GCI is Building Out an Alaskan “Haul” Road with Cell Towers

Kind of fascinating – there are rural areas and then there are rural areas. If you work or live in those rural areas without any cell tower coverage, it can be annoying. But consider going hundreds of miles without any towers. Until recently, this is what truckers driving the Dalton Highway in Alaska have done for some time. However, GCI is building a cell tower in the middle of the route to help the 250 truckers per day that travel the route (and the random tourists). One long gravel road – no cell service – and lots of mountains. See some photos here of how long and repetitive this trip appears to be.   

Even more interesting is that GCI plans on building out more towers along this corridor. I assume they must believe that the roaming fees will be substantial for truckers using the corridor or that truckers who run the route will buy GCI service.  

Dalton Highway Map
A Google map showing the Dalton Highway – all 400 miles of it

Et Tu, Brute? Verizon Appears to Have Hired Accenture to Renegotiate Cell Tower Leases Using Same Tired Threats of Relocation

Photo of Cell Tower
A cell tower with a substantial amount of equipment at the third RAD center
A municipal client, who has multiple public safety towers upon which Verizon is colocated, received a call and letter from a Verizon representative asking for reduced lease rate terms and escalation. The letter is on Verizon letterhead and does not make clear the relationship between Accenture and Verizon but refers to the Accenture employee or contractor as a "Verizon Representative." However, in the email from this representative, the signature block is for Accenture.  We surmise this means that Verizon is using Accenture instead of Black Dot or Md7 to renegotiate its leases. This is disappointing because Verizon has historically chosen not to stoop to these types of misleading negotiation tactics. And lest you think it is because of the ever more competitive wireless industry – Verizon still generates a very healthy 45.7% wireless profit margin.  

The letter states:  

As discussed during your recent call with ________, a Verizon representative, we are currently reviewing our real estate portfolio to assess market rates and trends. To remain competitive and provide the best value to our customers, we propose to modify our site lease terms, based on our knowledge of the market and our analysis of each site as follows:

 

 It further goes on to state (and this is the funny part):

Additionally, for all sites identified in this document, payment of rent shall include the following equipment rights:

  • 30,000 square inches wind load surface area at the RAD center (if available);
  • 10’ tip to tip RAD, if available. If not, space available up to 10’;
  • All you can build fixed fee amendments for the contract duration within the allotted tip to tip vertical and 30,000 square inches wind load surface area;
  • 16 cables;
  • No additional rent or fees for any additions or modifications to equipment throughout the contract term as long as the equipment rights identified above are not exceeded.

If we can't reach an agreement, we will remove you from our relocation list as we continue to evaluate our real estate portfolio.

As always, there is the implicit threat of termination – although carefully couched in language that doesn't constitute an anticipatory breach. So in essence, Verizon wants 30,000 square inches of equipment space in their 10' RAD center along with 16 cables. So no matter how much capacity this reduces on the tower or how much a tower owner would have to pay to structurally upgrade the tower to accommodate it, Verizon expects not to pay any additional fees. Generally, this is ludicrous and no tower owner should ever agree to this loading, regardless of whether they end up negotiating more favorable rent terms, in order to ensure the longevity of the lease. We aren't suggesting that Verizon may not eventually relocate some cell sites, just that it won't be that common and will be reserved for situations where they can save enough money by moving to justify the substantial expense of doing so.   

In this case, our municipal tower owner will be telling Verizon that they can keep their name on the relocation list. There is no chance on any of them that Verizon will end up moving. If you receive one of these Verizon/Accenture letters or calls threatening to renegotiate your lease or relocate the tower, please contact us.  

Research In Progress- Sprint vs. T-Mobile Site Overlap

We are currently working on a bespoke research project for a client where we examine the overlap between Sprint and T-Mobile cell sites.  The merger talks seem to have stalled while Softbank talks to Comcast, Charter, Warren Buffett, and anyone who will listen about merging or investing.   Nonetheless, there is still investor interest in understanding the true overlap of Sprint and T-Mobile cell sites including those that are near each other but not on the same tower.   The public tower companies (AMT, CCI, SBAC) have incorrectly tried to portray their exposure to churn by providing the number of towers they have where there is direct same site overlap.  However, in previous mergers, we have seen very clearly that the merged carrier terminates cell sites that can be as much as 1 mile away from another cell site.    If you have any interest in this research, please contact us.

