Analyst: Verizon could sell as many as 12,500 cell towers

Verizon Communications (NYSE: VZ) was opened up to the possibility of selling its wireless towers because of AT&T's (NYSE:T) agreement last year to sell and lease 9,700 of its cell towers to Crown Castle in a $4.85 billion deal, according to Verizon Communications CFO Fran Shammo.

According to Cowen & Co. estimates cited by Bloomberg, Verizon has 12,000 to 15,000 towers. Macquarie Securities analyst Kevin Smithen wrote in a research note that he estimates that Verizon is looking to sell about 12,500 sites.

Shammo said at an investor conference on Wednesday that a deal for Verizon's towers always came down to price, and terms and conditions. "And some of the recent deals that have been done, the terms and conditions seem to be much more favorable," he said, according to a transcript of his remarks provided by Verizon.

"The AT&T deal was a good deal for them," Shammo added. "And it kind of opened our eyes and said, OK, well, maybe there is a way to get through this and protect all of our interests and get a deal that is palatable to us. So again, and that is why we said we are open to the idea and we will see what happens."

Under the terms of AT&T's October 2013 agreement with Crown Castle, Crown will have the exclusive right to lease about 9,100 AT&T towers for an average of about 28 years and will buy 600 other towers. Crown can buy the leased towers for $4.2 billion beginning in 2032. AT&T will sublease capacity on the towers from Crown Castle for a minimum of 10 years for $1,900 per month per site, with annual rent increases of 2 percent. AT&T said it can add "additional reserve capacity," most likely new antennas, on the towers for future use.

Shammo did not specify what in the AT&T deal seemed more favorable to Verizon than previous terms or deals. The deal did give AT&T an infusion of cash to use for spectrum purchases and acquisitions, as Bloomberg notes, and also the ability to get additional space on the sites since it is leasing them to Crown.

Smithen wrote in his research note that, given the comments from Shammo that a tower deal would most likely resemble AT&T's deal with Crown Castle, Macquarie ran a model assuming annual rent increases of 2 percent and limited site-amendment activity for the first several years. "We believe that [American Tower] and [SBA Communications] are unlikely to pursue a deal under these terms," he wrote. "We do feel there could be private equity interest in the VZ towers if VZ were to carve up the portfolio into two or three parts."

AT&T is not the only carrier to sell towers in recent years. In September 2012, T-Mobile US (NYSE:TMUS) agreed to sell the rights to 7,200 of its towers to Crown Castle for $2.4 billion.

The Verizon CFO added that Verizon wants to "to protect the ability for us to expand our network when we want on our own towers. Where we need space we want to get the space without having to go through a bunch of hoops in order to get that."

Shammo was expanding on comments Verizon Communications CEO Lowell McAdam made last week at a separate investor conference, when he said that when offers were made two years ago for Verizon's towers, "it was very easy to say no way, not interested. I think those deals are coming to us a little bit more now." According to a transcript of his remarks provided by Verizon, McAdam said that the terms are still not what Verizon would like and that there are "some very key terms that we won't compromise on, but if an opportunity presented itself to generate shareholder value around towers, I would do that."

For more:
- see this Bloomberg article

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