Are Three Towers Really Necessary?

Zoning Board Questions Whether They Should Be Forced to Allow Three Towers Within 300' of Each Other

First- start by reading this news article about how the Cape Elizabeth, ME planners are dealing with a request from Tower Specialists to build a new tower near an existing Crown Castle tower that has already been slated to be torn down and replaced with a new tower on the adjacent property. In the image below, the site to the right is the existing Crown Castle tower which the article indicates will be torn down in 2019. The location to the left is the new Crown Castle tower.

Why would Crown Castle tear down an existing tower and build a new one next door?

Because they couldn't come to agreeable terms with the existing landowner to extend their ground lease on the existing property. We are contacted regularly by landowners for proposed Crown Castle leases and the first thing we look at is whether there is an existing Crown Castle tower near the proposed location to see whether this is occurring. Most of the time we find that there are existing towers nearby. In some cases, Crown is moving the tower because the existing owner is seeking too high of a lease rate for an extension of the lease or because they are no longer willing to lease their land for a tower. In other cases, the existing tower needs substantial structure modifications to accommodate additional equipment and it is cheaper over time from a Capex and Opex standpoint to build a new tower. And in rare cases, we believe Crown Castle will build a new tower out of spite because they don't like the landowner.

To make this even more interesting, if you look at the image below, you will see that there is a second tower on the same property. The Crown Castle tower appears to have 3-4 wireless carriers collocated on it, while the other tower has 1-2.  Apparently there are 6 towers on the subject property including some smaller ones not visible in the photos. 

So, I Get Why Crown Castle Is Building a Tower, But Why Is a Third One Proposed?

Good question. We heard directly from the property owner who is also a tower developer.  He shared with us that he did tell Crown that the family wasn't going to renew the lease.  He proposed the new tower after Crown submitted to relocate the existing tower on the adjacent property.   

The property owner in the article suggests that the carriers all want to be at 180' (even though only one carrier was at that height previously on the existing tower).  The Town Board has required him to come back with detailed RF propagation maps that show that the carriers all have to have 180' as justification for a third tower here. While I am sure that the property owner can find a radio frequency engineer that will provide maps that purport to show a difference – there really isn't a significant one between 170' and 180' especially since those carriers who are lower than 180' on the existing tower already built the nearby cell sites in their network to match up with the coverage from this tower and vice versa.  

How Do Landowners Know if They Are Pushing Too Hard?

Unfortunately, signing a backup lease with an adjacent property owner is now standard operating procedure for tower companies when negotiating an extension of an existing tower lease. The tower companies will take the term sheet they negotiate and show it to the stubborn  landowner as demonstration of their willingness to move the tower. For landowners who are approached for a new lease, we advise they consider the possibility that they will spend time negotiating and finalizing a lease and money on hiring an attorney or a consultant or both to review the lease while not getting anything in return. For landowners who have an existing tower on their property, the "equation" for whether you are asking for too much is a difficult one because it depends upon the following variables:

1. Cost to relocate the tower

2. Probable lease rate on alternative site location

3. Probability of success of getting zoning and other regulatory approvals

4. Ownership of the tower (does the tower company own the tower or does the carrier)

5. Number and identify of carriers on the existing tower

6. Time remaining until expiration

7. How much you are asking for

8. How difficult you have been to negotiate with in the past

Whether you have been approached for a new cell tower lease near an existing tower or you have an existing tower lease where you are negotiating for an extension, we can help. Give us a call to discuss further or contact us here.

 

 

 

Akron, OH May Sell Water Tower and Cell Tower Ground Leases

 

The City of Akron has decided to sell its cell tower and water tower leases to Everest Infrastructure Partners. Curious who they are? The founders are previously from Tristar Investors- a company that purchased easements under tower company towers in order to sell them back to the tower companies. I can’t say whether Everest has the same business model. What is interesting though is that Everest paid a pretty penny for these assets.

