T-Mobile USA has agreed to sell the rights to operate its 7200
wireless broadcast towers to one of the largest independent tower
Crown Castle International
) for $2.4 billion, which will provide it with the cash needed to
upgrade its network and will considerably reduce its debt burden.
Notably, T-Mobile USA, a unit of
Deutsche Telecom AG
) planned to sell its tower portfolio last year after a failed
$39-billion takeover bid by the second largest U.S. carrier,
As part of the deal, Crown Castle will have the exclusive right
to lease and operate the 7200 wireless towers for the next 28 years
with the option of buying it at the end of the lease for another
From T-Mobile USA's standpoint, the above mentioned is a
significant deal for them as it will provide them with much needed
cash infusion to upgrade its network. The unprecedented surge in
data has forced the U.S. carriers to roll out faster and reliable
fourth generation network.
The deal, which is expected to be completed in the fourth
quarter of 2012, will support the company's $4 billion network
enhancement initiative. Additionally, the transaction will not only
trim down the company's debt by a significant amount of $2.4
billion, but will also reduce its reliability on the parent company
We believe Crown Castle will leverage from the fact that
T-Mobile USA's tower provides the option to hold an additional
tenant to its sites, which will increase its site leasing revenue
without any additional cost. Moreover, as a part of the agreement,
T-Mobile will remain Crown Castle's client for the next 10 years
and will provide it with the network modernization fees, which will
reduce its operating cost going forward.
The company expects the towers to garner about $125-$130 million
in adjusted funds from operations (AFFO) before financing costs in
2013, and will increase the total number of towers under its belt
to 30,000 approximately.
We believe the deal was a desperate move by Crown Castle to
maintain its organic growth within the U.S. and will make it the
closest competitor to rival American Tower Corp. Furthermore,
consolidation in the traditional wireless space will help the
company concentrate on complementary wireless tower solutions like
Distributed Antenna System (DAS).
We are maintaining our long-term Neutral recommendation on Crown
Castle International Inc. However, the company currently retains a
Zacks #2 Rank, implying a short-term Buy rating.
CROWN CASTLE (CCI): Free Stock Analysis Report
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