Why telecom towers are key to the 5G era
The main reason telco towers are key in the 5G era is because telcos realize that it is cheaper to share and/or lend out infrastructure than to start from scratch, and that tower companies may offer the best deal.
It's becoming increasingly important again, as the benefits of 5G networks require a lot of new infrastructure to operate. Not only does that mean mobile network operators need to upgrade, it also means investors are keen to spot new opportunities that could deliver quick returns in a world of 5G stocks.
Last year was supposed to be the year of mass deployment of 5G. Instead, it became the year of the COVID-19 pandemic, with deployment plans halted with unexpected drastic action.
However, telecommunications has become one of the most important industries during the pandemic and will likely remain so for the foreseeable future. It is a sector that has a significant impact on all other sectors due to its key role as an enabler.
In fact, despite 2020's unusual circumstances, many industries continue to grow. For the first time, connections between IoT devices have surpassed connections between non-IoT devices, according to a study. This growth would not have been possible without a robust infrastructure to ensure connectivity between so many devices.
Burdened with high debt and the prospect of high-cost investment in deploying 5G networks, telcos realize they have been sitting on an asset that investors are willing to pay dearly for: their towers.
After years of sluggish revenue growth, the industry has embraced the idea of sharing infrastructure to cut costs. For example, some of Europe's largest operators are now rethinking their approach to tower ownership, which could pave the way for a wave of mergers and acquisitions in a market where deals are already underway.
Why towers are key
Now, larger European operators are also starting to see the appeal of separating their tower assets.
The latest move shows that mindsets have been evolving. "Some operators have understood that better value creation opportunities do not come from outright sales, but from developing and growing the tower business," said HSBC Telecom analysts.
Tower companies typically lease space in their sites to wireless carriers under long-term contracts, generating predictable revenue streams favored by investors.
Of course, the motivation behind these moves is to reduce debt and take advantage of the potential for higher valuations of tower assets.
Tower companies typically lease space in their sites to wireless carriers under long-term contracts, generating predictable revenue streams favored by investors.
This is why telecoms also have an unprecedented opportunity to monetize their assets and infrastructure.
The rollout of 5G networks will further strengthen the case for tower outsourcing. With the arrival of 5G expected to spark a surge in data usage, operators will need more infrastructure. Many believe that tower companies are best placed to deploy it cost-effectively, which means more deals are likely.
As the construction of 5G networks continues at a rapid pace, the growing importance of telecom towers is reflected in operators' moves to monetize their assets and an increase in third-party investment.
The Brave New World would not be possible without the Tower Company.
