Clayton Funk is a managing director at MVP Capital, a boutique investment banking firm specializing in telecom, media, technology and renewables. The telecom practice spans towers, small cells, distributed antenna systems and fiber-optic cable systems, he said. MVP Capital raises capital for other companies and represents them for sale.
In remarks he made during a Connectivity Expo panel session, “Investments, Partnerships and M&A in a Converged Edge/Tower Architecture,” Funk talked about shared infrastructure, new entrants to the tower business, improved prospects for tenants in addition to wireless carriers and valuations for small cells.
In Funk’s view, wireless carriers may find themselves sharing small cell facilities if only because municipalities may force them to. He attributes the collocation wireless carrier antennas and other equipment at macro tower sites in part to municipal requirements, along with the need for cost efficiencies when adding sites to their networks. Another factor leading to collocation, he said, was neighborhood objections to tower placements.
“When the first wireless networks were built, there was no shared infrastructure,” Funk said. “The A and B cellular guys built their own towers and said: ‘This is my competitive advantage, so stay away.’ Shared infrastructure really started coming about as PCS got launched.”
Data centers and fiber routes offer other examples of shared infrastructure, Funk said. “However, we are seeing more of: ‘This is my asset and I am not going to share it,’ at least for now, with small cells. With the proliferation forecast for small cells, it will become more cost-prohibitive for the carriers to keep up on what their demands are. If municipalities don’t want to see a small cell box on every light on every street corner, perhaps they will start forcing collocation, and that becomes another shared infrastructure model.”
Changes Among Tenants
Speaking of other changes in the tower business, Funk said MVP Capital has been seeing tenants coming onto towers that are different from the tenants of the past. However, he said, the important tower tenants continue to be Verizon Wireless, AT&T Mobility and T-Mobile US, and in some cases, Sprint, depending on whether T-Mobile and Sprint merge.
Other tenants Funk mentioned include broadcasters, wireless internet service providers (WISPs), government users and emerging technologies such as IoT.
“The valuation for a tower comes down to how sustainable does a tenant look to a buyer,” Funk said. “For example, if the tenant, an FM broadcaster, has been No. 1 or No. 2 in the market for many years, there is a good chance you will receive full credit for that tenant, as well as a county E-911 system in public safety. It becomes less certain if the tenant is an unlicensed internet service provider or an emerging IoT company. It becomes a lot better if the tenant, a standalone IoT company, then sells to Verizon. That’s better credit.”
Giving an example of how one unlicensed WISP may be an attractive tenant and another may not, Funk said some WISPs received FCC Connect America Fund money or broadband stimulus money and deployed fiber in their territories. He said those WISPs became incredibly profitable on both the wireless side and the wireline side with fiber. With one such WISP, he said, MVP Capital just raised $40 million for recapitalization.
“After tapping into government money, the WISPs are looking different than they did a few years ago,” Funk said. “This is exciting not only for those companies, but also for tower owners, who start feeling much better about them as tenants than they would if they were only offering wireless internet service on unlicensed frequencies.”
Funk said that Verizon seems to have spent more money recently on small cells and fiber than on macro antenna sites. However, he said, MVP Capital has almost never seen a small cell deployment go over a macro or a situation where the macro site is decommissioned in favor of small cells. “Unless it is a special situation,” he said, “small cells are supplemental to the macro network.” He said that despite concerns raised early on during small cell deployment, they have not proven to be a threat to the use of macro sites.
Small Cell Valuation
As for valuations for small cells, should they change hands, Funk said it is still early to know. He said MVP Capital has been talking with fiber companies that own multitenant poles they have deployed for Verizon to use, and the poles are able to handle an additional node or two from another carrier. He said such polies haven’t yet come to market, but when they do, MVP Capital can make the case that they should be valued like a tower, once all factors have been considered, including the poles’ remaining capacity.
“If it is Verizon paper, and if that Verizon lease looks just like a tower lease, we feel that it will be valued like a tower,” Funk said. “The small cells aren’t going away, just like the macro sites haven’t gone away for 25 or 30 years.”
Clayton Funk, managing director, MVP Capital. Photo by Don Bishop