American Tower Corp. signed a $260 million agreement with AT&T Corp. to acquire approximately 1,942 microwave towers and build 1,000 new wireless communication sites for AT&T Wireless Services Inc. during the next five years.
Dave Johnson, spokesman for AT&T’s Network Services Division, said the microwave towers were built starting in the 1950s and made up the backbone of AT&T’s long-distance network. The microwave links since have been supplanted by fiber-optic technology, which Johnson said now handles between 97 percent and 98 percent of the company’s long-distance traffic.
The towers comprise most of AT&T’s microwave tower portfolio and cover 47 states. Johnson said the towers were constructed nationwide about 35 miles to 40 miles apart to allow for line-of-sight microwave links. The deal does not include about 500 microwave towers that AT&T already has contracted to sell or that are located on rooftops.
American Tower estimated about half of the microwave towers it is purchasing from AT&T are marketable. Given that, the company estimates its per-tower purchase price at about $220,000.
Terms of the purchase agreement call for AT&T to continue its rental obligation, on the 467 towers it currently occupies, for 10 years.
The build-to-suit arrangement with AT&T Wireless requires AT&T to provide American Tower with at least 1,200 build-to-suit opportunities, from which American Tower will select 1,000 to build over the next five years. In addition, American Tower has the right of first refusal to perform all installation services, at market rates, on all the build-to-site facilities included in the deal. American Tower said it expects to build about 200 towers next year with AT&T as anchor tenant.
“Given the geographic footprint and quality of these towers and a dedicated marketing effort, there is an opportunity to increase substantially collocation revenues,” said Steve Dodge, chairman and chief executive officer of American Tower.
Dodge noted AT&T’s historical reluctance to collocate third-party tenants on the towers as a reason for pent-up demand for collocation opportunities on those sites.
American Tower estimates about 45 percent of the AT&T microwave towers are located in densely populated areas or near connecting highways. The remaining towers are located in high-elevation and rural markets, where demand for collocation is less frequent. However, the company said broadcasters and paging companies might be interested in renting space on those towers.
The portfolio includes 354 towers in the Northeast, 365 towers in the Southeast, 398 towers in the Midwest, 466 towers in the Southwest and 359 towers in the West.
The deal is expected to close in phases beginning in the fourth quarter, with final closing occurring during the first quarter of 2000, said American Tower.
When all deals are finalized, American Tower will own 8,158 towers and manage 1,112 towers, for a total of 9,270 towers in its portfolio.
The company’s stated goal is to own or manage 15,000 towers by 2003. Dodge said while the company would still be interested in forging deals that would fill out its footprint, it is not dependent on large acquisitions going forward. He said the company expects the bulk of the towers it still needs to reach its goal to come from new construction rather than acquisitions.
Dodge would not speculate on whether the transaction might lead to a deal with AT&T Wireless for the purchase of its existing wireless tower sites, although he did note the importance of having a relationship with both the largest domestic wireless carrier in AT&T and the largest worldwide wireless carrier in Vodafone AirTouch plc. AirTouch agreed to sell the majority of its tower portfolio to American Tower last month.
