Jefferies & Co. expects the FiberTower (NASDAQ: FTWR) deal could boost DragonWave Inc.'s (NASDAQ: DRWI) efforts to expand its non-Clearwire business.
In addition, Jefferies expects that the T-Mobile/AT&T Inc. (NYSE: T) announcement will provide the final impetus to get a Sprint Nextel Corp. (NYSE: S)/Clearwire Corp. (NASDAQ: CLWR) deal done.
Booming bandwidth demand for backhauling major wireless carriers 3G, 4G and Long-Term Evolution (LTE) services has turned FiberTower to DragonWave products for high-capacity packet microwave. DragonWave's Horizon Compact is being deployed to support FiberTower's microwave-based packet backhaul services.
FiberTower is the largest wholesale backhaul provider in the U.S. The firm provides services to nine U.S. wireless carriers in 13 major markets. The firm spent $30 million on capital expenditure in 2010 (40 percent of revenues), Jefferies said in a note to clients.
We believe FiberTower will likely spend 75 percent of its future backhaul spending on microwave (rather than fiber) and think the benefit to DragonWave could be more than $1 million per quarter in the future, providing a 5 percent to 10 percent boost to its non-Clearwire revenues, said Peter Misek, an analyst at Jefferies.
Misek said Sprint and Clearwire have continued to speak well of each other publicly and the removal of T-Mobile as a potential merger partner for Sprint likely pushes the firm closer to Clearwire.
Misek believes the most likely scenario would be a clarification of the Sprint/Clearwire relationship with Sprint funding Phase 2 of Clearwire's nationwide Wimax build-out, and Clearwire providing resources for Sprint's (or a joint) LTE build-out.
Misek said he had expected a resolution in March with initial revenues to Dragonwave starting in fiscal first quarter but either the revenues will be very back-end loaded or more likely start in fiscal second quarter.
While Misek expects that T-Mobile/AT&T will be able to achieve some tower efficiencies, he believes the overall growth in bandwidth demand will outweigh any short-term decrease in tower capacity utilization and that the number of cell sites in the U.S. will double from the current about 300,000 in the next 3-5 years.
While Misek is still concerned with the pace of its build-out and its relationship with its network vendor NSN, in the past month LightSquared has raised $600 million in debt and signed a flurry of deals with Best Buy, Leap, Open Range, and Time Warner Cable in addition to 15 other contracts under negotiation.
Misek said LightSquared will need to get a solid start on its build-out if it is to meet its commitment to cover 100 million POPs by the end of 2012.
DragonWave shares closed Tuesday's regular trading up 8.67 percent at $8.15 on the NASDAQ Stock Market, while in the after-hours the stock rose 0.37 percent to $8.18.
FiberTower shares closed Tuesday's regular trading down 5.58 percent at $2.20 on the NASDAQ Stock Market.