Md7 Sending AT&T Renegotiation Letters- without Disclosing Letter is from Md7

We had heard previously that AT&T wasn't willing to allow lease optimization firms to send out letters on its letterhead without disclosing that the letter did not include actually come from the AT&T.   A client just received a letter though that clearly does not include anything identifying that Md7 (a lease optimization company) is involved.   We assume that Md7 is involved because the address on the letter as shown in the letterhead below

just happens to match that of Md7's offices.

The letter is the same as many other letters that are going out predominantly to private tower owners and municipal tower owners indicating that AT&T may extend or terminate the lease at the end of the current term and that AT&T is implementing a new program to "evaluate terms and conditions of all leases coming up for renewal, explore advance renegotiation options and consider alternative site locations." (emphasis added)   AT&T further requests that the tower owner: 

It appears that Md7 and AT&T have decided to remove any indication that Md7 is involved here altogether (except for the address).  Is that because the renegotiation efforts have been unsuccessful otherwise or is AT&T just looking to ratchet up the heat on tower owners to remove the opportunity for rent increases due to possible FirstNet modifications?  How many times can a company threaten to terminate a lease but not actually terminate it before owners just completely ignore the requests?   AT&T knows and based upon the fact that they keep sending the letters, there must be some tower owners that accept the revised terms with each round of letters.  

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.  

Want a Kinder Less Aggressive Tower Company Leasing Specialist? Just Fill Out a Survey!

Image of surveyOne of our client's called us yesterday to let us know that they had been beleaguered by a tower company rep who was perhaps too anxious and aggressive regarding a lease extension for a lease that wasn't set to expire for another 8 years.   This particular client has a Mona Lisa tower- a phrase American Tower used previously to refer to 4-6 carrier towers.   In other words, it wasn't going anywhere.   For some reason, the tower company rep felt that being aggressive and making all kinds of threats to move the tower and to cease discussions would make the landowner agree to the proposed terms.   

The landowner received a survey from the tower company- a generic one that asked about how the landowner felt about the tower company and whether lease payments were coming on time.   The landowner filled out the survey and added comments at the bottom that he didn't appreciate the rep's aggressive nature and angry demeanor.   Within a few days, the agent called him and apologized and the negotiations took a decidedly more friendly turn.    Perhaps that was because our client's tower is a very valuable tower.   Perhaps not.  Either way, if you are having a problem with your tower company rep and their negotiating tactics, fill out a survey or let the company know directly.   While the rep will and should continue to make threats about moving the tower, they should be able to do it in a less aggressive and cordial manner.  Both parties should remember that these negotiations are not personal, they are just business.  Treat the discussion as a business discussion, remove the personal aspect, and if you need help determining the business terms, consider contacting us.  

T-Mobile Sued for Alleged Unauthorized Attachment to High Tension Electric Tower

Utility pole cell tower

A few times a year, we are contacted by someone that believes that a wireless company attached equipment to an electric tower (not a small wood utility pole) on their property but that isn't getting compensation for it.  We just came across this news story where T-Mobile has a cell site attached to a utility pole and the landowners are not receiving any rent for the access to their property.  They are suing T-Mobile alleging that T-Mobile does not have the legal right to use the pole.  In the mid-2000's, there were a number of lawsuits, some class action, on this same issue.   In some, the landowners won and in others, the wireless carrier won.  

The key to whether a landowner should be compensated is based upon the language in the underlying utility easement for the electric towers.  The more specific the language is regarding what the easement is for, the better it is for the landowner.    If the easement language includes the right to provide telecommunication services or communication services, in many cases, that means that the utility company is within its rights to grant access to the wireless company without paying rent or getting landowner consent.   If the easement is specifically for the transmission of power, the wireless carrier may need your approval to be on the property which may mean additional rent.  

If you believe that the wireless carrier who has equipment on one of the electric towers on your property is improperly doing so, go to the clerk of court for your county or city and ask to see a copy of the utility easement across your property.   They are normally very helpful.   Get a copy and reach out to us.  While we cannot provide a legal interpretation of the easement language, we can advise whether you should spend the time and money to visit a local attorney.   If the attorney believes you should be compensated, we can help determine the appropriate amount for the lease or consent.   

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.

City Says That If Mobilitie can Build a Tower in 2 Days, They Can Also Remove it in 2 Days.

You can't make this stuff up. Mobilitie allegedly erected a new mini-macro tower in Goliad, TX – which we posted about on LinkedIn previously. Subsequent to that, this story regarding Sprint approving a trial for Mobilitie to build mini-macro small cell towers without full regulatory compliance is found by reporters at Event-Driven.

In this case, Mobilitie claimed to the County they had all permits. City officials from Goliad investigate and find that Mobilitie did not build the tower in County limits but in the City. City officials then demand that Mobilitie remove the tower or they will do it for them. Mobilitie claims that they needed 2 weeks to do so- to which the City replied

“your firm constructed the tower over a two-day period, on a weekend. Surely, if you could install the tower in two days, you can dismantle it in the same time period.”

Not only did Mobilitie fail to build the tower outside City limits, they may have even failed to build it straight. As reported in the Goliad Advance-Guard, local homeowner

Harvey also claimed the tower is leaning to the north. Blueprints for the installation require a foundation 31 feet deep into the ground; Harvey who says he has had years of experience mounting poles, says a driller will hit bedrock at the 10-foot level.

County officials claim that this type of overnight tower erection was happening in other areas. See the quote below from the Advance-Guard.

“And it’s not just our community, it’s happening in San Patricio County as well,” City Alderman Nathan Lill told the group. “There’s list of other counties that have had the same issue with this exact same company. They’re building the towers at night and they’re not asking permission from anybody to do it.”

This isn't the only place where Mobilitie has been either fined or forced to remove what is alleged to be an improperly permitted tower- it has occurred in Baltimore, MD, and Denison, TX.

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.