Map with T-Mobile and Sprint cell sites.
Overlap of Sprint and T-Mobile Cell Sites.

5 Themes from WIA Show 2017

Graphic of sign showing two directions for tower companies and wireless carriers
Tower companies this way- wireless carriers this way.
The Wireless Infrastructure Show is the pre-eminent tower show in the US. The WIA who puts on the show consists of both tower companies and wireless carriers although it has mostly been run by the tower companies. The Show is a great show to get a chance to talk to and hear from people in the field building and operating towers and small cells. Here are the themes that we found most intriguing at the show.

1. Wireless Carriers and Tower Companies Have Increasingly Different Objectives

The dichotomy between what we heard at the show public events and what we heard directly from tower companies during the meeting is greater than we can remember. Whether related to how small cells fit in, the focus of municipal legislation, or how small and mid-size tower companies are now fulfilling the role that public tower companies did previously for wireless carriers, there is a growing divide between what were previously cohesive goals.

2. Tower Companies and Wireless Carriers Don't See Eye to Eye on Small Cell Legislation

While the WIA is supposedly an organization that works for both carriers and tower companies, the dissention between the two is most apparent in the interest both groups have in small cell infrastructure. The tower companies are quick (too quick in my opinion) to proclaim that no macro tower has ever been replaced by small cells all while intentionally failing to acknowledge the displaced Capex budgets for small cells and the declining collocation lease-up for new macrocells. The carriers secretly (or not so secretly) are pushing for small cell legislation that doesn't afford the same protections to public tower companies (or DAS companies) as it does to wireless carriers. As a result, the tower companies now have lobbyists and possibly PACs of their own to push for their own objectives but nowhere near as many lobbyists as AT&T and Verizon have retained.

3. There Are Signs of Tower Crew Shortage Already.

We asked this question over and over and received mixed responses. Some smaller tower companies (presumably those with long term relationships with vendors) indicated that they weren't having any issues. However, we heard from more than one contact that there were notable shortages especially on larger jobs. Considering that nominal repacking from the broadcast incentive auction has commenced and that AT&T hasn't yet released the flood gates of FirstNet activity, we will be watching this trend closely to determine how it impacts revenue expectations by the public tower companies and deployment activity by the wireless carriers. After closely examining the location of tower company towers in each of the 10 phases of repacking for a hedge fund client which tend to be backloaded over the next 3-year period, we suspect that the crew shortage will get worse.

4. The Impact (if not the number of towers actually relocated) of "Rip-n-replace" is Greater Than Expected.

Unsurprisingly, this really wasn't discussed at the public level at all- but 8 out of 10 of our private conversations dealt with the possibility that private tower companies are building new towers near existing towers to accommodate one or more wireless carriers relocating from the existing tower to reduce their rent. While we aren't seeing evidence of a substantive number of actual relocations as of yet, we have received an increasing number of inquiries from landowners who have been approached by one of the eight or so private tower companies who are reputed to be actively engaged in relocation efforts.

More importantly, for the first time, we heard specific and actionable efforts by the public tower companies to counter the possible threat, which tends to suggest that they are more concerned about the threat than they publicly acknowledge.

5. The Tower Industry is Optimistic About Modification Activity, but Pessimistic Regarding New Lease-Up Activity.

At least as it pertains to our checks, the tower industry seems outright gleeful about the increase in modification activity expected in the coming years. Between FirstNet, the Incentive Auction, and TMUS activity, towers should see nice revenue growth from modification activity in the next 2-3 years.

