Cohen & Steers research analyst Humberto Medina explores how cell towers—one of the more compelling growth stories we see in the REIT and global infrastructure market today—could be key beneficiaries of the upcoming buildout of faster 5G wireless networks.
Humberto Medina: One of the more compelling growth stories we see in the REIT and global infrastructure asset classes today is how cell towers stand to benefit from the upcoming build out of faster, fifth generation wireless networks.
Tower companies lease the space on their tower structures to multiple tenants, including: wireless carriers, government agencies and broadband data providers.
By 2021, Cisco estimates that global mobile internet traffic will be seven times the level of 2016.
This explosive growth in data traffic is driven by the interaction of two key trends: 1) An expected 50% increase in connected wireless devices by 2021, and 2) A positive step change in the amount of data consumed per device, as users upgrade to new smartphones, tablets and adopt new applications.
New technologies like ultra-HD video, augmented reality and connected self-driving cars, consume large amounts of data.
For instance, Intel estimates that a continuously connected self-driving car would consume as much data in a 1.5 hour ride as 1,000 smartphone users would in an entire month.
To meet this future torrent of data, wireless network carriers in the U.S. and other developed countries are starting to invest in 5G, which will be commercially available in select urban areas before the end of this decade.
If you think of the wireless network as a toll road, 5G would have significantly larger lanes for wireless traffic and dramatically higher speed limits than 4G—in both cases 100x greater.
This improvement in speed and bandwidth, as well as a 10x improvement in response time, will help drive adoption of next-generation technologies.
Achieving 5G standards will require dramatically denser networks, which implies meaningful incremental demand for cell towers and massive deployments of smaller cell solutions.
Specifically, tower companies might benefit from: 1) higher tenancy, 2) higher rents from amendments to existing leases needed to place new equipment, and 3) new opportunities to build both towers and small cell sites.
Each new generation of wireless technology has required a greater level of investment from U.S. carriers, which closely correlates with tower leasing activity. We believe 5G will be a continuation of this trend.
We expect tower stocks to grow cash flows at rates meaningfully higher than the global infrastructure and U.S. REIT sector averages.
For example, we estimate listed U.S. tower companies will grow cash flow per share by 10-11% in 2018, significantly higher than the average growth for infrastructure and REIT stocks.
In closing, we believe tower companies could be key beneficiaries of the upcoming wave of 5G investments and current stock valuations may not fully reflect this opportunity.
To learn more about how the infrastructure and REIT asset classes serve the digital economy, please visit cohenandsteers.com/insights.
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