“What sector is hot?” is the one question I get asked more than any other.
Well, okay, maybe “Why didn’t you respond to my text?” is the most asked, but the sector question is a close second.
The answer can change by the month. We’ve had cannabis runs, crypto runs, psychedelic runs, mining runs, e-sports has bounced about, electric vehicles are a thing. But there’s one I’ve had my eye on FOREVER and it’s yet to really poke its head above the fray in a meaningful way, even though it’s going to CHANGE THE DAMN WORLD FOREVER.
I am talking about 5G wireless.
For those who don’t know, the internet as it stands is built for two main tasks – e-commerce, and streaming – but when you’re engaging with it on a cellphone, sometimes even those can be a chore.
Thankfully, there’s a new technology called 5G (the fifth generation of cellphone tech), which some of your phones can already handle, which will take us from ‘streaming ready’ (aka one-way video distribution) to ‘The Oasis ready’ (real-time two-way high quality content distribution).
The new tech will bring speeds of as much as 1000Mps, which is 20x the 45Mps speeds we’re used to topping out at currently. As for what that might be useful for, that’s a big open question as Big Tech tends to develop into the bandwidth at hand, not the bandwidth yet to come. Virtual and augmented reality is amazing, but not really efficient in the current 4G world. The arrival of 5G will make those technologies way more useful, and bring long awaited possibilities like ‘the Netflix of video games’, which has been promised for years and attempted by several, but yet to arrive.
SO WHAT’S THE PROBLEM?
Here’s the thing: 5G towers aren’t nearly as efficient over distance as 4G towers. This means, you’re going to need a LOAD of new wireless towers out there to make the tech work properly
Currently, T-Mobile has a 5G light option they’ve rolled out that they claim gets 5G to 90% of people in the US… it doesn’t. In fact, the tech being used generally brings bandwidth speeds 30% higher than 4G, but sometimes a lot less.
Verizon has true 5G rolling out and, as you can see by their coverage map, it has some monumental holes.
Putting a big red splotch on each city is a bold faced attempt at hiding that the network isn’t a network at all.
So I removed them.
That’s some weak ass coverage. Heck, there are still large parts of the country without 3G, let alone 5G.
Here’s the other thing: You can’t just throw up a ladder and pull down a 4G box and stick a 5G box in its place. There’s a lot more to the installation of this tech, and there’s a dearth of people out there that can do it.
In the US, that’s a major problem. You might think the telcos can just cruise it and slow roll their 5G rollout. They’ll ‘get around to it’ in the same way it took years to get fiberoptic cable up your street.
But that’s not possible in this case; The Government has told telcos it wants the entire FirstNet national emergency services system on 5G before anything else gets done, and over $100 billion has been earmarked for that to happen. While that’s happening, Big Tech is sitting on massive leaps forward in things like Artificial Intelligence and Wearables that won’t be achievable until there’s a framework to properly run them on.
The telcos are on the clock. 5G needs to happen YESTERDAY.
But local line crews aren’t up to that task. China’s electronics giant Huawei would be happy to send teams out and fill in those gaps, but there are obvious political issues preventing that from happening so, currently, crews from other countries are being brought in at great expense and working their way through the countryside, a few hundred meters at a time, while local line crews are slowly trained to be able to pick up the slack.
Enter Eastower (which will be RTOing into the OV2 Investment Inc CPC around Q3).
Eastower has been a provider of wireless infrastructure and related services since 2015 and has major telco clients, tower companies, global OEMs, large corporations, and federal agencies on its client list. While the company is currently based in Florida, it has deep expansion plans, some of which have just been financed in an oversubscribed $3 million pre-public raise.
I’ve been watching this company since 2019, when I first heard about its existence and spoke to CEO Vlado Hreljanovic in Vancouver, I quickly understand the Eastower boss as someone who was used to spending half his pitch explaining what 5G was. That’s not the case anymore. Those in the know, know what’s up.
Right now, the company generates as much as US$71k per month from each crew, which cost them $75k to train and generate margins as high as 50%. Their ability to do more business is hindered only by their ability to train more crews. If they had 50 at hand, they’d have 50 in the field generating revenue, and the plan is to get there by expanding into North Carolina, South Carolina, Georgia, Florida, Louisiana, Mississippi, Alabama, Kentucky, Tennessee, Arkansas, Oklahoma and Texas.
Why not everywhere? Because human beings are harder to scale than software, and because the crews can work for years on current demand. To put it all into perspective, Eastower hits profitability when it has 15 crews.
BUYING MARKET SHARE:
Training crews takes time, but buying them doesn’t, so Eastower ha plans to use its future public company status to raise money and apply it to rapid growth, with a merger and acquisition strategy that aims to buy market share, and utilize their superior reputation, knowledge, and understanding of the market to bring add value to those acquisition targets.
Of their competitors, most are small time players with a handful of crews, which are of limited value to a telecommunications giant looking to turn Tennessee into a 5G stronghold. Eastower is looking for targets with $3m-$5m in annual revenue, 5-10 crews, and where the seller understands the value that a better run, larger organization can bring them.
COMPS ARE BLOWING UP:
Those companies involved in 5G at the end of the industry that involves ‘owning a tower’ or ‘turf vendors’ – large corporations that handle cell tower projects but outsource the work to companies like Eastower – are receiving massive valuations because there are a lot of people out there that see 5G coming and think it’s likely to be as important as the initial dotcom boom.
Consider we’ve just been through a pandemic wherein nearly the entire commercial workplace has shifted from offices to Zoom calls, and where out streaming viewing habits have blown up as we were unable to leave home for long periods. The existing bandwidth for the North American internet is bursting right now.
Eastower is coming, and if they handle things right, they could peel off a significant portion of the market caps above.
I bought in several years ago, knowing my money would be tied up for a while but also knowing this thing has BONKERS potential.
Seeing it nearing its public launch in the coming months, that potential hasn’t dropped an inch.
One thing before we split for the weekend – Darren Sontowski of Starber Enterprises has worked like a yeoman to get this deal to market. I don’t normally call out the deal guys on Equity.Guru because they’re often interchangeable and sometimes do decidedly little for their piece of the pie, but I know from first hand experience Sontowski has had his shoulder behind this deal for years now. He’s helped the company get focused, he’s waited until the market was right, and he’s put his body in the way of a lot of obstacles, while keeping early investors informed and patient. Some deals are on trend and easy, some require a load of education and strategy and fixing and prep while the market catches up to the potential. This one could be a giant, and respect to the guy behind it for understanding that and giving it the patience it deserved.
Not a client, but I’ve bought my piece and have the belief.
— Chris Parry