T-Mobile/MetroPCS Unlikely to Have Major Impact on Tower Companies, Analysts Say
T-Mobile USA’s proposed merger with MetroPCS is unlikely to have a significant impact on U.S. tower companies if the U.S. government approves the deal as expected (CD Oct 4 p1), industry officials told us. Any carrier consolidation is likely to lead to concerns because the tower companies end up with fewer customers -- but those concerns are mitigated by the carriers’ network build-out plans, Benchmark analyst James Dobson said. “With MetroPCS forming up with T-Mobile, it gives them a stronger parent company, more of solid capital base with which to roll out their next-generation network,” he said. “Everyone’s going to these LTE networks, and if T-Mobile’s going to compete on a national scale, they're going to have to be aggressive in building out their LTE network. That’s going to ensure that the MetroPCS will also build out."
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The proposed deal would have minimal immediate effect on SBA Communications’ business, Finance Director Mark DeRussy said. About 1 percent of SBA Q2 revenue was generated by redundant T-Mobile and MetroPCS leases at sites where the two overlapped (CD Oct 5 p18). That’s the smallest such figure of the three major U.S. companies that own towers.
A combined T-Mobile-MetroPCS may want to retain some of its expanded number of leases to accommodate T-Mobile’s network modernization and expansion plans, said Jason Nicolay, vice president at broker Media Venture Partners. Those plans already include expanding T-Mobile’s HSPA-Plus availability, he said. Under the proposed deal, unveiled Oct. 3, T-Mobile owner Deutsche Telekom agreed to buy MetroPCS from its shareholders for $1.5 billion in cash and 26 percent ownership of the merged company.
Tower executives don’t see the deal having “a tremendous amount of impact,” on their industry, Nicolay said. T-Mobile and MetroPCS operate on different networks -- T-Mobile is a GSM operator, while MetroPCS operates using CDMA technology. If the merger closed as planned, the combined company would need to go through a period of network integration, said Nicolay. “If the merger is approved in the first half of next year as the press release indicated, you've already got 6-9 months to get integration started.” Some existing MetroPCS leases don’t expire for another 10 years, Nicolay said. “There’s a period of time where there’s not going to be a tremendous amount of loss.” Even after those leases expire, it’s unlikely T-Mobile/MetroPCS would result in significant lease consolidation, Nicolay said.
The combined carrier would need to honor MetroPCS’s long-term contracts with the tower companies, Dobson said. “Traditionally, the tower companies will work with these consolidators,” he said. “They would work with T-Mobile if they decide to shut down some of the sites.” Such negotiations usually involve some concessions, such as agreeing to negotiate new leases for any new network builds, Dobson said. The tower model remains “one of the best businesses out there,” he said. “Demand seemingly continues to grow. As fast as you can build these networks, consumers are consuming them."
Crown Castle International gets the greatest chunk of revenue from T-Mobile and MetroPCS, among the three major tower companies. The two carriers represented 22 percent total of CCI Q2 consolidated site rental revenue -- 17 percent for T-Mobile and 5 percent for MetroPCS, the company said. CCI has about 1,400 sites where both carriers have overlapping leases. CCI’s revenue from MetroPCS on those leases represents less than 2 percent of CCI’s revenue for Q2, the company has said (http://xrl.us/bnsrpi). CCI reached a deal Sept. 28 to lease 7,200 T-Mobile towers for $2.4 billion, and pay that amount again to eventually buy them outright (CD Oct 1 p16). American Tower reported T-Mobile accounted for 7 percent of Q2 consolidated revenue, and MetroPCS 2 percent
The T-Mobile/MetroPCS prompted speculation about Sprint Nextel possibly making a competing bid for MetroPCS. Sprint Nextel Chief Financial Officer Joe Euteneuer declined to comment Wednesday during a conference in Scottsdale, Ariz., which was also webcast. “We believe in consolidation in the industry,” he said. “I don’t think that has changed.” A Sprint-MetroPCS deal would have different consequences for tower companies, since both carriers operate on CDMA technology, Nicolay said. “There may be the potential for a little more consolidation there, but I think it would probably be somewhat minimal.” Many of the leases at sites where Sprint and MetroPCS have overlap are years away from expiring -- and Sprint may want the additional leases to accommodate its Network Vision upgrades, he said.
Tower companies have not been deeply affected by carrier consolidation, Nicolay said. “It doesn’t feel like tower companies have a lot of exposure to overlap.” Nicolay pointed to the information American Tower, CCI and SBA Communications released. “I don’t think these mergers would have a huge impact on the bottom line,” he said.