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.  

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.  

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.  

Verizon Appears to be Rivada Partner in FirstNet Bid

Capture

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

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

Verizon’s Unlimited Plan- Short Term Pain vs Long Term Gain

Don't misread Verizon's about-face on unlimited plans solely as a sign of network confidence.

Tickers: VZ, T, S, TMUS, AMT, CCI, SBAC, COMM, DY, ZAYO

 

Contrary to their previous explicit direction otherwise, Verizon announced on February 12th, 2017 that they would be offering an unlimited voice and data plan at rates slightly higher than comparable offerings from T-Mobile (TMUS) and Sprint (S). Not coincidentally, in its earnings call on Feb 14th, 2017, TMUS indicated that they were porting Verizon subscribers to TMUS at a 2.8:1 ratio to subscribers ported from TMUS to V. This plan is clearly slated to reduce the churn of postpaid customers from VZ to S and TMUS and we believe that it is a very compelling service offering.

 

Analysts were quick to choose sides: the first posited that this was a sign of VZ's confidence in their network upgrades and capacity, while the second group believes that the network will show signs of strain under the added capacity. We believe that both groups are partially correct and that infrastructure related entities are the ones that stand to gain the most.

 

Back in last January, we applauded VZ for their densification efforts in our note Verizon (VZ) positioning for a range of 5G futures. The premise was simple- Verizon's efforts to add fiber and small cells to their network give them a marked advantage over other wireless service providers in the race for 5G. That premise hasn't changed and further research since that note continues to suggest that VZ still has a 1-2-year first-mover advantage from a US wireless infrastructure perspective.

 

Street light small cell
Small Cell In Boston, MA
Nonetheless, it is our opinion that VZ's densification efforts, while industry setting, are not sufficiently complete to provide seamless and reliable service across all urban areas, especially in the near term. Verizon's densification is based on a three-prong approach: carrier aggregation, dark fiber, and rapid deployment of small cells. On the first prong, VZ has actively deployed 2 and 3 carrier aggregation across most of the nation. On the last two prongs, while they have been leading the market in both efforts, there still are areas where their efforts have been slowed due to factors outside their controls. Based on our on-the-ground level visibility, VZ has a hefty lead in dark fiber and small cells actively deployed or in development.

 

In our previous note, we suggested that the next 12 to 18 months will be tough for Verizon as the impact from their investments will take time to materialize. For urban markets where VZ has encountered delays due to local zoning or permitting for deployment of small cells, there will be a reduction in reliability and data speeds. These issues will be more pronounced in markets where Verizon is relying upon two carrier aggregation.

 

Fortunately for VZ, these issues are surmountable and addressable, but it will take some time to rectify them. Expect to see an acceleration of densification in specific troublesome markets. Verizon will need to rely more on outside fiber and small cell providers like CCI and ZAYO. TowerCos (AMT, CCI, SBAC) should also experience continued and possibly accelerated macrocell modification activity and possibly new macrocell deployment from VZ and TMUS in their efforts to meet the pending needs of video downloads (remember that video accounted for 60% of mobile data use in 2016 and VZ and TMUS now include zero-rated HD video in their unlimited plans). Lastly, we would not be surprised to see T extend their unlimited plans beyond DirecTV subscribers, thereby further increasing densification.  (Editor's note- subsuquent to this being written, T did extend its unlimited plans beyond DirecTV subscribers.)

 

Risks to this note: The perception of VZ network superiority declines at a faster rate than expected, causing subscribers to question whether they should spend the additional money on VZ's unlimited plans before VZ's network investments reverse those issues. VZ could reverse their strategy of using outside fiber and vendors in order to control their fate by increasing CapEx towards the development of owned dark fiber assets, thereby reducing ZAYO and CCI opportunities.

 

(Author's note: This research note was published first on 2/20/17. If you are interested in gaining access to our research on a timelier basis or have a discussion on this note or other wireless industry topics, please contact us.)

