The Big 3 tower companies – American Tower (NYSE: AMT), Crown Castle (NYSE: CCI) and SBA Communications (NASDAQ: SBAC) – are all flying high with new deals with the U.S. national mobile network operators (MNOs).
The Big 3 towercos provide the critical infrastructure backbone for the three established national MNOs – AT&T (NYSE: T), T-Mobile (NASDAQ: TMUS) and Verizon (NYSE: VZ) along with planned DISH Network (NASDAQ: DISH) installations.
The Big 3 operate on a scale of their own. At the end of 1Q21, the Big 3 collectively owned and operated 100,000 towers in the U.S., roughly two-thirds of the existing communications macro towers in the country that support all wireless carriers’ more than 350,000 cell sites.
From a portfolio perspective, the Big 3 are quite different. AMT’s global tower tally at end of 1Q21 was 183,860 with nearly 43,000 towers in the domestic market. CCI is a pure-play U.S. operator with 40,086 macro towers. SBAC’s 1Q21 report showed 17,259 U.S. towers out of its global tally of 33,711.
At the same time, the national MNOs are these towercos’ most significant customers. The Big 3 towercos reported an aggregate of $4 billion in global site leasing revenues for 1Q21. Together, T, VZ and TMUS accounted for $2.6 billion or 65 percent of that total with TMUS as the single largest customer, accounting for 45 percent of the MNO portion.
With that much revenue concentration from just three customers, the Big 3 towercos are catering to MNO requirements and supporting them in new and novel ways as MNO network needs evolve.
Tower leasing is an attractive business model. Tower owners lease space to MNOs under a master lease agreement that typically is non-cancellable, in 5–10 year spans with multiple renewal options. The MLA establishes monthly lease rates and includes fixed annual escalators, that average 3 percent in the U.S. So annual revenues, and revenue growth, are quite predictable.
The predictable nature of the tower business benefits the tower companies, their tenants and certainly investors who like predictability. On its own, though, that tower leasing model can limit new revenue prospects.
Recent developments are creating incremental revenue streams for towercos.
From late 2020 through 1Q21, the MNOs stepped up their 5G deployments as new devices came on stream and potential grew for 5G for high-speed, low latency applications in vertical markets.
With TMUS’s 5G build accelerating, the churn uncertainty associated with the legacy Sprint sites in the aftermath of the merger subsided. At the same time, other carriers stepped up their 5G construction.
The outcome of the FCC C-band auction is driving a new level of installations on towers. Having won a trove of C-band licenses, VZ, with T not far behind, is anxious to deploy and monetize those licenses starting as early as December 2021.
MNOs planning to offer high-bandwidth, low latency services to key vertical markets need mobile edge computing resources located at or close to cell sites. The towercos are well-positioned to implement such MEC resources, creating new revenue streams in the process.
The towercos are also determining where backup diesel generators or renewable energy sources may be needed at a tower to ensure MNO network reliability and resiliency in the event of major power outages.
Anticipating the higher level of network construction activity, the MNOs have worked new deals with their towercos to adjust MLA terms and conditions for that increased activity on towers.
AT&T reset its MLA with CCI in April 2018 for its 5G and FirstNet builds. AT&T followed in September 2019 with an extension to its MLA with AMT for 5G installations and a simplified leasing process to accommodate site additions and modifications as needed.
In September 2020, TMUS implemented a 15-year MLA with AMT to help facilitate its 5G rapid expansion.
Preparing for its 5G rollout, DISH negotiated long-term, albeit initially minimal, agreements with each of the Big 3 towercos. In November 2020, DISH negotiated with CCI for access to 20,000 towers along with fiber transport and pre-construction services. DISH closed a deal with SBAC in February 2021 for access to SBAC’s domestic sites with support from SBAC’s pre-construction and regulatory compliance services. The AMT co-location deal, signed in March 2021, will start in 2022, and includes AMT’s zoning and permitting and pre-construction services.
VZ signed major deals with CCI and SBAC in 1Q21, mainly to support VZ’s C-band deployments starting in 2H21. The CCI agreement includes up to 15,000 small cells for VZ’s 5G Ultra-Wideband and 5G Nationwide services.
Incremental to all these deals is the potential for added site support services along with MEC and site backup power.
On the strength of upgraded MLAs, all Big 3 towercos raised their site leasing revenue and profit guidance for 2021. Investors seem to like the prospects too!
By John Celentano, Inside Towers Business Editor