Wireless carrier consolidation and the accompanied jitters it inspires will be one of the top stories again in 2014.
As we headed in to the holiday break, the Wall Street Journal reported on Dec. 13 that Sprint was considering a merger with T-Mobile US, which set the industry into full speculation mode.
If such a merger would occur, Jennifer M. Fritzsche, senior analyst, Wells Fargo wrote, it would have the biggest impact on Crown Castle International, which has an overlap between T-Mobile US and Sprint totaling 8,000 sites, which accounts for 20 percent of its U.S. portfolio and 10 percent of its consolidated site rental revenues, according to Fritzsche. SBA Communications would be the least affected with an overlap of 2,000 sites or 13 percent of its domestic portfolio. American Tower has an overlap on 5,500 sites, which 20 percent of its domestic portfolio, but it accounts for less than 5 percent of its revenue.
Average remaining term of leases on affected sites at all of the big three tower companies is seven years.
“We would be affected very little by the combo of Sprint and T-Mobile US in terms of existing overlap, however it would affect our growth model and likely pricing on exit as I think initially the entire market would trade down,” said Ronald G. Bizick, II, CEO, Tarpon Towers.
The Nikkei Asian Review reported on Dec. 25 that Sprint’s owner, SoftBank, was in the final stages of talks with Deutsche Telekom to purchase the majority of shares in T-Mobile US for $19 billion. SoftBank has approached Credit Suisse, Mizuho Bank, Goldman Sachs and Deutsche Bank, looking for funding, according to Bloomberg News.
And then there are the antitrust and competition concerns of two major carriers merging. Not forgotten is AT&T’s $39 billion merger proposal for T-Mobile US in 2011 that was nixed by the Department of Justice. Worries caused by that deal stifled growth in cell site development for the better part of that year.
A Sprint/T-Mobile US merger would create a super carrier with 100 million subs, making it competitive with the current duopoly, AT&T and Verizon. The combo would also make Softbank the second largest carrier in the world behind China Mobile. Whether the deal goes through depends in part on whether it is seen by the FCC and DoJ as improving competition or harming it.
Another issue might be timing of the merger, according to Mobile Ecosystem analyst Mark Lowenstein. “[Softbank’s] Masayoshi Son’s already uphill battle [to merge with T-Mobile US] has become progressively steeper given T-Mobile’s 2013 trifecta of successful Metro integration/expansion, rapid LTE deployment, and success with its ‘un-carrier’ strategy,” he wrote. “AT&T’s planned acquisition of Leap will put further pressure on Sprint MVNOs. Plus, the incentive auctions have been delayed into 2015, pushing commercial reality of additional sub-2.5 GHz spectrum for Sprint even further out.”
To make matters even more complicated, Charlie Ergen, the driver of much of last year’s merger melodramas, has decided he may want to poke in his nose. Reuters reported on Dec. 18 that DISH Network was considering its own bid for T-Mobile US, pitting it against Sprint, the carrier it used to want to buy.
Most NIMBYs just tell carriers where they DON’T want a cell tower. An RF engineering firm hired by a small Connecticut town has instead provided an alternate solution for AT&T’s RF coverage problems there.
A study by RCC Communications, commissioned by the Town of Sherman, Conn., states that the 167-foot monopole proposed by AT&T may not be necessary. Instead it prescribes two lower structures, an 80-foot pole and 60-foot pole at different locations, which it said would provide coverage of 71 percent of the town.
The two new towers would work in concert with a radio tower at the fire station in the center of town would work together with plus AT&T antenna on a nearby silo, according to the RCC study.
Last spring, AT&T proposed a 167-foot tower and submitted a technical report saying it needs the structure in conjunction with existing and proposed towers in New Fairfield and New Milford. The technical report, produced by SAI Communications, showed that 31 sites were considered and all but those proposed site were either rejected by AT&T’s RF engineer or the property owner was not interested.
According to the SAI study, the 167-foot tower would more than double the carrier’s coverage to 8 square miles and more than double the pops covered to 1,469.
During the second quarter earnings calls, LTE deployment was on the lips of several major carriers as they seek to catch up with Verizon Wireless.
T-Mobile US is pushing forward with its LTE upgrade and HSPA+ build out, and it has doubled its MetroPCS brand presence to 15 new markets. The carrier, which launched its LTE network in seven major metropolitan areas in March, lit up 116 Metro areas covering 157 million people with LTE by the end of July, exceeding its midyear goal of 100 million. The company is also still building out its HSPA+ network, which now covers 228 million people on AWS spectrum and 108 million in 1900 band.
“We have hugely accelerated the modernization and upgrading of our network to 4G LTE,” John Legere, president and CEO, told the second quarter earnings call. More than 200 million covered pops are projected to receive LTE by the end of 2013.
Also during the quarter, the carrier purchased of US Cellular’s spectrum covering 32 million POPs in cities such as St. Louis and Kansas City, Mo.; Nashville; Memphis, Tenn.; and New Orleans.