 

 

Rooftop Small Cell in Syracuse, NY (Ken’s Hometown)

Despite living here for over a year now, I just came across my first small cell in the City of Syracuse.   The site and equipment are located on and adjacent to the rooftop of Rosie’s Bar & Grill just west of Syracuse.

Small Cell Location

Below is a photo showing the rooftop small cell- which includes a small antenna mount along with an omni type antenna.  Based on what we have seen in proposed Verizon rooftop small cell plans for other clients- this appears to be a Verizon installation.

Small Cell Photo
Rooftop Verizon Small Cell

The Verizon small cell connects to an approximately 4′ tall equipment cabinet mounted on a steel platform on the side of the building.    Verizon has likely entered into a small cell lease agreement with Rosie’s for the placement of the equipment.  They typically offer $250/month to $300/mo. for this type of lease although like anything that is negotiable.   If Verizon or another small cell provider contacts you for a similar proposal- give us a call at (877) 428-6937 or contact us.

Small Cell EquipmentSmall Cell Equipment

 

 

A Tale of Two Small Cell Providers – Part Two

Last year in April, we wrote about how Crown Castle and Mobilitie respectively approached the City of Orlando regarding small cells.    In that post, we described how each company approached the application process and why the City approved the Crown Castle small cells while it determined that the Mobilitie applications were incomplete.

We recently came across some data from Montgomery County, MD.   If you have followed wireless siting news, there have been a number of stories about Montgomery County and the opposition for small cells from NIMFYs.

Interestingly, the data shows a similar story happening in Montgomery County as that which happened in the City of Orlando.  Of the 171 small cell or DAS installations submitted by Crown Castle, 81 have been approved or recommended for approval.   90 are under review currently.   Of these 171 poles proposed by Crown, only 20 are new poles as opposed to installations on existing utility structures.   The average height of all Crown poles/antennas is 28 feet.   Another interesting statistic regarding the Crown DAS poles is that 26 of them have two carriers coming out of the ground.   Almost all include Verizon- but some include T-Mobile.

Mobilitie has taken a different tact and not surprisingly, NONE of the 141 small cells that Mobilitie has applied for have been recommended for approval as of the date of the file we reviewed which appears to be October of last year.   The average height of the Mobilitie poles- 66 feet.   The number of new poles vs attachments to existing poles is 117 to 24 respectively.

Lastly, Verizon has submitted 15 small cell applications of their own.

Below is a map we created in Google Maps showing the various DAS and small cell providers and the submitted infrastructure.   You can click on the individual points for further details on who is where and whether the sites have been approved.  (here is a link to the map itself in Google Maps)

 

Steel in the Air – Wireless Predictions for 2017

2017 Start button

As we have done in years past, we look ahead to 2017 and share our forecasts for the coming year. All things considered, 2016 was a mediocre year for the industry. 2017 looks to be all about repositioning – meaning that while we don’t expect growth in CapEx, we do anticipate industry development in some areas and contraction in others. With that said, here goes:

1.  AT&T gets serious about small cells. Again.

For those of you who don’t recall, AT&T previously had an Antenna Solutions Group focused on both Distributed Antenna Systems (DAS) and small cell deployments. While most of the emphasis was on DAS, there were a decent number of small cell deployments, although nowhere near the 40,000 small cells AT&T led the industry to believe they were going to deploy. We believe that AT&T will end up increasing its capital expenditures on small cells this year at the expense of building new macrocells. However, that doesn’t mean that AT&T will stop investing in macrocells altogether – see the next point.

2.  AT&T wins the FirstNet RFP and starts to deploy both FirstNet and AWS-3 spectrum via site modifications to existing macrocells.

Per our previous notes, we (and others) anticipate that AT&T wins the FirstNet contract. As we have pointed out before, if AT&T has done 700MHz modifications at a site previously, the old antennas may be able to accommodate the additional FirstNet 700MHz spectrum, but that doesn’t mean they can accommodate AWS-3 frequencies. The AWS-3 spectrum is in the 1700MHz and 2100MHz ranges, and we are just starting to see modification requests from AT&T that cover the full range of the spectrum in both 700MHz and 1700-2100MHz bands. We anticipate that this continues. Note that this doesn’t mean that AT&T will pay more rent for all modifications.

