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.

Our Takeaways from CommScope Second-Quarter 2017 Earnings Call

Man rolling spool of fiber down sidewalk

The CommScope Second-Quarter earnings call was interesting, more so due to what they couldn't report as opposed to what they did report. Here are our five takeaways from the call:

  • FTTX is being deployed – just not being connected. Fiber to the "X":  To their knowledge, fiber is being passed by residences but isn't being connected yet. We suspect that this is a reference to AT&T actively passing homes and residences to meet their FCC commitment of 12.5M residences passed.   
  • First Net is not here yet. No material orders yet for First Net equipment.   
  • MSOs and MNOs are being more cautious on spending. CommScope expects longer, steadier deployments of infrastructure, as MSOs (cable) and MNOs (wireless) seem to be more cost efficient in their spending.   
  • 2017 won't be Commscope's year. 2018 seems to be a better year.  
  • CommScope sees the addressable small cell market as indoors. With the Airvana acquisition and just the initial rollouts of OneCell, CommScope is focused on indoors.  

CommScope handled itself well during the call, answering questions fairly directly (for an earnings call). They addressed the elephant in the room – AT&T timing – repetitively during the call without actually referring to AT&T. Look for better guidance on a number of fronts this coming quarter.

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.  

Small Cells Aren’t Like a Pizza Box

Pizza Box Small Cells
Number of Pizza Boxes that Fit in 6 Cubic Feet or 28 Cubic Feet

WHAT THE INDUSTRY SAYS

The wireless industry has been pushing the fiction that small cells are the size of a pizza box.   Here is a quote in a Wireless Week article– 

"Americans will benefit tremendously from innovations like 5G and the Internet of Things, which require more small cell facilities – often the size of a pizza box – to build a denser network," CTIA's assistant vice president of regulatory affairs Scott Bergmann said. "Today’s action by the FCC recognizes the minimal impact of these facilities, but there is more work to be done. We must streamline infrastructure policies at all levels of government so that wireless providers can rapidly deliver the next generation of products and services to consumers.”  (emphasis added)

Furthermore, as reported by Wireless Estimator here,  "In the CTIA presentation, the trade group said that networks can now be extended on (sic) common structures like street lights and utility poles and that there will be 300,000 “pizza box-sized small cells needed in [the] next 3-4 years.”

WHAT THE INDUSTRY ACTUALLY WANTS

While some small cells are the size of a pizza box- many aren't.   The industry clearly doesn't think so either despite their public pronouncement otherwise.   In the newly proposed state legislation in 20+ states, there is language that allows the wireless industry to install up to 6 cubic feet of antennas and up to 28 cubic feet of equipment on each pole.  For example, see this language from the recently passed Virginia statute.   

"Small cell facility" means a wireless facility that meets both of the following qualifications: (i) each antenna is located inside an enclosure of no more than six cubic feet in volume, or in the case of an antenna that has exposed elements, the antenna and all of its exposed elements could fit within an imaginary enclosure of no more than six cubic feet; and (ii) all other wireless equipment associated with the facility is cumulatively no more than 28 cubic feet in volume, or facilities comprised of such higher limits as established by the Federal Communication Commission. The following types of associated equipment are not included in the calculation of equipment volume: electric meter, concealment, telecommunications demarcation boxes, ground-based enclosures, back-up power systems, grounding equipment, power transfer switches, cut-off switches, and vertical cable runs for the connection of power and other services."

In other words, the industry likes to present to municipalities that small cells are the size of a singular pizza box because it makes a compelling story.   However, the want to give their members the right to install substantially larger equipment than would fit in a single pizza box.   

Please feel free to use this image without attribution.   Also, for another good representation of what 28 cubic feet represents- see http://wireless.blog.law/2017/04/22/california-sb-649-big-lie-small-cells/.

 

Mysterious Small Cell Pole Erected without Permit- Sounds like Mobilitie

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

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

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

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

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

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

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

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

 

 

Top 10 Things the Wireless Industry Doesn’t Tell You about Small Cells

By Ken Schmidt, Omar Masry, and Rick Edwards

Are you a homeowner who's recently received a notice indicating that a new small cell antenna is going to be erected on or near your property? Or a lawmaker who has received one of the industry's new opinion papers about small cell antenna regulations? Or an FCC Commissioner who is considering small cell rule-making? Before you start citing from or buying into the pretty pictures and bright-eyed economic projections in the opinion papers below, you should know that these industry-commissioned studies do not tell the whole story:

    1. CTIA – Enabling the Wireless Networks of Tomorrow

    2. CTIA – How 5G Can Help Municipalities Become Vibrant Smart Cities

    2. WIA – Small Cells on Pole Facilities

What's wrong with them, you ask? Plenty. Here are the top 10 things the wireless industry doesn't tell you about small cell antennas:

#1: Despite the wireless industry's calls for collocation using shared infrastructure, in practice, carriers apply for individual small cells instead of shared infrastructure like DAS.

