T-Mobile US' (NYSE:TMUS) rumored potential bid for Verizon Wireless' (NYSE:VZ) 700 MHz A Block spectrum, along with upcoming auctions of other airwaves, could prove to be a boon for tower companies, according to a financial analyst.
In a research note, New Street Research analyst Jonathan Chaplin wrote that the market "is underestimating organic growth for the towers. Based on our detailed, bottom-up analysis of carrier network deployment plans, we estimate revenue growth of 9% annually over the next five years compared to a consensus forecast of 6%."
T-Mobile has approached Verizon about buying spectrum from Verizon, likely A Block licenses, according to a Reuters report from last week. The report, citing an unnamed source familiar with the matter, said although T-Mobile has broached the matter with Verizon, the process is still in the early stages. T-Mobile has raised $3.8 billion in capital this month and Verizon has reiterated its interest in selling the spectrum if the price is right.
In addition to the A Block, Chaplin is accounting for the planned auction of a group of spectrum blocks known as AWS-3. Those airwaves run from 1755-1780 MHz and 2155-2180 MHz.
"We now believe TMUS will acquire the A Block and deploy it over the course of 3-4 years starting in 2014," Chaplin wrote. "AWS-3 will likely be auctioned in 4Q14. The timing of AWS-3 deployment is a little more difficult to gauge because the [Department of Defense] will still have to vacate the band; however, once the deployment begins it will likely be pervasive, with at least three carriers deploying the spectrum nationwide."
Chaplin wrote that T-Mobile is very close to a deal with Verizon for A Block licenses covering around 150 million POPs, for which Verizon paid $2.4 billion. "Once they have secured this we expect the company to roll-up most of the remaining A Block licenses," he wrote. "The band is very fragmented; however, most of the licenses are in the hands of companies that are likely sellers (at a price)." Other A Block licensees include U.S. Cellular (NYSE:USM), Leap Wireless (NASDAQ:LEAP), C Spire Wireless and Vulcan Wireless.
Regarding AWS-3, Chaplin noted the Pentagon currently occupies the lower 25 MHz channel at 1755-1780MHz, but that the DoD is close to an agreement with the FCC to vacate the band, which could take around three years, though some portion of the band could be useable sooner.
"We think Verizon, AT&T (NYSE:T) and TMUS will all likely acquire and deploy 10-20 MHz each, nationwide. In addition, [Dish Network] (NASDAQ: DISH) has expressed interest in this band," he wrote. "Our checks with equipment vendors and the companies suggest that they will all need to deploy new equipment to use the AWS-3 band. Assuming three carriers deploy AWS-3 nationwide, we estimate they would generate amendment revenue across ~108,000 tower leases at the major tower companies."
Although he did not discuss the two bands that Chaplin noted, in a recent interview with FierceWireless, Crown Castle CEO Ben Moreland contended that there will still be a lot of cell site activity and amendments in the next few years. He pointed specifically to Sprint (NYSE:S), which has indicated it plans to build out TD-LTE service using its 2.5 GHz spectrum to 100 million POPs by the end of 2014 on top of its existing 1.9 GHz LTE network and planned 800 MHz LTE service. Moreland also noted that Verizon has started to deploy AWS spectrum in congested LTE markets to add in extra capacity.
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