August 30, 2016 — RBC Capital Markets remained overweight on the public tower companies, including American Tower and SBA Communications, with a “slightly greater weighting” toward Crown Castle International in the firm’s Mobile Infrastructure Recap for the second quarter.
“Towers are our only coverage sector with identifiable catalysts for (modest) revenue acceleration driven by various network activities at AT&T and T-Mobile, though slowing activity at Verizon could mute this trend somewhat,” wrote Jonathan Atkin, RBC analyst.
RBC’s preference for CCI is driven in part by the towerco’s involvement in U.S. outdoor small-cells and prospects for increasing tenancies from AT&T and T-Mobile. The firm also believes CCI’s dividend will increase the shareholder base.
Additionally, S&P, Dow Jones and the MSCI U.S. REIT Index have made rules changes concerning REITs, which will have a favorable impact both American Tower and CCI.
“We believe the REIT GICS creation later this week will act as a structural catalyst favoring the tower REITs,” Adelstein wrote. “AMT and CCI, each of which are top-five REITs by market capitalization, have up to now not been included in the two most heavily benchmarked REIT indices (FTSE/NAREIT and RMZ), yet will be included in the new REIT GICS category, which we believe could drive index-related buying.”
Site Leasing and Organic Growth
RBC predicted a small increase in tower leasing in 2016 compared with 2015. While macro-site deployment will be down, activity will increase in macro-overlays, small cells and carrier aggregation.
“Verizon and T-Mobile should remain active, with each contributing slightly fewer macro-site additions vs. 2014, offset by greater macro-overlay activity and increased small cell efforts,” Atkins wrote. “AT&T should remain inactive on macro-site deployments but noticeably more active on site overlays. Sprint remains mostly dormant on macro site additions, focusing on carrier aggregation and BTS small-cell deployments.”
RBC predicted increased overall activity at T-Mobile in 2017 and possibly AT&T, with Verizon posting less macro-site and more small-cell activity.
March 10, 2016 — In contrast to Wells Fargo Securities, which downgraded the tower sector from outperform to market perform last week, RBC Capital Markets continues to overweight tower stocks based on “historically attractive valuations and prospects for a modest second half of 2016, followed by 2017 acceleration in leasing.”
In its Wireless Network and Site Leasing Update, dated March 19, RBC projected a “modest uptick” in leasing in the second half of this year compared with 2015. Leasing catalysts include amendments by AT&T, with some contributions by T-Mobile and Verizon driven by “project/budget seasonality, spectrum refarming, and activity in the AWS-3 band.”
“Verizon and T-Mobile should remain the most active leasing contributors, as they were during 2015. Each should add slightly fewer macro sites vs. 2014 but increase their overlay activities and small-cell efforts,” wrote Jonathan Atkin, RBC analyst. “AT&T should remain mostly inactive on macro-site deployments but be noticeably more active on site overlays.” Sprint, however, remains a no-show on the site development radar, he added.
Details on 2016/2017 Site Activity
While AT&T’s 2016 site additions should remain below the 1,000, Atkin wrote, the carrier will touch more than 30,000 of its 66,500 sites with LTE carrier-additions (1900 MHz) or overlays (WCS, AWS-3). Up from 2015, but down from 2014, according to RBC.
T-Mobile will continue its 700 MHz coverage buildout with spectrum refarming at 1900 MHz and macro-site densification. Other areas of activity include initial AWS-3 overlay and small-cell densification at 5 GHz. Continued AWS-3 overlays, and 700 MHz densification in metro areas should highlight 2017.
Verizon’s macro site deployments in 2016 will be less than 2015, but it will continue refarming on 15,000 sites at 1900 MHz band and increase its small-cell deployments.
Sprint’s focus areas included LTE additional-carrier deployments at 1,900 MHz, conclusion of 800 MHz overlays, carrier aggregation at 2.5 GHz, and metro-specific projects.
“Earlier efforts [at Sprint] around organic small-cell deployments, BTS monopoles, and new municipal structures have made little apparent progress, though we believe Mobilitie has hired more than 700 staff to pursue permitting work,” Atkin wrote.
June 4, 2015 — The tower industry appears to be taking a breather from its torrid pace of last year. But RBC Capital Markets expects it to pick up again next year.
“Despite a slower 2015 leasing environment in the United States and few apparent near-term operating catalysts, we believe the 2016 set-up for tower stocks is favorable,” Jonathan Atkin, senior analyst, wrote in a Tower Update.
