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Towerstream, a Well-Connected Telecom Stock


There are few things better than being a niche player in mobile Wi-Fi in a world demanding increased connectivity.


I'm very happy with the Towerstream (TWER) conference call that took place last Wednesday.

Not that it makes a lot of difference, since Towerstream said it was "weeks" or maybe even "days" away from signing a contract with a major carrier for its Wi-Fi offload network, and implied during the prepared comments all three major US wireless carriers may end up being Towerstream customers. But before we get into that, we'll touch briefly on the core broadband enterprise business so we can get that out of the way.

Towerstream posted sequential revenue declines in four of its 12 markets. However, outside Nashville and the Providence-Newport markets, the declines were not material.

Towerstream got Nashville on the side when it purchased Sparkplug in April 2010, and is only maintaining the network (not pursuing enterprise broadband sales) to see if it will be useful in its Wi-Fi offload strategy. Providence-Newport is a small market, but one I'll discuss offline with Towerstream executives, along with some other housekeeping questions I decided not to muck up the conference call with.

The rest is a short but good story that is very well-aligned with what I've been writing about Towerstream.

As I've noted since the first time I wrote about Towerstream's rooftop locations "raining down Wi-Fi" on the streets below, Towerstream's rooftop locations are its major differentiating factor and the core of its value proposition. According to comments made by Towerstream CEO Jeff Thompson during the conference call, evidently cellular operators agree.

In addition to announcing Towerstream would sign a major carrier contract, Thompson stated Towerstream is in discussions with carriers that want to sublease space from Towerstream on these rooftops to co-locate small-cell base station equipment. In these cases, Towerstream would also most likely provided backhaul for the small-cell base station.

Note, since Towerstream already has backhaul set up for its Wi-Fi/WiMax (used for enterprise broadband) equipment, the cost to Towerstream to sell backhaul services is minimal.

Based on the pending Wi-Fi offload agreement with at least one major carrier, and the others that Towerstream implied would likely become customers, too, Towerstream stated it plans to build out around 3,000 new nodes during the next year at a total cost of $12 million to $16 million. I presume this build-out is a part of the carrier agreement Towerstream plans to sign in the very near future - in other words, there are financial guarantees behind the investment.

Given the fact Towerstream had net cash of $44.7 million as of the close of 2011, raised specifically to support this initiative, it would appear Towerstream has more than adequate resources to fund the proposed build-out and cash usage associated with its legacy enterprise broadband network. However, I will address this further when I speak with Towerstream executives.

Bottom line: Given the statements made by Towerstream during the call, it appears as though the plan is coming together even better than expected. As it was explained, major carriers will lease Wi-Fi nodes (access points) on a per-location basis, and in some cases lease space and backhaul services from Towerstream where they will be able to co-locate small-cell base stations.

Based on this news, I suspect we'll see Towerstream trade higher as investors anticipate the announcement of a major carrier deal.

However, countering some of what I suspect will be anticipation buying, there will likely be some selling from the former owners of Color Broadband. Towerstream bought Color in December for a combination of cash and stock. I suspect selling by the former owners has caused some of the periodic weakness in Towerstream's shares since the acquisition.

However, this should be a somewhat orderly distribution, since the shares held by the former owners of Color Broadband are limited as to how many shares they can sell per month. It may also hold the anticipation rally I think this news should generate in check, and give investors who are thinking about adding Towerstream shares a chance to accumulate ahead of the carrier contract announcement.

Editor's Note: This article was written by Paul McWilliams of Next Inning Technology Research.

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