Spectrum Auctions, Verizon Towers Seen as Opportunities for Cell Tower Growth

Crown Castle International’s buy of towers from AT&T and T-Mobile involved a change in how such a deal is usually structured, said Spencer Kurn, a New Street Research analyst. Whenever a carrier installs additional equipment onto a tower, an amendment is made to the lease, Kurn said. This usually costs an additional $500 a month, he said. “Crown paid a very high multiple for the assets.” Crown also gave AT&T concessions that made the transaction “attractive” to AT&T, which included giving AT&T reserved space so it could install more equipment on the towers without paying an additional amendment fee, he said.

The Crown deals were structured as long-term leases, so they minimize the tax burden for AT&T and T-Mobile for selling them, Kurn said. Crown has the option to formally buy the towers after a 28-year lease, he said. “That’s purely for tax purposes.” It’s a way for AT&T and T-Mobile to sell their towers tax-free, he said. The concessions most likely attracted Verizon’s reported interest in exploring tower sales, he said. Verizon and U.S. Cellular are among the carriers that still have towers, he said. Verizon had no comment.

There likely will be significant changes for carriers, rather than for tower mergers and acquisitions, a wireless industry consultant said. The landscape will be different in about five years due to smaller carriers obtaining more spectrum, he said. “Greater demand for wireless services is always good for the tower business, whether it’s through new bands being deployed or through more intensive use of the existing spectrum,” said Coleman Bazelon, an economist with The Brattle Group.

A deal with Crown is probably the best fit for Verizon, said Kurn. Crown has shown a willingness to pay higher multiples for the carrier-owned domestic tower portfolios compared with American Tower and SBA Communications, Kurn said. The market hasn’t reacted very favorably to Crown’s AT&T tower transaction, he said. SBA and American Tower likely wouldn’t want to offer the terms that Crown offered for AT&T, he said. “Crown many be the only logical buyer for Verizon if Verizon wants those same terms.” Unlike other tower companies, Crown doesn’t have as much opportunity to acquire and build because it hasn’t done business internationally, Kurn added. Crown had no comment.

The outcome of the AWS-3 and TV incentive auctions will affect tower mergers and acquisitions, said the experts. The auctions will be very expensive for carriers to purchase spectrum, Kurn said. Adding spectrum bands into a network requires installing new equipment on towers, he said. “When you touch the tower, you pay more.” The auctions will very likely require carriers to add new equipment to their towers, he said. “If you're selling your towers today, you're probably going to ask for a concession on deploying those spectrum bands."

The 600 MHz incentive auction can introduce a new carrier for the tower companies to do business with, the wireless consultant said, referring to the FCC’s barring of package bidding suggested by AT&T and Verizon Wireless. “There may be a major player that emerges out of the mix,” he said. The smaller carriers that bid and acquire 600 MHz spectrum will need to build out and operate for a while before they can sell spectrum, he said: “The value of the towers is going to go up.”

AWS-3 spectrum isn’t a new band of spectrum, making it unnecessary for new equipment, Bazelon said. That spectrum likely won’t create new demand for the tower companies, he said. If a company has already deployed AWS-1 spectrum, it won’t have to put up new equipment to deploy AWS-3 spectrum from the auction, he said. Some new electronics might need to be placed in the base station, but it’s not tower space, he said. To deploy the 600 MHz spectrum, new antennas would be required, driving up costs for carriers, he said.