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Crown Castle ponies up $2.4B for T-Mobile USA towers

Validating previous rumors, Crown Castle International reported today that it has agreed to lease 7,200 towers from T-Mobile USA for $2.4 billion. The deal will provide Crown Castle with exclusive rights to lease and operate the towers for approximately 28 years, and have the option to purchase those towers at the end of that lease for an aggregate option payment of $2.4 billion.

Recent published reports had indicated that Crown Castle was the leading bidder for the assets, out menuvering rival American Tower, which has been a previous favorite to acquire the towers. T-Mobile USA’s interest in selling off its tower assets has been dogging the mobile space for years.

Crown Castle noted that 83% of T-Mobile USA’s towers are in the nation’s top 100 markets, with 72% in the top 50 markets. The move also reinforces Crown Castle’s position as the nation’s largest tower owner with more than 29,000 towers. American Tower is No. 2 in the nation with just over 22,000 towers.

To fund the deal, Crown Castle said it will use cash on hand and debt financing. The company said the deal will produce up to $130 million in adjusted funds from operations before financing costs in 2013, and that each site has enough capacity to handle at least one new tenant without “significant incremental capital.” Further solidifying the financials on the deal, Crown Castle added that T-Mobile USA has committed to remaining on those towers for at least 10 years with annual rent increase provisions connected to the consumer price index. Those pricing commitments also include the carrier’s planned network upgrade.

Analysts were a bit apprehensive on the deal, noting that the price was at the high-end of most recent estimates and that the total price for the leasing arrangement is really closer to $2.65 billion.

“[Crown Castle International’s] focus has been bent more toward domestic growth than international – so the addition of this portfolio is consistent with its corporate strategy,” added Wells Fargo Securities senior analyst Jennifer Fritzsche.

For T-Mobile USA, which just recently named a new CEO, the deal provides much needed capital to fund a significant network overhaul program that will see the carrier begin rolling out LTE services in the 1.7./2.1 GHz spectrum band beginning next year. T-Mobile USA currently relies on approximately 51,000 total towers for its nationwide network coverage.

“T-Mobile USA is working aggressively to make our 4G network stronger, faster and more dependable for consumers, and this transaction will support our ongoing $4 billion network modernization initiative that is the cornerstone of this effort as we work tirelessly to continue to deliver our amazing 4G services nationwide,” noted T-Mobile USA CEO John Legere.

T-Mobile USA’s parent company Deutsche Telekom said it will use the proceeds from the transaction to retire corporate debt and strengthen its financial position to provide for funding of growth investments, including T-Mobile USA’s network enhancements. DT recently picked up $3 billion in cash as part of a break-up fee related to AT&T’s failed attempt to acquire T-Mobile USA for $39 billion.

Macquarie Equities Research added that the 28-year term of the leasing agreement would indicate that T-Mobile USA plans to stick around the domestic telecom market for the long haul, though in what form remains in question.

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