Global Listed Infrastructure
Towers of strength on thecontinuum of coverage
Edmund Leung, CFA, Senior Portfolio Manager
For financial advisers and qualified / professional / institutional investors only

• We believe they are well suited toserve society’s growing mobile dataneeds today and in the years tocome, especially with new higherfrequency spectrum.
• New direct-to-smartphone satellite
fleets expand coverage further
but are not expected to provide
the same broadband-level user
experience as towers
Towers enable mobile data transformation
This paper asserts that macro towers will remain at the heartof a modern, mobile data communications network despite thecontinual development of new technologies.

Data communications networks have gone through an
extraordinary evolution as society has generated and consumed
ever-increasing amounts of data, while shifting to mobile atthe expense of fixed. Macro towers have been key enabling
assets as network architecture has evolved and mobile data
traffic has grown.
Exciting, innovative technologies (such as satellite direct-tosmartphone connectivity for Apple & Android) are announced
periodically, raising questions around whether they may
adversely affect demand for mobile tower space. The shortanswer is no, in our opinion. Moreover, we believe current
network architecture trends should see the network broughtcloser to users which will be a tailwind for tower demand.
The rest of this paper explores these views in greater detail.

1.

https://www.nokia.com/networks/mobile-networks/small-cells/

Figure 1. Mobile data traffic
120

100

80
Exabyte/month• Macro towers sit in the sweet spotof mobile network deployment,balancing wide-area coverage withhigh-speed network capacity.

April 2023

60

40

20

0
2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Source: Ericsson Mobility Visualizer, First Sentier Investors as at 31 March 2023.
1 exabyte = 1 billion gigabytes

The continuum of coverage

We would like to introduce the concept of the continuum ofcoverage. As a person moves through the physical environment
they are best served by different communication technologies.
Whilst coverage areas for each technology may overlap
somewhat, we believe they are complementary to each other,rather than competitive.
Telecommunication technologies involve a trade-off between
capacity (bandwidth or how ‘fast’ a connection is) and coverage(how far the signal travels). If coverage is wide, the wireless signal
is spread out over a larger area, typically reducing capacity.
Conversely, shorter range coverage should see the highest capacity.
Traditionally, data networking activity was performed in anindoor environment such as a home, workplace or school with aphysical wired connection. As the use of smartphones, tabletsand laptops grew, that activity evolved wirelessly using Wi-Fi
which provides high capacity - albeit at a limited distance of up
to 50 metres (or less). Despite the usefulness of Wi-Fi, mobile
has served as an increasingly important tool for communicationneeds as cellular signals began to penetrate buildings andspeeds reached broadband-like levels. In fact, network
equipment manufacturer Nokia claim that 80% of mobile data
now originates from mobile users located indoors1.

As the user moves outside into a dense urban area, their signal
may be handed off to the next source of network connection,
perhaps a rooftop cell site or, increasingly, a small cell antenna
system installed on street lights and other street furniture.
Here, the range of coverage is typically up to 200 metres but insome cases can be up to two kilometres.
Figure 2: your Tower analyst at a CBD/downtown small cell system in Houston

Beyond that, as the user moves to rural areas, population
density decreases further and coverage becomes sparser.
Telecom operators (excluding coverage obligations) need tomake commercial decisions around whether there are enoughsubscribers to justify servicing these areas. Beyond that,in remote and wilderness areas, our user’s only means of mobile
communication may be through a (non-smart) satellite phone.
We believe there is no one-size-fits-all solution for wirelessnetwork deployment; and that the best solution is a balance ofproviding the highest bandwidth to the largest number of data
users whilst minimising capex and opex. Wi-Fi is acceptable
for an indoor environment but only covers a modest area.
A small cell covers a greater area than Wi-Fi and provides highcapacity which is well suited to a densely populated urban area.
However, we estimate that many of them would need to be
deployed to cover the area that could be serviced by a single
macro tower, making small cells a more expensive choice.
Figure 3: Relative coverage areas of Wi-Fi vs Towers

Small cell

WiFi

Tower
Source: First Sentier Investors estimates
Actual range depends on other factors including but not limited to power, terrain, buildings
For illustrative purposes
Source: First Sentier Investors

Once the user reaches a suburban area where people are more
widely dispersed, the density of people requiring a wirelessconnection declines. At this point, users are served by macro
towers with coverage of several kilometres or more. Towers occupy
the sweet spot of deployment choice. They provide coverage to alarge area with sufficient bandwidth capacity, in locations wheresubscribers predominantly live and work.

It is tempting to seek the next technology, which can propagate
wireless signals further than macro towers. However, we soon
begin to trade off coverage for capacity. Experimental aircraft
or satellites are many times farther away from the ground than
the tower. This materially reduces the bandwidth available atthe smartphone, to the extent it is not a competing broadbandspeed connection. These solutions likely have a place for remoteor wilderness locations where users are scarce.

