The Economics of Cell Phones and Towers

Wiki Cell Phone

Excerpts:

There are more than 4.3 billion active cell phones in the world. With close to 300 million in North America.

In the US, cell phone subscriptions have surpassed land-lines. 285 million cell phones compared with about 150 million land-lines.

Now, the population of the US is about 308 million. That means only 1 out of 10 people doesn't carry a cell phone? Many people have multiple cell phones, for work, personal etc. But even young children are starting to carry cell phones because perhaps it gives the parents the peace of mind knowing they can reach their children any time and anywhere.

80% of teens own cell phones, and more than 50% text regularly. (see mobilemarketingwatch.com)

Almost 20% of homes in the US don't have land-lines anymore. With an additional 14% using cell phones almost exclusively even with land-lines at home. (cdc.gov 2009)


Number of cell phone subscriptions is not the only thing to consider in the economics of cell phones.

First came texting. Texting had surpassed phone calls, especially among those between 13-29 years in age. (texting nielsen.com, another on nielsen.com)

Now is the era of Smartphones. More than 25% of cell phones are Smartphones. (Smartphones nielsen.com, another on nielsen.com)


How much do people pay for their cellular subscriptions?

According to The Nielsen Company, average monthly cell phone bill is about $78 in 2009.

Do the math, 285 million cell phones in the US, multiply by $78 by 12 month: that is about $267 billion just on cell phone subscriptions alone.

Note: A projection from 2006 TIA press release claims that "total spending on wireless services is expected to reach $180.4 billion in 2009". (see TIA)

Even with the current economic problems, cell phone subscriptions continue to grow. Revenue for cell phone operators continue to rise. Demands for coverage and bandwidth continue to increase.

In short, people would rather cut their spendings on food than to reduce their cell phone usage, by going with a cheaper plan etc.


Demand is the first reason why Cell Phone Towers are sprouting up everywhere.


Cell Phone Towers are big money business. Two major CPT owners are American Tower and Crown Castle.

According to an inside source at American Tower, not all CPTs are created equal; a well-located CPT could fetch well over $300K in revenue per year.

See report on global tower market.

Excerpts:

The global addressable market for cell tower lease revenue is over $81.5 billion per year. The challenge is that most of this opportunity is not capitalized since mobile operators in most countries own and manage their own cell towers. Some partake in cell site sharing to reduce costs, but the model of third-party management is not widely implemented. The U.S. and Indian markets are the two markets where this opportunity hasn't gone un-noticed and third-party companies manage operator's passive infrastructure. In the U.S., cell tower operators like American Tower Corp. and Crown Castle International Corp. managed and/or operated approximately 30% of the over 260,000 cell sites in operation in the United States in 2009. The remaining sites are operator owned and managed or managed by property owners.

In North America, the total opportunity for cell-site leased revenue is $17.86 billion based on 2009 cell site numbers and average revenue per site. This does not include the opportunities for engineering firms to construct or augment existing towers. Only about 21% of this opportunity was realized in 2009. The average revenue per cell tower is $64,150 and average tenancy ratio is about 2.7.

Even in this recession, cell site business is booming as operators are forced to add new sites to reduce churn and remain competitive. For example America Tower has added 1,300 sites since the third quarter of 2008 and Crown Castle saw a 38% increase in tenant applications and a 12% site rental revenue increase. 


For North America, most of the new growth will be in the coastal markets such as New York, Seattle, Los Angeles, Boston and San Francisco. There are also a lot of opportunities in Canada where Telus Mobility and Bell Mobility are launching HSPA networks that require new towers. In addition, a new mobile operator, Globalive Communications Corp. was set to enter the market and began building out a HSPA network, also requiring new cell sites. In the United States the following activities are talking place which will positively impact cell tower deployments:



• New towers are required by companies such as Clearwire Corp. which plans to deploy about 20,000 cell sites and is already leasing over 12,000 sites;


• Verizon Wireless and MetroPCS Communications Inc. are both planning LTE launches for 2010 and although the companies are planning to re-use existing sites, new tower construction may be required or augmentation to existing sites;
• AT&T Mobility will add more sites due to capacity constraints in its current 3.5G network;


• Cox Communications Inc. is building a new CDMA network in the AWS band;
• Sprint Nextel Corp. will have some growth.



The North American cell tower market remains strong even in one of the worst recessions seen since the Great Depression.


Profit is the second reason why Cell Phone Towers are sprouting up everywhere.


If you want cell phones, you will have to accept Cell Phone Towers, even if they are in your backyard.

But err on the safe side, put the CPTs somewhere else, away from schools, parks and places where children gather.