tower business — infrastructure investment funds and private equity sources — Paige sees as driving new builds, collocations and mergers and acquisitions toward the lowest common denominator.
“For example, with build-to-suit projects, the influx of capital leads to new tower operators agreeing to rental terms that are not viable and where, if you sell to the wrong people, you have to cut the rent in half,” Paige said. “People have agreed to terms like that. You have seen unlimited loading on towers.”
With mergers and acquisitions, Paige said, the highest price reflects the lowest common denominator. “You get to where you’re pricing things at levels where to get any type of reasonable return you had to make some Herculean assumptions on returns, meaning low, and Herculean assumptions on how much new growth you will have on the sites,” he said. “There is a lot of hope, and the last I checked, hope is not a strategy. Many people will be disappointed in their outcomes based on some of the activities we are seeing in the mergers and acquisitions market and in the build-to-suit tower market.”
Seasoned tower operators and investors, Paige said, will have to be particularly disciplined over the next couple of years. The reason is because some of the new capital coming into the business may may or may not see things the same way that experienced tower operators do.
“It is very aggressive capital,” Paige said. “It is important for all of us who are investors to be disciplined, to check our underlying assumptions and test them. Meanwhile, there has never been a better time to sell, because the market seems to be pricing to perfection or maybe even to imperfection. For tower investors, caution is the word for the next couple of years, whether you’re building or acquiring towers.”
Paige spoke at the Connectivity Expo session, “Investments, Partnerships and M&A in a Converged Edge/Tower Architecture.”
Robert Paige, senior vice president of mergers and acquisitions at Vertical Bridge. Photo by Don Bishop