What Could Dish’s Entry Mean for Wireless Tower REITs?

According to Dilara Sukhov of Moody’s, the accelerated roll-out of Dish’s wireless network will lower but not eliminate T-Mobile/Sprint merger’s negative effects for tower REITs.
Dilara Sukhov Photo courtesy of Moody’s

On July 26, the U.S. Department of Justice conditionally approved the proposed merger between T-Mobile U.S. Inc. and Sprint Corp., and said the deal could proceed if the combined entity, among other conditions, agreed to sell certain assets to Dish Network Corp., which would allow Dish to become a fourth facilities-based national wireless competitor. The settlement calls for the combined entity to sell certain assets to Dish, lessening the overall credit negative effects from the merger on tower real estate investment trusts.

In Moody’s view, by accelerating the roll-out of Dish’s wireless network, the amended merger terms would benefit tower REITs American Tower Corp., Crown Castle International Corp. and SBA Communications Corp. Moody’s believes that the tower REITs’ growth opportunities would likely expand, their wireless tenant roster would include four nationwide wireless carriers vs. three, and lease non-renewal from the T-Mobile/Sprint merger would likely be lower than without Dish as a fourth national wireless network carrier.

Moody’s believes that Dish’s accelerated deployment of  its existing and newly acquired spectrum will likely be an additional driver of revenue growth for tower REITs. According to the new deal terms, Dish would acquire Sprint’s prepaid businesses including Boost Mobile, Virgin Mobile, and the Sprint-branded prepaid service, which serve about 9.3 million customers in total. In addition, Dish would buy 14 megahertz of Sprint’s 800 MHz spectrum and gain access to the new T-Mobile network for seven years.

De-risking Lease Non-Renewals

Additionally, Dish has committed to the Federal Communications Commission that it would deploy a facilities-based 5G broadband network covering at least 70 percent of the U.S. population by June 2023. In Moody’s view, this commitment indicates that the new entrant into the U.S. nationwide wireless sector will have sustained growth for the next four years. Dish will also have an option to take on leases on at least 20,000 of the 35,000 wireless sites that are planned for decommissioning under the combined T-Mobile/Sprint merger integration plans, de-risking the lease non-renewals for tower REITs in the two to three years following the merger.

However, Moody’s believes that the effect of the T-Mobile/Sprint merger, in and of itself, is credit negative for wireless tower  REITs, as the credit agency noted in a July 2018 CPE article. In Moody’s view, the merger would lead to a decline in lease renewal rates because of merger-related equipment decommissioning, among other negative effects.

According to Moody’s, favorable market trends will likely mitigate some of the credit negative effects from the merger on tower REITs. Moody’s believes that rising data consumption, wireless carriers’ ongoing investments in their networks and investments in 5G network deployment will continue to support revenue growth for tower REITs.

Dilara Sukhov, CFA, is an assistant vice president & analyst with Moody’s Investors Services.