UScellular is in a bit of a pickle when it comes to the future fortunes of its tower portfolio.
It owns 4,388 towers, which it plans to keep after the sale of most of its wireless operations to T-Mobile for $4.4 billion. The sale remains subject to regulatory approvals, but UScellular is proceeding with the expectation the deal closes in mid-2025.
In order to keep its towers profitable, UScellular needs to add more tenants, or co-locators, if you will. UScellular had 2,392 co-locations on its towers at the end of June, for a tower tenancy rate of 1.55.
However, UScellular’s deal with T-Mobile means that T-Mobile will become a long-term tenant on some of its towers, but it doesn’t know which ones. That will affect the placement of future renters on these structures.
During its Q2 2024 earnings call today with parent TDS, UScellular President and CEO Laurent Therivel said UScelluar’s towers are geographically unique, and that will be attractive over time to future tower co-locators, particularly as wireless carriers look to densify their networks.
Therivel explained his reasoning behind the optimistic outlook.
“It’s not cost-effective to try to put up a new tower right next to where a tower exists today, so that geographical uniqueness I think is a key driver of the attractiveness of the portfolio,” he said. “The opportunity is simple, which is simply to grow our co-location rates.”
Underpinning the business case here is the expenses to run the towers are relatively small.
“As we increase those co-location rates over time, you can expect those margins to steadily increase,” he said. “That’s why we’re optimistic about this segment. It’s both an attractive asset and we think that we can grow those co-location rates steadily over time. That will improve the financials.”
Relatively few competing towers are within a mile or so of UScellular’s towers, he said. These towers are tall compared to structures in more urban areas because they’re built to cover wide geographic areas in more rural parts of the country.
Towering questions
All of this hinges in part on which towers T-Mobile will be using once the sale of UScellular’s wireless business closes.
“It’s an interesting financial equation that that creates for us,” Therivel commented. “Once we know which towers they will be on, if the result of that is that the majority of towers that they’re on do not have an existing co-locator, that creates more attractive long-term growth potential,” but it also impacts margins.
“If instead they end up on towers where we have current co-locators” – meaning the majority of towers T-Mobile selects are ones that already have a tenant – “that will create better margins, but it will mean we have more naked towers at the conclusion of the transaction,” he said.
If that’s the case, UScellular will need to decide what to do with those empty towers, and “I don’t think it’s a foregone conclusion that those naked towers will necessarily be decommissioned,” he said, adding that “we have a lot of different things that we can do with those towers.”
None of that affects how UScellular is marketing the towers to other potential co-locators, he noted.
“What we’re not trying to do is to guess which towers they’re going to be on and consequently prioritize or deprioritize those towers in our marketing efforts,” he said.
Because there’s currently no obvious spectrum in the U.S. auction pipeline – though UScellular has put a hefty amount of its own spectrum on the “for sale” block – wireless players will need to densify their networks to support their capacity needs and that will likely happen before 6G and any new spectrum comes into play, he said.
“It is full-speed ahead in terms of marketing our entire tower portfolio to other potential co-locators,” he concluded.