The good, the bad and the ugly—it's an apt description of the current state of the cellular tower industry and what it means for metals fabricators and other suppliers that service it.
On the bright side are strong market fundamentals driven by a variety of factors, including wireless services being used for more minutes both through traditional cellular phone handsets and wireless broadband access cards for laptop computers, Stan Catey, vice president of cable products and towers at the Andrews Wireless Solutions Group of CommScope Inc., Westchester, Ill., said.
Dimming the view is the margin squeeze being felt due to rising raw materials costs, which suppliers have found hard to pass along in a very competitive market.
Then there is the downright unsightly Despite strong cellular market growth, rocketing materials costs are likely to quash some plans for new tower construction.
Some regions are tougher than others, a spokesman for cellular tower manufacturer Fred A. Nudd Corp., Ontario, N.Y., said. There are some areas of this country, like New York, where the tower market is becoming saturated, resulting in soft tower demand, especially during an economic downturn. He added that he sees cell phones as a discretionary item and not absolutely necessary when you are financially strapped.
However, Brian Gibson, fabrication and sales manager at Trinity Products Inc., O'Fallon, Mo., is more optimistic. While the first quarter was a little softer than it had been at the end of last year, he said activity was still good.
"All in all I think that 2008 will be another good year with about 5 percent growth and that the market will remain strong for at least another two years, given that with new technology there is a need to put cellular towers closer together. Previously, wireless carriers needed towers to be, on average, about five miles apart. But now they are looking at having them about three miles apart," he said.
For a while, growth had been restrained somewhat by the way people tend to look at cellular towers, which generally use flat-rolled, structural angles and tubular products for the structure, as well as copper or aluminum cabling going from each antenna to the "shelter" area of the tower.
"Towers are treated like real estate by their owners," Bruce Yim, president of Excel Tower Services Inc., Charlotte, N.C., said. "They put multiple carriers on one tower and charge them rent."
While this "co-location" trend continues, there can only be so many "renters" per tower. "More and more towers are reaching their maximum capacity," he said, which should continue to result in increased tower erection and/or renovations of existing towers.
"Structurally, towers are engineered for a certain load," he said, "And now people want to increase the load capacity of the towers, sometimes by beefing up some steel sections."
This "beefing up" process is usually more common in self-supporting lattice towers and varies greatly by project, Yim said. "They could go with a thicker grade of steel, with more angles added to the flat roll. It is all engineered. It depends on what is currently on the tower, what is proposed to be on the tower, what the wind load is and a number of other factors. Sometimes we are asked to just change six horizontal angle pieces. Sometimes we change up to 50 percent of the tower," he said.
However, rising costs of materials including steel could have a dampening effect on both new tower erection and tower renovations, Gibson countered. Both flat-rolled coil and plate prices have increased substantially—about 50 percent in just the past two months or so. "A lot of companies haven't budgeted enough for that kind of increase," he said.
Other materials have also increased substantially in price, including copper and aluminum, Catey said, adding that pricing considerations are partly responsible for aluminum cabling being viewed as an attractive alternative to copper during the past few years. While aluminum has also been rising, at the end of March it was fetching around $1.35 a pound, less than copper, which was hovering around $3.70 a pound on the London Metal Exchange.
"Aluminum is an excellent alternative," he said, explaining that while copper has been traditionally used by the cellular industry, aluminum cabling has been used for just about the same length of time in cable television markets.
As far as aluminum and copper is concerned, supply hasn't been much of an issue, just price, Catey said, adding that Andrews Wireless Solutions has been able to pass on some of the price increases, but not all. "It has been a real challenge. But we have been trying to keep our margins up through a combination of seeking out alternative products and a number of manufacturing efficiencies."
There are both supply and pricing issues for steel, Gibson said, explaining that lead times have stretched out to six to eight weeks from four to six weeks previously and could extend further. "No one is buying inventory at this price, so we have to wait for mill rollings. The situation is made worse by the fact that not many imports are coming into the United States and a lot of ferrous scrap is going overseas because of the weak U.S. dollar. The end result is that companies will have to plan better," he said.
Trinity has been telling its customers when it expects steel to come in and at what price, and then has been scheduling deliveries accordingly, Gibson said. And in an effort to recoup steel price increases as best as possible, the company's sales force is getting new quotes from mills every two weeks and to update those before signing contracts with customers.
Fabricators' margins are definitely being squeezed, especially given the increasingly competitive nature of the cellular industry, Yim said. With carriers constantly trying to drive prices down at a time when materials costs are rising, there have been many layoffs in the industry—a problem that's getting worse with fears about an economic recession. "It is making carriers tighten their budgets and slow down new purchases," he said.
But that is likely a short-term situation. "The underlying, long-term fundamentals in the industry are very good," Catey said.