U.S. tower companies saw some relief with Judge Victor Marrero’s approval of the T-Mobile/Sprint merger, with shares rising on the news Tuesday.
For months before the announcement, the tower companies were in a sort of limbo. Wall Street investment analysts suggested there was a significant slowdown in tower activities while T-Mobile awaited the outcome of the deal.
Raymond James hosted meetings with Crown Castle CFO Dan Schlanger and head of Investor Relations Ben Lowe on Tuesday, where the benefit of the merger to the tower industry was noted as “supercharging” T-Mobile’s deployment of 5G, as well as positioning Dish to use its significant spectrum position to become a fourth facilities-based carrier, according to a research note by analyst Ric Prentiss.
Wells Fargo Securities analysts noted that the New T-Mobile will have an abundance of spectrum that will need to be deployed, which is positive for towers — especially those with small cell exposure. They expect to see T-Mobile ramp up spending particularly in the second half of this year.
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American Tower’s EVP Rodney Smith said during a UBS investment event last December that the company expected to see more spending from the new T-Mobile than it was seeing prior to the merger when T-Mobile and Sprint were operating as separate entities, according to a Seeking Alpha transcript.
“We would expect a bump up in overall investing from T-Mobile,” he said. “They have talked about investing $40 billion in the first three years. They've talked about adding 10,000 new macro sites, which my guess is that's a starting point, and they'll probably go up from there as they race to really take over a leadership position in the U.S. telecom market, which is their ambition.”
During SBA’s last quarterly conference call, President and CEO Jeff Stoops acknowledged a slowdown due to the uncertainty surrounding the deal but declined to get into any guidance because the expectation was the deal would be resolved by the time SBA does its next quarterly conference call, which is scheduled for Feb. 20.
‘Fine’ no matter what
In a research note on Tuesday, MoffettNathanson analysts said the tower segment was always going to be fine whether the deal was approved or not. Tower investors had responded enthusiastically to Dish Network being propped up as a fourth player in the market, but the Dish effect might not be as great as some hope or expect, they said.
“There are important nuances related to T-Mobile and Sprint that many observers miss, and the likely impact of Dish on the Towers may not be as dramatic or realized as quickly as many hope,” wrote Craig Moffett. “There are a lot of moving pieces to consider and company-specific subtleties to bear in mind, but at the end of the day the net impacts are likely to end up being fairly modest for each of the Towers, a quite remarkable outcome given the magnitude of the deal.”
He added that Dish may not build out its network as aggressively as some investors might hope, with direct consequences for the amount and timing of rent paid to tower owners. “Moreover, revenue and cash flow from Dish is far riskier than that generated by an incumbent – there’s no guarantee that its business will succeed and pay rent in near-perpetuity – and that affects the multiple we should be willing to apply to the stream of profits being generated by Dish in a steady state,” he said.
Once Dish entered the fray with plans to build a new network, analysts at New Street Research saw the deal as modestly positive for towers. Absent the deal, they thought organic growth for the towers would be pressured in 2020 because T-Mobile, Sprint, and Dish all paused network activity in September in the run-up to the merger decision.
With the merger approved, however, they expect T-Mobile to aggressively deploy Sprint’s 2.5 GHz spectrum and largely offset any slowdown from the pause over the past several months.