By Chris NolterWhile Cox Communications Inc. is selling its wireless spectrum licenses to Verizon Wireless, the Atlanta cable and media group is putting money into a different segment of the wireless industry.The company is set to close an investment later this month in InSite Wireless Group LLC, an Alexandria, Va., tower company with backing from Catalyst Investors.Cox will contribute cash and about 150 wireless towers to the venture. The deal will boost the wireless infrastructure company's portfolio to more than 600 towers and position InSite to pursue bigger acquisitions.Wireless tower operators have consolidated along with other sectors of telecommunications. In addition to the large, public tower companies, private outfits backed by investors such as Paul Allen and George Soros are active in the field. And a group of small and mid-sized operators may be targets for companies like InSite.Catalyst invested more than $20 million in InSite, making it one of the firm's largest investments.Chris Shipman, a co-founder of New York-based Catalyst, said InSite will be the fourth-largest pure-play non-public tower company following the deal. The company would be the seventh largest counting the public operators and the ninth largest including the telecom providers that own tower portfolios.InSite operates towers and distributed antenna systems, an alternative to conventional infrastructure in areas where traditional coverage is limited. The company's management sold Mountain Union Telecom LLC to Crown Castle International Corp. in 2006 for about $300 million.Cox initially planned to operate an in-house wireless company but terminated the venture. It then tried to run a virtual wireless carrier with Sprint Nextel Corp. but ended that project as well.The company said in December it would sell spectrum licenses to Verizon Wireless for $315 million.Tower operators have been active dealmakers recently. Nonetheless, the industry remains more fragmented than the wireless services market.The big three public companies, which measure their portfolios in tens of thousands of sites, are American Tower Corp., SBA Communications Corp. and Crown Castle.Privately held Global Tower Partners owns or manages 15,000 sites in the U.S. and overseas. The Boca Raton, Fla., company is backed by Macquarie Group, which recently sold Mobilitie LLC to SBA for $1.1 billion.TowerCo Inc., of Cary, N.C., owns or leases more than 3,2000 towers. The company's investors include Soros Strategic Partners, Paul Allen's Vulcan Capital and Altpoint Capital Partners.Soros and SBA also have funds in alternate infrastructure provider ExteNet Systems Inc. Other investors in the Lisle, Ill., company include Centennial Ventures, Sevin Rosen Funds, Columbia Capital and Centerpoint Ventures and Palomar Ventures. ExteNet deploys distributed antenna systems in places like hospitals, sports stadiums and other locations where conventional tower service may be lacking.Diamond Communications LLC has more than 600 towers. The Short Hills, N.J., operator is a portfolio company of Och-Ziff Capital Management Group LLC.While prominent firms have invested in towers, mom-and-pops still exist.Gerald Granovsky of Moody's Investors Service said that the smaller end of the spectrum includes "prospectors and wildcatters" who might build a tower and eventually pull together a portfolio of 10 or so sites. The next level of operator might have 50 to 100 towers.There are fewer companies, he said, in the 200 to 500 range, a size that is ripe for a sale to a larger company.Though the Big 3 tower operators may have deeper relationships with the carriers and better sales teams, Granovsky said, the smaller companies can make "a pretty decent return" even if they don't sell.Returns depend "on where the towers are and on the operator's ability to increase tenancy to 2.5 or 3 per tower," he said.An anchor tenant might cover the fixed costs of a tower. A second tenant starts providing a return, he said, and a third is "a home run."Catalyst partner Todd Clapp said that InSite has expanded by acquiring smaller operators, by building towers on its own and through organic growth of customer leases.The company has frequently targeted "under the radar" tower operators, with one to 15 towers. "They had been very successful at buying small groups," he said. "Those are attractive because often you can get them at prices that are lower than the larger groups."The Cox transaction would enable InSite to target larger companies. It would also improve InSite's cost of capital, an area where the large public tower companies have an advantage. "This will allow us to close that gap," Clapp said.