2016 in Review and Key Revenue Drivers for the Future

In 2016, the US Wireless Tower Construction Industry had a 7.9% increase in revenue. Over the next five years there will be four revenue drivers that will fuel this industry. Technological innovations and increase in mobile device usage will drive the Cell Carrier Industry to develop their infrastructure, increasing their capital expenditure for the year ahead. In turn, cell tower companies will meet this demand by ramping up land leases with private landowners. They’ll do this to provide for the ever-increasing demands for data from the business sector, home user, and expanding connected motor vehicle industry that will connect to the internet via mobile broadband. 

1) Technological Innovation

It probably goes without saying that the tower construction industry is very reliant on technology. Within the past few years there has been extremely accelerated progress in telecommunications. The impact that the rapidly evolving technology poses for telecom becomes apparent when mobile traffic patterns are taken into account. Most notably, whether it’s the rise of the 5G network or advancements in construction logistics, the industry, much like a cell tower, has nowhere to go but up.

“Our business continues to grow at a healthy pace as U.S. wireless carriers further invest to enhance the consumer mobile experience…Today, as a result of our investments over the last several years to acquire towers and deploy small cells, we have the leading portfolio of U.S. wireless infrastructure.” Jay Brown, Crown Castle’s Chief Executive Officer.

The way in which a mobile device connects to a service carrier becomes more complex with each network update. With 5G on the horizon, the industry is seeing – once again – a need for new and updated telecommunication infrastructures. An advancement in telecommunications technology means an increase in contracts for cell tower construction companies, feeding the projected 5.6% CAGR from 2015 – 2020.

Cellular antenna technology will prove to be of the utmost importance improving wireless service quality. Internally, advancements in construction processes and industry-wide adoption of project management software will continue to cut costs and boost productivity.

2) Mobile Demand

The average American checks their phone 35 times a day. The ubiquitous use of mobile devices is one of the most important factors that will drive industry growth.

In 2014, 169.1 million devices were connected to the network; by 2019 the industry expects to see 490.3 million total connections in North America. That’s a 47% increase over five years. Not just restricted to urban areas, the mounting use of data will increase the need for cell service in rural areas just as much and deep into the residential neighborhoods as well.

It’s not just mobile devices – the proliferation of IoT and innovations such as smart-cars and self-driving vehicles only compound the need for an ever-expanding telecommunications network. In a report released by Gartner, they predict that in five years there will be 250 million connected cars on the road globally. Overall, peoples’ habits are changing – people want to consume personalized content experiences in their homes and on the go.

3) Cell Carrier Demand

Cell carriers are taking note of the mobile consumers’ behaviors. More users are browsing the web and streaming video over wireless and fiber networks. Cellphone providers see this increase in demand for their service and in-turn are scrambling to increase their infrastructure by contracting cell tower companies. Funny enough, the demand for mobile content and videos is so high that cell carriers like AT&T and Verizon are taking a stab at being their own content providers.

As the cell carrier industry grows, the tower construction industry will continue to benefit. The majority of the major cell carriers are poised to increase their capital expenditures throughout 2017. Smart cell carriers are realizing that their wireless infrastructure is crucial to the future of their companies and a fundamental profit driver moving forward. By 2020, cell phone carriers nationwide will amount for $277.2 billion in revenue to the tower industry.

A healthy leasing environment will set the stage for continued growth in the coming year as cell carriers implement improvements and upgrades to their existing infrastructure.

The Future

Small Cells and DAS

Small cells and DAS aren’t proprietary to the tower industry. They can be owned and managed by a third-party or the cell phone carriers themselves. This gives cell carriers the power to develop and deploy this technology autonomously from the cell tower companies, allowing for more negotiating power.

The coming year brings uncertainties, leaving a niche open for small cell carriers independent of the cell tower companies to manage their own infrastructure and make deals with cell carriers.

However, cellular antennas and small cells are usually complimentary to a large cell phone tower, and aren’t always stand-alone networks (although some small cells can be deployed as a primary access point for cell signal and coverage). This sets the tone for cell tower companies to procure more small cell infrastructure.

The small cell market is on track to reach 3.8 million deployed units in 2019. Cell tower companies are scrambling to meet this new opposition head-on. For example, Crown Castle acquired the company Sunesys, gaining access to over 15,000 small cell nodes and the almost 16,000 miles of fiber needed to support them. However, not all cell tower companies are taking this approach. This begs the question, what part will the cell tower industry as a whole play in the development of cellular antennae networks.

Crown Castle has estimated that for 2017 their expected growth from cell tower installations will be $10 million lower than last year but growth from small cells will be about $15 million dollars higher.

Regulation

The cell tower industry faces a decent amount of multi-level regulation. Beholden to FCC requirements and subject to the approval of state or local authorities, cell tower companies will need to prepare to face more scrutiny as it develops and deploys new technology and systems.

The 5G network set to be deployed in the coming years will rely heavily on small cell sites to relieve mobile traffic and propagate cell service. Small cells and DAS will aid in network capacity and provide coverage in areas that are difficult to cover with existing structures.

