There's a big strategic divide in the wireless industry that happens to run right along the border.
In the U.S., cellular carriers can't sell their towers fast enough to reap ever rising prices. The latest to hit the market is AT&T Inc., which is said by Bloomberg to be seeking $5-billion for its tower portfolio. The buyer, if one bites, is likely to be one of a handful of companies that invest in towers, becoming landlords to all cell providers. In such transactions, AT&T and other carriers get cash up front, and lease space on the towers. They are willing to take the risk of losing control of the prime tower real estate – something that surely can be mitigated contractually. There are plenty of precedents in other industries. Canadian banks, for example, are for the most part long gone from the business of owning office towers. They sold to real estate companies, and lease the space back.
In Canada's telecom business, there is no interest in selling towers. For starters, AT&T wants the money to tidy up its balance sheet. That's not a huge issue at cash-rich Canadian companies.
It's more than that, however, for the heads of Telus Corp., BCE Inc. and Rogers Communications Inc.
Telus chief executive officer Darren Entwistle reiterated his stance at a conference last week, saying owning towers is a competitive advantage that took a lot of patience and capital to build. Owning a tower ensures space and access to the top of the tower, the most valuable location. Putting up new towers is ever harder, as they are not very popular with neighbours.
At some point, though, one wonders if the rise in prices and the spectre of government policy changes that affect towers changes all that.
AT&T's asking price works out to about $500,000 for each of its 100,000 towers. T-Mobile sold 7,200 towers a year ago for $2.4-billion, or around $333,000 apiece.
Macquarie Securities analyst Greg MacDonald says that generally tower portfolios are sold for a price of 15 to 20 times free cash flow, resulting in U.S. tower transactions valued in a range of $300,000 to $775,000 a tower. That reflects one to two existing tenants per tower, with the possibility of adding more.
The potential for added tenants in Canada is less than in the U.S., he says, because there are generally fewer competitors in each wireless market and BCE and Telus have a network sharing agreement.
Mr. MacDonald estimates the Canadian towers would probably sell at about the midpoint of the $300,000 to $775,000 range, or about $500,000.
Solid publicly available data on how many towers each Canadian company has is hard to come by (though there is a cool map). Analysts, however, have pretty good estimates that tend to line up.
Macquarie Securities estimates that BCE and Telus together have just shy of 8,000 towers and Rogers has almost 5,700. Canaccord Genuity estimates BCE has 4,000 towers, Telus has 4,600 and Rogers Communications has 5,200.
Using the valuation suggested by Mr. MacDonald, BCE and Telus have tower portfolios worth something like $2-billion, and Rogers' would be worth closer to $3-billion. Dvai Ghose at Canaccord Genuity uses $400,000 per tower, resulting in lower numbers.
Also, it's not a sure thing that all the towers could be sold even if a carrier wanted to do so. Some might have to be kept because of commercial agreements that wouldn't allow a sale.
Even so, it is a meaningful amount of money that Canadian telecommunications CEOs are passing up.
For the moment, that makes sense.
If prices keep climbing, that could change. The other issue is Ottawa. The government is attempting to force BCE, Telus and Rogers Communications to share the towers with new entrants. BCE is challenging the order in court, but if that doesn't work, the rationale for owning will be tested.
If you're just going to be a landlord, why not sell to someone who does that for a living?
(BCE owns 15 per cent of the Globe and Mail.)