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T-Mobile USA has agreed to sell the rights to operate its 7200 wireless broadcast towers to one of the largest independent tower company Crown Castle International (CCI - Analyst Report) for $2.4 billion, which will provide it with the cash needed to upgrade its network and will considerably reduce its debt burden. Notably, T-Mobile USA, a unit of Deutsche Telecom AG (DTEGY) planned to sell its tower portfolio last year after a failed $39-billion takeover bid by the second largest U.S. carrier, AT&T Inc. (T - Analyst Report).

As part of the deal, Crown Castle will have the exclusive right to lease and operate the 7200 wireless towers for the next 28 years with the option of buying it at the end of the lease for another $2.4 billion.

From T-Mobile USA’s standpoint, the above mentioned is a significant deal for them as it will provide them with much needed cash infusion to upgrade its network. The unprecedented surge in data has forced the U.S. carriers to roll out faster and reliable fourth generation network.

The deal, which is expected to be completed in the fourth quarter of 2012, will support the company’s $4 billion network enhancement initiative. Additionally, the transaction will not only trim down the company’s debt by a significant amount of $2.4 billion, but will also reduce its reliability on the parent company for financing.

We believe Crown Castle will leverage from the fact that T-Mobile USA’s tower provides the option to hold an additional tenant to its sites, which will increase its site leasing revenue without any additional cost. Moreover, as a part of the agreement, T-Mobile will remain Crown Castle’s client for the next 10 years and will provide it with the network modernization fees, which will reduce its operating cost going forward.

The company expects the towers to garner about $125-$130 million in adjusted funds from operations (AFFO) before financing costs in 2013, and will increase the total number of towers under its belt to 30,000 approximately.

We believe the deal was a desperate move by Crown Castle to maintain its organic growth within the U.S. and will make it the closest competitor to rival American Tower Corp. Furthermore, consolidation in the traditional wireless space will help the company concentrate on complementary wireless tower solutions like Distributed Antenna System (DAS).

We are maintaining our long-term Neutral recommendation on Crown Castle International Inc. However, the company currently retains a Zacks #2 Rank, implying a short-term Buy rating.

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