Verizon-AT&T Team Up With Tillman To Construct Cell Towers

U.S. telecom service providers Verizon Communications Inc (NYSE:VZ) and AT&T Inc (NYSE:T) are collaborating over a cell tower deal. Although, they compete fiercely in the domestic wireless market, their partnership marks a new move in the lucrative wireless-tower industry.

AT&T and Verizon have inked a joint deal with Tillman Infrastructure to build cell towers in the United States. Privately held, Tillman is the owner and operator of towers, small cells and smart cities infrastructures. Per the deal, Tillman will construct customized towers and lease it to Verizon and AT&T. Construction work of the towers will begin in the first quarter of 2018. Installation of equipment in the already completed sites will begin as soon as possible.

Currently, both Verizon and AT&T carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These new structures will add to the overall communications infrastructure in the country and will fulfill the availability of towers in newer locations. The build-outs will also help the wireless carriers relocate equipment from their current towers.

The companies are focusing on technology innovation, with further investment in the updated software platforms to provide the best customer experience in their network.

The Motive

The partnership implies that the biggest U.S. wireless carriers are willing to strike deals with other vendors to secure prices for towers. Moreover, carriers are always looking for alternative partners to reduce their dependence on specific customer base, thanks to the already saturated domestic wireless market.

Domestic telcos are moving away from traditional tower leasing model, in order to cut down spending as data consumption continues to rise. Notably, these companies plan to create a diverse community of suppliers and tower operators, to maintain a healthy market competition.

Additionally, AT&T and Verizon are striving to expand their network capacity in order to meet consumers’ demand for more cellular data. The companies are also reviewing their long-term contracts for renewal and trying to gain new vendor partners to diversify their infrastructure lineup.

The Consequences

The U.S. cell tower market is currently dominated by three companies — American Tower Corp. (NYSE:AMT) , SBA Communications Corp. (NASDAQ:SBAC) and Crown Castle International Corp. (NYSE:CCI) .

Customer concentration is very high for these tower companies as they heavily depend on the top four wireless carriers — Verizon, AT&T, Sprint, T-Mobile US — for a major part of their quarterly revenues. The loss of any of these customers or consolidation will have a negative impact on the companies’ top line. Moreover, the ongoing consolidation trend among telecom and cable-TV operators may generate significant financial fluctuations for the company.

In such a scenario, the joint venture move is sure to pose severe competitive threat to established tower companies.

Price Performance

Despite such positives, the wireless carriers portray a disappointing price performance. In the past month, shares of AT&T and Verizon have lost 4.9% and 10.9%, respectively, compared with the industry’s decline of 8.4%.

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