One of the greatest obstructions to microsite development, however, is local municipalities. Several litigation cases surfaced in 2016 in which cell carriers are contesting the municipal denial of their small cell proposals. Various accusations have been made of local governments manipulating zoning laws by changing land use ordinances, setting highly elevated rental prices, or imposing fees on private landowners looking to sign a cell tower lease. The good news here is that the FCC is now looking at pre-emptions similar to that of the Satellite regulations in the 90s.  The goal is to allow the U.S. to “catch up” with other countries around the globe in wireless connectivity bandwidth, but preempting state and local ordinances against that stand in the way of progress.  Time and time again when local and state regulations try to hamper equal access to telecommunications, the FCC looks to help. So far this looks to be the case… only time will tell.

Overseeing site acquisitions for DAS or small cells that require fiber installation will continue to be a headache for the industry and its development process. The FCCs response has been quite underwhelming. In the 2016 CTIA conference, FCC Chairman Tom Wheeler was quoted on the issue, “If siting for a small cell takes as long and costs as much as siting for a cell tower, few communities will ever have the benefits of 5G.” This has got to change.

Increase in Cell Carrier Capital Expenditure

Telecommunications companies budgeted a significant amount of money this year for the expansion of their high-speed data services. Two major goals include increasing capacity for mobile support and densification and updating existing technology. For the cell tower industry this means acceleration towards $8.7 billion dollars in projected revenue for the year 2020.

With ballooning capital expenditure budgets, there will be an increase in cell site amendments, small cell and DAS development, and the fiber needed to lay the foundation for the highly-anticipated 5G network.

“We anticipate that wireless spending overall will accelerate in 2017, with the largest increases coming from AT&T and Sprint,” Jennifer Fritzsche of Wells Fargo

The tower industry revolves around its capital resources. With the positive outlook for the industry based on ubiquity of mobile devices, there has been approximately $100 billion dollars of capital investment poured in over the past few years. Both new ground leases and amendments to existing ones feed a healthy lease environment spurring lofty financial outcomes for 2016 and positive outlooks for 2017.

Fiber to Tower

Mobile is no longer a luxury. A network’s capacity to support its wireless customers extends beyond streaming videos and sending pictures. The rise of the sharing economy has made some apps necessary for consumers.

It was only a few years ago when a wireless carriers’ only focus was enhancing their subscribers experiences. The sharing economy is moving forward. The expansion of on demand services is moving towards a full-time job for some professionals. It isn’t unrealistic to think that an Uber driver makes a living on that app full-time. As this economy expands, people’s livelihood will become more dependent on their mobile phones’ ability to connect them.

The cell carrier companies will be held accountable by subscribers to provide consistent and reliable services for their quality of life. But the amount of mobile devices and the rise of IoT cannot be sustained by the mobile network as-is. A development of this magnitude requires the integration of high-speed telecommunications systems, data-hosting servers, and cloud-based software to analyze data.

The magnitude of fiber crosses industry boundaries. Even data centers are developing their own private fiber infrastructure with the understanding that sensors must have a reliable way to link to telecom networks. We see this in the idea behind smart-cars.

In 2017 there will be an emphasis on wired backhaul as the industry and its participants move to enhance their mobile networks with a supporting foundation of fiber. The tower construction industry will acquire fiber companies and they’ll certainly pay the price. Fiber companies win here as their value per will increase over the next year.

Macrosite Development in Rural Areas

Rural landowners will be the least affected by this change in the industry. Rural areas were largely neglected throughout the past few years, but can no longer be ignored. Mobile usage is on the rise even in the most rural of areas and the groundwork must be laid to support the future of self-driving vehicles. Additionally, a network of small cells or DAS cannot function without a large cell tower. This will lead to increased development of large cell tower sites in these areas, bolstering the cell tower industry’s revenues.

Increase in Rooftop Leases and Backhaul Fiber Easements for Landowners

The private landowner represents about 10% of industry revenue and has increased slowly over the past five years with projections showing their market share will grow. The trend for most companies is small cell and DAS development which means less large cell towers on land and more rooftop leases. The most important component for a network of small cells or DAS is the installation of fiber. To deploy these systems, ground easements must be implemented to install the fiber backhaul.

In instances where fiber is not already installed in an area, the industry will see another major opportunity for landowners to profit. And in areas where fiber is already installed, companies will be reaching out to their existing properties to propose leases for additional fiber installations.

One of the many 2016 rulings from the FCC will directly impact the landowner in the coming year. The ruling compels wireless carriers to divulge how many of their sites are down during emergency situations. Because of this demand for transparency, companies will move to ensure that their existing installations are supported with the appropriate backup generators. To the private landowner with a current cell tower lease, this means more amendments and possible increases in revenue if they have negotiated for such.

Conclusion

Mobile data traffic will increase at a fast rate, cell carriers are spending more money this year to update existing stuff and implement small cell and DAS networks in which fiber will be to this development. The urban landowner will see more lease amendments and opportunities for rooftop microsites and rural landowners will still have opportunities to establish cell tower leases.

Mobile data traffic is no longer a luxury, business, individual users, the houses they live in and the cars they will drive will create a need that must be met. With this unprecedented demand, cell carriers and tower companies are spending more money this year to update their infrastructure, and increase small cell and DAS coverage to meet this demand.

From the rooftops of the cities to the private residential communities and even to the farm lands across the United States, private landowners more than ever are needed to provide the land for this deployment. This allows for a supply opportunity to provide access to their land through leases like never before.  Land owners will need experts on their side that understand such leases so that the service providers and tower companies can have a much easier and quicker turn around. Professionals working on behalf on the landowner that help assure them they are getting a fair price, but equally as important someone that understands how to help the service and tower companies get the quickest and easiest access to “move the process along quickly and professionally”.