Nothing rocks the cell tower world like a carrier merger. AT&T’s intention to buy LEAP Wireless for $1.2 billion in cash plus the assumption of LEAP’s $28 billion in debt, which was announced July 12, will send the usual jitters through the companies that lease them space on their structures.
American Tower currently has separate leases for antenna space with AT&T and Leap Wireless on the same site at approximately 1,066 communications sites, accounting for less than 1 percent of the tower company’s operating revenue. Crown Castle has 1,300 towers with both carriers, and LEAP’s rental fees amount to 2 percent of site rental revenues.
The combo of AT&T and LEAP may have both positive and negative effects on the cell tower industry but either way the effects will be modest, according to Jennifer Fritzsche, senior analyst, Wells Fargo.
“The T/LEAP merger could be seen as a marginal negative for the tower sector (AMT, CCI, SBAC). We also note LEAP has been in a significant period of under investment, with a meaningful pullback in capex, which T could ramp as part of Project VIP,” Fritzsche wrote in an equity research note.
The acquisition was driven, not surprisingly, by the need for spectrum. LEAP has frequencies in the PCS and AWS bands that are complementary to AT&Ts existing spectrum and that cover 137 million people. LEAP has spectrum covering 41 million pops, which AT&T plans to use for 4G LTE deployment.
The deal provides AT&T with 20 megahertz of spectrum in such metro areas as Las Vegas, San Diego, Washington, D.C., Baltimore, Pittsburgh, Denver, Cincinnati, Charlotte, Chicago, Milwaukee, Philadelphia, and Phoenix.
“On the negative side, since LEAP’s spectrum occupies AWS/PCS bands near AT&T’s own AWS/PCS spectrum, this allows AT&T to expand capacity without splitting cells or adding hardware to existing sites,” Jonathan Atkin, RBC Capital Markets wrote in a research note.
If there are LEAP standalone sites that AT&T decides to keep, it will be a plus for towers because extra gear will be needed as they are upgraded to HSPA and LTE.
The threat of regional carrier consolidation still looms as carriers continue to push for more spectrum.
“The Big 4 carriers are not overly optimistic around the timing of new spectrum coming to market, and we believe there could be more consolidation in the secondary market, which may involve regional players like USM [US Cellular] and NTLS [Ntelos Wireless],” Fritzsche wrote.