Crouching Market, Hidden Towers

When cell tower concealment first started developing on the West Coast several years ago, few were surprised that the handful of companies dabbling in the space found willing markets. After all, wireless carriers continuing to build out their networks often meet with harsh civic resistance to new towers, particularly in more scenic environments.

What few anticipated was the expansion of the concealment segment into virtually every geographic region, or the variety of structural designs — including trees, clock towers and church steeples — that towers now assume. Indeed, in an otherwise bleak tower market, concealment has become a bright spot, in part because carriers have reasoned that it's cheaper to shell out more for a concealed site than it is to fight zoning boards and angry residents.

“I don't think carriers would put in disguised structures unless there was a really good financial reason for it,” said Patrick Deloney, vice president of sales and marketing for Engineered Endeavors Inc., a division of Emerson's Network Power business.

Deloney said he has seen the market make a significant shift since cell sites first started blending into their surroundings in the mid-1990s. Starting in California and the coastal regions of North Carolina around the same time, concealment technology has evolved to the point where regulators in virtually every region of the country are now looking for ways to hide towers.

“It's sort of a geographical answer,” Deloney said. “In some cases, particularly in California, it's almost a mandate [to conceal the cell site]. In the central cut of country, the majority of towers are conventional — but the pendulum is starting to swing.”

Even in rural areas where one might expect a greater acceptance of towers, some carriers are still being forced to hide the structures in silos and church steeples, or on light poles. U.S. Cellular has seen an increase in the number of zoning boards demanding some sort of concealment.

“It's still a small percentage, but it depends on the jurisdiction,” said Hichem Garnaoui, U.S. Cellular's vice president of national network operations, who estimates that the company disguises a little less than 5% of its sites. “Sometimes in suburbs that want to keep their cachet of being old cities, we have to do it. And in California, even the more rural areas, they are quite particular. Everyone wants a signal, though.”

EEI, likewise, has seen the spread of concealment demands out of moneyed urban areas “into commercial areas and into areas that you wouldn't say are particularly affluent,” Deloney said.

U.S. Cellular follows a fairly specific formula for determining whether a site warrants concealment, according to Garnaoui. A typical tower can run anywhere from $50,000 to $300,000 depending on its location, height and structure. Add a facade such as a palm tree, and it's an additional $150,000 to $300,000.

“We look at the expected minutes of use and the expected rent on the site,” Garnaoui said. “Most of the time, it makes a lot sense, unless it's really in the middle of nowhere.”

That formula is music to the ears of those few concealment technology vendors such as Stealth Network Technologies. Though Emerson doesn't break out numbers for its subsidiaries, anecdotal evidence suggests that the concealment market is poised for sharp growth. “I was with a customer out west, and they were talking about 90% of new towers needing concealment,” Deloney said.

EEI was originally founded as a supplier of traditional towers, but it branched into concealment as resistance to the traditional monopoles rose. And while every site is customized to some extent, Deloney said there has been an increased need for the company to create rooftop concealment structures such as church steeples and bell towers. EEI also unveiled a series of concealment panels this month that are designed to mimic the architecture and materials of buildings where antennas are placed.

According to PCIA, there are about 37,000 different zoning authorities in the U.S. that have the ability to stall the construction of wireless towers. Moreover, the cost of negotiating with those local powers is increasing. Though virtually impossible to measure, concealment technology does have the benefit of cutting down the time it takes to get tower projects approved.

“We don't go in right away and offer it,” said Garnaoui. “But it's one of the tools we have in our toolbox.”

The rise in concealment couldn't come at a better time for the tower market. Over the last year, four of the largest publicly traded tower companies — American Tower, Crown Castle, Spectrasite Holdings and SBA Communications — have been hammered by investors concerned with falling revenues. Spectrasite, in fact, has been rumored to be on the verge of bankruptcy.

In early October, Standard & Poor's Ratings Services put American Tower, Crown Castle and SBA on credit watch with negative implications, noting that the three companies had a combined debt load of about $8 billion as of the end of the second quarter. The listing was spurred by S&P's feeling that a weak U.S. economy, combined with carriers' increased willingness to pursue consolidation and network sharing, would make it difficult for the companies to pay off debts accumulated in the late '90s, said Michael Tsao, S&P credit analyst.

To those in the still-small concealment sector, though, the economics of hiding antennae is a bright spot that is only going to get brighter with the deployment of 3G services in large markets.

“Most of the 3G platforms, at least on paper, will require more sites,” Deloney said. “The more sites required, the closer they're going to be and the lower the antenna elevations are going to be. So the need to conceal them — and making them look like things we're familiar with — is going to increase.”

---

With additional reporting by Toby Weber in Chicago.