The rise of the second-tier tower players

Vertical Bridge last week announced the acquisition of 43 towers from Townsquare Media in a deal valued at $22.8 million. This follows several earlier acquisitions by the company. In April, for example, Vertical Bridge closed on a $369 million tower deal involving iHeartMedia, and in March the company purchased 200 towers from CiG Wireless for $143 million.  

These deals alone are not earth-shaking, but they do point to the consolidation in the tower industry and growth in the second-tier tower companies.

The tower industry in recent years experienced a major shift in its ecosystem, with carriers largely getting out of the tower business and spending the cash from those sales on other initiatives.

Specifically, Verizon Wireless in February sold more than 11,000 towers to American Tower for more than $5 billion. U.S. Cellular in December sold 595 towers to Vertical Bridge for $159 million. And T-Mobile US in 2012 sold 7,200 towers to Crown Castle for $2.4 billion.

T-Mobile then sold the rest of its tower portfolio, approximately 600 towers, to Phoenix Tower International.

Wells Fargo analyst Davis Herbert recently wrote in a research note that there is a lot of capital flowing into the tower business. "There is more capital chasing tower assets than one panelist had seen since 1997," Hebert said.  

In addition, a study from SNL Kagan projects that cell sites in the U.S. will grow from 298,055 in 2014 to 451,578 in 2025. This projected growth may explain the enthusiasm that some investors have for the tower market.

What does this all mean? At the macro level, U.S. carriers have largely gotten out of the tower business to focus on becoming service providers. That is a positive development, as the carriers can focus on operating networks and serving customers, while tower companies focus on what they do best, which is infrastructure. With larger portfolios, they can offer broader choice and achieve greater economies of scale.

Also, the rise of deep-pocketed second-tier players such as Digital Bridge and PTI is good news, as these companies have the opportunity to play the role of feisty underdogs. They are gaining scale that will help them provide more competition to Crown Castle, American Tower and SBA Communications.

Finally, this level of tower activity reflects an expectation by the tower ecosystem of a huge amount of tower-related installation activity. For installers, this represents strong demand for workers who know how to install and augment equipment at towers. --Jeff