As American Tower reported second quarter earnings Thursday, executives indicated T-Mobile is moving slower than expected on post-Sprint merger network integration work.

Speaking on the quarterly earnings call on Thursday, Rod Smith, EVP, CFO and treasurer, said the tower REIT had assumed T-Mobile’s tower activity would have meaningfully increased by now and that American Tower would have seen higher levels of new business from the operator starting this month.

There’s been a slight uptick in new business from T-Mobile, but it hasn’t hit the level American Tower anticipates will happen eventually.

Sponsored by Southco Inc.

How To Secure 5G Equipment With Electronic Access

Learn how to protect small cell enclosures from physical threats and deliver better, stronger and more reliable networks with electronic locks and access control systems.

“As a result, we now expect the acceleration of new business to come much later during this year,” Smith said. To that end, American Tower revised its 2020 U.S. organic tenant billings growth outlook to about 4.5%, down from the earlier expectation of 5%. 

American Tower doesn’t think there is a fundamental change in underlying trends, but reflects a later timeframe for when it will see T-Mobile start to ramp up its tower spending.

T-Mobile is “working through all their plans,” American Tower CEO Tom Bartlett said on the call, noting the merger with Sprint closed in April, and the $1.4 billion sale of Boost Mobile to Dish just recently wrapped up July 1.

RELATED: American Tower expects to dodge COVID-19 hit in 2020

“So, we believe it clearly is timing, and are looking forward to really supporting [T-Mobile] as they continue to build out their network even further,” Bartlett said.

In arguing for its merger, T-Mobile committed to cover 97% of the U.S. population with low-band 5G and 75% with 5G on mid-band spectrum within three years. Smith noted T-Mobile said it would spend $40 billion over the first three years and needs to build additional sites to meet those coverage commitments.

“They’ve got an awful lot of work to do,” Smith noted. “They are certainly going to be deploying capital.”

RELATED: T-Mobile turns on 5G ‘layer cake’ in NYC with 2.5 GHz integration

MoffettNathanson analysts in a Thursday note to investors pointed out that T-Mobile needs to perform Sprint network integration work to realize the deal’s synergies, “so these projects are going to happen, but there’s still uncertainty regarding monetization rates and pacing.”

“T-Mobile has a long track record of accomplishing a great deal of network-related work quickly and efficiently, so it would be inappropriate to draw too many conclusions so early in the process,” wrote MoffettNathanson analyst Nick Del Deo.

Much of the tower industry saw T-Mobile and Sprint pause activity in the middle of last year as they prepared for a court battle against state Attorneys General fighting the carriers’ merger.  

“Now that we’re almost lapping that slow down – the further away from the beginning of that slow down, the bigger impact it has on the organic tenant billings growth deceleration,” Smith said, so absent new T-Mobile activity, post-merger resulted in the lowered 2020 outlook.  

Nothing has changed in terms of expectations for other U.S. carriers or trends, he added.

“It really is isolated to the new T-Mobile and the timing of when they begin to spend,” Smith continued.

Delayed timing of T-Mobile’s network activity is not necessarily a bad thing for American Tower, according to Del Deo.

From American Tower’s view, “the prospect of even a modest delay may actually be good news in a broader sense,” Del Deo wrote in in a Thursday note to investors. He pointed to many Sprint leases that are up for renewal near the end of 2021.

“Those that are not in a position to be decommissioned will presumably have to be extended for another five years (or any MLA signed before then will take the extensions that would have otherwise happened into account). Months matter when considering such a tight deadline,” Del Deo wrote.

Of sites up for decommission, Barlett said American Tower will try to diminish as much churn potential as possible, and is hopeful that new builds alongside Dish’s plan for creating a greenfield wireless network build, will help successfully mitigate that.

The tower company expects to see Dish enter the picture toward the end of this year and into 2021, but hasn’t included Dish in any forecasts until American Tower secures more formal agreements.

RELATED: Dish selects Fujitsu, Altiostar for 5G radios, Open vRAN

Overall, American Tower hasn’t felt any material impact from the COVID-19 pandemic, with towers classified as essential services and the crisis in many ways highlighting the crucial need for connectivity.

“We are energized about the United States as we look out over a multi-year period. We expect the new wireless landscape to drive higher levels of network deployment activity as C-band spectrum becomes available, DISH begins rolling out their network and 5G activity across the industry ramps up,” Smith said in opening remarks. 

American Tower also has an international footprint that accounts for 43% of its consolidated property revenues and 32% of property operating profit.

Additional earnings highlights:

  • Q2 organic U.S. tenant billing growth of 4.7%, including a 3.7% contribution from new business activity, 3.2% from escalators, churn of 1.9% and a roughly 30 basis points negative impacted from other items. Smith called out modest contributions to new business from T-Mobile over the last few quarters.
  • American Tower lowered its 2020 outlook for U.S. property revenue by about $35 million to $4.38 billion. Around $20 million of that decrease is attributed to T-Mobile’s slower than expected start in spending.   
  • Anticipated full year adjusted EBITDA of $4.93 billion is $40 million below the midpoint of earlier expectation, driven by a $75 million increase in bad debt primarily in India, as well as a $10 million decrease in the services segment – again as a result of the revised outlook for T-Mobile activity.
  • Consolidated property revenue of $1.9 billion grew 2.4% year over year.
  • Tenant billing revenue of $1.62 billion grew nearly 10%.
  • U.S. property revenue grew 8% year over year to $1.1 billion. International property revenue declined 4.3% year over year to $806 million.
  • Adjusted EBITDA increased 2.4% to $1.21 billion; Consolidated AFFO grew 1.6% to $924 million.


Source link