Verizon offloads towers to American Tower for $5B

Verizon Wireless (NYSE: VZ) agreed to lease the rights to 11,324 of its communications towers and sell 165 additional towers to American Tower for $5.056 billion in cash. The deal comes as no surprise as Verizon has said for months that it would be open to selling its tower assets. The sale of Verizon's towers will help fund the company's recent $10.4 billion purchase of AWS-3 spectrum licenses during the FCC's auction.

Verizon's deal with American Tower, which is expected to close in the first half of the year, calls for American Tower to have exclusive right to lease and operate Verizon's towers for 28 years. In addition, American Tower will have the right to acquire the towers at the end of the lease term. American Tower estimates that the towers will generate about $410 million in rental revenue and around $235 million in gross margin.

Verizon, meanwhile, will sublease the tower space for a minimum of 10 years at a monthly rate of $1,900 per site and fixed annual rent escalators of 2 percent. Verizon will also have access to additional space on the towers for future use.

American Tower said that by acquiring access to Verizon's towers it expects to get incremental leasing revenue from additional tenants and enable faster broadband growth throughout the U.S. The Verizon towers are in all 50 states. With the addition of Verizon's towers, American Tower's portfolio now tops more than 40,000 tower sites in the U.S.

American Tower execs praised Verizon's tower portfolio, noting that more than half of the towers have no competitive sites within a mile. In addition, most of the sites have extra capacity necessary for an additional tenant.

Verizon's towers aren't the only thing the company has offloaded. The company also has sold some of its wireline assets to Frontier Communications as part of a $10 billion deal with that company. Click here for that story.

In a research note, New Street Research said that Verizon's selling of these non-strategic assets was sensible. However, the firm believes that Verizon could be at a disadvantage in wireless for the first time ever because it has less capacity than its competitors in a market where New Street believes capacity utilization is rising rapidly.

Nevertheless, Verizon isn't the only operator to offload its tower assets. Several wireless operators have sold their tower portfolios in recent years. In 2013, AT&T (NYSE:T) agreed to sell and lease 9,700 of its cell towers to Crown Castle in a $4.85 billion deal.

For more:
- see this FierceTelecom article
- see this release

Related articles:
Analyst: Verizon could sell as many as 12,500 cell towers
Analysts: AWS-3 auction helps AT&T catch up to Verizon in spectrum ownership in major markets
AWS-3 AUCTION RESULTS: AT&T leads with $18.2B, Verizon at $10.4B, Dish at $10B and T-Mobile at $1.8B
IT'S OVER: FCC's AWS-3 spectrum auction ends at record $44.9B in bids

Article updated Feb. 6 with additional commentary.