Tower stocks have been up ~ 15% (1) year-to-date and have significantly outperformed data centers of late. The reasons for this are not overly surprising: lower interest rates, market rotation toward ‘safer’ investment models, the overhang around DeepSeek and Microsoft pullback fears for data centers, and Crown Castle’s (CCI) recent announcement that it is going back to its ‘pureplay’ tower roots.
While the momentum headlines may be back for towers, more importantly, the underlying fundamental drivers of the business are also improving – namely around wireless carrier spending.
For the first time in three years, the top three wireless carriers (AT&T, Verizon and T-Mobile) are increasing their capital spend on a year-over-year basis in absolute dollar terms. Specifically, the combined capital expenditure guidance from the three major carriers indicates a 7% increase from 2024 levels. (2)
This represents an extremely important shift. Since the spectrum auctions of 2020–2021 (C-Band and 3.45 GHz), the carriers have reeled back spending the last few years and operated in balance sheet repair mode. AT&T has been messaging its goal of returning to a 2.5x leverage ratio since the conclusion of the 3.45GHz spectrum auction (Q4 2021). If all goes as planned (putting aside recent Lumen asset purchase speculation), it will reach this goal in the next quarter (if not sooner).
Shifting back to towers. On March 13th, Crown Castle (CCI) announced the long-awaited (yet highly anticipated) sale of its fiber portfolio. While the price of the sale was half of the capital CCI used to buy these fiber assets, sometimes a band-aid rip is what is most needed.
While carriers and the towers that serve them are not typically viewed as “comps,” CCI’s recent move may make such a comparison appropriate. Why? Well, CCI fiber sale reminds me in some ways of when AT&T divorced itself from media three years ago. At that time, AT&T management lived true to one of my favorite quotes: “If you find yourself in a hole, stop digging.”
With the sale of its fiber assets, Crown Castle also put down the shovel.
Both of these strategic moves – AT&T (selling its media assets) and Crown (selling fiber) – represented a purposeful decision to return to their respective roots to do what they know best. In the case of AT&T, that was its network. In the case of CCI, that is plain old towers. (Sidebar note: Since AT&T’s sale of Time Warner, its stock price is up 51%) (3)
For years, a persistent valuation gap has existed between public tower companies (trading at 22-24x EBITDA) and private tower transactions (some commanding multiples 32x+ EBITDA). This disparity largely stems from the complexity discount applied to public tower operators that have diversified into adjacent businesses – fiber, data centers, international operations. Such moves have created more complex investment narratives. It is clear investors reward simpler, U.S.-focused “towers only” business models with premium valuations. These elevated multiples give credence to the fact such streamlined strategies offer fewer potential distractions or capital allocation missteps.
Despite some “fun” management turnover this week, the simple fact remains: CCI’s strategic realignment positions it as the only domestic pureplay publicly traded tower company. Given the resurgence in carrier spending and the clear market preference for US tower businesses, Crown Castle’s decision to “rebuild its castle” around its core tower assets may prove to be well-timed.
Footnotes:
- Factset
- AT&T, Verizon and T-Mobile Q4’24 earnings reports
- Factset