SBC Spends $5 Million,
Picks Up $1.3 Billion

SBC moves into streaming media as it gets paid to outsource the risk and reward associated with building its wireless network.

by Patricia Fusco ISP-Planet Managing Editor [August 29, 2000]

SBC Communications Inc. Tuesday broadened its product portfolio to include streaming media services by purachasing the audio and video delivery tech firm burst.com, Inc. for $5 million.

But the deal is a drop in the bucket compared to the $1.3 billion in cash and stock that SBC picked up when it agreed to grant long-term leasing rights on 3,900 communications towers to SpectraSite, Inc.

Burstware, burst.com's flagship product, provides high quality delivery of full motion video and CD-quality audio over IP-based networks. The company has built an international patent portfolio covering bursting, video delivery scheduling, and rapid casting.

In addition to gaining Burstware Internet video and audio delivery technology for deployment over its expansive digital subscriber line network, SBC picked up a seat on burst.com's board of directors.

Relationships
Richard Lang, burst.com chairman and chief executive, said the firm looks forward to expanding its relationship with SBC as they continue to roll out their broadband initiatives.

"We are very pleased to announce the $5 million investment from SBC, a company which has made a powerful commitment to delivering state-of-the-art multimedia services over its broadband infrastructure," Lang said.

Tom Kuckelman, SBC vice president of strategic planning said its investment is part of SBC's drive to become the largest single provider of advanced broadband services in the U.S.

"We are making this investment in burst.com because we believe its cutting-edge solution could be a key step toward delivering the highest quality video and audio over DSL," Kuckelman said. "We believe that our investment in burst.com is consistent with our goals."

SBC currently operates more than 61.2 million access lines in the U.S., and its "Project Pronto" national DSL expansion program is on target to launch the Texas-based telecom into an to an additional 30 markets by the end of next year. Its DSL platform is the ideal vehicle for delivering advanced audio and video services.

But wait
But the means to stream media over revved up copper is just part of SBC's plans for bandwidth-hungry wired-line customers in the U.S.

SBC already provides wireless services to more than 12.2 million customers. Its massive deal with SpectraSite allows the wireless communications firm to expand services to the top 50 metropolitan markets in the nation and marks a major milestone for both SpectraSite and the industry.

In order to gain the exclusive rights to almost 4,000 SBC communications towers over the next five years, SpectraSite, a division of SpectraSite Holdings, Inc. is shelling out $983 million in cash and $325 million in common stock to seal the deal.

Under the terms of the transaction, SpectraSite will have exclusive lease rights to 3,900 SBC towers, and will be able to sublease space on the towers to third party tenants. Additionally, SpectraSite has the option to purchase the 3,900 SBC towers at the end of the lease terms.

There's more
SBC Wireless has agreed to sublease space from SpectraSite on the towers for approximately $65.5 million per year. The transaction is expected to close in increments beginning in the fourth quarter of this year, and is subject to customary closing conditions.

SBC's towers are located in major metropolitan markets throughout the nation with significant tower concentrations in Los Angeles, San Diego, San Francisco, Boston, Washington D.C., Baltimore, Philadelphia, Dallas, St. Louis, Las Vegas, Chicago, and Cleveland.

When the deal is done, SpectraSite will control over approximately 9,000 towers in the U.S., clustered in metropolitan markets. It may cement SpectraSite's position as the leading tower provider for wireless services to the top 50 metropolitan markets.

Jim Kahan, SBC senior executive vice president of corporate development called the deal a "win-win" for both parties.

"This is a deal that has significant financial benefits for both parties, capitalizes on their respective core strengths and creates a long-term, strategic relationship between SBC and SpectraSite," Kahan said. "We're confident SpectraSite has the expertise and network operating capability to manage our tower assets. We've received great feedback directly about their performance from their other customers."

Stephen Clark, SpectraSite chief executive officer said the deal with SBC is not just about transforming the company. Clark said the transaction would impact the entire wireless industry.

"It strengthens our position as the undisputed leader in the top 50 metropolitan markets, and gives us the critical mass to be a long-term winner in this business," Clark said.

More money
Clark said that when combined with its Nextel and AirTouch portfolios, currently held by Verizon, SpectraSite would be the tower provider of choice for any wireless carrier looking to launch or expand coverage in a major U.S. market.

Besides premium location, the SBC towers have an average capacity of 3.75 tenants per tower, which represents the potential for extremely attractive recurring revenue stream on a per tower basis for SpectraSite.

The transaction represents tremendous long-term value for SpectraSite because it includes an exclusive agreement to build or buy all of the new towers required by SBC over the next five years.

SBC estimates that the build-to-suit agreement will include a projected 800 towers.

But SpectraSite executives anticipates that the tower total will be much higher, because SBC is at the forefront of the wireless industry in terms of new technology rollouts.

Tim Biltz, SpectraSite chief operating officer said its existing portfolio, combined with SBC's portfolio and the exclusive build-to-suit agreement bolsters puts SpectraSite in the perfect position to take full advantage of the explosive growth in the wireless industry.

"Wireless usage is highest and new applications are rolled out first in the major metropolitan markets," Biltz said, "which means demand will continue to be the greatest in these markets. SpectraSite is in an unparalleled position to capitalize on the growth of existing technology and the introduction of new technologies in the wireless industry."

SpectraSite
Based in Cary, North Carolina, SpectraSite is one of the leading providers of shared antennae sites and outsourced network services for wireless communications and broadcast industries in North America. It owns or manages more than 15,000 sites, including 3,474 owned towers, in 98 of the top 100 markets in the U.S.

At the close of the SBC deal, SpectraSite is set to own or manage more than 20,000 sites, including nearly 9,000 towers for wireless communications providers.

—End