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.  

 

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

This report is for informational purposes only and should not be construed as investment advice. It is not a recommendation of, or an offer to sell or solicitation of an offer to buy, any particular security, instrument or investment product. Our research for this report is based on current information obtained from public sources that we consider reliable, but we do not represent that the research or the report is accurate or complete, and it should not be relied on as such. Opinions and estimates expressed herein constitute judgments as of the date appearing on the report and are subject to change without notice.  Any reproduction or other distribution of this material in whole or in part without the prior written consent of Steel in the Air, Inc. is prohibited.  Any projections, forecasts, and estimates contained in this report are necessarily speculative in nature and are based upon certain assumptions. No representations or warranties are made as to the accuracy of such forward-looking statements. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results.  Steel in the Air, Inc. accepts no responsibility for any loss or damage suffered by any person or entity as a result of any such person or entity's reliance on the information presented.

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.