ANALYSIS: US operators - divesting for success
In early February this year, US conglomerate Verizon announced that it will be selling its fixed-line assets to Frontier Communications, and leasing several mobile towers to American Tower, in two separate deals for a total of $15.6 billion. And with AT&T also rumoured to be selling o¬ff a significant portion of its data centre assets, what are the country’s two largest players hoping to gain?
usdivest340px.pngAT&T’s rumoured divestment of its data centre assets and Verizon’s confirmed sale of fixed-line assets to Frontier Communications will enable the US giants to focus on the future of their businesses; mobile.
AT&T sold its fixed-line assets in Connecticut toFrontier Communications in December 2013, and in January this year, completedthe acquisition of Mexican mobile operator Iusacell. On the content side, the operator is also pushing hard to complete its acquisition of US-based broadcastsatellite service provider DirecTV.
“[AT&T’s] business is very heavily focussed on mobile and mobile network expansion; building the best possible mobile network and offering the best possible services,” Aaron Blazar, senior partner at ATLANTIC-ACM, told Capacity.
“And I think that holds true for both Verizon and AT&T.”
Verizon acquired CDN specialist EdgeCast in December 2013 – as well as a number of other content-related assets – and has been rumoured to be in discussions with AOL over a potential joint venture or acquisition, though nothing has yet been confirmed.
“Verizon has invested heavily in infrastructure to support the growth of its network, and also in improving the user experience,” Blazar commented.
“Mobile is really where the big dollars are coming from in the market today, and where the growth opportunity is over the long-term.”
At the same time as strengthening their presence in mobile, the two operators also appear to be exploring how to best monetise the assets that will not be at the core of their businesses moving forward.
Blazar described this restructuring of non-core assets as an opportunity for carriers: “You could potentially take the dollars you gain from the sale of a non-core asset, and put them to work in helping to either cut debt or fund some of these other initiatives.”
Windstream, for example, spun-off its network assets into a separate firm in August 2014, which then leased the assets back to Windstream.
“There’s been a question out there in the market of whether other carriers will undertake a similar strategy,” Blazar said. “We certainly see carriers investigating this but we are yet to see any activity.”
Over the last five to seven years, all four major US carriers - AT&T, Verizon, Sprint and T-Mobile US - have explored tower divestiture, as they have realised there are more efficient ways to own and use their infrastructure.
“They are also able to generate pretty attractive returns with regard to divesting it. The sale prices on towers today are extremely high. It is a hot sector,” said Blazar.
Given the financial position of the sector, as well as the numerous operational benefits, Blazar believes now is a good time for carriers to exit a tower investment they have made.
However, a complex structure exists when it comes to tower assets, with many being arranged as a lease rather than an outright sale.
“Verizon, for example, has sold only a small portion of its towers outright,” Blazar explained. “With the other towers, they are giving American Tower the right to lease capacity on the towers, recognise revenue on the towers and only eventually buy them out.”
The US tower market is heavily concentrated into three major tower companies – Crown Castle International, SPA and American Tower – but it is rare for these firms to actually build large-scale tower developments themselves.
“What you’ll often see in the US tower market is a smaller group develop maybe 100 tower sites, and then sell the portfolio off to a larger group like Crown Castle International, SPA or American Tower,” Blazar said. “It has been a great recurring business model.”
This trend of leasing tower assets has also been a prominent one across Africa over the last several years, and Blazar expects there will also be activity in Mexico this year.
Some of the larger operators in Mexico are being forced to divest their assets in the country in a bid to comply with new regulations fromtelecoms authorities.
As a result, companies like infrastructure investment firm Digital Bridge are privy to a large number of telecoms towers, and Blazar expects this to continue in various locations around the globe as the trend escalates.
“With US carriers it is important to remember that now is seen as a good time to exit at the value that’s in place on the towers that they’ve owned historically,” Blazar concluded.