 

Why Cities Should Think Hard Before Selling Leases

 

Typically, we advise cities against selling their leases because the sale limits the ability of future city councils to use the underlying properties as they see fit. For example, in this case, the City of Akron won’t be able to tear down these water towers at the end of their life or redevelop the underlying properties where the towers sit. That may not be an issue in this case depending upon the location and age of the properties/water towers. We also advise against selling of leases because the buyout offers for the leases aren’t nearly as high as what Everest Infrastructure Partners paid here. With this type of multiple of cashflow, this transaction is more like that of a tower acquisition than a traditional lease buyout. That’s because Everest gets the current and future revenue from these structures and properties that were sold and the City gets none.

 

But Cities May Not Have a Choice

 

Of course, there are many cases where cities like Akron don’t have another immediately accessible source of funding that doesn’t require raising taxes and must turn to liquidating assets like these cell tower leases. Here the City of Akron was facing a significant cash crunch. We have worked with two other Ohio cities that also ended up selling their leases. In both cases, they evaluated whether the location of the tower or water tower would potentially impact future expansion or development plans. After evaluating the potential sale, they determined that they could live with the future obligations.

 

The Lease Buyout Market is Back

 

Another point of interest is that the lease buyout market is getting frothy- we are seeing more entrants and higher offers than at any time in the last few years. For example, we just received a call from a company that had shut its doors and has now found funding to buy leases again. If you are considering selling your lease, it may make sense to look at doing it now. If you need to know more about lease buyouts- we have a very handy and complete website about the subject- www.celltowerleasebuyout.com.

 

Give us a call and we can help you ascertain the market value of your lease and walk you through the options related to selling.

Desperate to Get Back at the Tower Companies: The Verizon, AT&T, and Tillman Infrastructure JV

Aerial photo showing tower locations
Tillman Infrastructure Builds Next to American Tower
Yesterday, in a surprise press release by Verizon, Verizon indicated that it had formed a joint venture with AT&T and Tillman Infrastructure to develop "hundreds" of communication towers with "the potential for significantly more new site locations in the future".  Tillman Infrastructure is relatively new to the US- but owns a few thousand towers in Asia.  The press release further states that "These new structures will add to the overall communications infrastructure in the US, and will fulfill the need for new locations where towers do not exist today. They also will serve as opportunities for the carriers to relocate equipment from current towers."  

"WHERE TOWERS DO NOT EXIST TODAY" – REALLY?

Our landowner clients have been contacted by Tillman Infrastructure for placement of new towers on their property. However, despite Tillman's claim to the contrary that the towers will be built where towers do not exist today, virtually all of the proposed Tillman towers we are seeing or hearing of appear to be near existing cell towers.  In other words, Tillman is building new towers right near existing public towerco towers because AT&T appears to be unwilling to continue paying the higher rent that they are paying on an existing tower. The requests that we have seen are primarily in rural areas, presumably where ground rent will be cheaper and where there is no zoning to prevent the proliferation of towers as being proposed by Tillman. (How do we know?  Because we maintain a comprehensive tower location and lease rate database and can easily look up the location of other nearby towers and in many cases identify specific tenants on those towers.) 

VERIZON ENTERS THE FRAY

The first interesting aspect of the press release is not that Tillman is out building collocation replacement towers for AT&T on a build-to-suit basis, but that Verizon issued the press release.  This strikes us as a clear attempt by Verizon to enter a fray between the tower companies and the carriers where historically their public opposition has been muted.  We have already noted Verizon's reluctance to collocate on public tower company towers in the past- this is another option. However, we suspect that there isn't much of a commitment on Verizon's behalf other than that they will consider relocating to new towers from existing towers where Tillman can make them a much better offer than what they are paying already on the existing tower. To us, this press release suggests that neither Verizon nor AT&T has been successful at convincing the public tower companies to adjust their Master Lease Agreements (MLAs) significantly and that both companies are now trying publicly (desperately?) to damage the public tower companies by trying to impact their market valuation.  (SBAC dropped slightly yesterday while AMT and CCI were both relatively unimpacted.)   We suspect that previous negative comments by all the carriers during previous industry conferences and during earnings calls have been ineffective at changing deal terms in the MLAs and investors were not treating the threats seriously because the economics of building a single tenant tower on inferior build-to-suit terms are poor.   However, if both Verizon and AT&T are willing to move from an exisitng tower, suddenly the economics for the proposed tower become more attractive to the build-to-suit partner.  