3.  Verizon gets slightly more serious about small cells. Again.

In 2016, it seemed that Verizon had slowed down its deployment of small cells as compared to 2015. While we don’t have access to the number of small cells they deployed via Crown Castle, we do know that the municipalities that have retained us experienced a downtick in the number of new small cell applications. We suspect that Verizon has revised its strategy on small cells after discovering what does and didn’t work through trial and error in 2016. Previously extensive efforts by Verizon to enter master lease agreements with municipalities will pay dividends in 2017 as Verizon will experience quicker speed to market than other wireless carriers who haven’t negotiated such agreements in bulk.

4.  T-Mobile will focus on adding capacity to their network no matter how costly.

In 2016 T-Mobile negotiated and presumably signed a significantly increased number of leases to add equipment to existing DAS systems across the US. Furthermore, we have heard (but haven’t yet confirmed) that T-Mobile is entering collocation agreements on rural towers to avoid roaming agreements with rural carriers. Our experiences with rural tower-owning clients seem to confirm this – but we don’t know whether their leases are representative of what is happening with all tower companies. We surmise that T-Mobile doesn’t want to spend cash building its DAS networks or new towers, which is why they may be willing to agree to higher than average lease rates. We also assume that T-Mobile needs desperately to add capacity and to do it quickly – which supports why they would be willing to jump on current DAS systems and collocate on existing towers.

5. Sprint will continue to spend historically low levels of CapEx and somehow still convince market analysts that its spectrum holdings give it the flexibility to significantly limit spending on its network.

When Sprint announces its 3Q2016 fiscal year results in January, they will again surprise with lower than expected CapEx. Reduced lowered CapEx from Sprint could very well continue into the middle of 2017 based upon the limited activity we are seeing from Sprint now. Tower companies have already rightfully stopped projecting any income from Sprint in 2017 with the expectation that if it comes, we can all just be grateful. Despite these harbingers, market analysts will still continue to rate Sprint a Buy primarily due to the potential for a merger with T-Mobile which seems to be increasing slightly in probability every day. If Sprint seriously believes this merger will take place, they would be wise not to invest CapEx.

6. More fiber companies will be acquired and the values paid per route mile (especially metro fiber) will continue to increase.

We know that this isn’t that much of a reach regarding a prediction, but it is an important one nonetheless. 2016 saw several fiber acquisitions: Zayo/Electric Lightwave, Windstream/Earthlink, CenturyLink/Level3, and Crown Castle/Fibernet to name a few. Notably, both Zayo and Crown Castle are actively positioning themselves to be “the” small cell metro fiber providers. These companies know that fiber is the backbone of any 5G/small cell/fixed wireless network and that controlling costs of the fiber is paramount to the wireless carrier’s ability to keep pricing of wireless plans low.

7.   Speaking of fiber, landowners will receive more requests than ever before for new fiber routed across their property.

We are just starting to see requests from Verizon and other carriers to bring in “redundant” fiber from different cross-property routes from existing wireless lease utility easements. Our research shows that with the advent of small cells, and C-RAN particularly, companies like Verizon need redundancy and are willing to pay for a second utility easement across the property so that an aloof contractor cannot cut both fiber cables at a singular location. Unfortunately for large incumbent fiber providers, this fiber won’t be lit fiber.

8. 2017 will be the year of cell site hardening.

With FirstNet likely being awarded to AT&T, and the FCC’s recent order requiring wireless carriers to disclose the percentage of their sites that are out of commission during emergencies, we anticipate that carriers will begin improving power backup systems at individual sites. Cell site hardening will translate to more on-site generators, which means lease expansions and increased rent to landowners and tower companies. Sprint and T-Mobile will need to play catch up to AT&T and Verizon, both of whom have previously begun site hardening agendas.

