A long time ago in an office far, far away, I worked at an investment desk. As far as careers go, yeah it was fun in small doses. I was passable at my job but I didn’t enjoy it. After fifteen years I decided to do something else, but not before I’d picked up something of an understanding of how businesses operate. As a concept, a business needs a number of things to survive; assets, stock and customers. They need cash, too; after all, it’s cash that keeps the wheels of industry turning. Some need plants and machinery, the tools of their trade. These are assets, which have a value to the business because it allows them to generate cash, but what if a business has a short term cashflow problem? Or what if it knows that it will need to be spending a lot of money on something and is exploring ways to raise the cash? The mobile networks are businesses with assets, customers and cashflow issues too, but rather than owning a factory and building widgets, instead a mobile operator may own the mobile network infrastructure: the masts and cell sites that provide it’s customers with coverage. These cell sites are vital to the business (without coverage, it cannot operate the network), require maintenance and upkeep, likely involve a regular cost to whomever owns the building that it is attached to, and requires regular upgrades.
What if the network operator could sell on the network masts to a third party but retain the rights to use the towers to provide customers with service? The third party would buy the mast infrastructure for a sum of money and lease back the sites to the network for a regular sum. It’s something that big businesses have used for years and in the US telecom market, AT&T performed a sale and lease-back operation last year. In 2012, T-Mobile sold 7,200 masts to immediately lease them back. Why would Verizon suddenly be interested in selling on its fixed asset? What could Verizon spend the money on? We have the small matter of the AWS-3 spectrum auction coming right up and the low frequency spectrum auction happening next year.
Now, there are other ways for a big business to raise money. It can tap the bond markets, in other words it can borrow money from investors over a given period of time. Without going into technical detail about things not relevant to the Android world, bond markets work when there are enough buyers and sellers to create a market. When there aren’t enough investors willing to buy bonds (and let a business borrow their money), this makes it more and more expensive for a business to raise money. Guess what’s been happening over the summer? Yes, it’s become expensive for companies to raise money using the bond market. It only has to be more expensive than a sale and leaseback of Verizon’s mobile network and the business can look elsewhere. Such sale and leaseback deals usually include a minimum period of leaseback together with agreed rental agreements and clauses to build in additional capacity or sites for the future. Afterall, Verizon wouldn’t want to freeze its current network; this wouldn’t make any sense! On the face of it, it seems a no-brainer. If it’s expensive for Verizon to raise capital through the bond market and if it’s sitting on a few billion dollars’ worth of infrastructure, it almost seems a matter of time.