ONLY A FEW HUNDREDS TOWERS?

The second interesting impact of this note is that it specifically calls out that the agreement is for a few hundred towers.  We struggle to understand why any of the three companies (except Tillman) would want the investment community to know that it is only a few hundred towers that are being considered currently.  While there is a veiled suggestion that it could be more, this press release would have potentially had more impact on investors had it been silent on the number of towers being considered.  A few hundred towers is a drop in the bucket for any of the public tower companies.  

Clearly there are benefits to AT&T and Verizon of relocating. Not only do they save rent, but they also avoid costly modification upgrade fees and possible structural modification Capex on the existing tower to accomodate additional equipment.   With FirstNet on its way, AT&T likely sees this as an alternative to dealing with the tower companies.

If you are a landowner who has been contacted by Tillman for a tower on your property, please contact us and we can help you evaluate their offer and whether you have room to negotiate and if so, by how much.   We will review whether there is an existing tower in the area and if so, whether there are other properties besides your that Tillman can select.  Please note that Tillman has advised our clients that if they get a consultant involved with negotiating the lease, that Tillman will take their tower elsewhere- so don't tell them we are involved.  There may be a time where it makes sense to do so though, at which point, we will advise you to tell them.

If you are an investor who wants to know more about specific areas of focus for Tillman, estimates of how many sites Tillman is pursuing, and which tower companies seem to be targeted more than others, please reach out to set up a paid research call.   We can also intelligently discuss the financial justification for moving and what amount of rent savings justifies relocation.  We can also discuss how the public tower companies will combat these efforts and when they will be effective and when they won't.  Lastly, Tillman isn't the only company focused on collocation relocation build to suit efforts – its just the first one that has gone public with its endeavor.  

 

Not So Fast- California Governor Vetoes Small Cell Bill.

Small cell in San Francisco
Sunday night, California Governor Jerry Brown vetoed a contentious statewide small cell bill (SB649) which is one of many similar bills already passed in eleven other states. The bill would have removed local control over the placement of small cells and would have limited the fees that municipalities could charge for access to municipal pole infrastructure to $250/year.

This veto is fairly significant as the legislation has sailed through most other states without much influential opposition. The wireless industry has been targeting states for such relief from what they deem to be costly and time consuming small cell jurisdictional review and fees. In our opinion, the FCC seems to prefer that states regulate the fee structure but may choose to preempt local siting restrictions and approval process. AT&T has been the primary proponent of these statewide initiatives and has brought to bear a very well-financed and aggressive lobbying campaign at the state level to help push such legislation through.

The bill can still be pushed through with a 2/3rd majority in both assemblies. The bill passed the Senate by a 22 to 10 margin with 8 votes not recorded. The bill passed the Assembly with a 46 to 16 margin with 17 votes abstaining. If the vote occurred today with the same members voting as they did before, they would override the veto. Historically though, the California legislatures have been unwilling to override Governor Brown’s vetoes.

Why is this significant?

• California has more cities with difficult zoning that almost any other state in the US.

• California is near the top in terms of average small cell fee. This is not surprising given #1.

• California represents 12% of the US population. If one assumes a conservative total of 500,000 small cells to be deployed in the US and assumes that deployment will follow population, 60,000 of them will be deployed in California. Rates for small cell leases in California typically are 10 times higher or more than what the bill allowed at $250/year.

• Small cell deployment tends to follow areas of dense population. Of the densest urban areas of over 1,000,000 population, the top three are in California with five total in the top 10.

Before you assume though that this portends poorly for other statewide initiatives, we are cautious to point out that California cities tend to be more influential in statewide politics and that the opposition to the small cell legislation was by far the most organized and substantial as compared to that in other states.