Left unsaid (or in some cases directly said) was the low expectations of collocation lease-up activity in the coming future. While FirstNet may result in some limited number of new collocations, it won't be material. Some of our tower company clients indicated that they have been seeing low lease-up while others are seeing more positive lease-up. There does appear to be a correlation between higher lease-up and to the urban/suburban/rural location of the towers. If you are looking for details on which tower companies have the most urban/suburban/rural towers and which tower companies have the fewest competing structures per tower amongst the tower companies, we recently completed an in-depth statistical analysis on this for a hedge fund client. Contact us for more details.

 

 

 

 

Sprint’s not-so-mini Mini-Macro Problem

Photo of Mobilitie Pole
Sprint-Mobilitie Mini-Macro- This One Was Permitted
Sprint’s partner, Mobilitie, allegedly building mini-macros without adequate regulatory approvals

Tickers: S, AMT, CCI, SBAC

Tags: Ken Schmidt, Wireless infrastructure

Background:

Sprint has dramatically underspent competitors over the past few years, arguing that its superior spectrum position, coupled with its densification efforts, allowed it to serve wireless customers at a fifth of the cost of VZ, ATT, and TMUS.

In our previous note “Sprint Behind the Small Cell 8-Ball (10.26.16)”, we surveyed the top 25 cities and found that Sprint was talking a lot about, but not actually deploying, mini-macros at scale. Subsequently, in “Sprint Shows Signs of Life on Small Cells (04.10.17)”, we noted that increased hiring activity by Sprint’s small cells partner Mobilitie indicated near- to intermediate-term construction activity and that we would watch construction efforts to gauge follow-through.  

Recent Checks: Who Cares About Permits

On May 2, 2017, Event-Driven, a wireless industry news site, published a report claiming that Sprint approved the construction of non-permitted sites. The report includes what appears to be an internal memo from Sprint’s Vice President of Network Development to area development managers regarding a trial enabling Mobilitie to “commence construction on new wireless sites without full regulatory compliance…”  See the Memo here.  While the memo appears authentic, we have not received independent confirmation.

Assuming the memo and its content are real, this memo jeopardizes the timing of Sprint’s mini-macro build-out and densification efforts. If Mobilitie is not following zoning and permitting regulations or is not submitting to the FCC for NEPA, SHPO, and Tribal Consultation as may be required for some new structures, this could increase the timeline for construction of new mini-macros by six or more months.

In the memo, Sprint appears to recognize this. Sprint cites that it was building 33 new mini-macros per week, but that during the trial, new builds dropped to six per week. The memo clarifies that, in the future, Sprint will require that Mobilitie follows all regulatory requirements, and concludes that the “reputational risk” to Sprint outweighs the benefits of proceeding with the trial.

Implications:

We see an increased risk to Sprint’s ability to deploy critical wireless infrastructure, and we reiterate the historically low levels of Capex Sprint has spent over the past few years as a risk to its long-term competitive position. Municipalities in which non-permitted construction occurred will scrutinize Sprint’s (and maybe the industry’s) entire infrastructure portfolio, potentially resulting in take-down orders, fines, and possibly litigation. Sprint may find that the “site count” for this permit-less trial is neutral, or even negative after reviews are conducted by local, state, and federal authorities.

Failure by Sprint and/or Mobilitie to get enough sites “on-air” could cascade in unexpected ways. For instance, Sprint may be forced to revise its network densification strategy to a more tower-centric or traditional-small-cell-centric strategy, benefiting the public TowerCos. Sprint may also be forced to rely upon leased fiber or dark fiber, which could change Opex or Capex respectively.

There are M&A implications as well. Now that the FCC quiet period has come to a close, there is a slight increase in reputational risk that could potentially drive an acquirer, or a target, toward a rival.  However, Sprint’s underspend on the Capex side makes their cash flow look more inviting potentially encouraging suitors. 

Zooming out, this memo, authentic or not, could hamstring industrywide efforts to reduce regulations related to small cell siting.  Perceptions that Mobilitie and Sprint (allegedly) deliberately circumvented municipal regulations imperils petitions to the FCC for relief from such regulations, and the industry’s desired characterization as a “utility” could take longer to achieve, slowing broader CapEx deployments.  

