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AT&T to Sell, Lease Cell Towers for $4.85B

Sarah Thomas
10/21/2013

AT&T has agreed to sell 600 of its cell towers and lease another 9,100 to Crown Castle for $4.85 billion, the companies announced Sunday evening.

Under the terms of the deal AT&T Inc. (NYSE: T) will get $4.5 billion up front and rights to sublease capacity on the towers from Crown Castle International Corp. (NYSE: CCI) for a minimum of 10 years for $1,900 per month per site, with annual rent increases of 2 percent. The carrier gets the option to renew up to a total of 50 years and will also have access to additional capacity on the towers for future use.

Crown Castle gets exclusive rights to lease and operate 9,100 of its wireless towers, which are located in AT&T's top markets, for the duration of a 28-year lease. When the lease expires, the tower company will have the option to purchase the towers for near what it paid, around $4.2 billion, based on the fair market value at the end of the lease.

In discussing the deal on the company's third-quarter earnings call Monday morning, Ben Moreland, Crown Castle president and CEO, noted that there was a significant increase in new leasing activity in the third quarter as the carriers focused on improving network quality.

Indeed, the need for network upgrades is one reason AT&T has entered into the agreement as it has promised to spend around $12 billion upgrading its network this year. Some extra cash to buy back stock and fund its Leap Wireless International Inc. (Nasdaq: LEAP) acquisition are two other reasons. It's a win-win for the carrier as it gets more money and the ability to add capacity as it needs it.

Crown Castle is the largest independent provider of wireless tower infrastructure in the US. Its deal with AT&T won't hold it back from maintaining similar deals with other operators either. Last year it took over 7,200 of T-Mobile US Inc. 's cell towers for $2.4 billion. Sprint Corp. (NYSE: S) and Clearwire also make up a significant chunk of its tower revenue. (See Sprint & Clearwire Make Up 26 Percent of its Tower Revenue and T-Mobile USA in $2.4B Towers Deal.)

AT&T isn't expecting this deal to have a significant impact on its financial results, which it reports on Wednesday for the third quarter, and anticipates the transaction closing by the end of the year.

— Sarah Reedy, Senior Editor, Light Reading

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lanbrown
lanbrown
10/21/2013 | 2:05:12 PM
Re: Enter T-Mobile & Sprint
The incumbent would always have/want the top so that leaves the other carriers to fight for the next highest position and so forth.  All the tower leasing does is assist if one of the other carriers would want to fill a hole in their network but the reality is, they would prefer to have their own tower.  Selling the tower does allow other uses of the tower though, like state, county and city use where being at the very top is not a huge importance.  It also helps companies that might want to build a network in a geographic location.
DanJones
DanJones
10/21/2013 | 12:18:32 PM
Re: Enter T-Mobile & Sprint
Yep, AT&T is always stressing that they use the tower-top antennas for LTE rollout (as does T-Mobile).
lanbrown
lanbrown
10/21/2013 | 11:50:05 AM
Re: Enter T-Mobile & Sprint
Where your antennas are on the tower plays a big part.  Also, just because there are more towers available to competitors, that doesn't mean they will lease space on them.  If a carrier is using price to lure customers, their margins are a lot thinner and expanding capacity at an existing tower is cheaper than installing service at a new tower.

 

One could argue that other towers deals have been made in the past and there still is not coverage parity.  In 2000, American Tower purchased the towers from AT&T.  Verizon had a joint-venture with Crown Castle which Crown Castle has bought the part they didn't own from Verizon.

 

The sale of the towers helps the other carriers if they want to lease tower space, but doesn't automatically mean they will get better coverage just because there are now towers they can use.
Sarah Thomas
Sarah Thomas
10/21/2013 | 11:10:47 AM
Re: Enter T-Mobile & Sprint
I don't see a ton of customers fleeing the big two based on coverage. They'd have to hear strong word of mouth about their area and the relative changes in the network. A lot of customers don't understand what all is going on with network upgrades and Sprint's Network Vision, for example. Rather, I think cost is luring those to T-Mobile. When coverage is equal for all intents and purposes, operators will have to find other ways to compete. Cost will only get them so far (eventually) too.
MordyK
MordyK
10/21/2013 | 11:00:46 AM
Re: Enter T-Mobile & Sprint
Well Sarah, it can have the effect that any of the subs that were exploring leaving but stuck with either of the top 2 due to coverage and service will no longer fell that loyalty to stick around and pay more. I myself was with T-Mobile when it was Omnipoint and left for Sprint, but coverage forced me onto either AT&T or VZ and I chose AT&T due to their use of GSM which allowed me to use my phone with local SIM'S.
DanJones
DanJones
10/21/2013 | 10:57:42 AM
Re: Enter T-Mobile & Sprint
Sprint already sold its tower holdings though, didn't it?
Sarah Thomas
Sarah Thomas
10/21/2013 | 10:56:27 AM
Re: Enter T-Mobile & Sprint
Really good point, Mordy. It doesn't hurt AT&T much, but is a boon to its competitiors, not to mention Crown Castle. T-Mobile is already tied up with them for 7,200 sites. Coverage parity could be coming faster than we thought. 
KBode
KBode
10/21/2013 | 10:50:20 AM
Tax benefits..
I'd heard that these kinds of deals help with lowering taxes, but can anybody familiar with the financials of these deals specifically illustrate why?
MordyK
MordyK
10/21/2013 | 10:48:23 AM
Enter T-Mobile & Sprint
This has got to be exciting news for Tmo & Sprint as they need to significantly densify & improve their in-city coverage and networks, due to their being newly well-capitalized and hopeful griwth. Having ready made sites that were previously locked up by AT&T to slot in their new base stations means that they can improve their networks so much faster.
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