A year ago, AT&T (NYSE:T) was still trying to acquire T-Mobile USA in a blockbuster $39 billion deal. But the deal fell apart and the fourth-largest American cell network found itself being... well, still number four with little hope of ever rising higher.
So T-Mobile is scrambling to catch up with larger rivals AT&T, Verizon (NYSE:VZ), and in-betweener Sprint Nextel (NYSE:S). The new plan involves "investing in areas where we anticipate the strongest return for our customers," in the words of T-Mobile USA chief John Legere. And that takes a lot of cash.
So the network has hammered out a deal with cell tower operator Crown Castle International (NYSE:CCI), where Crown Castle pays $2.4 billion up front for the right to lease the 7,200 cell towers that T-Mobile owns. As the leases expire, Crown can buy the properties outright for another $2.4 billion, spread out over the next -- yes, really -- 36 years.
The lease-to-buy option is hardly a get-rich-quick deal for T-Mobile, but the initial $2.4 billion payment can certainly help the company compete in the next-generation network wars.
It's also a good deal for Crown Castle. CEO Ben Moreland cheered the deep value he's getting, as the company is paying 9% of its enterprise value in return for a 33% expansion of its tower network. T-Mobile's towers also happen to be concentrated around metro areas, where Crown Castle needs to invest the most if it wants to stay competitive with larger rival American Tower (NYSE:AMT).
Maybe T-Mobile should have asked for a bit more cash up front, but that's nothing but nitpicking. This is a solid deal on both sides of the table.
The tower operators play a vital role in the mobile ecosystem. They've been tremendous value generators over the last five years, even if most investors tend to ignore them:
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