The firm reduced its leasing forecast from 18,000 to 16,000 broadband equivalents (BBEs) for 2015, based on lower expectations for AT&T and for near term deployment on WCS spectrum.
“AT&T completed 3,700 site additions during 2014 (630 during 4Q14), with slowing trend (115 added during 1Q15). The carrier continues LTE carrier additions (targeting more than 18,000 carriers during 2015). We believe earlier target of [in excess of] 8,000 WCS deployments is not achievable and hence have reduced our overlay estimate,” Atkin wrote.
Sprint activity remains slow in most regions, with a few exceptions. Ongoing projects include LTE deployments at 2.5 GHz and 800 MHz, CDMA at 800 MHz and LTE second-carrier deployments at 1,900 MHz.
Verizon, T-Mobile Primary Leasing Drivers in 2015
Verizon should be more active on small cell deployments 2015 and outdoor DAS deployments will be flat. A decline in LTE deployments in the AWS band this year, should be offset by 1900-MHz LTE deployment.
“LTE overlays continue at T-Mobile, with new 700-MHz coverage sites ramping,” Atkin wrote. “We expect MetroPCS CDMA shut-off at mid-year, with decommissioning largely complete by YE15. The company added 113 new sites in 1Q15.”
2016: Improved Deployment Prospects at AT&T, Sprint
RBC is optimistic about 2016, primarily because of expectations that AT&Y will resume infill activity and begin overlays in the WCS or AWS-3 bands. Additionally, Sprint is expected to densify its networking using macrocells, helping all tower companies, and to deploy small cells, helping Crown Castle.
“Site additions [at Sprint] should ramp in the second half of 2015 as the company embarks on infill coverage, with activity likely to accelerate during 2016-2017, in our view,” Atkin wrote.
November 20, 2014 — AT&T’s announced Y/Y reduction in capex during 2015 is consistent with our macro tower leasing outlook which already projects a decline next year. From a network perspective, the AT&T reduction appears inconsistent with RootMetrics data suggesting a recent degradation in quality. Amongst towercos, American Tower and SBA Communications expectations contemplate a modest U.S. leasing slowdown in 2015, but Crown Castle International’s 2015 guidance strikes us as potentially aggressive. American Tower could benefit incrementally from AT&T’s acquisition of Iusacell (2 percent exposure).
• AT&T’s recently announced Y/Y reduction in capex during 2015 (to $18B, from ~$21B in 2014) synchs with our earlier research suggesting a slowdown in site leasing activity during the next several quarters. We project a Y/Y slowdown in wireless capex from $11.5B in 2014 to $10B in 2015.
• Although AT&T mentioned the near-completion of certain network milestones, we believe the reduction may be driven the desire for financial flexibility around the U.S. AWS-3 spectrum auctions and Iusacell acquisition.
• Our compilation of RootMetrics network quality scores across top-25 metros suggests that AT&T has seen some degradation of performance relative to its peers. Thus, from a network-quality perspective, we find AT&T’s capex reduction surprising (which leads us to suspect financial flexibility as a factor).
• Verizon: In contrast to AT&T, we expect Verizon’s capex levels during 2015 to be approximately equal to 2014 levels at ~$17B (with ~$11B wireless), with a continued emphasis on network densification through cell-site additions and small-cell deployments.
• At Sprint and T-Mobile we believe there is greater potential variance to our wireless capex estimates, but our current 2015 projections are $5.2B and $4.64B, vs. 2014E levels of $5.26B and $4.37B. T-Mobile’s initiatives include the ongoing overlay and new site deployments at 700 MHz, with AWS-3 overlays a likely emphasis in 2H15.
• Our earlier cell site forecasts already anticipate a slowdown of new macro sites (from roughly 3,600 in 2014 to 1,500 2015. We anticipate AT&T WCS overlays will cover approximately 12% of AT&T’s cell sites during 2015, benefiting all three tower operators.
• While we believe this reduction is already reflected in expectations for American Tower and SBA Communications, we note that Crown Castle’s 2015 guidance assumes a modest increase in leasing activity on its macro sites in 2015, so the AT&T slowdown could represent a potential headwind.
• AT&T’s announced acquisition of Iusacell could benefit American Tower, which has 2 percent exposure to this carrier and stands to benefit from the deployment of Iusacell’s unused AWS band.
Jonathan Atkin is an analyst with RBC Capital Markets (415) 633-8589; firstname.lastname@example.org
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.