T-Mobile US (NASDAQ: TMUS) and Crown Castle International (NYSE: CCI) yesterday announced a new 12-year agreement to support the continued build-out of T-Mobile’s nationwide 5G network with increased access to Crown Castle’s towers and small cell locations. The agreement is strategic to both companies. It enables T-Mobile to further expand its nationwide 5G network while also realizing financial synergies following its merger with Sprint. In the process, Crown Castle will garner new long-term tower and small cell revenues.
“T-Mobile’s expanded alliance with long-term partner Crown Castle will fuel acceleration of our nationwide network build and provide synergies that we can further invest into that build,” said Neville Ray, T-Mobile President of Technology. “This agreement is another integral piece of T-Mobile’s ongoing efforts to rapidly expand what is already America’s largest 5G network.”
“We’re excited to build on our long-standing strategic relationship with T-Mobile as we work closely with them to continue to deploy their next-generation 5G network,” stated Jay Brown, Crown Castle CEO. “T-Mobile and Crown Castle are ideal partners for this next phase as wireless network architecture continues to densify. We believe T-Mobile’s significant long-term commitment to utilize our comprehensive infrastructure consisting of towers, small cells and fiber will enable our collective teams to quickly meet future network demands.”
At the end of 3Q21, Crown Castle’s infrastructure assets consisted of 40,190 towers, roughly 80,000 small cells either in operation or under contract, and a fiber network of approximately 80,000 route-miles that supports small cells and fiber solutions in every major U.S. market.
This deal is significant for Crown Castle from several aspects.
Tower Revenue Increase
The 12-year agreement includes contracted new tower leasing activity and a base escalator, historically around 3 percent a year. Crown Castle now expects to recognize approximately $250 million of incremental straight-line site rental revenues for full year 2022 for its Towers segment, up from the $5.975 billion midpoint guidance provided at the end of 3Q21.
Small Cell Commitments
Under the agreement, T-Mobile will deploy 35,000 new small cell nodes, including specific commitments in each of the next five years to enter into contracts associated with specific small cell locations. The majority of the committed small cell nodes are expected to be co-located on existing Crown Castle fiber.
Sprint Site Decommissioning Impacts
The combined T-Mobile and Sprint network currently comprises around 110,000 cell sites. T-Mobile is striving for a network consisting of about 85,000 cell sites and is in the process of decommissioning redundant and overlapping sites. Crown Castle anticipates the planned T-Mobile and Sprint network consolidation will involve tower non-renewals in 2025 resulting in a reduction in site rental revenues of approximately $200 million.
Except for full-year 2025, Crown Castle expects consolidated annual tower non-renewals to remain in line with its historical range of 1-2 percent of annual site rental revenues.
Crown Castle also anticipates the T-Mobile and Sprint network rationalization also will result in small cell non-renewals. These non-renewals are expected to reduce site rental revenues by approximately $45 million, mainly occurring in 2023.
The company expects to offset the anticipated small cell non-renewals by approximately $10 million per year over the new small cell contract term. This offset comes from the amortization of anticipated upfront payments that T-Mobile must make for some of those non-renewals. Except for full-year 2023, Crown Castle expects consolidated annual small cell non-renewals to remain in line with the company’s historical range of 1-2 percent of annual site rental revenues.
Investor Returns
From an investor perspective, Crown Castle’s long-term annual growth target for its common stock dividend remains 7-8 percent. Due to the network consolidation non-renewals in 2025, the Company expects its dividend growth in 2025 will be below its long-term annual target.
By John Celentano, Inside Towers Business Editor
