Communications Sales & Leasing (CS&L) is buying Tower Cloud for $230 million in cash and stock, giving it a set of dark fiber and turnkey small cell services to further its appeal with Tier 1 wireless operators.
Kenny Gunderman, CEO of CS&L, told investors during a call announcing the deal that by purchasing tower and other assets, the company will gain direct contact with wireless operators looking for alternative wireless backhaul sources.
Thus far, CS&L has made three fiber and tower-related infrastructure deals this year, including Tower Cloud, PEG Bandwidth and 32 wireless towers and operating rights for 40 towers from Windstream.
"One of the common threads among the deals we have done since our creation and one of those is increasing our exposure to national carriers," Gunderman said. "At the beginning of this year that exposure was zero percent and pro-forma for this deal, PEG and tower real estate this year will be at 13 percent."
Set to close by early fourth quarter of 2016, Tower Cloud shareholders will receive initial consideration of $230 million, subject to customary closing adjustments, including $180 million of cash and the issuance of 1.9 million shares of CS&L common stock.
For CS&L, the value of the acquisition is dark fiber and small cell service assets – two elements that are becoming table stakes to compete in the ever-evolving wireless backhaul space.
Tower Cloud's fiber network consists of 90,000 fiber strand miles in service across the southeastern United States, with 181,000 fiber strand miles awarded for future deployment for the major wireless carriers.
But Tower Cloud's fiber assets aren't based on speculative builds.
Tower Cloud has already won dark fiber contracts in North Florida and Augusta, Georgia, from a large Tier 1 wireless operator. Those routes, which have 20-year terms, will provide $175 million in total contract revenues to CS&L.
Ron Mudry, CEO and founder of Tower Cloud, told FierceInstaller in an interview that by building out conduit that can accommodate multiple fiber counts, the service provider can satisfy wireless operators' near and long-term small densification and C-RAN needs.
"What we're finding by putting in additional infrastructure, including multiple conduits and higher fiber counts, really can help enable further when the small cell and C-RAN densification continues to build underneath the macro network," Mudry said. "We think that's going to be a big growth opportunity to leverage the dark fiber skills into the turnkey small cell opportunity."
Besides dark fiber assets, what Tower Cloud also brings to the table is turnkey services for small cells, a solution set that includes everything from site acquisition and permitting to even operations and maintenance. Tower Cloud will bring a number of deals it won with large Tier 1 wireless operators and a number of new sales targets.
"We have already won some turnkey small cell opportunities and deployed several, we have a large sales funnel and we're making progress with small cells with multiple carriers," Mudry said. "It's a very strong fit with CS&L's vision of where the opportunity is for the future and our feeling is the combined fiber infrastructure group will be able to be a big player in the small cell market."
However, wireless backhaul is only one part of the broader equation a combined PEG and Tower Cloud can serve. Given the complementary capabilities of the two companies, the plan is to combine the operations of both companies to become a larger fiber operator.
Along with providing new fiber assets, PEG and Tower Cloud can leverage each other's strengths in small cell deployments and specific market segments like school districts via the E-Rate program.
"The other benefit I see is that PEG Bandwidth and Tower Cloud are very compatible and complementary to each other," Mudry said. "PEG has a larger portion of their business that serves schools and education and works through the opportunities to utilize the E-Rate program, which is an area we're not as far along in as they are so there's an opportunity to take their skill set and apply it to our geography and expand."
The remaining question for CS&L is: How will it operate a combined PEG Bandwidth and Tower Cloud, and what will the management team look like?
While Gunderman could not provide specific details, he said that the management team will include key members from PEG and Tower Cloud.
"We think the management teams complement each other very well," Gunderman said. "We have already begun conversations between the teams and PEG's CEO Mike Friloux has been involved with us and Ron Mudry has been a focal point from the Tower Cloud side, so I think the teams complement one another and we're looking forward to putting the right team on the field."
- see the release
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