Divining the future of tower leasing opportunities is really as simple as reviewing basic RF wave propagation theory, James Taiclet, American Tower chairman, president and CEO told the third quarter earnings call. American Tower expects continued core organic growth of 6 percent to 8 percent in the United States, driven in part by physics, as carriers add higher band spectrum to their initial LTE designs.
“I’ll take some time to briefly review the technical foundations of the essential roll out of towers and the delivery of wireless service,” he said. “These fundamentals, grounded in the physics of radio wave propagation, provide a strong validation of our future revenue and cash flow expectations.”
Taiclet gave various examples of carriers moving to higher frequencies, such as Verizon Wireless, which is already deploying on AWS spectrum and will later repurpose PCS spectrum to LTE. AT&T is expected to employ AWS, PCS and WCS spectrum at 2.3 GHz over the next few years. Sprint will tap the Clearwire 2.5 GHz spectrum for widespread coverage, and T-Mobile will potentially migrate the MetroPCS spectrum in the AWS band to LTE, as well.
“The higher the frequency of the spectrum, the shorter the propagation distance, so all things being equal, the higher frequencies mean more cell site density and for us more leases,” Taiclet said.
Another plus for the cell tower industry is the advanced mobile applications, such as video, music, broadband Internet access and VoLTE, which require higher signal quality than 2G voice or 3G email applications, according to Taiclet.
“The additional signal strength needed at the cell edge for many 4G applications will further encourage greater cell site density hence more cell tower leases over time,” he said.
Currently, American Tower is seeing the lion’s share (70 percent) of leasing revenue come from amendments, but it is seeing growth in collocations, according to Tom Bartlett, American Tower CFO.
“The amendment pricing is rising, which is a sign that carriers are putting up more on those existing platforms, which is a precursor to new collocations,” Bartlett said. “We are starting to see 30 to 40 percent collocation activity in the pipeline as carriers increase density.” American Tower expects continued growth in collocation volumes over the next 12 to 18 months as the as the LTE penetration grows from the mid-teens to more than 20 percent, he added.