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5G

Harmoni to become fifth biggest tower company in the US

Palistar Capital's Harmoni Towers plans to acquire Parallel Infrastructure, a major US tower company, from investment firm Apollo Global Management. Terms of the deal were not disclosed, though the transaction is expected to close sometime in the third quarter of 2022.

In a release, the companies boasted that the deal creates the fifth largest tower company and the second largest private independent tower company in the US, with more than 2,000 towers either finished or under construction.

Further, Palistar Capital said it would commit another $1 billion to the construction of additional Harmoni towers in the future.

(Source: Phil Harvey/Alamy Stock Photo)
(Source: Phil Harvey/Alamy Stock Photo)

"Building upon our long-term view of the wireless ecosystem and the continued implementation of 5G and the explosive demand for data, this is a fantastic opportunity for Harmoni, Parallel, Palistar and our entire ecosystem of customers and vendors," said Palistar founder and managing partner Omar Jaffrey.

Jaffrey previously headed Melody Investment Advisors, which in recent years snapped up hundreds of US cell towers from the likes of CTI Towers and Uniti Towers.

Building to suit

Parallel Infrastructure is described as a "build-to-suit provider" in the companies' release. Such language is sometimes used to describe cell tower operators that construct new cell towers next to existing ones in order to create more competition in the cell tower industry.

For example, investment firm Carlyle recently announced it would commit $1 billion into Tillman Infrastructure, a US cell tower operator that has engaged in the "build to suit" strategy.

According to the financial analysts at Wells Fargo, Tillman counts 1,700 cell towers and another 600 rooftop sites in the US. The analysts noted that the company has a reputation for being a "disruptive" tower company that has sometimes tried to entice carriers to move off existing tower sites in order to obtain cheaper pricing on one of its nearby towers.

AT&T, for its part, has been open about its interest in pitting cell tower companies against each other in order to obtain cheaper prices. In 2019 alone, the company may have terminated hundreds of tower agreements in the pursuit of cheaper tower fees.

More recently, AT&T scored a victory in its pursuit of build-to-suit towers. The Kentucky Public Service Commission approved AT&T's deal with Uniti Towers for a new tower in Wayne County, Kentucky. Tower giant SBA had attempted to scuttle AT&T's deal with Uniti Towers by preventing Uniti from building a new cell tower next to its own existing cell tower.

But Kentucky regulators didn't buy that argument. "SBA is a competitor with an interest in keeping tower rents high by limiting the number of towers," they noted in a January ruling.

Tower demand could wane

Broadly, demand for big, macro cell towers remains high in the US market. That's because Verizon, T-Mobile and AT&T are all in the midst of adding more radios to their cell towers in an effort to improve their 5G networks with new spectrum holdings, including midband spectrum like C-band and 2.5GHz.

That work – which generally involves higher rental payments to cell tower owners in order to add equipment atop towers – has helped boost the value of US cell tower owners. American Tower, Crown Castle and SBA Communications remain among the biggest cell tower operators in the US, followed by other, smaller operators like DigitalBridge's Vertical Bridge.

Dish Network too has been working to expand its new 5G network, and has already added its equipment to around 5,000 cell towers around the country.

However, the financial analysts at Wells Fargo warned that US operator interest in cell tower upgrades could slow in the coming years as Verizon, T-Mobile and other big operators put the finishing touches on their 5G network upgrades. "We still believe that new bookings for the towercos will slow by the end of 2023," they wrote in a recent report to investors.

"In other words, the strong commencement activity that is expected to accelerate in the second half of '22 will likely sustain into early 2023, but the back half of the year (and 2024) to us looks a lot more uncertain. It's certainly no secret that carrier capex [capital expense] levels will start to tail off in 2023 before stepping down even more in 2024," according to the Wells Fargo analysts.

However, some expect operator network spending to shift from big, macro towers to small cells over that same time period. For example, Verizon CTO Ed Chan recently said the operator plans to speed up its small cell buildout starting in 2023.

Small cells can help operators provide better speeds and more network capacity by densifying high-traffic areas with more transmitters. Small cells often sit atop light poles or rooftops and are generally much smaller than macro cell towers.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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