(By Mani) Telecom major AT&T, Inc. (NYSE: T) could be actively considering the monetization of its tower assets in a similar fashion to several of its peers in the wireless industry as it would provide additional cash for its expansion activities.
The company is targeting 3G capacity upgrades at about 15K cell sites, LTE deployment at 20K cell sites, new high-capacity Ethernet backhaul connections at just under >7K sites, and new UMTS deployments at ~4K sites. In addition, AT&T is planning to deploy 2.5K new cell sites.
Of these projects, the LTE overlays and new cell-site deployments are the most relevant from a tower leasing perspective, and ahead of the respective 2012 totals for these activities.
AT&T's tower portfolio includes about 10.5K mobility sites plus additional assets such as wireline towers, distributed antennas systems, and other infrastructure.
"We calculate that these assets could fetch mid-$5B or more for AT&T's 14.5K sites, based on recent tower-industry transactions and assuming roughly $400K/site," RBC Capital Markets analyst Jonathan Atkin wrote in a note to clients.
"We believe the AT&T towers and related assets have a tenancy level of >1.5 and could generate TCF in the low- to mid-$200M range, although this depends on the specifics associated with the potential sales/leaseback terms," Atkin said.
If AT&T plans to monetize tower assets, American Tower Corporation (NYSE:AMT) is best positioned to act on this opportunity based on its low balance-sheet leverage and Crown Castle International Corp. (NYSE:CCI) and SBA Communications Corp. (NASDAQ:SBAC) are focusing on the integration of their recent acquisitions.
In September, Crown Castle agreed to acquire rights T-Mobile's 7,200 T-Mobile towers for $2.4 billion in cash. Crown Castle will have the exclusive right to lease and operate the T-Mobile towers for a weighted average term of approximately 28 years. Crown Castle estimates the T-Mobile towers will produce approximately $125 million to $130 million in adjusted funds from operations before financing costs in 2013.
In February 2012, SBA Communications had agreed to acquire more than 2,300 tower sites and distributed antenna system (DAS) assets from Mobilitie, LLC for $1.1 billion. In June 2012, SBA agreed to buy TowerCo's 3,252 mobile phone tower sites in a deal worth $1.45 billion.
Similarly, AT&T could be weighing its options to monetize its tower assets to fund its LTE expansion. In 2013, AT&T's capital spending to be in the $21 billion range with increased spending in wireless and stable wireline investments; LTE build to cover 250 million or more of the U.S. population by year-end. The company expects to have free cash flow exceeding $14 billion.
In 2012, AT&T's full-year cash from operating activities was $39.2 billion, up from $34.7 billion in 2011. Capital expenditures, including capitalized interest, totaled $19.7 billion versus $20.3 billion, including a 10.6 percent increase in wireless-related capital investment versus 2011. Full-year free cash flow also was $19.4 billion.
"Should a transaction take place, we would view it as an attractive source of cash for AT&T," Atkin noted.