November 3, 2014 — After several quarters that were dominated by new leases, amendments accounted for two-thirds of the commenced new business activity domestically at American Tower in the third quarter, because of voice-over-LTE (VoLTE) rollouts, according to Tom Bartlett, company CFO.
“We saw very active amendment activity, which reflects additional equipment being placed on towers by our customers, in part driven by VoLTE rollouts,” Bartlett said. “As a result of the continuing strong new business trends in the U.S. we are raising our expectations for organic core growth in the United States to 9.5 percent for the full year.”
The two leading national carriers in VoLTE are Verizon and AT&T. Verizon is just finishing coverage and will be launching the product in the next year. AT&T says a VoLTE commercial launch should occur within the next year. T-Mobile has been working on VoLTE, according to Taiclet, but the towerco has yet to hear from Sprint on its VoLTE plans.
“So, over the course of 2015, I think you will see more advertising for this kind of product, more handset deployment that includes the technology that’s needed. And so it will take a few years to roll it all out, but it looks like it’s starting in 2015,” he said.
In September, Verizon quietly launched a VoLTE service branded Advanced Calling 1.0, which got high marks for clarity, according to Mark Lowenstein, a wireless analyst and consultant.
“The voice quality, when you’re talking with someone who also has a VoLTE device, is fantastic,” he wrote. “It sounds like the person is right next to you, and there is not the slight latency or over-talk that sometimes happens on cellular calls. In an area with good cellular signal, VoLTE sound is better than landline, regular cellular and VoIP calls.”
Verizon and AT&T announced on Nov. 3 that they are working on enabling VoLTE-to-VoLTE connections between Verizon Wireless and AT&T customers, which is expected to be achieved in 2015.
“Interoperability of VoLTE between wireless carriers is crucial to a positive customer experience,” said Krish Prabhu, president, AT&T Labs and Chief Technology Officer, AT&T. “We are pleased to work with Verizon on this initiative. We continue to work with others in the industry on similar collaborative arrangements and hope to see similar collaboration across the industry in the near future.”
Strong Capex Marks Q3
Overall, elevated carrier capex spend led to a strong third quarter for American Tower as its domestic rental and management revenue grew more than 25 percent with core growth of around 28 percent. Domestic organic core growth was more than 9 percent, which consisted of 3 percent from escalations and more than 8 percent from existing site revenue growth less 1.6 percent from tenant churn.
“This organic core growth reflects our tenants continued aggressive network investments in 4G,” Barlett said.
With all of the projections that carriers will increase capex devoted to network densification and small cells, analysts questioned whether growth is going to slow in the coming years.
While not giving guidance for 2015, American Tower officials expressed confidence that the tower company could maintain 6 percent to 8 percent domestic core organic growth during the five-year and 10-year time horizons. Taiclet said American doesn’t see picocells, microcells or Wi-Fi to be a threat to its core business, which is in rural and suburban areas with fewer than 5,000 people per square mile.
“We do think that because of the consistent technology trends, the strength and size of the mobile operators, and also the fact that in the United States 85 percent of the people have to be served over that time, we are not going to see a tremendous fluctuation in our growth rates anywhere,” he said.
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.