Impact on Carriers (T, S, VZ, TMUS)

Despite industry rhetoric to the contrary, this won’t stop 5G nor will it prevent deployment of advanced technologies in California. None of the wireless carriers will allow California wireless throughput or quality of service to languish while customer’s churn to the best network in their area. However, this will delay deployment of small cells in California vis-à-vis other states that have passed small cell legislation although we don’t expect the delay to be material. There will be a negative impact on Opex for all carriers if the veto is not overridden and another bill is not passed in its place.

Impact on OEMs and E&C Companies (COMM, NOK, ERIC, MTZ, DY)

OEMs and E&C would have benefitted from the looser regulatory environment in CA both in terms of timing and amount of small cell and fiber investment. Ultimately, small cells will be deployed but perhaps in fewer numbers.

Impact on TowerCos (AMT, CCI, SBAC)

There will be a slight improvement on lease-up in California for the public tower companies as wireless carriers may choose to add short-term capacity via new macrocells on towers and existing structures as the Opex for a small cell stays higher relative to the Opex of a macrocell.

The Real Reason T-Mobile Increased Its Data Cap to 50GB

(Guess what – it isn’t because they feel their network can handle it!)


T-Mobile recently increases their data cap to 50GB before deprioritization occurs. For those who aren’t familiar with the difference between throttling and deprioritization, each of the wireless carriers has a cap on the data usage under their unlimited plans. Some carriers will simply throttle your data use to 3G speeds when you reach the cap, while others will deprioritize your data requests below other users who have not exceeded the cap especially in areas where there is network congestion. These caps are:

AT&T–     22GB

Verizon–    22GB

Sprint–     23GB

T-Mobile–    50GB (up from 32GB)

Some analysts have speculated that this is indicative that T-Mobile has a better network and believes that the additional GBs won’t impact T-Mobile as much as it would the other carriers. We tend to see this differently and point to a seemingly unrelated recent article in Fortune about how T-Mobile was asked to stop making fastest wireless data speed claims. We won’t bore you with an explanation of the actual testing mechanisms, but suffice it to say that every carrier (except Sprint) selectively chooses between various wireless testing sites and apps and pick and choose the results that best meet their advertising needs. At the end of the day, wireless is highly local for most people, and it really doesn’t matter who is the fastest everywhere else, only who is the fastest in the area that you use your device in. Furthermore, we doubt that very many people feel that LTE isn’t fast enough for virtually everything they want to do on their device other than 4K video which candidly, who cares if you can see 4K video on your phone or iPad?

Nonetheless, for T-Mobile, they can’t make the claim that their network is more reliable nor can they make the claim that they have the most coverage. So, they have to push other tangibles- like the fastest network. Make no mistake, T-Mobile has done a wonderful job of building out their network and adding faster LTE and carrier aggregation. They also are aggressively expanding to get closer to Verizon in terms of overall coverage. But we don’t believe for a minute that they believe that their network can over the longer term sustain 50GB per user per month. Fortunately, the average smartphone user in the US only uses 4GB per month, so increasing to 50GB only puts a small amount of strain on the network, at least until the average users with unlimited starts to really use it as unlimited.

What T-Mobile really stands to gain from this move is that it increases the average speed across their network especially on users that have used between 22GB and 50GB and possibly even though that use more than 50GB in non-congested areas. Because the other wireless carriers throttle users at lower amounts, throttling to 3G decreases speed by a factor of 1/4th to 1/5th as compared to 4G. This delta will increase over time. So, by increasing the cap, T-Mobile effectively increases the average data speed, thereby perhaps enabling them to claim once again that their network is the fastest. We wish that the testing companies would just start providing information on unthrottled and throttled performance for average speed separately so that consumers can make an informed decision. If the average person uses 4GB per month, why should they care what the average speed on a throttled plan?

Fundamentally though, this is good for landowners, tower companies, OEMs, and engineering and construction companies. Any increase in the amount of data before throttling or deprioritization increases use of the networks- and increases in the use of the networks require additional capacity which ultimately yields more site deployment and modification work.

