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Tag Archives: Jonathan Atkin analyst

Leasing Revenue, Densification Highlight Crown First Quarter

With strong leasing activity from the big four carriers, Crown Castle International saw site rental revenue increase $132 million, or 21 percent, to $747 million for the first quarter 2014 from $615 million, year over year, tower company executives said during last week’s earnings call.

“CCI reported strong 1Q14 results (excluding $5 million of one-time benefits) with site leasing revenue, site cash flow, EBITDA and AFFO above expectations,” wrote Jonathan Atkin, RBC Capital Markets analyst.

During the quarter, Crown Castle spent $111 million on revenue-generating capital expenditures, including $75 million on existing sites and $36 million on the construction of new sites, primarily small cell construction activity. About 85 percent of new leasing activity is coming from new installations.

“Our current application pipeline leads us to expect new leasing activity per quarter for the remainder of the year to be approximately 15 percent higher compared to the level we experienced in the first quarter 2014,” said Ben Moreland, Crown Castle president and CEO.

Jay Brown, company CFO, added, “Most of that is new tenant installation on sites rather than amendments as we’ve seen over the last several years. So it’s site densification and them adding additional sites.”

Crown Castle’s first quarter results were the first since it closed on the deal in which AT&T leased the rights to 9,000 of its wireless towers and sold 600 more to the tower company for $4.8 billion.

“Adjusted EBITDA increased 20 percent, driven by the inclusion of the AT&T towers, an increase in site rental gross margin and strong performance of our network services business, and offset to a small degree by increased G&A, which was up about 8 percent year-over-year,” Brown said. “This increase in G&A includes the effect of increased staffing to manage our T-Mobile and AT&T tower transactions, which increased our tower portfolio by nearly 75 percent, and the significant growth of our small cell networks.”

Verizon Wireless and AT&T are currently focused on network densification, while T-Mobile and Sprint work to complete their LTE coverage deployments so they can begin their densification efforts, according to Moreland. Based on the 3G build out, which ran from 2002 to 2009, LTE is still in the early stages of deployment, he added.

“Given the revolutionary nature of 4G, we have reasons to believe that the 4G LTE deployment cycle will be even longer than the 3G cycle,” Moreland said. “And in order to meet Cisco’s projected 8-times increase in mobile data demand, we believe carriers will continue to invest over a multiyear period. This multiyear deployment cycle gives us confidence in the long runway of sustained organic revenue growth.”

Sprint and T-Mobile are expected to begin densification of their LTE networks in 2015 once coverage build outs have been completed.

“We expect increasing contributions to sector demand starting in the late second half of 2014 from T-Mobile’s 700-MHz build out and Sprint’s deployment of 8T8R LTE technology, though we believe CCI’s ability to monetize 700-MHz amendments from TMUS could be slightly impaired versus peers,” Atkin wrote.

Crown Castle expects 3 percent of its run-rate site rental revenues to be negatively affected by the iDEN network decommissioning, which is spread evenly throughout 2014 and 2015.

AT&T Looks to LEAP for More Spectrum

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.