In the U.S., there are so many wireless towers that they go nearly unnoticed as people travel down the highway. Like so many other things in the U.S., familiarity has bred content, but in many other countries, the luxury of near continuous coverage or choices between several carriers is simply not available. Governments want competition, though, which creates opportunities for companies like Tower One Wireless Corp. (OTCQB:TOTWF)(CSE:TO) to grow its footprint and capture market in still grossly underserved countries.
Tower One is one of only a handful of small capitalized companies in the tower and wireless infrastructure industry, with an emphasis on property selection, architecture, engineering and zoning acquisition. Differentiated from peers who acquire and sell towers, Tower One caters to the Build-to-Suit (BTS) segment of telecom. Tower One then leases the tower to network operators, tracking the market to provide the operators the best lease terms.
From its headquarters in Vancouver, the company is focusing its efforts on fourth generation (4G) and fifth generation (5G) long-term expansion (LTE) infrastructure in the Latin American markets that are experiencing strong growth, as well as tower services in the U.S. The U.S. market is supported through the company’s 70% owned, Miami-based subsidiary, Tower Construction and Technical Services Inc.
Tower One CEO Alejandro “Alex” Ochoa says that his company custom builds towers for about $50,000 – $75,000 and then leases them to network operators for about $15,000 per annum on 10-20 year terms with provisions for inflation and costs for additional equipment. Co-location agreements mean more than one operator can utilize a tower, delivering a quicker return on investment for Tower One.
With respect to efforts south of the U.S. border, Tower One started in Colombia, added Argentina last year and recently expanded into Mexico. As it stands, the company has over 40 wireless towers in Colombia and Argentina, more under construction and a pipeline of over 300 BTS towers. In March, Tower One acquired 80 new tower sites in Argentina, a move to keep up with demand.
Earlier this month, Tower One said it inked a definitive agreement to acquire an anonymous “Mexican-based private tower company,” giving Tower One exposure to an emerging market and a relationship with AT&T, a telecom giant that has been actively trying to take Mexican market share from Telcel. A unit of Carlos Slim’s America Movil, Telcel dominates the sector and is constantly fighting a battle to not be labeled a Preponderant Economic Agent, or AEP. AEPs are defined as controlling over half of subscribers in a market, making the AEP subject to higher fees, service limitations and potentially requirements to divest assets to level the playing field with competitors.
AT&T entered Mexico in 2015, investing $4.4 billion to acquire wireless operator Iusacell and the wireless assets of Nextel Mexico, while further committing to spend another $3.0 billion upgrading its network and improving LTE coverage. AT&T wants to reach about 100 million users by the end of 2018, essentially doubling its current coverage.
One of the problems in Mexico is a lack of cell phone towers. According to the Federal Telecommunications Institute, the Mexico telecom industry is comprised of only about 27,000 towers presently, well shy of the 80,000 estimated to be needed to create a competitive marketplace.
For comparison, Statistic Brain estimated that the U.S. market had 215,000 cell phone towers in use as of September 2017.
A tower shortfall is also a problem in Argentina. According to Ochoa, the country needs about 10,000 new towers in the next three-to-four years. The Tower One chief says this market will continue to be high priority for the company, owing to a lack of competition an unmet demand.
The present Latin American tower landscape couldn’t be a much better situation for Tower One to expand. These are countries that not only need coverage, but also capacity is nowhere near saturation like it is in mature markets.
The unnamed acquisition target is reported by the company to own, build and lease cellular towers in Mexico and have a Master Lease Agreement with AT&T, permitting it to be granted BTS opportunities for AT&T. Given AT&T’s initiatives in the country and the demand for competition, Tower One appears to have a great growth opportunity with realization of the merger.
Stateside, Tower One is active on the acquisition front as well, saying on March 26 that it entered an agreement to buy Process Cellular (ProCell), a general contractor specializing in the telecom industry and structural engineering/design. ProCell has been operating out of Southern California for over two decades with a client roster that includes the likes of Verizon, Sprint, AT&T and T-Mobile fueling over $17.0 million in annual revenue.
The plan is to bring ProCell under the Tower One umbrella as a wholly-owned subsidiary combined with its Tower Construction and Technical Services (TCTS) unit. This acquisition is a stepping stone for economies of scale at Tower One, facilitating cross-servicing clients across California, Texas, Florida and Arizona.
There is a global element here as well, as ProCell is an approved contractor for American Tower and Crown Castle that operate internationally and throughout South America.
To make a comparison of Tower One to its limited number of more established peers, whether in the U.S. or Latin America, is unfair and not apples-to-apples. What is fair to say, though, is that the upstart company does share the same majors as cleints as it competitors and the company is certainly gaining some material traction in the space. For example, since taking its stake in TCTS, the subsidiary has reportedly completed over $300,000 worth of tower construction and service work for T-Mobile and Ericsson.
Being little also comes with the benefits of being lean and agile, which allows for Tower One to explore and set up in new markets relatively quickly versus larger peers.
If the acquisitions of ProCell and the Mexican company are finalized as expected, the little $11 million company will further grow its portfolio, revenue stream and client base. Moreover, mobile network operators in Latin America tend to cross borders (i.e. Telefónica is found throughout Latin America), which provides Tower One an opportunity to build upon each relationship and the trend for operators to prefer to lease rather than own towers to control expenses.