Sprint T-Mobile Merger? Who Wins and Who Loses


It looks like the Sprint/T-Mobile merger rumors may be serious this time. Reuters suggests that the parties are close to finalizing a merger. Obviously, we have been down this road before- Sprint and T-Mobile are the Sam and Diane of today’s wireless world. Everyone knows they will eventually try to get together, but their personalities are pretty diametrically opposed. This time though, reports seem to suggest that there is more to today’s round of talks than previous ones and that the parties are closer to a deal than ever before.

We can’t forget that any merger will need to be approved by the FCC and the DOJ. Personally, I suspect that the DOJ will be tougher to get approval as the FCC seems to be positioning itself to approve this type of merger already. For proof of this thesis, look at the 2016 Wireless Competition Report- the first one in a while that came to the conclusion that wireless is competitive in the US and one where the FCC selectively chose widely varying timeframes to prove the point they were trying to make in each section of the review. The DOJ though doesn’t have to agree though, and it is hard to suggest that consumers will remotely be better off by a combined Sprint and T-Mobile merger- especially after seeing how wildly successful T-Mobile has been as the Uncarrier in almost singlehandedly creating new competition in the wireless sector.

FORESEEN CONSEQUENCES

This has obvious negative consequences for OEMs, wireless engineering and construction companies, tower cos, and landowners/site owners.  We know because we have the first-hand experience in dealing with previous mergers. Like AT&T/Cingular, Sprint/Nextel, Verizon/Alltel, Sprint/Clearwire, T-Mobile/MetroPCS, and AT&T/Cricket. All these mergers occurred after we started Steel in the Air.

We helped numerous landowner clients deal with the initial rounds of threats from the combined entity that they would terminate the ground lease if the client didn’t agree to revised terms. We advised private tower owners who were in the process of selling towers on newly revised (and lower) offers they received from prospective buyers after a merger was announced. We provided guidance to private equity on tower portfolio valuations both prior to and after failed and successful mergers. We tracked how many leases were terminated and how many sites were decommissioned. We observed how the wireless carriers reviewed their portfolios and which sites they ended up choosing to terminate. We watched new construction activity from the merged carriers abate for some time while they figured out what sites to keep or not and what additional sites they needed. And we observed what happened when they did start constructing again.

BUT…TODAY’S WIRELESS ENVIRONMENT IS DIFFERENT

All beneficiaries of new wireless construction (OEMs, Towercos, E&C companies) like to suggest that there is increased site development after the merger. They allude to the fact that they increased site counts after previous mergers. However, none of these companies directly address the loss of future business or growth that would have occurred if there had been no merger. Nor do they point out that today’s wireless environment is different and the merger of these two companies will be different if it occurs. How so, you ask?

1. Macrocells are no longer the only means of meeting capacity demands. Furthermore, in most of the previous mergers, there wasn’t the same amount of overlap in macro cells as there is today on Sprint and T-Mobile’s networks. We are currently working on an analysis of the exact amount of overlap between the two networks in areas of the country where we have data with all or most of the Sprint and T-Mobile sites in an area. We will examine same site overlap and adjacent site overlap in this study as we found in previous mergers that some sites as far apart as 1 mile were terminated.


2. Both networks already cover most urban and suburban areas– so macro sites won’t need to be kept for coverage reasons as they might have been in previous mergers.

3. Previous mergers were more difficult to complete than this merger due to different technologies used by each carrier in most of the mergers. Today’s environment is mostly LTE- with the focus of going all LTE. Sprint legacy CDMA subs and T-Mobile legacy GSM will need to be addressed- but much easier today than it was for Sprint CDMA and Nextel iDEN.

4. Sprint hasn’t been doing a lot in the last two years from a CapEx perspective- but T-Mobile has. We anticipated an increase in wireless CapEx in 2018 primarily driven by new Sprint work- but that won’t occur now. E&Cs and OEMs will lose this anticipated upside, making existing carrier contracts more valuable and new ones more competitive, ultimately driving down margin after an initial spike from decommissioning activity.

