Meritage is pleased to announce our recent investment in NewPath Networks. Based in Seattle, NewPath is engaged in the construction and operation of Distributed Antenna Systems (“DAS”) for wireless carriers.  DAS provides wireless carriers with an alternative to traditional communications towers as a mechanism for improving the capacity of their networks.  DAS networks are particularly valuable in high-density population areas where construction of communications towers is not feasible because of zoning and other regulatory restrictions.

Existing cellular networks were originally optimized for voice traffic only.  With the recent proliferation of wireless data services, these networks have become overloaded in many areas with a resulting degradation of signal quality.  (Meritage has pursued mobile data content and services as an investment theme for some time, with representative investments including MCN and Crisp Wireless.)  To accommodate the increasing demand for capacity, wireless carriers are making massive investments in infrastructure to convert their networks from 2G to 3G and 4G.  In fact, nearly all carriers confirm that their 2009 infrastructure spend with be in line with 2007 and 2008 despite the current economic crisis:  they simply can’t slow down because their customers are consuming more and more content and demanding better performance.  To address this need, fiber-fed DAS networks provide wireless carriers with a quickly-deployable and cost-effective solution for wireless networks that are capacity-constrained.

NewPath is an excellent fit with Meritage’s network-enabled services investment focus.  One of the key elements of our investment focus is the recurring nature of our companies’ revenues. In today’s environment, recurring revenue is more valuable than ever. NewPath has excellent revenue visibility and stability because its network services are provided under 10-year contracts with its carrier customers and the company has a significant backlog of business under contract. As with the tower industry, contract renewals are virtually assured as it doesn’t make economic sense for a competitor to overbuild an existing DAS network.  Meritage’s operating expertise and sector knowledge is also an excellent fit with NewPath, as our partners have both run and invested in fiber network companies, tower companies and cellular carriers.

We believe the DAS industry is on the cusp of explosive growth, as DAS has recently become a strategic part of the carriers’ network architecture.  More and more neighborhoods are resisting the addition of unsightly communications towers, yet these same residents need and want better cell phone coverage and capacity.  We believe DAS is the answer, and NewPath is leading the charge as one of only three independent providers of DAS services in the US.  NewPath differentiates itself from the competition through its selection of high quality opportunities: NewPath works primarily with the leading wireless carriers such as AT&T and Verizon and is very selective about the markets it pursues.  Last year, in a highly competitive process, AT&T selected NewPath to build the largest outdoor DAS network in the United States in Scottsdale, Arizona, a testament to the company’s capabilities.  As with the tower business, multi-tenant lease-up is critical for maximizing profitability in DAS networks.  NewPath has demonstrated strong historical lease-up performance and believes that demand for its networks will continue to grow.

Needless to say, we are excited about the growth prospects for NewPath and are encouraged by the quality of business opportunities the company has recently been awarded.  Given the limited competition in the DAS market and the fact that mobile telephony and data services are one of the few areas of the economy showing growth, we believe NewPath will be a dominant player in this segment.