Stay in your lane

Over the 15 years that we have researched and invested
in the tower sector, a number of novel inventions havepromised to provide alternative means of mobile connectivity.
However, we believe that none have offered the same benefitof cost/coverage/capacity as towers. Many have since
been discontinued; today none, in our view, pose a material
competitive threat.
Figure 4: Distance from smartphone to wireless network signal
100,000

10,000Kilometres

1,000

Satellites
Not all satellites are created equal. Earlier GEO2 communications
satellites orbit 35,786km above Earth. Ground users require alarge satellite dish to send and receive a signal. Once again,
the distance between the user and the network source (thesatellite) has proved too great, resulting in reduced capacity.
Newer generations (LEO3) have generated much attention for all
the right reasons; backed by successful entrepreneurs/founders(Elon Musk’s Starlink, Jeff Bezos’ Kuiper) and the prospect of
direct-to-smartphone connections (no need for a satellite dish4
or separate smartphone for Apple5/Globalstar, Qualcomm/Android/Iridium6, AST SpaceMobile or Lynk)7. With credible
backers from some of the most innovative companies in telecomand tech, LEO satellites represent a potential threat to towers thatdeserves to be taken seriously.
Figure 5: Qualcomm’s Android chip requires the user to be outside andpoint to the sky

100

10
4:39PM

17%

1
0.1

WiFi

Small cell

Tower

Balloon

New Satellite
Trad.
(LEO)
Satellite (GEO)

Source: First Sentier Investors estimates as at 31 March 2023
Log-scaleConfidential – Qualcomm Technologies, Inc. and/or its affiliated companies – May Contain Trade Secrets

Solar-powered planes or balloons
Proponents of these unmanned systems were typicallytechnology companies seeking to extend internet connectivity
towards previously unserved communities – thus increasing theaddressable market for their own services. These systems were
designed to fly at an altitude of between 15–30 kilometres (km)and stream data connectivity to the ground.
We were sceptical, believing that the long distance between
aircraft/balloon and smartphone would compromise the capacity
available to the end user. Both of these projects have been
quietly discontinued in recent years.

1

Source: Qualcomm as at Jan 6 2023.

However, one constant that is harder to disrupt is the lawsof physics (see section below on Inverse square law ofelectromagnetic radiation). These newer satellite fleets,
whilst closer to the ground than legacy fleets, still have orbits
in excess of 500km. This distance diminishes the bandwidththat reaches the end user. It does not surprise us that Apple,
Qualcomm and T-Mobile are championing an SMS-type service
rather than a low-latency, full-service broadband replacement.

2. Geosynchronous earth orbit
3. Low earth orbit
4. Starlink has multiple satellite product offerings. There is an operational fixed broadband product that offers cable/fiber-level broadband speeds but requires a pizza-box sized dish on the groundor rooftop. In late 2022 they announced a proposed direct-to-smartphone partnership with T-Mobile that intends to connect directly to smartphones
5. Apple announced in September 2022, started US & Canada operations November 2022. Expect to use Globalstar’s 1,414km altitude LEO fleet
6. Qualcomm and Iridium announced satellite-based messaging solution for select Android phones in February 2023
7. For illustrative purposes only. Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same.
All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.

Even the US Federal Communications Commission8 has
acknowledged the limitations, noting that “these early spacecommunications projects will not provide high-speed broadband
from the stratosphere to our phones. But to start, they coulddeliver low-bandwidth connectivity suitable for emergency calls
and texts in remote settings where terrestrial networks do notreach”. Furthermore, the smartphone user needs to be outside,which is at odds with where the majority of data is used.
Figure 6: Trade-off between distance and throughput at the smartphone
10,000

100

1,000

75

100

50

10

25

Tower
Kilometres (lhs, log-scale)

Starlink

Apple

YouTube/Netflix

0

Speed, Mbps (rhs)

Source:First Sentier Investors estimates as at 31 March 2023
Tower
Speedtest Global Index Mobile USA January 2023
Starlink/T-Mobile Elon Musk 2-4Mbits per cell zone
Apple
Emergency SMS only; Globalstar satellite phone data speed proxyYouTube/Netflix Recommended speed for 4K video (15-20Mbps)

While technical details are limited at this point in time andtechnology may change, Figure 6 illustrates the trade-off
between distance and throughput at the user device for thevarious technologies. The average American mobile user
can download at 80Mbps9. As a comparison, the chart also
include the recommended connection speeds of popular video
streaming services - well in excess of what these direct-to-phonesatellite systems plan to offer.

Inverse square law of electromagnetic
radiation10
Mobile data networks are built using radios and antennathat generate a wireless signal on the electromagnetic
radiation spectrum.
Signal strength is inversely proportional to the distancefrom the source squared. That is, if you double thedistance, the power is one-quarter of what it waspreviously.
Given satellites are multiple times farther away from thesmartphone than a tower, this law magnifies the reduction
in signal strength and thus throughput to the end user.

Heading in the wrong direction

While these new technologies involve deploying wireless signals
further away from the user, the structural trend in mobile network
deployment is to bring the signal (and equipment) closer to theend user.
The overarching driver behind this is fast-growing mobile data
demand rapidly consuming wireless network capacity. Network
equipment provider, Ericsson estimate current mobile network
data growth in excess of 40% per annum, after growing atgreater than 50% for most of the prior decade (Figure 1).
Mobile network operators11 create extra capacity by densifying
their cell sites (installing more of them, closer together) and bypurchasing more spectrum from regulators.
Densification of cell sites (or “cell splitting”) occurs when asecond or third cell site is deployed on a nearby tower to takemobile traffic off a congested cell site. In the United States thisbenefits tower companies as wireless carriers sign a new lease
to collocate on tower space to install another set of radios andantenna on the adjacent site.

