Fryer’s market analysis
It started with a laugh and quickly got serious. Jim Fryer, publisher of Fryer’s Site Guide, the industry’s comprehensive directory of antenna sites, obtained a copy of a report about the tower industry. The report was thoughtful, well articulated, properly laid out and wrong-very wrong, Fryer said.
“The first report I read stated that there were 35,000 towers in America,” Fryer said. “I had to laugh. Here was this Wall Street financial icon giving a total for the universe of towers, and it was wrong by a factor of at least five.”
The problem was fundamental. If the total universe of sites was badly miscalculated, then all presumptions following that fact were equally wrong.
Statements about the level of consolidation in the market, the total revenue from operation of all sites and the potential demand for sites in the future would each depend on the faulty site total.
“The effect of the miscalculation had a cascading effect,” Fryer said. “It undermined every other conclusion in the report.”
Soon, financial firms were churning out tower market reports on what seemed to be a weekly basis, and many firms picked up the earlier report’s estimation of the total number of towers in the marketplace.
“The estimations in the reports didn’t change until one of the financial firms, Lehman Brothers, called me and asked what the total was,” Fryer said, “I gave them a quick, informal estimate that they incorporated into their report.”
Fallout Centerpointe Communications, a Dallas-based tower-management company, was suffering the common problem of growing pains that can only be solved by financing.
“We were talking to venture capitalists and investment bankers about our inventory of over 1,000 managed towers,” said K.C. Wright, Centerpointe’s president. “After the first market report hit the streets, the interest in our company intensified, and we were elated, until we found out that the interest was being driven by an unrealistic view about the size of the industry.”
Rumblings from Wall Street to company boardrooms to Main Street showed Fryer that the fallout from the errant market reports was affecting many participants in the tower industry. Fryer noted that the expectations were based on a host of faulty information, and he decided to do something about it.
Fryer’s Market Report For longer than eight years, Fryer’s Site Guide has gathered, organized and checked information about antenna structures, compiling the most comprehensive database of site data available in the country. Fryer’s publishes a portion of the information in its directory series and sells customized data files in electronic format to industry professionals. Who better to report on the industry than the collector of the facts?
At least that’s what Fryer concluded when he decided that it was time for the tower and financial communities to get an informed opinion about the status of the tower industry
“To begin with,” said Fryer, “we took a hard look that numbers and concluded that the total number of towers in America is about 220,000 and that the number of towers will likely increase 13% in 1999.
“But even before we got to the estimations about the number of towers, we had to wrestle with the question of ‘What’s a tower?'” Fryer said. The issue is not as farfetched as it sounds. Lost in many discussions about the industry are all of the alternative methods of mounting antenna hardware, such as silos, rooftops, water towers and monopoles.
“And these uses are increasing over time,” Fryer said. “The public utility companies have been particularly resourceful.”
If you build it. The six or so market reports I have read do a poor job of identifying demand for tower space, a key ingredient in determining the overall health of the tower industry. Almost all of the reports focus solely on interconnected two-way systems as the source of demand for tower space. They read it as if only cellular, PCS and ESMR would build systems over the next five years.
Similarly, presumptions about the rate of buildout of these systems were not tempered with information regarding credit crunches or financial problems suffered by paging, operations, C-block PCS operators and other providers in bringing new services to the market or expanding existing systems. In sum, those market reports did not understand the challenges of the service side in constructing systems.
The result was a one-sided equation that included precedents for acceptance of conclusions such as: (i) if I build a tower, and (ii) if it costs this much to build and (iii) if I can get three broadband tenants within three years, and (iv) if I don’t suffer churn, and (v) etc. These ‘ifs’ were glossed over in the earlier reports from the financial powerhouses, leaving the reader to choose to either accept potential revenues as a sure thing or question the whole report.
“We’re heading straight at the ‘ifs’ and ‘buts’ that the other reports didn’t explore,” Fryer said. “Our objectivity allowed us to dig into the financial realities of operating a tower business, both on the demand and supply side and report on what we saw.”
Single tower economics Perhaps the most glaring mistake made in past reports was in the area of single-tower economics. A review of the market reports shows that the financial behemoths have never had to worry about windload and structural integrity. Based on the numbers used for standard evaluations by the financial reporters to determine the economics of operating a single tower, the cost assumed would have been enough to build a self-supporting 150-foot tower. This was deemed the “average” tower.
The reports suggested that this average tower could support panel antenna arrays mounted by as many as four broadband tenants. To a person who knows even a little about tower engineering, this appears to be a little shaky. Seems like a good stiff wind or badly timed ice storm would end the cash flow from that structure overnight.
“We noted that problem in the market reports, as well,” Fryer said. “Our report tries to provide a fact-based projection that doesn’t defy the laws of physics.”
In agreement After all of the problems and omissions noted in the earlier reports, Fryer did agree with one of their conclusions. “The old market reports concluded that the tower industry is strong, healthy and growing. We agree that the industry is doing well and will do well for the foreseeable future, and we prove it in our report. But that wasn’t what made us want to do this report,” Fryer said. “Investment in the tower industry should be informed investment,based on facts, data and experienced people’s opinions that actually know what it takes to derive revenue from the operations of a radio tower. That way, when Wall Street writes a company a multimillion-dollar check, it understands what it’s investing in and when its return on investment will be paid.”
There is a lesson to be learned by the circumstances that have led to Fryer’s Market Report. When a company is trying to get information about investments, it should check with the analyst that isn’t trying to sell it anything but information.