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%.

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