9.  Wireless carriers are doing more than just talking about what they consider to be a lopsided relationship with the tower companies, and clear and demonstrable proof of this will emerge in 2017.

To date, tower companies have largely ignored inquiries and very public comments from the carriers about “expensive and unsustainable” collocation rents and modification requests. Despite some slight downward pressure on tower company stocks and analysts’ questions at industry events, the tower companies haven’t yet felt any real pressure from this carrier positioning. However, we believe strongly that the wireless carriers aren’t sitting idly by but are instead actively seeking to relocate some of their more expensive sites. Whether these efforts are selective and focused primarily on “scaring” the tower companies, or they represent actual and significant savings on operating expenditures going forward, we don’t know. Either way, we believe that there will be clear proof of the extent of these efforts in 2017 and that this will negatively impact the tower companies.

10. The carriers will not deploy any real 5G in 2017.

Despite claims to the contrary by Verizon and others about their 5G-like systems, they aren’t mobile, and they aren’t 5G. Mobile 5G specifications aren’t expected until 2020, and even pre-specification systems won’t meet the eventual 5G standards. 5G preparation will continue in earnest in 2017, to include robust fiber deployment and small cell site acquisition. None of this will prevent the carriers from saying they are deploying 5G. (Stay tuned on this topic- we anticipate doing a workshop for financial and tower company clients in NYC and Boston in February to address the common questions and concerns we have been hearing from analysts and reporters regarding 5G).

It is unlikely that these projections will be 100% correct – and if I had to pick one projection where we are more likely to be wrong (and where we hope we are wrong) – it #5, that Sprint won’t be deploying CapEx this year in any sizeable amount. The tower companies have fared well over the past year, considering the lack of any real, sizeable revenue growth from one of the “Big Four” wireless carriers.

If you disagree with any of our projections, we’d love to hear why. If you want further information about how we arrived at the predictions or wish to discuss the likely winners and losers, we welcome the opportunity to set up a private (paid) consultation to discuss our beliefs further. We have no confidentiality agreements in place with the companies listed above – and to the extent that we do have confidential information about them, we won’t disclose it.

Verizon Backup Fiber Requests: How Landowners Should Respond.

Verizon's proposed fiber route on client's property.
Verizon’s proposed fiber route on client’s property.

We have been starting to see requests being made to our landowner clients where Verizon is seeking to get consent to add utilities.  Initially, the pitch is that Verizon needs additional fiber for advanced technologies.   When asked why they need a new utility easement across the property and why they can’t use the existing utility easement, Verizon indicates that they need backup fiber.  In short, they don’t want the backup fiber routed along the existing utility easement because it could be cut at the same time as the primary fiber.

The issue this creates for a landowner is that there are now additional easements run across the property that could inhibit future development of the property.   If every wireless carrier at a site does this- it would be easy to see where there would be a patchwork of fiber easements across the entire property.

Our guidance to landowners facing these type of requests is as follows.

  1. Don’t ever just sign the simple consent letter.
  2. Ask for full construction drawings showing the route of the fiber and any handholds or fiber boxes being added to the property.
  3. If you don’t mind the location, great.  If you do, ask Verizon to route it along a more favorable location on the property.
  4. Check your lease agreement to confirm whether you have any obligation to grant them another fiber/utility easement.
  5. If not, ask for compensation for the easement.  If you need help figuring out the appropriate amount, contact us.
  6. Ask whether you will be required to sign an easement with another utility company and if so, ask to see the actual document.
  7. Have that easement document reviewed by your attorney.
  8. Ask your attorney to add language that requires Verizon to relocate the fiber at their expense if you need to use that portion of the property in the future.

Comcast Wireless 2.0- Maybe It Won’t Fail?

On September 20, Comcast’s Brian Roberts announced that Comcast Wireless a second iteration wireless venture is scheduled to roll out in mid-2017. While details have been limited so far, here is what we anticipate based upon 20+ years in the wireless industry. [Read more…]