5. For Towerco’s, the loss of a fourth active NATIONAL carrier has a significantly greater impact overall as compared to the loss of a fifth or sixth active REGIONAL carrier. The margin in operating towers increases with each additional wireless carrier on the tower. Decrease the number of carriers and not only do you decrease the revenue but you decrease the margin.

SO, WHO BENEFITS?

Personally, I struggle to see how consumers benefit and the investment community must agree with me as AT&T and Verizon’s stocks both increased after the new rumors came out. Investors anticipate that both companies will be able to increase their pricing with lesser competition from two smaller competitors trying to grab market share.

Sprint benefits the most. With their primary focus over the last two years being cleaning up their P&L and balance sheet in anticipation of a merger, their network has suffered. As a result, they either had to start spending or merge. T-Mobile will gain subscribers and scale.

Free market proponents will benefit, especially those that think that the market should dictate competition, not regulatory entities.

Will Apple’s New iPhone X and iPhone 8 Work with all your Wireless Carrier’s Frequencies?

So, with great fanfare, the iPhone X and iPhone 8 were announced yesterday. The phone display looks amazing while it remains to be seen whether the new features on the phone are as game changing as Apple presents them to be.


As the features on each phone are widely covered already in virtually every newspaper and blog, we decided to focus in on the wireless tech inside the phone, namely the wireless frequency bands which Apple decided to support in the devices. The technical specifications list the following frequency bands as being supported.


Note the two models (A1865, and A1901)- one of which will accommodate CDMA and the other one which does not. As the note indicates, CDMA is used by Verizon and Sprint, although both companies are converting now or will convert from CDMA (2G/3G) to LTE (4G and soon to be part of 5G) entirely in the near future. Unfortunately, this list is difficult to decipher, so we put together this chart to help illustrate which bands are on the iPhone and notably, which ones are not for each of the Big 4 wireless carriers here in the US. This chart shows what LTE bands each wireless carrier uses in the last 4 columns and which LTE Bands are supported or not in the On New iPhones column. If you aren’t familiar with LTE, see this article that explains it further.


List of carrier bands in use are from this chart at Phone Arena.com– also, LTE Bands came from Wikipedia

So, what does this chart tell us? It tells that most LTE frequency bands used in the US are supported by the iPhone 8 and iPhone X. In other words, your new and shiny iPhone 8 or iPhone X will work on the majority of all LTE bands. The only two bands not supported are AT&T’s FirstNet 700MHz spectrum and T-Mobile’s (and other smaller carrier’s) 600MHz spectrum that they recently won in the Broadcast Incentive Auction. In other words, public safety users won’t be able to use the phone to connect to FirstNet. As it pertains to T-Mobile, while you will be able to connect to their 700MHz and PCS/AWS frequencies, you won’t be able to have as fast speeds in rural areas due to the lack of inclusion of 600MHz frequencies. Without making this article too technical, the more frequency bands available to your phone, the more simultaneous sets of data that can be sent back and forth. This is known as carrier aggregation, and it is what allows carriers to provide faster and faster throughput speeds to your device.

We suspect that Apple chose not to include these frequencies in the phones primarily because neither set of frequencies has been deployed on any scale, so users aren’t inclined to complain if they aren’t available. We anticipate that Apple will include Band 14 FirstNet frequencies in the next iteration of the phone, but the absence is notable especially given the number of public safety users that are potential subscribers on the AT&T/FirstNet network.

Is This a Small Cell or Just a Small Macrocell?

Verizon pole attachment in Arizona
What appears to be a macrocell attached to a utility pole.

So in this article about Verizon attachments to Arizona Power (APS) utility poles in the Phoenix market, it is interesting to see how Verizon is installing a 6-panel array on top of utility poles. Also interesting is that Verizon is leasing ground space adjacent to the pole from the nearby landowner for their equipment space. Given the size of the equipment space, it appears that this is a macrocell.  However, the APS representative states that this is being treated as a pole attachment under the FCC pole attachment rate schedule.  I am surprised that APS allowed this large of an installation to be placed on the pole for the nominal FCC pole attachment rate.   

