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Crown Castle International Corp. (CCI - Analyst Report), a leading wireless tower operator, recently entered into a definitive agreement to acquire privately held NextG Networks Inc. for approximately $1 billion. NextG is the largest provider of outdoor Distributed Antenna Systems (DAS). The deal is expected to be closed by the second quarter of 2012. Crown Castle will fund the acquisition through debt financing and believes this deal will be accretive to its recurring cash flow per share in the long term. If the deal gets regulatory approval, it will be Crown Castle’s second major DAS acquisition after its $115 million acquisition of NewPath Networks in 2010.

Expected Synergies

(1) DAS is rapidly becoming a complementary solution to the large wireless tower system. Distributed antenna systems are networks of smaller cell sites connected by optic fiber to communications hubs. Using DAS network, wireless operators will be able to get rid of the zoning restrictions and can specifically locate their respective coverage area. As demand for wireless data and video traffic is increasing day-by-day, DAS may become an important source of revenue for Crown Castle.

(2) NextG currently has more than 7,000 DAS in operation coupled with another 1,500 nodes in the pipeline. The company also enjoys transmission rights over 4,600 miles of optic fiber cable. The proposed acquisition will enhance Crown Castle’s DAS network with more than 10,000 nodes spread across 26 U.S. metropolitan areas. However, 80% of these nodes will be located on the top 10 U.S. metropolitan areas.

(3) NextG has huge underutilized capacity. Currently, the company has only 1.25 tenants per network on an average. This will provide significant scope for Crown Castle to add more customers without incurring additional capital expenditure. The combo offer of large wireless towers and small-sized DAS network will position Crown Castle as a unique tower operator head on with its arch rival American Tower Corp. (AMT - Analyst Report). 

Recommendation 

We reiterate our long-term Neutral recommendation on Crown Castle. Currently, it holds a Zacks #3 Rank (Hold) on the stock.

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