American Tower: Mid-band could be 5G backbone, benefiting towers

American Tower thinks mid-band spectrum could be the backbone for 5G, and benefit tower companies as carriers deploy off macro sites, according to SVP of corporate finance and treasurer Rod Smith.

Smith, speaking Tuesday at the UBS TMT investor conference, pointed to comments earlier in the day from T-Mobile CTO Neville Ray who indicated mid-band spectrum will likely be a force in 5G and would be deployed from macro towers.

“We do see an environment here where the backbone of 5G network, certainly in the suburban areas and the rural areas, could very well be mid-band spectrum coming off of macro towers,” said Smith, according to a Seeking Alpha transcript of the event. “And when we get into that cycle, that certainly is something that the tower companies would monetize.”

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Carriers' initial 5G deployments, including AT&T, Verizon and T-Mobile, used high-band millimeter wave spectrum to light up small pockets in urban areas. Rollouts with broader coverage are starting with carriers tapping low-band spectrum, including T-Mobile’s 600 MHz and AT&T’s 850 MHz. Sprint is currently the only carrier using mid-band for 5G, thanks to its large 2.5 GHz holdings.

American Tower executives have expressed potential benefits for tower companies from mid-band rollouts before, with CEO Jim Taiclet indicating earlier this year that they could be more impactful than low-band deployments because of the need for more cell sites. Still, speaking on the company’s third-quarter earnings call, Taiclet noted extended timelines for when mid-band resources could become available.

Alongside mid-band spectrum, carriers will likely be putting up new hardware on towers like Massive MIMO antennas, Smith said Wednesday, which he noted will actually be “as big, if not bigger” than those used for 600 MHz rollouts.

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“Even though the mid-band spectrum uses smaller antennas, what the massive MIMO antennas do is they cluster lots of those smaller antennas into one panel, and it makes the actual antenna that goes up in the towers much bigger,” Smith explained. “As those begin to get deployed and put on towers, that's a revenue cycle for the tower companies.”

In late October, CEO and President of tower company SBA Communications Jeff Stoops noted that Sprint was the only U.S. operator SBA saw deploying massive MIMO for 5G and categorized the remaining opportunity as “very large.”

Impact of T-Mobile/Sprint merger, neutral

While uncertainty around Sprint and T-Mobile’s pending merger has lingered (the companies are in court this week fighting an antitrust lawsuit brought on by a coalition of state attorneys general), Smith said American Tower is agnostic when it comes to the deal closing.

If approved, American Tower sees it as a neutral- to positive event for the tower company long-term, according to Smith, who noted T-Mobile represents about 9% of American Tower property revenues, while Sprint accounts for 8%. Overlap, where both carriers have installations on the same tower and might churn, represent about 3.5%-4%.

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With a new T-Mobile, American Tower expects an increase in overall investment from the company has it expands its network.

“[T-Mobile] has talked about adding 10,000 new macro sites, which my guess is that's a starting point, and they'll probably go up from there as they race to really take over a leadership position in the U.S. telecom market,” Smith said, adding it would put pressure on AT&T and Verizon to also roll out their 5G networks more quickly.

If the deal doesn’t happen, Smith said it would likely be “business as usual.”

Either way the ongoing trial plays out, certainty about the T-Mobile/Sprint merger will drive carrier activity for tower REITs in 2020, according to a Tuesday research note by Wall Street analysts at Wells Fargo.

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“We fully believe the better outcome is for the merger to be approved, after which New T-Mobile would accelerate its build commitments that include 600 MHz and 2.5 GHz,” wrote the team, led by senior analyst Jennifer Fritzsche. “If it is not approved, then TMUS must accelerate its standalone build plans, and make up for lost time caused by the approval uncertainty.”

T-Mobile President and COO Mike Sievert, speaking Tuesday at the UBS event, said the team “felt very good” about how the first day of the trial went.

New MLA with AT&T

As for AT&T, American Tower’s Smith noted that it recently struck a new longer-term holistic Master Lease Agreement (MLA), representing a “dramatic increase” in AT&T’s commitment level on the towers. The MLA with AT&T drove American Tower’s committed bookings revenue to increase to $46 billion, a $12 billion bump.

Smith called the longer-term commitment “really good” for American Tower, as well as AT&T. He noted it adds much greater predictability for the tower company as to the revenue streams it can expect from AT&T, while making it more efficient for AT&T to use tower sites through a simplified administrative process.

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The deal gives AT&T access to new sites and towers the carrier is already on for certain uses that fall into a predetermined bucket, without the need to process individual applications and costs.

“It cuts down the time that it takes for AT&T and American Tower to process applications and get them on the towers and get their changes done,” said Smith. “I think you may see that their deployment could actually be quicker on our sites than it was before, because now, administratively, this is much easier.