AT&T has added to its Advanced Wireless Service (AWS) spectrum cache with the acquisition of 49 licenses in the 1710-1755 MHz and 2110-2155 MHz bands from Aloha Partners II, covering nearly 50 million people in 14 states, including California, Colorado, Connecticut, Idaho, Illinois, Indiana, Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, Ohio, Pennsylvania and Texas.
As a result of recent spectrum consolidation (AT&T purchase of LEAP and T-Mobile’s buy of US Cellular’s AWS spectrum), Aloha Partners stood as the largest remaining independent AWS spectrum holder, according to Wells Fargo Senior Analyst Jennifer Fritzsche.
“This is an important transaction for AT&T, in our view, because it adds capacity to its AWS spectrum holdings, notably to the AWS received from its acquisition of LEAP,” Fritzsche wrote in a research note. “We note the importance of AWS to AT&T as the spectrum is what we characterize as ‘plug and play’ in that there is already a developed ecosystem and most phones already support this spectrum for roaming.”
Aloha Partners Deal Dovetails LEAP Spectrum Buy
Last July, AT&T purchased LEAP Wireless, which had frequencies in the PCS and AWS bands that were complementary to AT&T’s existing spectrum. LEAP had spectrum covering 41 million pops, which AT&T plans to use for 4G LTE deployment.
The LEAP deal provided AT&T with 20 megahertz of spectrum in metro areas including Las Vegas, San Diego, Washington, Baltimore, Pittsburgh, Denver, Cincinnati, Charlotte, Chicago, Milwaukee, Philadelphia and Phoenix.
AT&T is deploying AWS for LTE until the Wireless Communications Service (2.3 GHz) comes online, which is scheduled for 2015.
Formed in 2004, Aloha Partners II purchased 15 licenses covering 38 million pops from the FCC in the Advanced Wireless Spectrum (AWS) auction. In 2007 and 2008, Aloha Partners II purchased an additional 37 AWS licenses covering 12 million pops from Nextwave Wireless. Before the sale, Aloha Partners II said it was the eighth-largest owner of spectrum in the United States, with licenses that cover 50 million people.
Originally, Aloha Partners II had planned to build its own wireless broadband networks. But faced with the growth in data demand from smartphones and tablets, the company said on its website that it no longer believed it had sufficient spectrum to meet demand and was considering joint ventures with existing wireless carriers to implement its strategy.
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.
RBC Capital Markets has released a report that a merger between Sprint and either Leap Wireless or MetroPCS is not only possible but makes sense. This is not the first time this has come up. In late February of this year, it was widely reported that Sprint’s board rejected a proposal to acquire MetroPCS for $8 billion in an all-stock transaction, because of the dilution to Sprint equity.
The key component that has changed since February is the outperformance of Sprint’s equity versus that of Leap or MetroPCS, which translates into less equity dilution in a stock-based transaction and more attractive EBITDA multiples, according to RBC.
“In light of Sprint shares’ significant outperformance versus Leap and PCS, we believe a bid for Leap or MetroPCS is a distinct possibility,” Jonathan Atkin, RBC analyst, wrote. Additionally, refinancing either the debt of Leap or MetroPCS has decreased by between $50 million and $60 million since February, RBC statistics show.
Either Leap Wireless or MetroPCS would be a good fit, because like Sprint, they are facilities-based wireless operators that use CDMA technology at 1.9 GHz.
“As such, an integration by Sprint of either company would entail minimal technical risk, require no handset migrations, and quite possibly drive top-line ARPU synergies, because of the elimination of a prepaid competitor, and churn improvement due to the elimination of a competitor as well as the likelihood that the acquired customers would find themselves with superior network quality and coverage,” Atkin wrote.
Atkin does not believe a merger would provide any conflicts with Sprint’s ongoing Network Vision project deployment. Additionally, a merger would most likely not receive pushback from federal antitrust regulators. In fact, Atkin noted, no other pairing between carriers makes any sense.
“[A merger of] Sprint/T-Mobile or a different national carrier (AT&T or T-Mobile) purchasing Leap or MetroPCS would be unrealistic given recent statements by company managements, technology incompatibilities and regulatory uncertainties,” Atkin wrote.
Leap Wireless International, the parent of Cricket Communications, plans to triple its planned LTE coverage from 20-25 million to 60-65million POPs by 2014, according to Leap CEO Doug Hutcheson, speaking at the 40th Annual J.P. Morgan Global Technology, Media and Telecom Conference last week in Boston.
In March, Cricket signed a five-year wholesale agreement to use Clearwire’s proposed LTE network. Previously, it had a wholesale agreement with the now-bankrupt Lightsquared. Late last year, the carrier began its multi-year transition to 4G LTE with a commercial market launch in its Tucson, Ariz.
The carrier has not divulged its LTE vendors, however. Leap spokesman Greg Lund told the AGL Bulletin the company has not been in any hurry to deploy LTE, choosing instead to wait until handset and infrastructure costs come down.
“We felt the significant device costs that were presented to us would come down in line with what our customers [could afford] in the back half of this year,” Lund said. “That is why we took a more measured approach to device and infrastructure sourcing.”
Clearwire has said it will announce its LTE vendors in the third quarter of this this year and plans to deploy 5,000 TD-LTE base stations by June 2013, increasing to 8,000 thereafter. Leap will probably announce its vendors for LTE in the second half of this year, Lund said.
“Carriers are busy adding coverage and capacity – good for towers,” Christopher Larsen, senior research analyst with Piper/Larsen, wrote in a note on last week’s CTIA show in New Orleans. “AT&T and Verizon have maintained their aggressive push to build-out LTE. Sprint is driving high levels of activity with its Network Vision deployment. Finally, T-Mobile is making progress with its LTE strategy, announcing its vendors this week. (see relate story) With the rapid growth of wireless data usage likely to continue and to push the carriers to keep up with capacity demands, we think the tower operators will continue to see strong growth in the U.S. for the foreseeable future.”
Mobile Experts projects more than 14 million radio transceivers will be installed during 2016, with more than half deployed for LTE services.
“Despite the rise of small cells, the macro infrastructure market will remain strong,” said Joe Madden, principal analyst at Mobile Experts. “In particular, rising data traffic demand will drive a need for ongoing investment in the macro layer, especially for 3G, TD-LTE, and LTE-FDD systems.”