- Verizon inked a 10-year tower deal with SBA, giving the tower company a long-term boost
- SBA’s limited exposure and short-term leases with Dish cushion it from the EchoStar fallout
- It’s early days, but with SpaceX’s Starlink upping its wireless game, SBA is thinking about what role it could possibly play
Verizon gave SBA Communications something to talk about on its earnings call Monday: a new 10-year master lease agreement (MLA) to support Verizon’s 4G/5G network.
Neither Verizon nor SBA are revealing much by way of details about the deal, including its dollar value and number of towers. But it definitely provides a nice boost to SBA, which, like other U.S. tower companies, is losing business from the failed EchoStar mission. SBA shares were up a smidge (more than 2%) today, trading around $198.94.
“We’re really, really pleased with this [Verizon] agreement because it is one that we think is going to be a contributor to our growth for a long period of time, building on a very strong partnership that we have with Verizon,” SBA President and CEO Brendan Cavanagh told analysts on the Q3 earnings call. “It really is a win-win, and we’re particularly excited about that opportunity to work together for a long time to come.”
A lot of questions from analysts on the call were about the Verizon deal. A Verizon spokeswoman told Fierce that the terms of the deal with SBA will allow Verizon to expand its network with new towers, “but will also allow us to move from other tower companies providing less favorable terms and relocate those towers.”
Asked if that means less business from Verizon for the other big publicly traded tower companies Crown Castle and/or American Tower, she said: “There is no one company we are moving to or away from.” Verizon’s tower portfolio is “something we dynamically manage. This deal with SBA offers us greater nimbleness and flexibility for ongoing evaluations.”
Tower fallout from Dish’s exit
While the Verizon deal offers long-term stability, investors are worried about another challenge for SBA: uncertainty surrounding the decommissioning of EchoStar’s 5G network.
American Tower last week filed suit against EchoStar subsidiary Dish Network, which is refusing to pay millions of dollars in tower lease contracts, claiming its sale of spectrum means it no longer needs to pay $210 million in contractual obligations to American Tower.
Cavanagh said Dish is current on its SBA rent payments, which are typically paid at the first of the month. “We have had some correspondence between the two companies back and forth, but I think at this point it’s best for me to keep that to ourselves,” he said. “We’ll continue to have those conversations, but we feel good about our agreements and expect them to honor them.”
SBA isn’t as susceptible to Dish’s shenanigans because it didn’t sign long-term MLAs with EchoStar in the way that American Tower and Crown Castle did, according to MoffettNathanson analyst Nick Del Deo.
“SBA and EchoStar did business on more of an a la carte basis with five-year initial lease terms,” he said in a report for investors. “SBA doesn’t have to worry as much about all this legal wrangling: its leasing with EchoStar is already de minimis, and its revenue is mostly going to churn off in 2027-2028.”
Still, it remains an overhang, even though Cavanagh highlighted another quarter of positive financial and operational results.
“Though fundamentals remain strong and valuation continues to screen as cheap, we expect tower stock upside to remain capped until investors have more clarity around Dish rent payments, potential spectrum swaps, software upgrades, the extent of US Cellular/T-Mobile tower terminations and elevated churn internationally,” TD Cowen analysts said in a report.
SBA CEO punts Starlink question
Beyond the Dish drama, Cavanagh touched on the fast-emerging satellite-to-cell opportunity.
As part of a resolution with FCC Chairman Brendan Carr, EchoStar Chairman Charlie Ergen agreed to sell 2 GHz spectrum to SpaceX, which is in the process of building a new satellite constellation that will use the spectrum for direct-to-cellular (D2C) phone services. Cavanagh was asked about what role terrestrial networks might play in that arena.
The CEO revealed that SBA has had some “very preliminary” conversations with SpaceX’s Starlink about their plans, but “it would be premature for me to talk about what may happen from a terrestrial network standpoint with them … That remains to be seen.”
Pressed to speculate on what a hybrid satellite-terrestrial network might look like as it relates to SBA, “I have to punt that question for now,” he said. “This is really, really early and I would be just truly speculating at this point. But as I said, when you see significant amounts of wireless spectrum end up in the hands of a new party, it’s something we’ll have to watch closely and evaluate what their next steps will be and what role, if any, we can play in that.”
Looking ahead with terrestrial carriers
Another factor in SBA’s tower activities involve the airwaves that AT&T is buying from EchoStar. AT&T is already deploying 3.45 GHz spectrum as part of that deal thanks to a temporary license. The new spectrum is boosting AT&T’s 5G and fixed wireless access (FWA) Internet Air performance.
If AT&T ends up deploying the 600 MHz it’s buying from EchoStar – some analysts have speculated that spectrum might end up in the hands of T-Mobile – the magnitude of that will have an impact on what SBA ends up doing for them and how that’s monetized. (For the record, AT&T SVP and Network CTO Yigal Elbaz told Fierce that AT&T plans to buy new 600 MHz radios and build out that spectrum.)
“I don’t really have an answer on that today, but that’s something that we’ll certainly be in conversation with them about and we’ll be monitoring,” Cavanagh said of the 600 MHz.
Circling back to the Verizon transaction, Cavanagh underscored the carrier’s current expansion plans.
Based on SBA’s discussions with Verizon, “it was very clear to us that they have a lot of meaningful network plans going forward. They definitely are interested in continuing to expand their network into places where they haven’t been before,” he said.
Historically, SBA’s services business has been more heavily concentrated with T-Mobile, but it’s growing in terms of the amount of work it’s doing for Verizon, he said. SBA struck an MLA with AT&T in 2023.
SBA’s agreement with T-Mobile is set to expire about a year from now and it’s preparing to have more conversations with the “un-carrier.”
“I’m hopeful that we end up in another situation where we have kind of a win-win like we did here with Verizon,” Cavanagh said. “We’ll just have to talk about the things that are important to them and that work well for us.”