Small cells are standalone individual cells that can be installed separately. They're like miniature cell towers but without the tower. Like towers, a small cell requires both an antenna and equipment. Unlike towers though, the wireless industry likes to place the transmission equipment on the utility or other support structures. In effect, this means that the installation of small cells must either increase the visual blight of the pole or increase the diameter of the pole if the equipment is put inside.

Distributed Antenna Systems, in contrast, typically require less substantial infrastructure attached to each pole and can be more easily made to resemble street lights and signs (like the examples in #2). Common equipment can be placed within a centralized hub conveniently located underground or outside of view. Whereas small cells are single user installations, carriers can share DAS nodes. Multiple wireless service providers can share a DAS node, and multiple frequency bands (Carriers) can be facilitated on each node. This reduces the total number of sites needed and makes each site more attractive because most of the transmission equipment sits in a shared offsite DAS hub.

Given the benefits of DAS, you might wonder why the industry would prefer to build small cells instead of a constructing a DAS? There are 5 reasons – some of which are legitimately problematic for wireless carriers and some of which just require increased investment or time but aren't beneficial to the bottom line.

Reason 1: Each wireless provider has different objectives and may not need the same locations.

Reason 2: Each wireless provider has different deployment times and requiring DAS may force one carrier to wait if others are not ready.

Reason 3: DAS systems cost more because they're designed for the requirements of the most advanced user. So if carrier A needs feature X, even if carrier B doesn't, then the system will include feature X.

Reason 4: DAS systems require a concentrated, coordinated effort and someone to lead it.

Reason 5: Small cells are easier to deploy. DAS applications are reviewed in total – meaning that an objection to any part of the DAS application holds up the entire request.

The result: Providers submit applications for small cells even in downtown, urban core areas where DAS makes more sense. In some cases, providers apply for permits on adjacent poles where it's obvious that a DAS system would reduce visual clutter. Or even submit for new poles adjacent to other light/utility poles of similar height to avoid paying the rate schedules published by municipalities.

The map below shows the actual number of small cell application locations within the City of Houston by four different wireless entities. In a dense urban area like this – why not propose DAS nodes that all entities can share and decrease the number and impact of these facilities on the community?

The wireless industry needs to actually collocate rather than just talk about collocation. Furthermore, the FCC and cities themselves should mandate collocation when multi-carrier small cells are technologically feasible.

#2. The wireless industry associations want standardized federal, state, and local rules but don't even standardize themselves.

The wireless industry demands standardization of state and local government laws related to the erection of small cells. Their opinion papers suggest that without standardization, wireless applicants will be hit with a patchwork of wireless siting regulations. So they're putting forth a multi-pronged approach:

    1. Distributing Industry-Friendly Sample Ordinances

    2. Lobbying Heavily at State Level (see ALEC)

    3. Submitting a Petition for Relief to the FCC (see Mobilitie)

    4. Lobbying Heavily at the Federal Level

The wireless industry alleges — without providing any quantitative analysis — that most municipalities are applying costly, antiquated macrocell regulations to small cell applications. While many smaller municipalities do not have small cell policies in place at this time, that is because the wireless carriers aren't building many small cells in smaller towns and villages. But many larger municipalities (and those where 90% of small cell deployment are occurring) have begun to implement small cell regulations or will do shortly.

At the same time, the wireless industry's applicants can't even submit consistent small cell applications to their municipalities. It's blatantly hypocritical. For example, some cities report receiving location maps showing new small cells in the middle of ponds or on footbridges or in areas that are under another city or county's jurisdiction. Some applicants are not even submitting site-specific applications – instead submitting the same drawing over and over. If the wireless industry believes that standardizing the permitting process is necessary, they should be willing to standardize their own small cell antenna configurations and requests as well. All applications should provide for and include the same information so that the municipality does not have to ask multiple times for the applicant to complete the basic information. Every application should include a structural analysis wet-stamped by a state licensed engineer demonstrating that the new pole or existing pole is structurally sufficient for the current loading. Plans should include where power is coming from and how power will be metered, or better yet be subject to an unmetered wireless rate or utilize wireless smart metering

The WIA and CTIA should encourage standardized applications and requirements among their member constituents. But we believe their approach should not just consist of lobbying states, the FCC, and local governments. These organizations should work towards drafting common application requirements and best practices for their constituent members. They should then discipline or reprimand those members that do not follow such practices. Most importantly, wireless industry associations should focus on assisting member entities in developing and using shared infrastructure.

