Crown Castle today announced that it has entered into a 12-year agreement with T-Mobile US, which includes new tower leasing activity and a contractual commitment to deploy 35k new small cell nodes over multiple years. Access to both Crown Castle’s towers and small cells will support the build-out of T-Mobile’s nationwide 5G network, which has reached the following milestones:

  • Low-Band: covers 308 million people across 1.7 million square miles of the United States using low-band 600 MHz spectrum
  • Mid-Band: covers 200 million people across the United States using mid-band 2.5 GHz spectrum

Notably, T-Mobile is Crown Castle’s single largest tenant, comprising 32% of its site rental revenues as of Q3 2021. Moreover, as of Q3 2021, T-Mobile had a weighted average current term remaining with Crown Castle of only 5 years, which today’s 12-year agreement will improve.

While long-term, fixed revenue escalator contracts improve the stability of Crown Castle’s future cash flows, the trade-offs are potential business or valuation risks from rising inflation, which is ever-present in 2022.

Below are further details on Crown Castle’s agreement with T-Mobile, as it relates to towers, small cells, and network consolidation.

Tower Agreement – Crown Castle and T-Mobile

Crown Castle’s agreement with T-Mobile includes contracted new tower leasing activity and a base escalator that is consistent with historical levels (i.e., ~3% fixed).

Revenue

As a result of this agreement with T-Mobile, Crown Castle will generate ~$250m of additional straight-lined site rental revenues for full-year 2022 for its towers segment.

As a reference point, for full-year 2022, Crown Castle previously projected total site rental revenues of $5.97bn at the mid-point, which includes both its towers and fiber segments.

Isolating the company’s towers segment, Crown Castle previously expected a contribution of $155m to $165m from towers to its core leasing activity in full-year 2022. As such, T-Mobile’s incremental ~$250m of towers site rental revenues in 2022 is a material uplift.

Small Cells Agreement – Crown Castle and T-Mobile

Crown Castle’s agreement with T-Mobile incorporates a contractual commitment by the wireless carrier for 35k new small cell nodes. Specifically, T-Mobile has commitments in each of the next 5 years to enter into contracts for small cells at pre-determined locations.

Importantly, from Crown Castle’s economic standpoint, the majority of the small cell nodes that T-Mobile has committed to, will be co-located on existing Crown Castle fiber. Indeed, colocation will improve the return on invested capital of Crown Castle’s fiber segment which was 7.3%, on an annualized basis, as of Q3 2021.

T-Mobile and Sprint Network Consolidation – Financial Impact to Crown Castle

For T-Mobile, the agreement with Crown Castle also allows the wireless carrier to realize financial synergies following its merger with Sprint. However, as a result of the agreement, there are certain negative impacts to Crown Castle’s tower and small cell businesses as outlined below:

Towers

Crown Castle anticipates T-Mobile and Sprint’s network consolidation will result in tower non-renewals in 2025, reducing site rental revenues by ~$200m. As such, Crown Castle expects consolidated annual tower non-renewals (i.e., churn) will exceed the company’s historical range of 1% to 2% of annual site rental revenues for full-year 2025.

Small Cells

Crown Castle expects T-Mobile and Sprint’s network consolidation will result in small cell non-renewals, with the majority occurring in 2023. In aggregate, these small cell non-renewals will reduce site rental revenues by ~$45m. In turn, Crown Castle expects consolidated annual small cell non-renewals (i.e., churn) will exceed the company’s historical range of 1% to 2% of annual site rental revenues for full-year 2023.

Common Stock Dividend

Due to T-Mobile’s network consolidation non-renewals, particularly in the towers segment, Crown Castle expects its dividend growth in 2025 to be below its long-term annual growth target of 7% to 8%.

Adam Simmons is the Founder & CEO of Dgtl Infra. He started his career with an S&P 500-listed big box retailer, in an operations management role. Adam's entrepreneurial "itch" led him to start a 5G-driven company, focused on innovative retail solutions using augmented reality and shoppable videos, which was eventually sold to an advertising and consulting group. After, realizing the potential of 5G, Adam shifted his efforts towards investing in the "building blocks" of 5G - known as digital infrastructure, completing a number of strategic investments, buying cellular towers, data centers and fiber networks.

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