It is hard to tell whether the antennas would fit within a 6' cubic space that is allocated within the Arizona small cell law for antennas.   There is a better photo of the equipment and pole inside the article.   The City of Phoenix is pretty favorable to pole attachments in general, so whether it meets the 6 cubic feet of space limitation or not may be immaterial.  However, in other jurisdictions, this installation may not be approved administratively under the state law.  

AT&T’s Brilliant Strategy to Double Dip from Public Funding to Build a Better Wireless Network (Investor Research Note from Steel in the Air)

 

We have been getting a lot of questions from investors related to FirstNet equipment and the potential impact on TowerCos, with most questions pertaining to the timing and revenue from amendment activity from FirstNet antenna modifications. You may recall that in AT&T FirstNet Revisited, we reviewed the impact of AT&T winning the FirstNet RFP and the impact on TowerCos, Equipment OEMs, and FiberCos.  We believe that investors may understand and appreciate AT&T’s one-truck roll concept for modifying existing cell sites, but we don’t believe that they understand how AT&T will “double dip” by using both FirstNet and CAF II funding to reduce Opex and Capex related to legacy wireline assets and to more effectively compete in rural areas with satellite broadband providers and even MSOs.  

FirstNet Update

As of 8/17/2017, 12 (editors note- it is now 15) states and the USVI have opted into FirstNet. Noticeably, many of the larger more populous states have not signed up yet, and AT&T needs additional State-level “wins” before declaring FirstNet a success. For a list of states, please see the chart at the end.  The deadline for Opt-in/Opt-Out decision by states is the middle of December, so we see a key indicator of FirstNet activity being large-State adoption in late Q3 and Q4.  

To date, our checks continue to indicate that there has not been any substantive activity on the deployment front. Our private tower company checks are indicating that they have not entered into lease amendments for equipment modifications, and none of the public tower companies or OEMs are reporting guidance related to FirstNet as of yet.  We did see our first AT&T modification request to a client for an existing macrocell which included FirstNet specific antennas and modifications.  If you would like to know more about the size and capabilities of these antennas and the probable impact on public TowerCo leasing revenue, please reach out to your Detwiler salesperson.  

Connect America Fund II and Fixed Wireless LTE

To encourage the build out of rural broadband, the FCC authorized grants to provide broadband services of at least 10 MB/s down and 1 MB/s up.  In 2015, AT&T accepted a grant of $427M per year over six years to build out broadband services to 1.1M rural subscribers, approximately 70,000 of which are connected currently. AT&T indicated that it expected to use WCS (2.3GHz) spectrum to meet these requirements and that buildout would occur between now and 2020 in 18 total states. To see which states are part of the CAF II funding, please see the chart at the end of this note.   

Fixed wireless broadband for AT&T works by connecting to standard AT&T LTE base stations and antennas. A fixed antenna is professionally installed on the roof or the side of the residence or business being served. AT&T commits to providing 10MB/s to the end user, the bare minimum to meet CAF II funding requirements, although we anticipate that AT&T will adjust the throughput dynamically upwards if there is excess capacity at the subject cell site.  

Service runs $60/month and includes 160GB data bucket with additional 50GB blocks available for $10/month. We anticipate that AT&T carefully chose this amount of data in order to encourage purchase of DirecTV bundles. Fixed wireless plans are separate from mobile wireless plans.   

Implications for AT&T

AT&T has consistently discussed the value of deploying FirstNet along with fallow AWS and WCS spectrum. They refer to this as a “one-truck roll”, meaning that they only have to visit each cell site to be modified once. This reduces amendment costs and time delays.  Given the reliance on WCS spectrum for CAF II rural fixed wireless broadband, it makes a lot of sense for AT&T to focus on those areas where it expects to have to meet both CAF II requirements and FirstNet coverage requirements. Furthermore, to the extent that AT&T continues to effectively lobby state utility commissions to allow it to abandon landline service as fixed wireless takes over, AT&T benefits from reduced operating expenses from costly to maintain copper landlines.   

