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AT&T Puts Towers on the Block

Zacks Equity Research

AT&T Inc. (T) is reportedly planning to offload its wireless towers, which could add about $5 billion to the kitty of the leading U.S. telecom carrier. A potential deal will put an end to months of speculation about the sale of AT&T’s towers that surfaced in Mar 2013.

According to media reports, American Towers Corp. (AMT), Crown Castle International Corp. (CCI) and SBA Communications Corp. (SBAC) are believed to be some of the possible bidders for the assets. AT&T is consulting TAP Advisors LLC and JPMorgan Chase for the sale.

AT&T currently owns around 10,000 towers, and has steady revenue generating capacity, as it leases space on its towers to other carriers. However, there is a growing tendency among wireless operators to offload its non-core assets to concentrate on its primary mobile service business.

The tower sale is believed to be an effort by AT&T to strengthen its liquidity to successfully complete its planned investment of $14 billion as the company targets to expand its LTE network to 300 million people by the end of 2014. Additionally, the company also plans to repurchase shares that could reach up to $11 billion.

Tower operators generally lease the tower space to a number of carriers thus improving the profitability on the towers. Most of the big tower companies have taken the acquisition route to enhance its operations. In Sep 2012, Crown Castle acquired T-Mobile U.S.’s 7,200 wireless towers while rival American Tower snapped up 4,500 towers from NII Holdings Brazil. Recently, American Tower also struck a deal with MIP Tower Holdings LLC in a deal worth $4.8 billion.

The wireless industry is currently undergoing consolidation as big carriers are acquiring smaller counterparts to satisfy their spectrum demand and expand inorganically. Being no exception, AT&T recently proposed to acquire prepaid carrier Leap Wireless International Inc. for $1.2 billion.

Among the recent few deals the most significant was Verizon Communication Inc.’s recent agreement to buy Vodafone Group Plc.’s 45% stake in Verizon Wireless for a staggering $130 billion. Softbank’s acquisition of 78% of Sprint for $21.6 billion is also worth mentioning.

We believe that given the current consolidation scenario within the wireless industry, a possible deal could well be on the cards, provided AT&T gets a proper valuation for its assets. Although the deal will strengthen AT&T’s balance sheet, it could impact its operating cost as it has to lease back the space from the buyer.

AT&T currently carries a Zacks Rank #3 (Hold).

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