 

#3. What the industry installs looks vastly different than what they say is possible.

You may remember this article that went viral where Buzzfeed compared the fast food company photos of their food vs. what the consumer actually received.

Similarly, the wireless industry's glossy pictures show an idealized implementation that is far different from reality. Their reports showcase integrated poles with small cells contained within or Distributed Antenna Systems (DAS) nodes with an off-site equipment hub. These appear slim and attractive (relatively speaking). However, when these same wireless carriers or small cell companies submit the actual drawings and applications, the installations do not look anything like those pretty glossy pictures. Or, after they install the attractive poles, they bloat the view with additional equipment, creating a visual blight.

For example, below are photos promoted in the WIA Small Cell document. (Note these pictures are DAS nodes- not Small Cells – see #4 below)

Compare those to photos of actual small cell installations. They are nothing like the photos shown in wireless industry propaganda.

      

The reason for this is twofold: First, the industry likes to show pretty photos of DAS nodes because they are actual possibilities, even though the wireless carriers and tower companies are increasingly abandoning them. Wireless carriers are instead building small cells which usually have more equipment on the pole than DAS's central hub. Second, in many cases, the applicant omit to mention a part of the equipment that's to be mounted near or on the pole either because they're rushed or because they don't want to answer objections. The municipality is left holding the bag – inspecting each constructed small cell in order to confirm whether the applicant exceeded what they were authorized to install. Don't believe this actually happens? Look below to see what the industry submitted as a photo simulation versus what was eventually installed.

  

 

#4.  Once a site is erected, they can go back and increase its size ad nauseam provided that the changes do not exceed federal standards.

Once a small cell or DAS node is attached to a pole, the wireless carriers have the right under Section 6409(a) of the Middle-Class Tax Relief and Job Creation Act to expand their equipment. In other words, once a site is built, municipalities have little power to restrict further expansions of the pole's small cell antenna equipment if the applicants stay within the limits of 6409(a). Moreover, wireless companies can request to expand an unlimited number of times. So even if a small cell starts off looking small and svelte – it could be expanded in size immediately without the municipality being able to stop the expansion. And this can happen over and over again.

A GIF showing steps in a tower being expanded
How a small cell can be expanded into a mini cell tower.

Below is a photo showing what a small cell looks like after multiple expansions.

 

#5: The industry claims that wireless development will not occur without major policy changes. But in fact, wireless development has occurred and will continue to occur even without those changes.

Historically, the industry has made the same argument over and over again: that they will not be able to deploy infrastructure if wireless siting laws aren't loosened. They suggest that most any regulation that slows down wireless deployment limits technological advancement. The industry puts out derisive blacklists of cities and counties that one or more wireless company believes make it difficult or expensive to deploy wireless infrastructure. They label these cities as technologically backward and lobby decision makers to convince them that their city will not grow with such technological restrictions. For example, see this quote from Gary Jabara of Mobilitie about municipalities or counties who aren't receptive to Mobilitie's proposals to erect 120' mini-macro small cells in their city or county.

Nonetheless, even in expensive markets with incriminating reviews like the one above, small cell deployment still occurs. Wireless companies still build towers or even find private locations for rooftop cell sites. A quick examination of Verizon or AT&T's coverage map will show very few holes in urban or suburban areas.

Furthermore, in most states (35 or more) wireless companies have access to utility poles which are subject to pole attachment rates prescribed by the federal government. These pole access rates are fairly reasonable; they are typically less than $500/year per pole. However, working with the utilities can be time-consuming, which is why the wireless industry is pushing for easier access to municipal poles. Isn't it odd that wireless carriers claim to be utilities but aren't actually using utility poles?

Even in markets like Baltimore, MD where the small cell rates are somewhat high compared to other US cities, Baltimore is still receiving small cell applications at a pace comparable to communities with closer-to-average rental rates. In other words, while the industry claims that higher rates impede technological advancement for a city, the reality is that wireless carriers still build small cell sites and many of them. While small cell deployment would likely happen quicker with revisions to regulation and cheaper access to municipal structures, make no doubt about it, the development would occur either way.