Implications for TowerCos 

Previously, we indicated that TowerCos would benefit from the award and nothing has changed in that regards other than the delayed timing of guidance from the TowerCos related to FirstNet. As we start to see our first modifications, we see slightly larger antennas than we described in previous notes, which could support the higher end of the range on modification revenue. We anticipate that AT&T will focus on modifying existing sites as opposed to new collocations on public tower company towers so most of the opportunity for the public TowerCos will come from modification amendments. As we addressed in Rip-n-Replace- When Moving Off One Tower to Another Makes Sense (private note, if interested, please contact us), we expect that AT&T will utilize private build-to-suit companies for new site locations instead of collocating on existing public tower company towers, even if it means building a new tower next to an existing tower.   

Implications for Satellite 

One of the more regular questions we receive from clients focused on VSAT and SATS is regarding the impact of rural fixed wireless broadband and the scope of expansion by MNOs and other entities into those areas predominantly served by satellite broadband. Specifically, whether the economics are justified for MNOs to expand into rural areas. While the economics may not be sufficient based solely on providing broadband services, the calculation changes when the FCC or FirstNet starts to fund part of that buildout. At this point, we don’t know the total addressable market of current satellite only subscribers that would potentially churn to AT&T service. Stay tuned though as we are working on a bespoke research project looking specifically at the extent to which fixed terrestrial wireless could supplant the need for satellite broadband services.  

 

STATE BY STATE LIST OF LAND LINE, CAF II, and FIRSTNET ADOPTION AS OF 8/17/2017

 

 

Important Disclosures

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Verizon’s Tricky-Tricky Cell Site Lease Assignment Language

Verizon sign/logo on building

We applaud Verizon for their interest in preventing their leases from being sold to third parties like lease buyout companies.  It is understandable that Verizon (along with other wireless carriers) would prefer not to have an informed third party purchase the rights to a Verizon ground or rooftop lease.   Having to work through a lease aggregator or whomever that lease aggregator sold their tranches of leases is difficult and time-consuming and likely exposes Verizon to increased cost because the aggregator is incentivized to maximize the rent.   To that end, we have heard of litigation between wireless carriers or tower companies and third party buyout companies who unreasonably withhold consent for modifications.  

However, in Verizon's newest template lease, they have gone too far.   For some time, Verizon has had a Right of First Refusal (ROFR) clause in their lease which prevents a landowner from selling the lease without giving Verizon the right to match the offer.  While we don't like the Right of First Refusal clause, we can accept it with some changes that limit the scope of the ROFR.   In their most recent lease template though, Verizon has added language that would make it difficult if not impossible for a landowner to assign the lease or sell the lease to a third party EVEN IF Verizon chooses not to match someone else's offer.  

Without any approval or consent of the other Party, this Agreement may be sold, assigned or transferred by either Party to (i) any entity in which the Party directly or indirectly holds an equity or similar interest; (ii) any entity which directly or indirectly holds an equity or similar interest in the Party; or (iii) any entity directly or indirectly under common control with the Party.  LESSEE may assign this Agreement to any entity which acquires all or substantially all of LESSEE's assets in the market defined by the FCC in which the Property is located by reason of a merger, acquisition or other business reorganization without approval or consent of LESSOR.  As to other parties, this Agreement may not be sold, assigned or transferred without the written consent of the other Party, which such consent will not be unreasonably withheld, delayed or conditioned.  No change of stock ownership, partnership interest or control of LESSEE or transfer upon partnership or corporate dissolution of either Party shall constitute an assignment hereunder.  LESSEE may sublet the Premises in LESSEE’s sole discretion.

In other words, Verizon is saying:  "If you get a poor offer to buy the lease that we want to match, we will. Conversely, if we don't want to match, we will not match and then we will decline to consent to your sale of the lease so you can't sell it anyway."   This is a crappy deal and we advise all landowners to remove the anti-assignment language from the lease.  If Verizon doesn't want you to sell to a third party, great.  They can opt to buy the lease directly; if not, they shouldn't be able to prevent you from selling to someone else.   Landowners who agree to this language will end up devaluing their leases as buyout companies won't make offers on leases that aren't assignable.