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Is the tower industry set for second-half uptick?

Sprint Nextel Corp.’s (S) current network issues could prove to be a positive for the tower industry during the second half of the year, according to a new report from Wells Fargo Securities L.L.C.
The report noted that according to industry sources, Sprint Nextel was increasing its tower leasing activities in the second half of the year, with the potential for the carrier’s activity to grow by 25% in 2012. The firm noted that the potential for network sharing arrangements with Sprint Nextel as well as the potential resolution of current conflicts with Clearwire Corp. could be a positive for tower investors.
The report also noted that AT&T Mobility (T) and Verizon Wireless (VZ) continue to dominate the leasing business, accounting for more than 60% of activity this year due to current network upgrades. Wells Fargo said it expects Verizon Wireless’ activity to remain flat in 2012, though AT&T Mobility could see an uptick due to its planned LTE overlay activities.
T-Mobile USA Inc. is expected to see a decline in tower activity through the second half of the year as it was backing away from potential rural builds in light of AT&T Inc.’s pending acquisition of the company. Despite the potential for fewer site leases, the firm did note that T-Mobile USA could be looking at amending a greater number of lease agreements during the second half of the year, which could mitigate a financial impact.
“We particularly like the tower sector during volatile times due to high level of visibility into revenue and [free cash flow] growth,” noted the report. “Furthermore, unlike the last recession – tower company balance sheets are staggered and in a worst case scenario – all companies could pay down debt maturities through at least 2014 with cash on hand and excess FCF.”

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