Sprint fingered as Crown Castle’s newest long-term customer for network equipment

cell phone tower
Crown Castle operates cell towers around the United States.

Tower and small cell company Crown Castle disclosed that it inked “certain long-term customer agreements” during the fourth quarter that in part boosted the company’s site rental revenues by $5 million in the period. And at least one Wall Street analyst firm believes Crown Castle’s deal during the quarter was with Sprint.

“In an otherwise banal set of results, the most important takeaway is that [Crown Castle] signed long-term customer agreements consisting of both new leasing activity and contract extensions,” wrote the analysts at New Street Research in a note to investors issued immediately after Crown Castle released its fourth-quarter results. “We believe the customer is Sprint (based on CCI’s disclosure of contract lengths with carriers), which could signal that their network deployment objectives are starting to come into fruition. We don’t believe consensus estimates reflect Sprint’s new network objectives, so this, along with FirstNet starting to ramp in the next couple of months, could lead to a clear path for estimates to rise over the next two years.”

Other analysts also noted Crown Castle’s newest deal, but stopped short of pointing to Sprint. “During 4Q, we believe CCI signed long-term customer agreements with two different carriers, including contracted new leasing activity and extensions on existing leases (ie: the initial guide included this new leasing activity, but not the straight line benefit from these deals; hence, the AFFO outlook is unchanged),” wrote the analysts at Deutsche Bank Research in a note to investors this morning.

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A new Crown Castle agreement with Sprint would align with that operator’s newest network plans. Following his failure to ink a merger agreement between Sprint and T-Mobile, SoftBank’s chief executive Masayoshi Son said he would roughly triple Sprint’s capex to $5-6 billion. Shortly after that announcement, Sprint CTO John Saw said earlier this month that the company plans to add 2.5 GHz and 800 MHz antennas to virtually all of its existing cell sites and will also add new cell sites to its network to grow its coverage footprint.

Apart from Crown Castle’s new agreements, the company also posted financial results for the fourth quarter that generally exceeded expectations. “CCI’s 4Q17 results generally exceeded our expectations (see below), while the company also increased its 2018 outlook for site leasing revenue and Adj. EBITDA (by +0.8%/+1.2%). Commentary on the leasing demand environment remains bullish, while our discussions with carriers lead us to believe a robust spending environment should continue (and potentially accelerate) beyond 2018,” the Deutsche Bank analysts wrote.

Others largely agreed.

“Solid Q4 2017 from the first tower company to report,” wrote Jennifer M. Fritzsche with Wall Street research firm Wells Fargo this morning in a note to investors. “After stripping out the contribution from Lightower, results were in line with company guide. The slight increase in 2018 guide was driven by new leasing activity, which is in line with our channel checks across the towers landscape. While the organic leasing is slightly down yoy we note FirstNet is not yet in that guide. Given that CCI owns the AT&T legacy towers - we continue to believe FirstNet will be the largest needle mover for CCI as a percent of revenue once the two companies (T and CCI) come to agreements (which is our understanding based on recent checks is still ongoing). As a result, we see CCI's 2018 guide as erring on the side of conservative.”

Overall, Crown Castle posted site rental revenues of $234 million, up 29% from the fourth quarter of 2016. The company’s net income in the fourth quarter of 2017 clocked in at $98 million.

For the full year of 2018, Crown Castle said it expects site rental revenues of between $4.582 billion to $4.627 billion.

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