Verizon is following its stated game plan for C-band deployments, reaching agreements with tower companies Crown Castle and SBA to add new gear to existing sites.
The announcement didn’t disclose too many details but it’s clear Verizon wants to be ready to turn on its valuable C-band spectrum in the 3.7 GHz range as soon as the first batch is vacated and ready for use later this year.
Verizon bid more than $45 billion (not including clearing costs/payments) to scoop up an average of 161-megahertz of C-band nationwide, including 60-megahertz of the so-called “A block” that’s on an earlier clearing schedule. That involves plans to launch in the first 46 partial economic areas (PEAs), which include large U.S. urban markets, at the end of 2021.
The Crown and SBA deals include terms for Verizon to lease space on existing towers to add C-band equipment including basebands and antennas. Since the agreements aren’t for new locations, it aligns with executive comments that Verizon will first overlay the mid-band frequencies on its existing 4G LTE grid. Financial terms were not disclosed.
No word yet on which vendor is supplying new gear for upgrades related to the site amendments.
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Verizon said the Crown Castle and SBA agreements help speed up the process by standardizing and reducing forms, and minimizing legal reviews.
“These new agreements with our tower companies allow us to work very efficiently to pre-position all needed equipment on existing towers on our best-in-class network,” said Heidi Hemmer, SVP of Engineering at Verizon, in a statement.
Crown Castle CEO Jay Brown indicated its deal for Verizon’s C-band covers the next decade, saying, “we look forward to continuing to support Verizon’s growth with this agreement that is designed to deliver significant value for both parties over the next 10 years.”
SBA’s chief executive and president Jeff Stoops also mentioned the expanded partnership as “benefiting SBA Communications through multiple years of extended use of our assets and leasing revenue growth.”
How many of the existing sites are covered, whether all or some, wasn’t immediately clear and Verizon declined to share additional details. A Verizon spokesperson did tell Fierce the deals are inclusive of both macro and small cell sites.
C-band benefits Crown and SBA
Before the blockbuster C-band auction, some analysts posited that Crown Castle would be early to see the fruits of new spectrum deployments because more of its tower sites sit nearby urban locations
Putting the high-capacity spectrum to use first in dense areas with high data usage is part of the carrier’s playbook for C-band.
In a note to investors over the weekend, Wall Street analysts at Wells Fargo again noted Crown could see a slightly higher initial share of A-block upgrades because of its more urban footprint, but thinks SBA is in the best position to monetize C-band deployments overall.
“C-band amendment activity could be a ~$700MM annual revenue opportunity for the Big 3 tower companies, and we believe SBAC is poised to reap the highest upside in the coming 3-6 years,” wrote the equity analysts led by Eric Luebchow.
The firm laid out three main reasons for SBA leading: First, it doesn’t have legacy carrier portfolios where carriers have unused equipment rights/reserved space. (If a carrier was already paying for unused space, then the tower company wouldn’t necessarily be able to monetize the space when carriers add new equipment and spectrum deployments).
Second, SBA charges for amendments “on an a la carte, vs. more holistic basis which should reap great upside in periods of higher activity.” And third, it has the highest relative percentage of U.S. macro tower revenue among its peers Crown Castle and American Tower.
“Over the next 3 years, we expect SBAC to generate organic U.S. tower rental revenue growth +120 bps higher than the average of its 2 peers (and +40 bps higher over a 6-year period),” wrote Wells Fargo.
Analysts at MoffettNathanson, meanwhile, thinks Crown Castle will get the most out of Verizon’s C-band site upgrades.
“Verizon should be a nice incremental contributor to amendment revenue, given both the magnitude of its plans and the restrained level of leasing it has exhibited in recent years,” wrote MoffettNathanson analyst Nick Del Deo in a Monday note to investors. “Crown Castle’s tower business is most exposed to Verizon among the Big Three, suggesting it will benefit most from Verizon’s amendment activity.”
SBA owns roughly 16,500 macro sites, with Crown Castle at around 40,000 in the U.S.
Wells Fargo estimates Verizon is a tenant on 13,875 Crown Castle sites, and 6,300 SBA sites, as well as about 24,400 on American Tower.
Verizon plans to cover more than 100 million people with its mid-band 5G service by the end of the year and over 250 million after 2024. Wells Fargo analysts said the carrier will need to upgrade almost all of its macro sites with new C-band gear.
Verizon has about 68,000 macro towers in total, and the firm believes 45,000 of those that are covered by the Big 3 tower companies will be upgraded over the next 3-4 years.
“Site amendments on existing infrastructure will be the quickest and easiest path to provisioning coverage in a cost-efficient manner, although we do expect additional colocations down the road (both on macro towers and select small cell sites),” wrote the Wells Fargo team.
The firm pegged average monthly C-band amendment fees for the industry overall around $500 but noted they could range between $200 and $1,300.
“Our discussions with VZ have suggested their first priority is to leverage C-band's uplink capabilities, which as TDD spectrum can effectively oscillate between 100% uplink and downlink without pre-determined, concrete blocks for each,” wrote Luebchow. “However, VZ has admitted they may look to pair C-band with 700Mhz or 850MHz spectrum, particularly in more rural areas where they can stretch the distance between cell towers. Radio upgrades on these lower-frequency spectrum bands could make our $500 estimate actually appear conservative.”
Verizon VP Bill Stone previously told Fierce the carrier could pair C-band with low-band 850 MHz on the uplink and aggregate both midband and low band 5G on the downlink to extend coverage.
Where’s American Tower?
American Tower was the only of the big three tower companies not mentioned in Verizon’s new arrangements, but for nationwide C-band deployments carriers are expected to need to use towers from all three companies' site portfolios.
Wells Fargo noted that legacy carrier deals suggest Verizon has unused equipment rights on certain American Tower sites, limiting the amount of revenue from C-band amendments or essentially giving Verizon “free” access to upgrade the sites.
According to the firm, Verizon was granted 20,000 square inches of wind load surface area rights on towers acquired in 2015 before additional fees for lease amendments come into play. “Our industry conversations would suggest these sites are unlikely to see additional amendment revenue even with a round of C-band upgrades.”
MoffettNathanson also mentioned the capacity rights, writing “we suspect Verizon’s [C-band] deployments on those towers, on average won’t drive meaningful incremental revenue. We estimate these towers account for 6% of the 22% of domestic revenue that comes from Verizon, spanning 11,500 sites.”
Still, American Tower’s deal with Verizon for new business expires at the end of 2021, the Wells Fargo team noted, suggesting a new deal will likely happen before the first tranche of C-band is cleared.