“Our coverage spectrum position is improving. The [US Cellular] spectrum is adjacent to our current holdings which provide key network efficiency benefit,” Legere said. “Further, due to the spectrum position and our network deployment program … we are on track to achieve 20×20 megahertz 4G LTE coverage in 90 percent of the top 25 market in 2014 and beyond.”
Additionally, T-Mobile is moving forward with the integration of MetroPCS, completing the planning and beginning the implementation of the network migration. So far, it has launched HSPA, HSPA+ and LTE in multiple MetroPCS markets and expects to complete the launch in all existing markets by the end of Q3. The implementation of multi-operator core network allows MetroPCS customers with LTE handsets to use T-Mobile 4G LTE network for data without a change in handset.
AT&T LTE Growth ‘On Track’
AT&T currently covers more than 225 million people with LTE and is on track to reach nearly 270 million pops by year end covering 400 markets.
“We continue to move fast with our 4G LTE deployment. We now expect to substantially complete our 4G LTE network by the next summer,” Ralph de la Vega, president and CEO for AT&T Mobility, told a second quarter earnings call.
AT&T bumped up its CapEx $900 million year over year to $5.5 billion in the second quarter.
“We spent that money at this time, because the network team could get more done and efficiently get it done and so we want to make sure we fund that and we will stick to that philosophy,” de la Vega said.
Network Vision Momentum Continues
While shutting down the Nextel platform, Sprint made progress on the Network Vision deployment in the quarter, completing 6,500 sites for a total of 20,000. LTE has been launched in 151 cities, including Los Angeles, Dallas, Atlanta, Miami and Boston. Sprint expects to provide 200 million people with LTE by the end of 2013.
“Momentum continued in the second quarter and expanding the Network Vision footprint we now have zoning complete on nearly 35,000 sites and leasing complete on close to 34,000. More than 30,000 sites are ready or have already begun construction. There are 600 cities under construction,” said Steve Elfman, Sprint president of network operations and wholesale.
Another significant milestone in the evolution of Network Vision is the closing of both the Midwest spectrum acquisition from U.S. Cellular and the acquisition of Clearwire. The U.S. Cellular transaction brought 20 megahertz of PCS spectrum in Chicago and its surrounding markets and 10 megahertz of PCS spectrum in the St. Louis market. Sprint has already begun to deploy LTE on the acquired spectrum and we’ll continue to do so through the third quarter of next year.
“With regard to Clearwire, we’ve been actively engaged with them to build both a network integration plan as well as the integration of all functions into Sprint,” Elfman said. “As it relates to expanding LTE on 2.5 gigahertz, Clearwire had roughly 2,000 TD-LTE sites commissioned at the time of closing and expect these and additional sites under construction to continue coming on air in the second half.
Future LTE Growth Looks Good Too — Moody’s
Tower companies will get a nice boost from Sprint’s purchase of its subsidiary Clearwire Corp. through upgrading existing cell sites and adding sites to achieve nationwide LTE coverage, according to Moody’s Investors Service in the report “Independent Towers Will Get an EBITDA Boost As Sprint Deploys Clearwire Spectrum.”
“We expect that Sprint will repurpose the Clearwire tower sites and add an estimated 15,000 to 18,000 cell tower sites, which will generate increased leasing revenue that the carrier pays to the tower companies,” says Moody’s Vice President — Senior Analyst Gregory Fraser, the author of the report. “These new tower sites will replace the 16,500 Clearwire sites scheduled to be decommissioned and will therefore eliminate the risk that lost rent from those towers would not be replaced with new rental revenue.”
Moody’s expects AT&T to further its 4G/LTE deployment on Leap’s underutilized spectrum on 15,000 to 20,000 sites (including the 9,700 leased sites acquired from Leap), which will also to the benefit of the independent tower firms.
Verizon Wireless service was interrupted on June 24, when several rural communities in Montana lost the ability to roam on to local AT&T towers. The towns included Lincoln, Virginia City, Lima, Broadview and the Absarokee-Fishtail area, according to a state Department of Justice news release.
Late in June, users began to contact the state Office of Consumer Protection and the Public Service Commission to complain about the disruption, said Anastasia Burton, deputy communications director with the Montana Department of Justice.
The service disruption began after a three-year contract allowing calls of Verizon subscribers to roam using AT&T cell towers in-state ended on June 22, according to a news release from Burton. The contract was part of a deal brokered when AT&T bought Alltel from Verizon in Montana in 2010.
Verizon has been attempting to address projected coverage issue in the last three years, according to a Verizon spokesman, and is currently acting to fill in the shortfalls.
On July 2, the carrier responded by deploying cell towers on wheels in rural locations around Montana, according to TV station KAJ18, with additional permanent towers slated to come online in mid-July and early August, accord to a Verizon spokesman.
Ironically, Verizon Wireless sent out a press release in March of this year touting an expansion of its Montana LTE service to include the Great Falls metropolitan area, as well as along I-15 to include the Great Falls International Airport and along Hwy 87 to include Black Eagle. Verizon Wireless had previously launched 4G LTE service in the include Billings, Bozeman, Butte, Helena, Kalispell, Missoula and other locations.
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.