FirstNet represents a real source of upside for the tower leasing industry, with outcomes that could range from nice to great depending on how things ultimately shake out, according to analysts at MoffettNathanson Research.
FirstNet, whose contract is due to be awarded in November, could help drive a shift in sentiment as tower equities have suffered from a perceived lack of growth. The analysts rated American Tower, Crown Castle and SBA with a “buy” and target prices of $130, $112 and $150, respectively, with SBA being their top pick.
The FirstNet network will use 20 MHz of Band 14/700 MHz spectrum, the 10 MHz D-Block and 10 MHz of adjacent spectrum. However, any excess capacity can be used by the contractor to generate revenue, a critical incentive because the winning bidder will essentially have access to a 20 MHz swath of 700 MHz beachfront spectrum.
FirstNet hasn’t released the names of any applicants, but three of them self-disclosed: AT&T, Rivada Mercury and pvdWireless. Rivada Mercury is backed by Ericsson, Nokia, Intel Security, Harris Corporation, Fujitsu Network Communications and Black & Veatch, which are proposing to build a dedicated mission-critical LTE network. PdvWireless is headed by wireless industry veterans Brian McAuley and Morgan O'Brien.
It's been widely believed that an existing LTE operator will be involved in providing service for First. While AT&T said it had submitted a bid, Verizon has been mostly quiet on the subject. T-Mobile, meanwhile, has said it is focused on other priorities and believes the incentive auction will be a cleaner way to gain access to low-band spectrum. The MoffettNathanson analysts said they don’t think Sprint is in a position to bid.
After looking over several studies, including ones going back to 2007, to determine how many cell sites might be required for a FirstNet buildout, the analysts acknowledged a range of estimates as high as 50,000 and as low as 20,000. They didn't pretend to know the "correct" number, but they're using a baseline of 30,000 in their analyses. Of those, they estimated the FirstNet network will require 21,000 new sites for the Big Three tower companies to split.
The analysts described three scenarios to evaluate the impact on tower companies: AT&T wins, Verizon wins or a new entrant wins. Because AT&T has expressed the most enthusiasm – Verizon remaining mum on it – they assigned the highest odds to AT&T. If that happens, the results could be a bit skewed toward Crown Castle by virtue of a 2013 portfolio sale, but American Tower also has a lot of legacy AT&T sites because of its acquisition of SpectraSite years ago. A Verizon win would disproportionately benefit American Tower because it just acquired the last of Verizon’s towers a year and a half ago, while if a new entrant wins, the analysts said they see upside for American Tower and Crown Castle and some downside for SBA.
Of course, risk are involved, and the timeline for FirstNet’s deployment is a tight one, they noted, having 60 percent of a national network completed two years after the RFP award and 80 percent in three years. A number of factors could put the schedule behind, including the caveat that states may opt out – although they need approval from the FCC, NTIA and FirstNet to do so. It’s likely that any leasing benefit the industry sees won’t hit in a noticeable way until the 2018 timeframe, they said.
FirstNet, or the First Responder Network Authority, was an outcome of the Middle Class Tax Relief and Job Creation Act, which President Obama signed into law Feb. 22, 2012. That law tasked FirstNet with building, operating and maintaining a national high-speed public safety network for first responders.
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