NEW ORLEANS-Independent tower companies hoping to cash in on the anticipated sale of tower assets by wireless carriers still are waiting for the first big deal to set the standard for future purchase/lease-back arrangements.
Many attendees at last week’s 1998 Tower Industry Summit & Trade Show said enhanced specialized mobile radio carrier Nextel Communications Inc. is expected to be the first large carrier to sell its towers. The show, which was organized by Shorecliff Communications Inc. and sponsored by RCR, drew nearly 700 attendees, including carriers, tower companies, vendors and analysts.
Nextel has indicated a desire to sell its tower assets during previous quarterly-earnings reports, said analysts. However, after reporting that it reached positive domestic cash flow during the third quarter more quickly then expected, Nextel reportedly put the brakes to almost all non-sales related activities, including network buildout and travel.
The company’s domestic capital expenditures reached $511 million and its international capital expenditures were nearly $66 million during the quarter. With capital becoming more difficult to raise on the public markets, Nextel may be trying to wait out the Wall Street storm.
“The company has aggressive plans to build out in the United States and internationally and have always had access to resources through capital markets,” said Timothy O’Neil, financial analyst with SoundView Financial Group in Stamford, Conn. “With the current turn of events, it looks like that avenue has dried up. They are making a prudent decision to control costs and wait for the window to open to access capital markets again.”
Whether that situation will suspend or accelerate any plans to sell its towers is unclear.
Calls to Nextel were not returned by RCR press time. Most carriers either have indicated an interest in selling their towers or have been rumored to be examining the possibility, including Bell companies like Bell Atlantic Corp. and BellSouth Corp. and regional personal communications services providers such as Powertel Inc. But a turbulent situation on Wall Street as well as a reluctance by carriers to give up control of their towers may be slowing down any deals in the works. Conference attendees also said carriers are asking higher prices for their towers than many buyers are willing or able to spend.
As a result, many carriers may be examining a new option.
At an extreme, carriers could form their own subsidiary in partnership with a tower company and sell their towers to that company, giving them both cash and control. One source close to Nextel said this option is one Nextel is considering because of the high-quality nature of its sites.
Carriers also may be considering a less dramatic arrangement that would help them retain control of their assets. Rather than selling their towers outright and collecting a pile of cash, the carriers would sell their towers for a combination of cash and stock. That arrangement would give them the much-needed capital to pour into marketing efforts while still giving them control over the buyer via an ownership in the company and possibly a seat on the board of directors.
“Given the prices people want, the only way to afford it is to give them stock,” said John Bensche, a wireless analyst at Lehman Brothers Inc., who noted the Bell companies probably would be more willing to accept stock while cash-strapped PCS carriers would be less inclined to do so.
“What carriers are contracting out is their signal, and the wireless business is a business of transmitting signals,” said Bensche in his recent report, “Investing in the Tower Industry.”
“Because of this vested interest, carriers will probably not give up all control of the towers that house their signal,” continued Bensche.
Dan Behuniak, president and chief executive officer of independent tower company UniSite Inc., said he expects these type of deals will be made.
From a tower company’s point of view, though, those kind of deals need to be scrutinized to determine whether they will impair the tower company’s ability to make deals with other carriers, he said.
“They don’t want to be at the mercy of their competitor.”