This note was originally published on 5/2/17 to our research clients.  If you are interested in getting more timely access to our research or would like to have a discussion on this note, please contact us.

Sprint’s Really Odd Antenna Configuration Proposal

On one of our municipal client's towers, Sprint submitted a request to replace three existing antennas with new antennas that add 2.5GHz capability to their equipment.  The subject tower is in a difficult zoning jurisdiction and one where Sprint really doesn't have any other options.   Their collocation rent was on the higher side but not unreasonably so- and the three other wireless service providers were all paying the same or higher rent.  

Because the antennas were the same size or smaller, we did not recommend a rent increase for them.  However, Sprint was adding remote radio units and other equipment so we recommended a fairly nominal increase.  Rather than accept the newly proposed lease terms, Sprint instead asked whether they could replace the existing equipment on the tower with three of these antennas and get a reduction in rent. 

Sprint Proposed Canister Antennas
Possible Sprint Replacement Antennas

The proposed antennas are larger than the existing antennas, but Sprint appears to be wanting to go from 9 panels to 3 of these antennas.  (Not 3 of the canisters)  These panels will accommodate all of Sprint's spectrum bands but would seemingly limit their capacity and number of simultaneous users.   These appear more suitable for a mini-macro as opposed to a macrocell, but I would welcome any thoughts readers have regarding this topic.  

At the end of the day, we advised the client that the value of their tower is its unique location, not the specific loading that Sprint is placing or removing from the tower.   Obviously, there will be situations where a reduction in loading or equipment would justify a reduction in lease rate, but this isn't one of them.  

FL State Representative pushes Small Cell Legislation while his City Issues RFI on Leasing City Property for Macrocells

In the Florida House of Representatives, a bill is being pushed through to significantly limit the control that a local municipality can exert over small cell installations.  The bill also limits the fees that a city may charge for access to municipal poles.   

In committee hearings, Rep. Nicholas Duran (D-Miami) said that the “City of Miami actually is the second worst city in connectivity—digital divide—in our state and in this country in many respects, so for me, this is a question of how can we break down this digital divide.”  While the goal of decreasing the digital divide is certainly an admirable one, one has to question how likely it is that small cells will be deployed in areas that don't already have sufficient wireless coverage.   Certainly, increasing capacity in underserved areas is beneficial.   However, the bill doesn't encourage or regulate where small cells are deployed, letting the industry decide on its own where they should go.   One has to question whether this specific bill will remedy the issues related to the digital divide, especially when considering how the wireless companies tend to deploy infrastructure in the areas where they profit most, not where lower income and disadvantaged people reside.  For an example of this, see this article about how AT&T deploys fiber differently to rich and poor areas.  

Simultaneously, Miami/Dade, the combined City/County government in which Rep. Duran resides issued an RFI for the management of City/County owned properties.   This specific RFI has been debated for years.   Various requests and meetings have been put forth to the wireless industry over that time frame with the City/County choosing not to move forward for various reasons.   We previously attended a meeting at Miami/Dade ourselves.  

Image of Miami Dade RFI Request
From Miami Dade Website
The irony here though is hard to miss.  First, in delaying this RFI/RFP process for years, Miami/Dade has missed out on a significant amount of interest in its property.  Secondly, if the Florida legislature is successful at reducing the fee structure for what municipalities can charge for access to their poles, Miami/Dade will not only get far less than it would have without such legislation but it will also reduce the effectiveness of the RFI.   Respondents will have less incentive to respond because there is less incentive for wireless companies to build macrocells on public property if they can use the ROW at virtually no cost.  Furthermore, with the fee cap, Rep. Duran's specific district and its taxpayers will generate less revenue while incurring additional incremental costs from having to manage and maintain poles that were built with taxpayer money but which are being used by private companies for profit.  

Obviously, this is a tradeoff that Rep. Duran and others could have legitimately decided was worth taking.  We aren't trying to criticize him or anyone else for making that choice- just trying to point out how complex the issues related to small cells and densification are for state legislators.   While the wireless industry has been successful at simplifying them to "you are voting against technological advancement", the issues aren't remotely that simple and there will be far-reaching but inherently local impacts for years to come.  

