Analysts look for silver lining around US cell tower cloud

Cell tower owners ranging from SBA Communications to DigitalBridge have struggled under a network operator spending slowdown. But not everything is doom and gloom, according to some analysts.

Mike Dano, Editorial Director, 5G & Mobile Strategies

July 9, 2024

4 Min Read
Silver lining on cloud again blue sky
(Source: Ted Foxx / Alamy Stock Photo)

AT&T, Verizon and T-Mobile have dramatically reduced spending on their 5G networks. And that situation has created a significant drag on the companies that manage the cell towers underpinning those networks.

But, despite the downturn, financial analyst firms like MoffettNathanson and B. Riley Securities remain mostly positive on cell tower operators like SBA Communications, Crown Castle, American Tower and DigitalBridge. Both analyst firms this week tweaked their financial forecasts on the sector, but both maintain a "buy" rating on some of the companies' stocks.

"We see a strong price recovery potentially on the horizon with our forecasted earnings results over the next several quarters," wrote the analysts at B. Riley Securities in a recent note on DigitalBridge.

The analysts at MoffettNathanson offered a somewhat similar view on American Tower, SBA and Crown Castle. They acknowledged that the cell tower companies don't offer "an exciting story," but that their long-term earnings options "strike us as very interesting."

The DigitalBridge upshot

According to the B. Riley Securities, DigitalBridge remains well positioned to take advantage of a number of major trends. The company has been collecting businesses in the cell tower industry as well as others in the "digital infrastructure" space stretching from fiber to small cells to data centers. In the past few years, DigitalBridge has acquired fiber operator Zayo and data center operator Switch, among others. It also owns a controlling stake in US cell tower giant Vertical Bridge.

"The data center angle continues to represent the most intriguing aspect of the DigitalBridge story, in our view, particularly given AI growth," wrote the B. Riley Securities analysts. "Data center pricing continues to accelerate due to supply shortages and high demand."

A number of companies are working to chase the AI wave as hyperscale companies like Google and Microsoft invest in the data centers necessary to run AI services like ChatGPT. Corning, Cisco and Nokia are among the companies hoping to cash in on the trend.

But the B. Riley Securities analysts pointed to yet another opportunity for DigitalBridge: renewable energy. "Both the infrastructure and the power remain bottlenecks to AI, and we believe renewables could be a natural extension of DigitalBridge's product set," they wrote.

Power shortages continue to hamper data center buildouts, and officials from DigitalBridge have touted some of their investments into renewables.

DigitalBridge isn't alone. A number of companies in the cell tower industry have expanded into solar, wind and other renewable energy operations as a way to offset declines in spending on 5G.

Waiting for a thaw

But what about the core business of cell towers themselves? Is there any chance that big 5G network operators like T-Mobile, AT&T and Verizon will resume spending on their networks?

"Conversations we've had with private participants across the tower ecosystem give little reason to believe a broad-based increase in activity levels is on the horizon," wrote the MoffettNathanson analysts in their own recent assessment of SBA, Crown Castle and American Tower.

The analysts added that operators' cell tower leasing "has slowed in the wake of the carriers' initial 5G blitzes and there's little reason to believe that it's going to materially accelerate in the coming periods, or at least to believe that with much confidence."

AT&T, Verizon and T-Mobile spent billions of dollars on 5G spectrum, and then billions more on the cell towers and networking equipment necessary to put that spectrum to use. Now, though, they're closing their purse strings after having found little in the way of a return on their big 5G investments.

But the MoffettNathanson analysts argue that, from a long-term point of view, cell towers remain a valuable resource.

"Investments will eventually pick up," they wrote, although it's not clear when. And, as a result, investments into cell tower owners offer "very appealing compounded returns."

About the Author(s)

Mike Dano

Editorial Director, 5G & Mobile Strategies, Light Reading

Mike Dano is Light Reading's Editorial Director, 5G & Mobile Strategies. Mike can be reached at [email protected], @mikeddano or on LinkedIn.

Based in Denver, Mike has covered the wireless industry as a journalist for almost two decades, first at RCR Wireless News and then at FierceWireless and recalls once writing a story about the transition from black and white to color screens on cell phones.

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