After spending at the U.S. auction for C-band spectrum smashed expectations, attention has turned to whether the high price tag could hamper the pace of 5G rollouts as carriers’ capital is constrained.
Speaking during earnings results Monday, management at tower company SBA Communications indicated they don’t fall into the camp of those concerned. Spectrum deployment is a positive for the tower company overall, even if exact timing fluctuates.
Winners in the C-band auction, which generated more than $81 billion, could be announced as early as Wednesday. Carriers Verizon and AT&T are widely believed to have been the biggest spenders, and to a lesser extent T-Mobile and Dish network. Some, like Nokia’s head of North American sales, have been among voices concerned about impacts of spending.
“In terms of the money being spent … I have to assume that our customers know exactly what they’re doing, I’m sure they do,” said SBA CEO Jeffrey Stoops, according to a SeekingAlpha transcript, adding that for the C-band spectrum to have value, carriers need to deploy it.
“I don’t know exactly what the cost will change for them, but ultimately, [C-band spectrum] is going to have to get put out there,” Stoops said. “And whether it’s one quarter, two quarters or 3 quarters difference, in the overall scheme of the value creation for us, it really doesn’t matter.”
As for the time it takes from getting orders to activating a site and SBA generating revenue, Stoops said at the absolute minimum four months, but more likely six months.
SBA didn’t include any potential revenue from C-band or the recent Dish MLA in 2021 guidance, with this year expected to help set up 2022 and beyond. But Stoops pointed to optimism and potential for things to change as the year progresses.
SBA reiterated it expects activity will pick up in the second half of the year related both to C-band from major carriers, as well as initial leasing from Dish under a new MLA announced yesterday.
“Our new agreement with Dish includes standardization of processes in certain terms in order to improve Dish's ability to efficiently access SBA sites in order to meet their network deployment commitments,” Stoops said in prepared opening remarks, according to the transcript. “It also provides for commitments to SBA services business and a substantial new minimum lease commitment over the next several years, securing SBA as a major infrastructure provider for Dish's new greenfield nationwide 5G network.”
SBA’s U.S. organic leasing revenue growth in Q4 was 3.4%, with expectations for around 5% net long-term domestic growth.
“SBAC’s domestic growth is likely to be slower through 2022 compared to pre-2021 levels as carrier consolidation takes place and carrier capex spend is lighter,” wrote investment analysts at Credit Suisse in a Monday note to investors.
The tower company beat Wall Street estimates in the fourth quarter, reporting total revenue of $536 million, including U.S. site leasing of $393 million, Adjusted EBITDA of $381 million and AFFO per share of $2.49.
T-Mobile activity picks up, churn expected
Some tower companies saw lower levels of activity than expected from T-Mobile in the first half of last year, and SBA reported increased activity in Q4.
“They're very busy, very active, very deliberate…and we see a strong year ahead for them,” Stoops said regarding T-Mobile’s leasing.
T-Mobile (combined with Sprint) accounted for 40.4% of SBA’s U.S. site leasing revenue in Q4, with AT&T representing 32.1% and Verizon 18.4%, which is similar to previous quarters in 2019 and 2020.
T-Mobile will be turning off of some SBA sites as a result of its merger with Sprint. In 2021 SBA expects a $4 million to $5 million hit to revenue because of churn from T-Mobile’s integration and decommissioning of overlapping Sprint. T-Mobile already provided notice for those sites, and SBA anticipates an additional $3 million based on conversations and leases up for renewal.
“We’ll be well suited to talk to Dish about any of those sites that T-Mobile decides they no longer want,” Stoops said.
PG&E deal close to complete
Along with the Dish MLA, after the year ended SBA notably closed on most of its $973 million site lease acquisition from Pacific Gas and Electric (PG&E), announced earlier this month.
That involves 900 existing wireless tenants on more than 700 utility infrastructure sites. SBA can also market more than 28,000 additional structures, with a revenue sharing agreement between the tower company and PG&E.
The transaction adds a large number of high-quality, exclusive locations in Northern California at an attractive price, Stoops said. For the 2021 outlook, the PG&E deal is expected to account for about $35 million of expected $46 million in non-organic revenue.
“We believe our experience and operational expertise will allow us to maximize the potential for wireless use of these assets for the benefit of both our wireless carrier customers and PG&E,” Stoops said.
CBRS showing up
While C-band is the talk of the town currently, SBA said activity on CBRS for private networks is ticking up – but won’t make a meaningful impact on financials this year.
“Where it’s showing up more and more frequently is as a solution to governmental, municipal and school district providers as an elegant and cost-effective solution to bridge some of these digital divide issues,” Stoops said. “And these are some things that we’ve been participating in and actually are quite a bit excited about.”