Mysterious Small Cell Pole Erected without Permit- Sounds like Mobilitie

In Penitas, Texas, what appears to be a new small cell pole was erected overnight near a busy thoroughfare.   There is a great news story about this in the video below.  

If you watch the video closely, you will see a small microwave dish at the top which suggests that this is a mini-macro for Sprint, possibly built by Mobilitie.   Six or so months ago, we had heard a rumor that Sprint had ordered a few thousand steel poles but because we couldn't get any other confirmation of this, we didn't go public with that information.   This specific pole looks like it was clearly pre-manufactured and cookie-cutter.  We haven't seen drawings or plan submittals that look like this though anywhere.  

In reviewing the video, it appears that the company installing it has not added panels to the top of the pole but that there are mounts for them.   There is an odd shroud that we surmise may hide additional mounts for other small panels possibly for collocation by other wireless providers.

Another indication that this may be Mobilitie is a post that someone from Mobilitie made on LinkedIn.  (I don't care to call attention to the individual- just the content of the message- he is just doing his job)  

"Went out to the field to kick off our Mobilitie build program. I had an awesome time out in the field again. I miss it from time to time but My office has been very nice to me. Any one in the SE or NE want to be apart of the build program shoot me a message or give me a call. I was able to train a crew and at the same time build 9 sites in 4 days. The money is good even with the rush of the program."

If this pole is Mobilitie's, we expect that this type of news story will occur over and over again in recent months as we wonder whether Mobilitie is attempting to get these poles up and standing prior to the FCC proposed rule-making that will be discussed at the April 20th FCC meeting but not enacted for months.   Our read of the tea leaves is that the FCC will not be granting favorable treatment to 50' and taller poles and will likely require that they meet local zoning requirements.  If this is the case, Mobilitie may be trying to get poles standing in order to avoid potential zoning requirements that may be required in the future for such poles.  We have to wonder whether the entity that constructed this pole submitted and received approval from SHPO/NEPA. The news story says that there was no permit pulled for this pole installation. 

Further potential evidence of this is that Mobilitie posted 170+ jobs across the country just over a week ago- which included construction and network related jobs.  

If our suspicions are correct, there will be many news stories like this in the coming months.  New not-so-small cell poles will be erected "overnight" and municipalities will be left trying to figure out who built them.  

 

 

Verizon Appears to be Rivada Partner in FirstNet Bid

Capture

In examining the summary of the FirstNet/Rivada litigation as prepared by RCR Wireless, there may be confirmation that Verizon was the silent "carrier" partner of Rivada.  Specifically, in the recently made public documents, the court indicated "the first set of deficiencies related to ‘Rivada’s lack of financial stability, capacity, and required funding'” — including the riskiness of Rivada Mercury’s proposal to monetize the excess Band 14 spectrum through a wholesale marketplace, which required robust Band 4 device support in order to be adopted by non-FirstNet customers".   Band 4 consists of the AWS-1 frequencies acquired from SpectrumCo (cable company consortium) by Verizon in 2011.   In other words, Rivada intended to monetize the FirstNet spectrum by adding it to Band 4 (AWS-1) capable phones.   

While many people have suspected that Verizon was working with Rivada, we haven't seen any other evidence of it.  Of course, it is possible that another wireless carrier with AWS-1 (T-Mobile) could have been the partner, but we strongly doubt their participation given the substantial cost of building out a nationwide network to meet the coverage objectives of FirstNet.   Alternatively, perhaps Rivada was hoping for Verizon's participation- but based upon rumors we had heard previously, the discussions were farther along than that.  

Six Sectors for T-Mobile

First 6-sector cell site we have seen from T-Mobile.   Most cell sites have 3-sectors.   The additional sectors are added for capacity- note the LTE and AWS/PCS designations.  

6 Sector T-Mobile Site
A screen clip from a construction drawing of a six sector cell site from T-Mobile.