UScellular doesn’t get much credit for its tower portfolio, according to Wells Fargo analysts, but the firm continues to be impressed with performance and thinks a sale could be a boon for investors.
That said, on Friday’s fourth quarter earnings call executives repeated their stance that selling towers is not in the playbook for now as the regional carrier sees value in owning, both operationally for network changes and renting space to others.
“As we continue our multi-year network modernization and 5G roll out control of our towers remains very important,” UScellular CFO Douglas Chambers said.
UScellular owns 4,271 towers, representing 63% of total cell sites in its network. With 1,894 colocated, Wells Fargo noted the portfolio has only 1.4 tenants per tower, inclusive of UScellular.
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“While USM gets essentially zero credit for its owned tower portfolio, the underlying performance continues to be impressive, with total revenues up nearly 9% yr/yr in the quarter,” wrote the Wells Fargo team led by Eric Leubchow, in a Friday note to investors.
The regional carrier’s finance chief cited assistance from a third-party marketing agreement that’s helped steady growth in UScellular’s tower rental revenues over the last year. Tower revenue rose to $19.7 million in Q4 2020 compared to $18.1 million in the same quarter of 2019.
UScelllular CEO LT Therivel has emphasized before that by owning towers, it removes additional costs when new equipment needs to be added or changes made to the network. And that is particularly important in the midst of a major network upgrade and transition to 5G.
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The carrier is also aiming to improve returns on capital in 2021, and suggested optimizing its tower portfolio is one avenue to do that. When asked by investment analysts on Friday’s earnings call, Therivel said that there are opportunities by managing the towers more like an independent business, per say, but stressed that doesn’t involve separating the assets out.
Specifically, he said UScellular is in talks with “a variety of potential colocators” (or additional tenants that would pay for use of the towers).
“And because we are both owners of the towers and tenants of those towers, we have opportunities to share some assets that other pure play tower operators don’t,” Therivel said. Sharing shelter space, and potentially generator space, are two examples he cited.
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“By having those assets in our portfolio, they give us an opportunity to provide a differentiated service” to a tower customer, he said.
Wells Fargo analysts noted that UScellular isn’t planning to sell, “even if – in our view – it could yield a substantial windfall for USM shareholders,” the firm wrote.
Updated to clarify that the percentage in graph four relates to UScellular's total network cell sites, not its industry share of overall tower sites.