Sprint sells its cellular towers (so it can lease them back)

OVERLAND PARK, Kan., Jul 23, 2008 (BUSINESS WIRE) -- Sprint Nextel (NYSE:S) today announced an agreement to sell approximately 3,300 towers to TowerCo for approximately $670 million in cash. Additionally, the two companies have entered into a long term leasing agreement where TowerCo will provide Sprint Nextel with wireless communications towers to support the company's CDMA, iDEN and WiMAX networks.
First, I'm surprised it only takes 3,300 towers to cover their US market, especially considering that some of those towers may be overlapping CDMA and iDEN cells. Secondly, doesn't this seem sort of silly? There very well may be a solid cash flow reason to lease these towers instead of owning them, but it just seems so typically Sprint to me: build up a huge project, then sell it or shut it down. I can imagine a buy back in the future: "As a wireless solutions provider, Sprint Nextel Motorola's world-class tower infrastructure is essential to our core business. The addition of these thousands of towers to our network will make it possible for Sprint Nextel Motorola to implement the latest upgrades to our award-winning wireless network faster than ever." Press Release [Sprint.com via Phone Scoop]
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12 Responses to Sprint sells its cellular towers (so it can lease them back)

  1. zikman says:

    lol, TowerCo. sounds very movie-like

  2. adamrice says:

    Airlines do the same things with their planes. They have a captive leasing agency buy the plane for them (or buy the plane themselves, and then immediately sell it to the leasing agency), and then rent it back. It’s all accounting shenanigans, something to do with recurring expenses being more favorable-looking to investors than capital expenditures.

  3. Chrs says:

    One thing I’m a little surprised no one has mentioned: They probably also get access to other towers that TowerCo owns, expanding their service range.

  4. yasth says:

    Actually this makes sense Sprints credit rating sucks right now, which limits their ability to both get cash, and take out loans to build out their towers.

    This gives them hard cash, and probably will get towers they would like upgraded upgraded, at a favorable cost basis.

    Oh and this isn’t all their towers I think.

  5. themindfantastic says:

    Actually I can see this, sprint wanting to work towards another project and needing the funds, seeing that tower maintenance is not just costly but risky, sells off the towers for huge cash influx, and no longer has to concern themselves with the maintenance funding and potential risk of these towers falling over, causing cancer, whathave you something nasty they could be put on the hook for etc… which lawsuit wise most bean counters tend towards likely over the long term. If something happens, its TowerCo’s fault not sprint, TowerCo doesn’t look as impressive on a lawsuit as say like Sprint (and less deep pockets), and won’t generate negative publicity. On the long term yes it might cost sprint money and Tower Co could raise the rates nastily after the contract is up… but who is to say sprint doesn’t actually OWN TowerCo or a percentage in some arms length capacity.

  6. gwax says:

    My guess would be that this will save Sprint an incredible amount of money on tower maintenance. It may also allow TowerCo to lease tower space to Sprint’s competitors, which would lower the per-tower costs for Sprint. Just a guess but seems like there might be reasons this is a good idea.

  7. dustbuster7000 says:

    “Aah! I see you have the machine that goes ‘ping’. This is my favourite. You see, we lease this back from the company we sold it to, and that way, it comes under the monthly current budget and not the capital account.”

  8. Wolvie says:

    You’re right Yasth. This way they get cash, don’t have to declare the towers as assets, and can write off the lease payments as an expense.

  9. Ceronomus says:

    This makes financial sense… what is the big deal?

  10. WalterBillington says:

    Yep – Sale and Leaseback is very common with large assets

  11. Anonymous says:

    Good decision by Sprint. From technology perspective, WiMAX allows wall mount base stations and with more urbanization there will be more buildings and hence less requirement of towers

  12. MaximusNYC says:

    “TowerCo” was no doubt created by Sprint (perhaps in some indirect way) expressly for this purpose. It’s a shell game, played for tax reasons. Companies do this with all sorts of assets. Some even sell their trademarks and lease them back.

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