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.

What’s Happened So Far in Wireless in 2017?

As we look back over the first half of 2017, there has been much non-activity on the merger front. Many people (myself included) expected greater merger and acquisition activity but other than a few fiber related transactions, nothing material has transpired. Sprint and T-Mobile are still separate companies, and DISH has not merged with or been acquired by anyone. So here are the most important stories or events of the year on a carrier by carrier and tower company by tower company basis so far.

 

1. AT&T is awarded FirstNet, but benefits still haven’t flowed down to tower companies, original equipment manufacturers, and landowners. There has been much discussion, but there haven’t been any substantive modification or new build activity as a result by AT&T. In short, we are all just waiting for the project to start in earnest. However, when it starts, it will start not with a whimper…

 

2. In the more of the same category, Verizon is refocusing its efforts on reducing leasing costs. So far, we have seen Verizon choosing not to join the very public and vocal opposition to traditional tower leasing models as AT&T, T-Mobile, and Sprint. However, they have hired Accenture to help them use standard renegotiation efforts like those from Md7 or Blackdot to try to renegotiate leases. What Verizon has done very effectively is push for 2% annual escalation or less in their new leases. The benefit of this change may be tempered though by their site acquisition agent’s willingness to increase the base lease rate to adjust for the reduction in escalation. We also see increased activity by Verizon to build their towers next to existing public tower company towers to avoid collocating on those towers.

 

3. While this is not that much of a surprise, T-Mobile has been killing it, and their network performance is increasing. Churn is historically low, cost of services is low, subscriber growth is high, and they have started building out 600MHz. Wouldn’t want to be one of the other wireless carriers trying to compete with the T-Mobile marketing juggernaut- T-Mobile gets away with snarky while when their competitors try it, it comes across as desperate (Sprint) or stodgy (AT&T and Verizon). We already see increased activity from T-Mobile modifications and new towers, and they are not even really started yet.

 

4. Sprint deserves kudos for their turnaround especially on their cost cutting having demonstrated profitability for the first quarter in the last 13 or so. Of course, they may have had more to cut than the other wireless carriers. Sprint also deserves accolades for their stream of quarterly earnings calls where they try to explain how they can continue to underspend their competitors quarter after quarter, year after year, with new technological innovations like HPUE, MagicBox, Spark, and Mini-macros. (Hint- they cannot as evidenced by Sprint’s Capex increase last quarter of over 100% from the previous quarter. Expect to see similar or higher Capex in this quarter from Sprint and perhaps even higher in the last quarter of the year). Equally enjoyable is the timing of all of the leaks related to potential mergers and acquisitions of Sprint that somehow happen to occur just before a bad earnings report or after a bad news story comes out. (Not saying that Sprint leaked the stories, just pointing out the odd but consistent timing). The good news with Sprint is that it is never boring. I do have to commend Sprint on their Double the Price pop-up stunt- snarky worked in this case.

 

5. All four carriers have gone Unlimited. Following T-Mobile’s lead, the other wireless carriers each have moved to unlimited plans. As a result, overall wireless service revenue has declined. This “race to the bottom” appears to have stabilized. Before you feel too bad for the wireless carriers, remember that each of them generated over 25% EBITDA (profit) margins this past quarter from wireless and Verizon has one of its best quarters ever regarding profit margin. If revenue is declining, how can profit margin be increasing, you might ask? The wireless carriers have been squeezing contractors and vendors to reduce their operating expenditures all while increasing the efficiency of their wireless networks. Despite attractive profit margins, expect further cost cutting and a renewed emphasis on negotiating better leases with landowners and tower companies as shown in the articles on our blog below.

 

6. Crown Castle has had an active year purchasing fiber, announcing the acquisition of both Wilcon and Lightower Fiber Networks and completing the acquisition of FPL Fibernet. Crown sees a vision of a small cell world where fiber is critical to being able to persuade wireless carriers to place their small cell infrastructure on Crown fiber and poles. We would agree with them but would temper expectations slightly due to the next point below and due to efforts by wireless carriers to deploy their own fiber networks.

 

7. The wireless carriers collectively have been successful at convincing eleven states to pass bills that limit local review of proposed small cells, prohibit the forced collocation on existing poles, and reduce the lease rate that cities can charge for attachment rights to existing poles or to the public right of way. Some of the most populous states (Florida, Texas) have these bills in effect or about to go into effect. We hear of increased litigation already filed or planned to oppose these statutes, so expect more controversy on this legislation in coming months. Conceivably, these statutes will reduce the number of small cells leased on private property and could in isolated situations allow for termination of existing macrocells. In the eleven states that have passed such legislation, expect to see small cells and new poles popping up across urban areas in the very near future.

 

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.

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.  

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.