SBA Communications came in with good domestic site leasing revenue numbers in the third quarter, thanks to continued 4G densification and early 5G deployments. Delays in the Sprint/T-Mobile merger have put short-term stress on the tower industry, But SBA officials were confident that when the merger is cleared, 5G will take off. And so with the tower industry.
Jeffrey Stoops, SBA president and CEO, also gave visibility to SBA’s plans for involvement in the Citizens Broadband Radio Service, after the auction puts priority access licenses (PAL) into the hands of the carriers and the cable companies.
“We had another solid performance in the third quarter,” Stoops said. “In the United States, we believe we are at the beginning of a long-term 5G deployment cycle that we expect will sustain activity levels for quite some time.”
With all the time and energy carriers are sinking into actively planning the 5G ecosystem, it is only a matter of time before it takes off, according to Stoops. Additionally, commitments by T-Mobile and Dish to build out extensive 5G networks add further proof that the technology will begin growing soon.
“Once there is clarity around the Sprint/T-Mobile merger, tower activity will explode. We believe the 5G iPhone … will prove to be decisive catalyst,” Stoops said. “We anticipate this type of activity to continue for at least the next several years. In the future 5G networks will require the deployment or redeployment of low- and mid-band spectrum further solidifying the importance of macrosites.”
Primarily a macrosite company, SBA also sees a future for growth in in-building wireless. It received one of the first test CBRS licenses and has been trialing new uses primarily for in-building applications where DAS is not economical. In anticipation of CBRS, the company has been growing its portfolio of properties and now manages close to 14,000 properties, in addition to sites it owns. In the third quarter, SBA invested in Federated Wireless, the inventor of the spectrum access system, to further its reach into CBRS.
“We believe the upcoming CBRS auction of priority access licenses [and the General Authorized Access licenses] will unleash a new era of demand for both macro and in-building deployments,” Stoops said.
Domestic Leasing Revenue Increases 6 Percent
All four major carriers were active during the third quarter and accounted for 84 percent of the total leasing revenue. Amendment activity was accounted for 84 percent of newly signed domestic leasing revenue and 16 percent from new leases.
“These amendments represent upgrades to our customers’ existing networks through technological improvements, the deployment of new spectrum bands and the addition of capacity,” Stoops said.
Domestic cash site leasing revenue was $371.4 million in the third quarter of 2019 compared to $350.4 million last year, an increase of 6 percent. Domestic site leasing segment operating profit was $310.9 million, an increase of 8.5 percent year over the year. Sequential quarterly numbers were impacted by the Sprint/T-Mobile merger delays.
“Domestic operational leasing activity, representing new revenue placed under contract during the quarter, was again very solid in the third quarter, although down sequentially from the second quarter because of the delays in the resolution in the Sprint/T-Mobile merger,” Brendan Cavanagh, chief financial officer, said. “Our domestic leasing application backlog continues to be strong, as well, indicating a significant amount of future investment into our customers’ 4G and 5G networks.”
SBA increased its outlook for the fourth quarter site leasing revenue by $4 million, but the outlook also includes some moderation in the services business because of the slowdown from the first half of the year in the activity of Sprint, T-Mobile and Dish Network as they await approval of the Sprint/T-Mobile merger.
“This is logical and expected under the circumstances. We expect an immediate escalation of activity once the outcome of the merger becomes clear and long-term network decisions can be made with certainty,” Cavanagh said.
SBA continued to see churn from Clearwire, Metro and Leap during the quarter as expected. The tower company will churn off $5 million annually for the next two years from these terminations. The churn numbers also include $6 million of annualize churn incurred in the fourth quarter of 2018 from legacy iDEN leases. This is the last quarter where churn numbers will be impacted by iDEN.
During the third quarter of 2019, excluding the sites from the previously announced South Africa investment, SBA acquired 78 communication sites for total cash consideration of $27.8 million. SBA also built 98 towers during the third quarter of 2019.
On August 30, the tower company closed on its option to acquire all but 6 percent of a joint venture in South Africa, including 889 towers, for $140 million. SBA now owns or operates 30,904 communication sites, 16,385 of which are located in the United States and its territories, and 14,519 of which are located internationally.