AT&T-Time Warner could cause near-term pain, long-term gain for tower biz, analyst says

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The tower industry could see a potential fallout in the short-term due to AT&T’s proposed $85 billion acquisition of Time Warner Inc., but could benefit in the long-term.

“…Suppliers of bandwidth such as tower companies and spectrum holders will likely benefit as the pieces required to create converged services are assembled sooner than expected,” wrote UBS analyst Doug Mitchelson in a research note.

Wells Fargo analyst Jennifer Fritzsche concurred with that view in a separate research note, but also warned that, as with AT&T’s recent deal to buy DirecTV, AT&T’s wireless spending could be placed on hold while the operator sorts out its latest M&A activity.

“Longer term towers should be well positioned. In our view, T needs to continue to invest in wireless in order to support the thesis behind this marriage ("The future of video is mobile and the future is mobile is video"). While we do NOT believe in any way T has under invested or is playing catch up here, we think it fair to assume that usage will increase if the ultimate T/ TWC offering is wrapped around mobile content. Thus net / net we see this as a longer term positive for the tower companies if a T / TWC marriage is approved,” wrote Fritzsche. “The immediate question however is what does the near term outlook look like for towers? If this deal does not close until the end of 2017 the question becomes does T spend ahead of this close or do we see the "deal pause" with wireless spend as we did with T / DTV.”

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AT&T continues to be under pressure both to build out its fiber footprint to meet broadband access conditions set by the FCC and to expand its network in Mexico. But Fritzsche previously stated that, despite these other demands on capex, investment will continue to flow into AT&T’s wireless network.

“AT&T continues to invest in its wireless network, deploying fallow spectrum and densifying via the use of small cells, though we would note its capex budget has other demands on it as well,” wrote Fritzsche.