How much can tower owners help carriers finance 5G rollouts?
As carriers prepare to deploy their newly acquired C-band spectrum, towers and rooftops may not be the only assets the towercos can offer them. In addition, debt-strapped carriers may look to towercos for access to capital.
“We think we can really help by providing a separate source of capital that is focused on the wireless infrastructure, as opposed to the wireless carriers themselves,” explained Crown Castle CFO Daniel Schlanger, in remarks made last month at Morgan Stanley’s annual Technology, Media, and Telecom conference.
Towercos can potentially give carriers a way to turn a capital investment into an operating expense as they deploy new spectrum. “We can put it on our balance sheet and then charge them on a monthly basis as opposed to them putting it on their balance sheet,” Schlanger said.
Those carrier balance sheets could certainly use a break. Verizon had $123 billion of long-term debt on its balance sheet at the end of last year, and said in March that it would borrow an additional $25 billion to help cover the cost of its C-band spectrum purchases, which totaled $52.9 billion including incentive payments and clearing costs.
Meanwhile AT&T, whose C-band bill totals $27.4 billion with clearing costs, reported $153 billion in long-term debt at the end of last year. Early this year the company added a $14.7 billion line of credit and issued another $6.1 billion in short-term debt. It also announced the sale of a minority stake in DirecTV to private equity firm TPG, raising almost $8 billion, or roughly the upper end of the amount it has said it will invest to deploy its C-band spectrum.
Analysts agree that carriers will need new tower leases as well as new tower structures in order to deploy the C-band spectrum. Tower companies can borrow to finance new construction and pass the cost along to carriers, who pay for the assets as an operating expense. But these so-called “right-of-use” assets must be recorded on carrier balance sheets, and offset with lease obligation liabilities. For example, at the end of 2020, Verizon reported $22.5 billion in operating lease right-of-use assets, and $21.5 billion in lease liabilities.
Towers are of course just one part of the deployment expense; carriers also need radios, base stations, servers, fiber and much more. Instead of borrowing from banks or investors to finance 5G equipment, carriers may look for supplier financing in some instances.
Bob Paige, SVP of M&A at Vertical Bridge, said that as a private company, Vertical Bridge is in a position to finance carrier purchases of equipment. “They may look to solve some of their pressures by letting us buy electronics and radios and then lease back to them,” he said.
Paige added that even with help from the towercos, AT&T and Verizon are unlikely to be able to deploy as rapidly as they might have if the spectrum costs had been lower. “When you spend $45 billion [collectively] that you didn’t anticipate … it does cause you to elongate your capex spend,” he said.
The extra debt carriers took on to pay for spectrum could impact their cash flows for years, Paige predicts, because of the ongoing interest payments. Lease payments hit the income statement as well, so if carriers do translate capex into opex by leasing radio gear, they will see an immediate impact on earnings. And they could still be paying for early generations of 5G gear when newer, better equipment hits the market.
By Martha DeGrasse, Inside Towers Contributing Analyst
Veteran telecom industry editor and journalist Martha DeGrasse is an Inside Towers Contributing Analyst with features appearing twice per month. DeGrasse owns Network Builder Reports and contributes regularly to several publications. She was formerly a writer and editor with RCR Wireless and a TV business news producer.
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