The “pause” in U.S. mobile network operator 5G new construction and expansion activity has hit a major tower company in a big way. Crown Castle (NYSE: CCI), in a SEC filing on Monday, disclosed that it is undertaking a restructuring plan to reduce costs and better align the company’s operational needs in the face of reduced tower activity by its MNO tenants. The company had already lowered its guidance for full-year Adjusted EBITDA and AFFO in its 2Q23 earnings release, Inside Towers reported. The restructuring involves three components: reducing its 5,000 staff, as of January 31, 2023, by approximately 15 percent; discontinuing installation services for tenants in the Towers segment; and consolidating office space.
At the end of 2Q23, the company reported it owned and operated 40,025 towers in the U.S. and its territories. Site rental revenues are increasing quarter-to-quarter in line with the terms of Crown Castle’s master lease agreements with its MNO tenants. However, network services revenues as a percentage of total Tower revenues have declined from 14 percent for full-year 2022 to 12 percent in 1Q23 and 10 percent for 2Q23.
Crown Castle expects to incur roughly $120 million in aggregate restructuring and related charges, most of which will occur in the third and fourth quarters of 2023. Of the total, the company estimates that employee headcount reduction will cost about $70 million in cash expenditures for employee severance and other one-time termination benefits.
The employee headcount reduction and discontinuation of Towers installation services are expected to be substantially completed by the end of third quarter of 2023, although the company says it will complete all installation services already under contract. Crown Castle pointed out that it will continue to offer its tower tenants site development or pre-construction services.
In addition, the company expects office space consolidation restructuring and related charges to be around $50 million, including approximately $30 million in cash payments for outstanding lease obligations and another $20 million for leasehold improvement write-offs.
Office space consolidation activities are expected to be substantially completed by the end of the fourth quarter of 2023, although facility lease obligation payments will be made over future years in accordance with their terms.
Crown Castle will report all related costs as “Restructuring and related charges” in the company’s consolidated statement of operations. The company cautioned, however, that the restructuring timing and associated estimated costs are subject to change.
As a real estate investment trust, Crown Castle does not expect any tax benefit associated with the restructuring charges.
By John Celentano, Inside Towers Business Editor
