Why Verizon’s $3.3B tower deal is a little surprising

Vertical Bridge will obtain the exclusive rights to lease, operate and manage 6,339 of Verizon’s wireless towers across the U.S. for about $3.3 billion

The transaction is structured as a prepaid lease with upfront proceeds of about $2.8 billion in cash

It’s the largest U.S. tower transaction in almost a decade, according to Vertical Bridge

The most surprising thing about Verizon’s $3.3 billion deal with Vertical Bridge is the fact that Verizon still had 6,339 towers under its management.

That’s because most U.S. wireless carriers started shedding their tower assets years ago, preferring instead to rent space on towers owned by the likes of public tower companies American Tower, Crown Castle or SBA Communications — or one of the many privately owned tower companies. UScellular, which is in the midst of selling wireless assets to T-Mobile, is an outlier in the sense that it still owns more than 4,000 of its own towers and plans to keep them after the deal with T-Mobile.

Verizon said part of the reason for its agreement with Vertical Bridge is to drive down tower-related costs and provide greater vendor diversity.

“As the nation’s largest mobility provider, we are well positioned with greater financial flexibility to invest in our business, return value to our shareholders and make the nation’s best network even better for customers,” Verizon Chairman and CEO Hans Vestberg said in a statement. “This transaction builds on our existing relationship with Vertical Bridge while realizing substantial value for this unique set of assets and allows us to be agile in optimizing the network with one of the best operating partners.”

Under the terms, Verizon will enter into a 10-year agreement to lease back capacity on the towers from Vertical Bridge. Verizon will serve as the anchor tenant, with options that could extend the lease term up to 50 years.

Vertical Bridge will get the exclusive rights to lease, operate and manage Verizon’s 6,339 wireless communications towers across the U.S., for about $3.3 billion. It’s not a sale; the transaction is structured as a prepaid lease with upfront proceeds of about $2.8 billion in cash.

A tower "win-win"

For the tower company, it’s an opportunity to double or triple its investment, as it can lease space on the towers to AT&T and/or T-Mobile. “It’s a win-win for both of us,” Marc Ganzi, CEO of DigitalBridge and vice chairman of Vertical Bridge, told Bloomberg. Bloomberg reported in July that Verizon was shopping around its tower assets.

Ganzi said his company now has almost 100,000 towers across nine different companies at DigitalBridge, “so we’re investing holistically in the future of mobile edge infrastructure and we think that’s really important, particularly where applications are going in the future – the edge is actually where the device is.”

No doubt, proceeds from the transaction will come in handy for Verizon, which us spending about $20 billion to buy Frontier Communications.

Towers no longer a differentiator

In these times when U.S. wireless carriers boast 99%-plus population coverage, towers have morphed from a competitive differentiator to a commodity, said Roger Entner, founder of Recon Analytics.

“Instead of buying the car, you’re leasing it,” Entner said.

Verizon traditionally is a company that likes to own assets if they’re considered a competitive differentiator. “This is also a tacit admission that the towers, and partially with it, coverage, is no longer the differentiator, or that the price for it is too high,” Entner said.

The big question is how many towers Verizon will directly manage after this transaction. Fierce reached out to Verizon for comment on the deal but had not received a response as of press time.

Vertical Bridge will have a much easier time getting T-Mobile and/or AT&T as tenants on the Verizon tower sites than Verizon because “it’s always a little bit awkward” when a carrier is negotiating tower space with a rival, Entner noted.