Tower Thoughts

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The three public tower companies will share their first quarter earnings later this week or next. Jonathan Schildkraut and Justin Ages of Evercore ISI have shared their tower thoughts, “Carrier trends were relatively consistent with 4Q with Verizon representing the lion’s share of sector growth and T-Mobile both adding new sites and incorporating 700MHz spectrum into its infrastructure. Balancing against this are still muted activity from AT&T, with almost no new sites in process (some amendment activity), and essentially no contribution from Sprint (i.e., no change from recent periods). While we believe our checks are in line with the expectations underlying tower companies’ 2015 guidance, the slow trends leave limited room for organic guidance improvements at this point in the year.” The analysts do believe that even though there has been a slow beginning, there is likely to be more activity later this year. Mergers and acquisition activity remains important within the industry. “American Tower having closed on Verizon Towers will pressure expected AFFO [adjusted funds from operations] per share guidance by 1.6%,” the analysts explained. “AMT should close on TIM/Airtel in 2Q, likely offsetting some Verizon Towers dilution. Crown Castle is evaluating the sale of CCAL (Australia), which would pair mild AFFO per share dilution with potential debt reduction and a cost of capital improvement. ExteNet considering a sale (SBAC owns a ‘meaningful minority’ and could participate in a process or receive a payout as a result). Notably, AT&T also closed on its acquisition of Iusacell in Mexico – which could portend an investment cycle in that country to AMT’s benefit (7-8% of AMT’s revs).”

Finally, there are a few catalysts that remain in the industry: Sprint’s possible build out, FirstNet, and AWS-3 build out. “From a secular perspective, we continue to see the emergence of key trends which should support longer-term growth. We believe Sprint is working on a large scale network plan, including ~11,000 potential new sites. We do not believe the plan is fully baked, and would expect formal announcement mid-year. We expect rhetoric around FirstNet to heat up with $7 billion of financing now in hand, but view 2015 as largely a planning an RFP [request for proposals] year, with activity commencing in late 2016, and more details on an AWS-3 build-out (which our checks continue to say will call for a new round of equipment installations),” Schildkraut and Ages wrote.

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