This summer the FCC are staging the 600 MHz auction. This is designed to sell on spectrum at the 600 MHz point from a number of broadcasters and into the hands of the North American carriers. The auction will feature several stages and the FCC is needing to balance the need to ensure the broadcasters obtain a fair price for the spectrum with making sure that the smaller carriers, less able to invest in spectrum, are not bullied out of place by the larger carriers. It is not clear how long the auction process will take with some industry pundits citing that the process could be finished by August 2016. However, depending on the amount raised as part of the auction, it is likely that things will extend into 2017. The 600 MHz auction is expected to help shape the carriers’ network plans for the coming few years. This low frequency spectrum is considered especially valuable by the industry as the lower the frequency, the greater the signal propagation – that is, the further it can travel from the mast, especially through buildings. As such, 600 MHz spectrum is very useful for the carriers as it will allow them to easily and quickly provide coverage over a wide area with relatively few masts compared with higher frequency spectrum.
However, there may be a side effect of the auction: as the carriers are concentrating on the auction, they may reduce their infrastructure investment into cell masts and towers, especially if the results could change how their network is deployed in the short to medium term. And today on this theme, two separate research notes have been published on infrastructure providers, Crown Castle and SBA Communications, taking a look at anticipated earnings reports in the coming months. The simple message is that investors may wish to overlook these companies in the shorter term until the 600 MHz auction is complete. Instead, investors are being guided towards other parts of the communications infrastructure market, that is, towards the data centre operators.
In the detail, the carrier infrastructure providers continue to offer solid long-term potential. In the shorter term, Crown Castle should benefit from its exposure to small cells, which is seen as a growth area from the carriers. Small cell sites are designed to provide spot coverage and often use higher frequency signals, as their shorter range is much less important here. Crown Castle also benefits from no exposure to foreign exchange (which is a business risk because the value of foreign currency rises and falls depending on the exchange rate). The research note also believes that Crown Castle’s purchase of Tower Development Corporation has an unfairly conservative outlook, which could easily be improved and so increase the value of the stock. Conversely, SBA has elements of exposure to the South American market and has an element of currency risk, but the weak dollar is currently helping the business. For the longer term, the cellular tower market is considered to be a growth area. It is possible that any lull in short-term prospects will be short lived, although it is also equally possible that the FCC auction will extend well into 2017 and this could dull the sector for some time yet.