Sprint PCS tower assets are creating industry buzz again as the carrier affirmed it is talking with potential buyers. With its 6,200 towers up for sale, Sprint seems poised to get enough money to fund its merger with Nextel Communications Inc. and other technology pursuits. The carrier could rake in as much as $1.2 billion from the sale.
“We are continuing to assess Sprint towers for strategic and non-strategic reasons,” said Nick Sweers, spokesman for the carrier, explaining the company is talking with interested parties, which he declined to name.
While more suitors may be looking to buy the towers, a major bidder has pulled out. Liberty Media, headed by cable operator John Malone, said it will not try to buy the Sprint properties.
Speculation has it that Global Signal Inc., Crown Castle International Corp., SpectraSite and American Tower Corp. may be interested in bidding on the Sprint towers. Sweers said some of the interested parties are partnering with private-equity firms.
Sprint is planning to sell the towers at a good time for the tower business, commented James Lee, an analyst with Decision Economics Investment research. “The demand for cell sites will be healthy in 2005,” he said, and Sprint will take advantage of the growing demand for the product. He added that the math works in Sprint’s favor. Lee said tower operators stand to earn up to $33,000 on rental fees per year per tower. On average, each operator laps up 40 percent of operating margin, he said.
“So, you get $13,000 of cash flow per year per tower,” he explained, adding the potential purchase price for each tower is about 14 times cash flow.
Lee said existing towers do not require new capital outlay, so new tenants mean more money for the operators without a lot of cost.
Instead of looking to acquire Sprint’s tower assets, Liberty’s Malone decided to buy the remainder of UnitedGlobalCom for about $3.5 billion. The company is now called Liberty Global. Liberty Media was expected to be a big bidder for the Sprint towers as it owns nearly $2 billion of Sprint stock. However, the potential deal got more complicated with the Nextel merger because Liberty Media had intended to trade stock for the tower assets, not cash.
Lee said Liberty’s decision will not upset the sweepstakes for Sprint’s towers, adding many other tower operators are interested in acquiring the business.
Sprint said its merger with Nextel has burdened the combined carrier with up to 50,000 towers, more than the combined company would need to operate. Also, Sprint is in debt to the tune of $15.6 billion. An extra $1.2 billion that could be gotten from the tower sales also would enable the company to handle some of the integration challenges it will face as it merges two technologies.
Sprint uses CDMA technology, while Nextel runs an iDEN-based network. Both plan to move forward to next-generation wireless with compatible technologies. Industry expects both to adopt Sprint’s CDMA path.
Some analysts have expressed doubts over the future buoyancy of the tower business in light of new technologies like WiMAX and other fixed wireless protocols that need little reference to towers. But the United States has only 60-percent penetration so far leaving a lot of room for growth.
Lee said carriers are increasingly committed to next-generation technologies with demand for data, and they also want to improve their voice offerings. This increases the demand for towers, he said.
The sector of late has been healthy. Two major tower operators, American Tower and Crown Castle recently enjoyed positive ratings from Standard & Poor’s Rating Services. Crown earned a B rating upgrade while American got B- corporate credit rating.
“Tower-related spending by wireless carriers is expected to remain robust in the next few years due to continued growth in subscribers and minutes of use, and increasing emphasis by carriers on network quality,” said S&P.
“Competitive risk is limited by such factors as long-term lease contracts with carriers, real estate zoning and a lack of technology substitute.”
