Cell Tower and Wireless Telecommunications Blog

Merry Christmas – Your Property Tax Just Went up $14,000 due to your Rooftop Cell Sites

December 4, 2018 by Ken Schmidt Leave a Comment

A client of ours reached out to us yesterday with the following request:

“The City of Philadelphia is undergoing a total reassessment of commercial properties. Until 2017 we have not been charged, as a component of our property taxes, for the cell sites on our roof. (There are reasons for this which are not relevant to the question I have for you). Let me say that all of our leases have a clause that says the cell companies are responsible for any real estate taxes pertinent to their installation. Also if we have a increase in taxes they would be responsible for that as well. The City is assessing our Cell Installations at approximately $280,000 each. The three (rooftop sites) now account for approximately $14,000/year in real estate taxes.

My question is; how do we deal with the cell companies? Should we do this on our own, should we hire an attorney, or are there companies such as yours that are more capable of handling cell companies and getting our reimbursement for increased real estate taxes?

Our concern is that the cell companies are difficult to deal with and if we try to handle this without professional assistance we are not going to get anywhere with our efforts.”

While this admittedly click bait title was intended to draw your attention, the story nonetheless is real. You may not know this – but Pennsylvania taxes cell towers and cell sites as real property. Pennsylvania is in the minority of states that do so – and that include cell towers by statute.

§ 8811. Subjects of local taxation.

(a) Subjects of taxation enumerated.– Except as provided in subsection (b), all subjects and property made taxable by the laws of this Commonwealth for county, city, borough, town, township and school district purposes shall, as provided in this chapter, be valued and assessed at the annual rates, including all:

(1) Real estate, namely:

(viii) telecommunication towers that have become affixed to land.

One of the nuances for PA is that the basis for the taxation is that courts have deemed towers to be closer to real property – they are bolted to a concrete pad, require a crane to remove them, and are intended to be permanent (and not be moved/reused elsewhere). I question how this type of interpretation applies to rooftop cell site leases where the equipment is not permanent, is attached to the building, and can be reused elsewhere. (Interestingly enough other states have found the opposite) Furthermore, where in the world did the City come up with a valuation of the cell sites at a rate of $280,000 each? Assuming this is based upon equipment, it would seem that the value should be variable depending upon the tenant as the equipment costs vary depending upon the carrier and specific equipment at each location. If based upon some type of income, where did they arrive at $280K? If any of you have experience with PA taxes, I would be interested to know more about how they justify this amount for a rooftop cell site. I would also be interested in knowing if there are no personal property taxes for rooftop cell sites as a result of high real property taxes.

Fortunately for this client, this isn’t really their issue. The leases have strong language that provides that the tenant (wireless carrier) is required to reimburse them for taxes. Proper notice and follow up is required but ultimately, it will be up to the tenants to contest or pay the assessment on the towers. This just goes to show how important it is to have language in your lease that requires the tenant to pay for any taxes (real or personal) that are attributable to the improvements or use of the site as a wireless facility.

DISH’s NB-IOT Network Plans- More than Just a License Saver Design?

November 8, 2018 by Ken Schmidt Leave a Comment

As pointed out by Inside Towers, construction drawings for a DISH NB-IOT installation are available here. We reviewed the drawings carefully and have some observations.

What is DISH installing?

DISH appears to be using one 3' satellite dish for backhaul purposes. The drawings include a designation that a second location must be available on the platform.

DISH is using Ericsson equipment with battery backup.

DISH's equipment and lease area is 5' 3" x 7' 0".

DISH is installing 3 larger tri-band panel antennas made by Comba along with 8 remote radio units. The antennas are being installed as high as possible on this particular 225' tower which makes sense for an NB-IOT installation.

This particular installation is on an SBA tower- we have heard that SBA is getting a sizeable portion of the initial round of DISH installations. We will confirm that later as more requests come in.

What does this mean for tower owners, investors, and landowners?

For tower owners, any new company adding collocations to existing towers is welcome. The collocation amounts to additional revenue, although expectations are tempered because of the lower number of DISH sites that will be deployed initially in an effort to keep their FCC frequency licenses. Private tower owners won't stand to benefit as much as public tower owners- primarily because it appears that DISH is focusing on deploying sites quickly which is best done by a master lease agreement with public tower companies. Because NB-IOT doesn't require the same degree of location specificity as traditional cellular, DISH has more flexibility in terms of optimizing cost and speed as opposed to location. The real question left outstanding is when and if DISH intends to install a full-blown network- which we won't likely know for some time.