 

#6: The industry labels any request for cost reimbursement or rents by a municipality as a "money grab" all while the industry itself is generating $60 billion in profit per quarter.

We participated in a meeting between one city and members of one of the national wireless trade groups. The trade group decried the city's rent requests for access to taxpayer-funded infrastructure as a "money grab." Meanwhile, each of the wireless carriers has generated 20% profit margins or better in recent years – with at least one generating margins over 40%. The Big 4 wireless carriers alone are generating nearly $60 billion a year or more in EBITDA margin while the wireless industry combined generated $85 billion.

To argue that municipalities are money grabbing by charging a reasonable price for access to publicly-funded infrastructure by for-profit entities is disingenuous at best.

If one assumes the industry is constructing 20,000 new small cell antennas a year, even if each pole fee was $3,000/year, the wireless industry AS A WHOLE would only lose out on $60 million or less than .1% of their annual profit. Yes, you read that right,- less than 1/10th of 1 percent of their annual profit.
To put in perspective, Verizon and AT&T alone spent half that amount on lobbying alone in 2016. (see Open Secrets for AT&T and for Verizon)

These arguments seem even more duplicitous when you see the headlines put out by the wireless industry that extol the tremendous revenue opportunities from 5G and other advancements. For example:

The Qualcomm "survey," says the 5G future will support up to 22 Million Jobs and $12 trillion dollars of goods and services.

Cisco says 50 billion things will connect to the internet. Read this article on why the hype on the number of connected devices is overblown.

CTIA citing an Accenture analysis suggests that 5G stands to create 3 million jobs in the US while yielding investment of $275 billion and encouraging GDP growth of $500 billion.

Simply put, the industry has every right to attempt to negotiate with municipalities for cheaper access to taxpayer funded and maintained municipal poles. But if they insist on making it about money, we believe those same taxpayers and municipalities should be prepared to point out the hypocrisy in their claims.

 

#7: The wireless industry wants to pay less for their small cell permit applications yet still receive faster review timelines from understaffed cities and counties.

Historically, we estimate that most cities rarely received more than 50 applications for new wireless sites per year from 2000-2015. Even in the boom years of 2008-2010, cities may have received just 150 applications for new wireless facilities. Contrast that to today: we have confirmed that the City of Houston received over 700 applications in 2016 alone for small cell infrastructure.

On the one hand, the wireless industry politely (or not so politely) asks for a quick turnaround on small cell antenna applications (complaining to the FCC and state representatives when they don't get it) but then on the other begrudges municipalities for charging fees to review the applications. For those of you not entrenched in the minutia of municipal red tape, these requests for the use of infrastructure or placement of equipment are rarely identical from one application to the next. Some companies are very good at drafting thorough and complete applications, but most are not. No matter what size the project is, the items to review in each application are the same. Each site still needs to be reviewed for structural, electrical, and physical safety.

Without standardization by the industry, these applications can't be reviewed easily. This, in turn, increases the cost to the municipality for reviewing such applications. The industry wants the best of all worlds – to submit hundreds of applications simultaneously, have those applications reviewed quickly regardless of their quality, and pay as little as possible for the city to review them.

Some members of the wireless industry have suggested that cities do not need to review the applications thoroughly as the wireless entities already do so internally. For proof of how ineffectively self-regulation works in the wireless industry, look no further than the 2007 Malibu Canyon fire which was caused by utility poles that were physically overloaded with telecommunication company antennas and equipment. Apart from safety concerns, the proliferation of poorly designed small cells can also degrade historic districts and draw noise complaints from neighbors when a carrier with loud cooling fans is mounted on a pole a few feet from a bedroom window.

 

#8: The wireless industry extols the wide-ranging benefits of the Internet of Things (IOT), smart cities, and self-driving cars, but fails to mention that many of these benefits can be obtained using current LTE-based technologies.

First, let's be clear that there are absolutely many wide-ranging benefits from 5G and small cell densification. Truly mobile IOT won't happen without wireless industry investment. No other private or public entity can or will develop sufficient wireless infrastructure in the US to enable pervasive low latency communications. Without wireless industry investment, remote control of sensitive machinery or vehicles simply won't occur. Self-driving autonomous cars will be possible but without the gains in safety and efficiency that would occur from a truly smart network of connected cars.

