The sale of AT&T’s towers was predicted Jonathan Atkin, RBC Capital Markets last spring. The drums are again beating for a sale, according to Bloomberg, which reported that TAP Advisors and JPMorgan Chase & Co. are working on the sale.
The sale of the AT&T’s towers is an obvious way for the carrier to raise cash to fund its network upgrades, said to have a price tag of $14 billion.
In March, Atkin estimated that a deal could bring in mid-$5 billion or more for AT&T’s assets which include 14,500 sites, assuming roughly $400,000 per site. The portfolio includes 10,500 wireless tower sites plus additional assets such as wireline towers, distributed antennas systems and other infrastructure.
“We believe the AT&T towers and related assets have a tenancy level of >1.5 and could generate total cash flow in the low- to mid-$200 million range, although this depends on the specifics associated with the potential sales/leaseback terms,” Atkin wrote in March. Other analysts put the cash generated by the towers at more than $326 million in annual revenues.
Possible buyers are probably limited to Crown Castle International, SBA Communications and American Tower, which just purchased Global Tower Partners for $4.8 billion and NII Holdings’ 2,790 towers in Brazil and 1,666 towers in Mexico for $413 million and $398 million, respectively. SBA Communications expanded operations in Brazil with 2,113 towers to the tune of $302.6 million in July and 800 towers for $362.8 million in December 2012.
Because of those acquisitions, Jennifer Fritzsche, Wells Fargo senior analyst, said SBAC and American Towers are too heavily leveraged or otherwise too busy at this time to purchase the AT&T towers. That leaves Crown Castle as the logical buyer, according to Fritzsche. It has been almost a year since Crown Castle purchased T-Mobile’s portfolio of 7,180 towers for $2.4 billion.
It has been a busy month at Verizon Communications, which acquired Vodafone’s 45 percent position in Verizon Wireless for $130 billion on Sept. 2. A little more than a week later, the carrier rolled out a bond deal that netted $49 billion.
The Vodafone deal, which doubled Verizon’s debt load, might have sucked capital away areas such as infrastructure development if it weren’t for carrier’s blockbuster bond sale, Thomas Engel, principal, Milestone Media Partners, told AGL Bulletin.
“I would think that the amount of money Verizon is paying to Vodafone would cramp their capital budget and possibly slow their LTE build out, thereby slowing some revenue growth for the tower industry,” Engel said. “On the other hand, if the $49 billion bond sale goes through at today’s interest rates, Verizon will probably have sufficient funds to do both.”
Verizon will pay Vodafone $58.9 billion in cash, which it will fund with a $61 billion bridge credit agreement with J.P. Morgan Chase Bank, Morgan Stanley Senior Funding, Bank of America and Barclays.
The bond deal, which was the largest corporate debt sale in history dwarfing Apples’ $17 billion offering last spring, goes a long way to help pay some of that money back.
“This issue, combined with giving Vodafone holders $60 billion of newly issued Verizon shares, and various other transactions, gets the whole deal paid for before long-term interest rates rise even more…” wrote Allan Sloan in CNN Money.
As a wholly owned entity, Verizon Wireless should be better equipped to take advantage of the changing competitive dynamics in the market, according to Lowell McAdam, Verizon chairman and CEO.
“The capabilities to wirelessly stream video and broadband in 4G LTE complement our other assets in fiber, global IP and cloud. These assets position us for the rapidly increasing customer demand for video, machine to machine and big data. We are confident of further growth in wireless, and our business in its entirety,” he said.
Jay Brown, Crown Castle’s chief financial officer, told an audience at the Bank of America Merrill Lynch 2013 Media, Communications & Entertainment Conference, Sept. 11, in Houston that the recent market volatility surrounding tower company stocks is the result of investor misconceptions about the nature of the wireless infrastructure market.
Brown warned against putting too much stock in beliefs that the carriers are going to dramatically increase money infused into infrastructure build out or that build out is going to grind to a halt.
“We take a much longer-term view of how the carriers are spending capital on their networks,” he said. “The reality is there is a balanced conversation that carriers have around allocation of funds from dividends, deploying sites and upgrading sites. Our experience has been that carriers tend to spend capital on a relatively steady basis.”
To divine the future of towers, Brown suggested that the audience should follow the movement of spectrum.
“Carriers have deployed about 300 megahertz of spectrum that is in the hands of the carriers and being used by consumers,” he said. “That has driven, across the industry, about three tenants per tower. That is the case with Crown Castle.”
Another 200 megahertz of spectrum is in the hands of carriers that have not deployed it yet, including spectrum owned by DISH, LightSquared and some of the 2.5 GHz spectrum. Additionally, the FCC is working on reallocating another 500 megahertz to mobile.
“People are saying there is a need for a lot more wireless service, and they want to get spectrum into the hands of the carriers. I think ultimately it will get deployed, and they are going to need towers,” Brown said. “I am not inclined to say that any one of the big four carriers is nearing the end of their build outs. There is a very long runway of steady growth. Trying to predict any decreases or increases is very hard to do.”
When asked about whether the growth of small cells is a threat to the growth of towers, Brown responded that small cells are complementary to tower development.
“We are incredibly excited about [small cells]. Both of our acquisitions of NextG and NewPath have done very well. It has allowed us to invest a lot of capital in an area that is growing with lease up demand from the wireless operators,” he said. “For the most part those small cells are being constructed where macrocells can’t reach. They are filling in the network and providing extra coverage and capacity that macro-towers simply cannot, but that doesn’t mean there is less of a need for the macro-towers.”
After an IPR battle with Ericsson, Airvana Network Solutionts has sold its EV-DO macro-cell radio access network business unit to the Swedish electronics giant. No terms of the sale were disclosed.
Early in 2012, Airvana sued Ericsson, alleging intellectual property rights violations concerning EV-DO network technology. (Airvana Network Solutions Inc. v. Ericsson Inc., 650360-2012, New York State Supreme Court, New York County Manhattan)
Airvana and Ericsson agreed to negotiate a settlement in the software licensing dispute in May after the court issued an injunction against Ericsson’s use of hardware that used software developed by Airvana.
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