Therefore, we believe that satellite broadband connectivity lies atthe end of the continuum of coverage and is unlikely to displace
macro towers as the key enabler of mobile networks.

8. Chairwoman Rosenworcel Keynote Address to Mobile World Congress February 2023
9. Megabits per second
10. We are infrastructure investors and not telecom engineers so please excuse our simplification
11. We use the terms mobile network operator, wireless carrier and telecom operator interchangeably for our UK/European, North American and Australian readersLow-band spectrum typically propagates long distances, andis very effective for voice and SMS applications. Mid-band
spectrum does not travel as far, while high-band spectrum has
the smallest coverage radius, all else being equal. As the newer
spectrum is in the mid to high-band range, this has a positiveeffect on cell site density compared to low-band spectrum as thesites need to be closer together (Figure 9).

Figure 7: Tower and small cell owner, Crown Castle’s view of network
densification
Wireless congestion
happens when too
many people try to use
the same cell site atonce.

The best way torelieve wirelesscongestion is to
add new
infrastructure.

In addition tomacro cell sites,
carriers are adding
more capacity inhigh traffic areas
with small cells.

With increased data
usage, all that extra
demand can quickly
overload a cell site’scapacity.

Figure 9: Wireless carrier, T-Mobile's, illustration of the coverage radius ofdifferent spectrum bands

Source: Crown Castle Investor Presentation February 2023

At the same time as cell splitting, regulators have been andcontinue to allocate more spectrum to telcos to facilitate
mobile network capacity growth. Prior generations of mobile
network technology (2G 3G) were based around low-band/
frequency spectrum. As these bands near exhaustion, regulators
have been progressively unlocking under-utilised12 mid-highband spectrum for 4G and 5G. These higher frequency bands
also enable the higher capacity and lower latency performance
benefits of 4G and 5G.
Figure 8: US spectrum allocations have been towards higher frequencies13
Illustration of some US mobile spectrum allocations over time4000

Most of the time, mobile network operators deploy new
spectrum by adding extra antennas and radios to the towersthat they use. In industry parlance, this activity is called anamendment. The monthly tower rent increases to accommodate
the extra equipment.
The result of this network deployment activity manifests itself
in steady growth in tower revenue over time. In Figure 10,
we highlight the three listed US tower companies, American Tower,
Crown Castle and SBA Communications as that country has themost established independent tower market with the best industry
structure to monetise these demand trends.

3000
Spectrum frequency (MHz)

Source: T-Mobile

2000

1000

0
1980

1990

2000

2010

2020

2030

Source: FCC, First Sentier Investors as at 31 March 2023
Spectrum is allocated/used in bands rather than a point as depicted (for simplicity)
2.5GHz had multiple ownership changes, 2014 depicts material mobile deployment
Not exhaustive

12. As a sign of technological advances and the disruption mobile data & wireless communications has caused to traditional business models, recent US spectrum re-allocations have been away from TV
broadcasters (600Mhz) and satellite operators (C-band, 3.7Ghz).
13. This figure excludes millimetre wave high-band spectrum auctions in 24GHz-47GHz ranges

Conclusion

Figure 10: US listed towers' domestic revenue

Smartphone users’ data connectivity needs are met by a rangeof technologies as they move through the physical environment.
Towers have an acceptable trade-off between coverage
range and data speeds compared to existing and planned
technologies. In fact, as higher frequency spectrum is unlocked,
the structural tailwind is for mobile network equipment to be
deployed closer to the end user.

12,00010,000Millions

8,000

6,000

Figure 11: SBA Communications tower in suburban Florida

4,000

2,000

0

2013

American Tower

2014

2015

2016

Crown Castle

2017

2018

2019

2020

2021

2022

SBA Communications

Source: Company reports, First Sentier Investors as at 31 March 2023
Material M&A: AMT 2015, CCI 2013

In the future, we may see scenarios where even greater usageof mid to high-band spectrum drives further cell splitting anddeployment on outdoor small cells, which, as described earlier,have shorter radius propagation characteristics than towers.
The deployment of small cells has been challenging in recent
years as carriers favour the cost and coverage benefits ofmacro towers.
Small cells rely on optic fiber in the ground, some of which
has not been laid or is not of sufficient quality to serve
wireless networking. The zoning, permitting, and construction
process is lengthy (leading small cell developer Crown Castle
claim 24-36 months) which contributes to carriers leaning
towards colocating on an existing tower.
In years to come, there may be a scenario where small cellsystems built today find a niche in network deployment as themacro tower-deployed network capacity is used up and everhigher spectrum frequencies require antennas to be locatednearer to smartphone users. Crown Castle and Italian towercompany, INWIT, have small cell aspirations and we believe
would be well placed to benefit from this.

Source: First Sentier Investors

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