SBA Communications confirmed that tower activity has slowed during the third quarter 2019 as Sprint and T-Mobile await the outcome of their merger hopes. SBA President and CEO Jeff Stoops also noted that Sprint is the only U.S. operator that SBA sees deploying massive MIMO for 5G.
For 5G outside of dense urban areas, these types of advanced MIMO antennas will be necessary to effectively offer 5G service in mid-band spectrum. Stoops said that based on SBA Communications’ observation of the antenna structures on its towers, Sprint is the only carrier deploying massive MIMO antennas. “The only carrier that has done any of that today to a, I won't say small degree, but certainly not to a large degree is Sprint, with the 2.5G spectrum,” said Stoops on the company’s 3Q earnings call. “So if you're trying to gauge the remaining opportunity set there, it's very large.”
As a primarily macro-focused company, SBA Communications is continuing to see healthy activity in the U.S. around 4G densification. “All four major US wireless carriers were active during the quarter, with the bulk of investment coming from amendments,” said Stoops. “These amendments represent upgrades to our customers’ existing networks through technological improvements, the deployment of new spectrum bands and the addition of capacity. We anticipate this type of activity to continue for at least the next several years.”
SBA executives also noted the slowdown in 5G tower activity, in general, due to the uncertainty around the Sprint/T-Mobile merger.
“Once there is clarity around the resolution of the Sprint, T-Mobile merger we believe activity explodes, as all impacted parties continue active planning discussions and both T-Mobile and Dish have committed to concrete and aggressive 5G coverage requirements,” said Stoops.
The T-Mobile/Sprint deal faces opposition from 15 states, along with the District of Columbia, that are suing to block the merger. A trial in the case is slated to start December 9. T-Mobile and Dish appear to be working with the opposing states on a case-by-case basis. They’ve already convinced Mississippi and Colorado to drop out of the lawsuit.
On T-Mobile’s earnings call yesterday, CEO John Legere said, “We feel very good about the conversations and where they're headed, and we feel very good and confident either in the process of a settlement or even going to trial.”
The merger would be good news for SBA Communications and the other major U.S. tower companies – Crown Castle and American Tower. One of T-Mobile's biggest arguments for the merger with Sprint is that Sprint's 2.5 GHz spectrum would complement T-Mobile's 600 MHz spectrum. And the New T-Mobile promises it will build out 5G across the country and not just in urban areas.
Spencer Kurn from New Street Research, wrote in an investor note, “The big new data point is that SBAC has seen a slowdown in activity from T-Mobile, Sprint, and Dish as the companies await certainty around merger approval. We believe organic growth will now decline for the next two quarters, weighing on full year 2020 organic growth even after assuming a material rebound in activity once the merger outcome is resolved.”
For its third quarter, SBA reported that domestic operational leasing activity representing new revenue placed under contract during the quarter was down sequentially from the second quarter due to delays in the resolution of the Sprint, T-Mobile merger.
SBA Chief Financial Officer Brendan Cavanagh, said, “We did in fact increase our outlook for domestic site leasing revenue by $4 million.” But he said the company’s outlook does imply a moderation in the fourth quarter as everyone awaits the final outcome of the T-Mobile, Sprint merger.