Staring at the balance sheet of Crown Castle about a year ago, it escaped us just where the money would come from for Crown Castle to launch a US wide DVB-H network, and that same question must have been in the minds of the various cellular operators that refused to adopt the technology and sign a partnership deal to re-market such a service.
Perhaps in retrospect it was a mistake by Nokia, Texas Instruments and others who support the DVB-H mobile TV technology, to allow Crown Castle to carry the hopes of that particular community on its own for so long in the US through its subsidiary Modeo. The likely cost of building such a network, even for the biggest tower owner in the US would have run to several hundred million dollars and last year Crown Castle demonstrated just what it’s core business is really about by merging with Global Signal. This deal was announced in October 2006 and created a tower network with valued now at some $10.4 billion with assets that include 23,500 wireless tower sites, which yield 76% of all site rental revenues from the four largest US wireless carriers, with annualized site rental revenues of $1.2 billion, an EBITDA of $659 million and free cash flow of $329 million.
That’s a slick and steady business which by all accounts is about to get steadier through the build out by companies like Sprint and its WiMAX partnership with Clearwire, the continual rollout of EV-DO and HSDPA networks and whatever networks are going to go into the AWS and 700 MHz spectrum.
Why risk all of that certainty for all of the mobile TV uncertainty, especially since the two largest US mobile operators have already signed with Qualcomm’s MediaFLO, and the network is half built.
Immediately that Crown Castle announced that it had leased the 5 MHz of spectrum, in 1.6 GHz to two telecom investors, Telcom Ventures and Columbia Capital, commentators were saying that DVB-H in the US was sunk and that the network which Modeo has built around New York would be shuttered.
Both Telcom Ventures and Columbia Capital are known to have had interests in the past in broadband wireless and more recently in satellite radio, through XM Satellite Radio and there is a distinct possibility that the spectrum could be used by the new merged satellite radio company, to augment audio distribution with video distribution. We have always said that satellite radio would need to adapt itself to video in order to withstand competition from the iPhone and MediaFLO and end up offering comparable services. It is not beyond the realms of possibilities that it could do this with DVB-H devices, or a different modulation in the strange L band frequencies that Modeo had. The two satellite radio companies have spent a huge amount of money, mostly in marketing and now that customer acquisition is beginning to slow for them, they would think nothing of plowing a few hundred million more dollars into more capacity, whereas Modeo would not.
The deal involves an annual lease fee of $13 million up to 2013 and then a right to buy the spectrum for a flat $130 million adjusted for inflation or renew the lease for another ten years.
As part of such transaction, Crown Castle has transferred Modeo and its New York network and will be the preferred provider of tower infrastructure for future tower sites on the spectrum.
Crown Castle very cleverly has eliminated the $10 million or so of costs that it was due to put into its 2007 third quarter accounts, but will write down some assets associated with Modeo.
Crown Castle also announced its second quarter results with revenue up $153.2 million over last year due to its Global Signal merger, and EBITDA up to $186.4 million and upgraded its outlook to $1.276 billion of revenues for the full 2007.
The HiWire joint venture between SES Americom and Aloha Partners still has UHF spectrum and still remains resolute that it will continue to build out DVB-H network in the US, but might think twice after hearing the Modeo move, especially if it does lead to an invigorated satellite radio rival, with video.