In addition to the potential impact from Sprint Nextel Corp.’s WiMAX deployment, analyst firms expect tower companies to see an impact from the ongoing advanced wireless services spectrum auction. In a recent report, Merrill Lynch provided insights on potential tower industry challenges from the AWS auction.
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Merrill Lynch claims Crown Castle International Corp. is the most leveraged to auction results due to its “greater relative urban footprint exposure” and its “relative exposure” to T-Mobile USA Inc. These factors could increase Crown Castle’s exposure to winning bids by T-Mobile USA, Leap Wireless International Inc. and MetroPCS Communications Inc. as well as to wireless broadband deployments in urban areas, according to Merrill Lynch.
The firm’s analysis also determined that:
- The AWS auction could contribute an incremental 14 percent to annualized tower industry free cash flow in 2008;
- Auction licenses are potential drivers of amendments to existing site leasing contracts for some of the larger carriers, most likely T-Mobile USA for 3G deployment, as well as cell site additions and amendments for others, such as expansion plans by Leap and MetroPCS;
- An incrementally positive scenario for the tower stocks could be winning bids by new entrants such as DirecTV Group Inc. and EchoStar Communications Corp. A wireless broadband network covering half of the US households would translate to an incremental 5-percent increase to Merrill Lynch’s 2008 tower industry cash flow estimates;
- An incrementally negative scenario for the tower stocks would be winning bids spread across a number of the smaller wireless and wireline companies that may not have immediate buildout plans. This could be incrementally positive for the key bidders, such as T-Mobile USA and Leap, predicated on lower pricing.
Merrill Lynch believes there will be sufficient bidding to support floor license valuations, but with the 15-year license build out requirements, a buyer can inventory licenses for years.
