Sharing the burden: tower sales and network partnerships

Here is our hypothetical carrier, "Meridian Mobile," spinning its towers into a wholly owned or joint-venture TowerCo, then either selling a stake or the whole thing.

Step 1: Carve out the assets

Meridian moves its 15,000 towers into a subsidiary. Say the towers have a book value (the accounting value on the balance sheet) of 3 billion. An independent TowerCo values them higher, because it can add tenants Meridian never could. Suppose a buyer pays 6 billion.

Step 2: The cash lands

Meridian receives 6 billion in cash. It books a gain versus book value. That cash typically goes to three places: paying down debt, funding 5G capital expenditurecapital expenditureCapital Expenditure (CapEx) is money spent to acquire, upgrade, or extend long-lived assets like equipment, property, or software that deliver value over multiple years.View full definition →, or returning money to shareholders through buybacks or dividends.

Step 3: The rent begins

Meridian now signs a Master Lease Agreement (MLA): a long-term contract, often 10 to 15 years, committing it to pay rent per tower per year. This rent is the catch. Illustratively, if annual rent is 400 million, Meridian has swapped a one-time 6 billion inflow for a stream of fixed, contractual outflows.

The International Finance Corporation's primer on infrastructure finance is a useful free background read on how these long-lived asset structures are financed.

What it does to the balance sheet

This is where finance students should slow down, because the accounting has a twist.

Before 2019, an operating lease stayed off the balance sheet entirely. You sold the tower, took the cash, and the rent was just an expense. Balance sheet looked much lighter. That was the whole appeal.

Then IFRS 16 (the international lease accounting standard) and the equivalent US standard ASC 842 changed the rules. Now almost every lease must appear on the balance sheet as:

• A right-of-use asset (your right to use the tower), and
• A lease liability (the present value of all those future rent payments).

So Meridian sells 6 billion of towers, but then books a multi-billion lease liability for the rent it owes. The balance sheet does not shrink as dramatically as it once did.

So why still do it?

Three reasons survive the accounting change:

1. Cash is real. The 6 billion is genuine liquidity, usable today to cut expensive debt or fund the network.

2. Risk transfer. The TowerCo now owns the maintenance, the land lease renewals, and the obsolescence risk.

3. Multiple arbitrage. The market values tower cash flows more highly inside a TowerCo than inside a carrier. Separating them can unlock value even if the consolidated balance sheet looks similar.

🎬 [VIDEO: "How Cell Tower Companies Actually Make Money" — youtube.com — a clear explainer on tower economics and the multi-tenant model that drives TowerCo valuations]

What it does to margins

Here is the trap that catches unwary analysts.

Before the sale, tower costs showed up as depreciation (spreading the tower's cost over its life) and maintenance. After the sale, under IFRS 16, the rent is split into depreciation of the right-of-use asset plus interest on the lease liability.

The effect: EBITDA looks better. EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition → (earnings before interest, taxes, depreciation, and amortizationearnings before interest, taxes, depreciation, and amortizationEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition →) strips out depreciation and interest. Since rent is now reclassified into those excluded buckets, reported EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition → rises even though the company is genuinely paying cash rent every month.

This is why serious telecom analysts watch EBITDA after leases (EBITDAaL), a metric that subtracts lease costs back out. It gives a truer picture. Always ask which EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition → a telecom operator is quoting.

Layer two: RAN sharing

Selling towers is passive sharing. The next move is active sharing of the network itself.

The RAN (Radio Access Network) is the active electronic gear: the antennas, radios, and baseband units that actually send and receive signals. It is expensive to build and maintain, especially for nationwide 5G.

Two carriers can share this in two ways:

• Passive sharing: they share the tower, power, and shelter, but each keeps its own active equipment. This is what the tower deal enables.
• Active RAN sharing: they share the actual radios and sometimes spectrum. This cuts far deeper into cost, and into competitive independence.

Why regulators watch closely

RAN sharing sits in tension with competition law. If two of a country's three carriers share their entire network, are they still real competitors? Regulators (the government bodies overseeing telecom, such as Ofcom in the UK or the FCC in the US) often permit passive sharing readily but scrutinize active sharing, sometimes requiring carriers to keep spectrum and core networks separate.

The UK's "Beacon" arrangement between Vodafone and O2, and the "MBNL" arrangement between EE and Three, are real, long-running examples of network sharing joint ventures.

The financial payoff

Active RAN sharing can meaningfully reduce network capital expenditurecapital expenditureCapital Expenditure (CapEx) is money spent to acquire, upgrade, or extend long-lived assets like equipment, property, or software that deliver value over multiple years.View full definition → and ongoing operating cost, because two carriers split the bill for one set of radios. Commonly cited estimates suggest active sharing can cut relevant network costs by a double-digit percentage, though the exact figure depends heavily on geography and deal terms. Treat any single number as an estimate.

For finance teams, the trade is clear: lower capexcapexCapital Expenditure (CapEx) is money spent to acquire, upgrade, or extend long-lived assets like equipment, property, or software that deliver value over multiple years.View full definition → and opex in exchange for reduced control and a shared fate with a partner.

Putting it together: Meridian's new shape

After both moves, Meridian Mobile looks structurally different:

• Capital-light. It owns spectrum, brand, customers, and its core network. It rents the towers and shares the radios.
• Higher headline EBITDA margin, but watch EBITDAaL for the truth.
• Long-term fixed commitments. Rent and sharing fees are contractual. In a downturn, these do not flex the way owned-asset costs might.
• Less operational control. A tower fault or a partner dispute now involves another company's priorities.

The strategic logic: telecom is becoming a business of spectrum and software, not steel. Carriers increasingly want to own what differentiates them and rent or share what does not.

The risk to weigh

Fixed obligations are safe in good times and dangerous in bad ones. A carrier that has sold its towers and locked into 15-year escalating rents has less flexibility if revenue falls. The buyer captured real value too; these deals are priced by sophisticated parties. There is no free money, only a reshaping of who bears which risk.

Key Takeaways

• Sale-and-leaseback converts owned towers into cash plus a long-term rent obligation. The cash is real and immediate; the rent is a fixed commitment for a decade or more.
• IFRS 16 and ASC 842 put leases back on the balance sheet, so the deal no longer hides debt the way it once did. The liquidity and risk-transfer rationale survives; the accounting sleight of hand does not.
• Watch EBITDAaL, not just EBITDA. Reclassifying rent into depreciation and interest flatters reported EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition →. EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition → after leases shows the true cash picture.
• RAN sharing goes further than tower sharing, cutting network cost by splitting active equipment, but it draws regulatory scrutiny because it blurs the line between competitors.
• Every deal is a risk trade, not a windfall. Carriers gain a capital-light profile and lose operational control and flexibility. Sophisticated buyers price these transactions carefully.