However, you can get the benefits of low bandwidth, non-essential IOT or smart city sensors and functions without small cells at all (or at least with fewer of them). The CTIA (Accenture) study above cites the benefits using smart meters and smart lighting. These include traffic management systems, public transportation location-based tracking, real-time public parking information, and gun-shot recognition. These are all benefits to be gained from IOT. However, neither Accenture nor the wireless industry makes any attempt to quantify or distinguish which smart city and IOT initiatives require wireless industry involvement and which don't.

Furthermore, these studies don't even remotely acknowledge which IOT benefits can happen on today's LTE networks versus those that need more robust densification of sites to occur. The wireless industry leads you to believe that you need the innovations they want to sell you to get any of these advances of the future. That is inaccurate.

 

#9: While the wireless industry claims densification of small cells is needed to enable smart city and IOT functions, they don't tell you that mobile video is the primary use of small cells both now and in the future.

Cisco, in its 2017 Global Mobile Data Traffic Forecast Update, indicated that video currently makes up 60% of mobile data traffic. Moreover, they forecast that three-quarters of the world's mobile data traffic will be video by 2021. Ericsson's own study states that mobile video traffic represents 55% of LTE/5G data traffic now, but is expected to grow to 95% (yes- 95%) of mobile data traffic by 2021.

Cisco states further that 50 billion IOT devices will be connected to the internet within 5 years. However, only 1.5 billion of these devices will have cellular connectivity. We have seen forecasts from other sources that IOT mobile data use will grow to 8% of total network mobile data use by 2021. In other words, IOT functionality only drives less than 10% of the bandwidth need for small cell densification.

This raises the question: how many small cells are necessary to enable Smart City and IOT initiatives versus how many are really needed to densify networks for the next generation of fixed wireless to home and mobile video?  For further information on why mobile and fixed wireless video is so important to AT&T and Verizon, see this article on the wireless industries efforts to compete with the cable companies.

To be clear, we aren't suggesting that mobile video or fixed wireless are inconsequential. Without the revenue generated from mobile and fixed wireless video, the wireless industry would not have the incentive to invest as much Capex in their wireless networks to enable some of the truly amazing IOT and smart city use cases – especially those that require low latency or secure and ultra-reliable communication.

We are, though, suggesting that any indication by the wireless industry that 5G and small cell densification is primarily about IOT and smart city functions is a half-truth at best. The reality is that small cells densification is more about paid consumer and commercial video than it is about IOT or smart cities.

 

#10.  The industry is willing to push select information about small cells but not willing to respond to substantive questions from municipalities.

Before a recent meeting began between one city and 20+ representatives of wireless and tower companies, each side exchanged questions. The wireless industry provided 30-40 questions to the city, and the city provided a list of 15-20 questions to the industry. The city's questions were fairly straightforward:

What do the wireless providers see in terms of other cities that require rental payments?

How many small cells does the industry contemplate installing in the city over the next 5 years?

What type of infrastructure/antennas does the wireless industry expect to need on the poles?

The city responded to all the industry's questions with substantive detail. In return, only ONE company responded to the city's questions. And most of those responses were cop-outs – claims that they couldn't answer due to competitive concerns. CTIA/WIA provided a glossy presentation that discussed all of the overarching benefits of IOT and 5G, but failed, for the most part, to provide any substantive and direct answers to the questions posed by the city itself.

At the end of the day, the wireless industry wanted to poke holes in the city's effort, but was unwilling to answer important questions that would have helped the city review and revise its own policy.

How can any city reasonably be expected to plan and prepare adequately for small cell infrastructure when the wireless industry continues to provide limited substantive information?

So Where Does this Leave Us?

Municipalities need to realize that wireless investment in small cells should be encouraged and reasonably managed and that doing so requires investment in staff and resources. They can no longer put their heads in the sand because it isn't a question of if, but of when and of how many small cells are coming. Reactionary policies and moratoriums almost always rushed and neither encourage thoughtful technological expansion nor protect the constituents.

Wireless carriers, tower companies, and industry associations need to provide better substantive guidance to their member constituents including model applications and construction/design criteria. They should truly encourage shared infrastructure use especially in dense areas where multiple providers want access to existing poles. These groups and companies should also be more forthright in their marketing materials and in answering legitimate questions and concerns by public entities.

We, as advisors to landowners and municipalities, will continue to help educate the public about the small cell leases and policies. Most landowners and municipalities are underrepresented and ill-informed when it comes to responding to the wireless industry's requests and/or demands. We hope that by highlighting the top 10 things the industry doesn't tell you about small cells, that you can better decide how to accomplish your goals. That small cell deployment will not be allowed to grow unchecked and unabated by an uninformed populace.