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Wireless Tower Industry: Shifting Carrier Network Design Means Lower Margins

|Includes: American Tower Corporation (AMT), CCI, SBAC

Wireless Tower Industry: Shifting Carrier Network Design Means Lower Margins

As Wireless Carrier Network Infrastructure Trends Shift Toward an Increasingly Heterogeneous Topology, Small Cell Proliferation, Increasing Operational Costs and Regulatory Compliance Threaten to Accelerate Margin Compression. American Tower (NYSE:AMT) Crown Castle (NYSE:CCI) and SBA Communications (NASDAQ:SBAC) are entering a new business model paradigm in addition to significantly increased regulatory & compliance requirements.

Implications:

Even though the availability of additional spectrum, increased smartphone penetration, imminent M2M proliferation and staggering data usage continue to catapult the demand for wireless services, carriers are faced with exponential and insurmountable network bandwidth needs and have chosen to employ cell division (small cells), offloading and WiFi integration to bridge the widening gap given the relatively small gains in available spectrum allocations, technology gains or spectral efficiency.

More Cells, Lower Margins From Competition:

It is critical to understand the impact of and shift to IP networks as traditional telephony architecture becomes progressively outmoded and economically inefficient. Until recently, the ability of a wireless provider to effectively compete was directly related to the scope and depth of their spectrum assets as deployed on macro cell towers.

A successful analysis of the wireless tower industry must necessarily integrate an unvarnished picture of current wireless service provider network infrastructure trends and how the current shift is re-defining carrier demand/capacity metrics and tower deployments.

Bill Stueber is the Senior Analyst at Telecom Partners Group and can be reached at bill@tpgllp.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.