For Landowners, unless your ground lease is with a public tower company and it has a revenue share component in it, you won't likely see any additional rent. Some building owners in urban areas may see some limited interest especially on taller buildings.

For Investors, while this is slightly positive to the public tower companies, the initial number of sites isn't significant enough to get excited about. There isn't likely a significant upgrade path for these sites, so amendment activity in the future may be limited. For DISH, it is too early to tell what this means. The site design is indicative that DISH has plans to operate an actual network, but whether DISH actually deploys enough sites to have a robust NB-IOT network remains to be seen.

Why Did My Crown Castle Lease Revenue Share Payments Go Up or Down?

October 22, 2018 by Ken Schmidt Leave a Comment

A number of our clients have ground leases with Crown Castle that contain revenue sharing clauses. They contacted us recently to ask why their lease payments went down or up. Typically, the rent payment adjustments are being made because of what Crown Castle is referring to as adjustments in their master lease agreements with their wireless tenants.

What Is a Master Lease Agreement?

For those of you not familiar with a master lease agreement or MLA, it is an agreement between Crown Castle and a wireless company like AT&T or Verizon where the overall conditions and terms are addressed for all future leases between the two companies. The MLA typically contains the length of the agreement and normal boilerplate language that will be inserted in all the tower company/wireless company agreements. Then, as the carrier needs to lease a new site, a site lease amendment or site license agreement (SLA) is generated that has site-specific details. In some cases, the MLA will contain the specific lease rates for all sites to be leased. In other cases, each SLA will have a specific lease rate.

What Is a Ground Lease Revenue Share Payment?

This matters to landowners who have leases with a revenue share because the landowner typically receives a percentage of the revenue being paid by the wireless carrier to Crown Castle. For example, if the landowner has a revenue share clause of 20%, they will receive 20% of whatever Crown Castle is being paid by the wireless companies on the tower. The revenue share normally does not apply to the anchor tenant and only applies to wireless carriers who sublease space on the tower after the first anchor tenant. If AT&T pays Crown Castle $2000/mo, the landowner would get $400/mo. However, if Crown Castle and AT&T negotiate a new agreement at $1500/mo., the landowner's "share" would decrease to $300/mo. That is why they call it a revenue share.

In most cases, the rent that Crown Castle receives increases and, therefore, so does the share of the rent being paid to the landowner. However, in October 2018, landowners have been receiving notices indicating that the rent being paid to Crown Castle has decreased. How much? It varies. You might be asking yourself why Crown Castle would be agreeing to lower rent? Are they trying to avoid the revenue share requirement? Perhaps, but there are other reasons why Crown Castle would be interested in reducing the rent they receive.

Why Would Crown Castle Agree to Lower Rent?

First, it is quite possible that Crown Castle is seeking to level out their rents for a specific wireless carrier across all their towers. Some rents might go down, but some might go up. Rents that go down help Crown Castle make it less justifiable for that wireless carrier to relocate to another tower being built by a Crown Castle competitor. (See our previous article on how AT&T and Verizon are desperate to strike back at the tower companies) Secondly, Crown Castle may also have gained other concessions like higher escalation to their lease with the carrier or an agreement by the carrier not to terminate their sublease agreements for a fixed amount of time. Third, it is likely that Crown Castle carefully studied their revenue share obligations before agreeing to a revised amount to see whether they were net negative or positive in terms of income due to the adjustment. Lastly, and this may be specific to only Crown Castle, this could be part of an integrated master lease agreement for macrocells (towers) and small cells where collectively the overall income to Crown Castle increased.

Some landowners have lost income as a result of the sublease rent adjustment. Some will gain. It appears, though, that Crown Castle is retroactively applying the revenue share adjustment for past months. This is likely because the master lease agreement amendments were completed earlier this year and Crown Castle is now just getting to the point of adjusting the revenue share payments. To catch up with their overpayment or underpayment over the last five to seven months, they are adjusting the current revenue share accordingly. This can result in significant swings. One landowner we know of received a NEGATIVE five-figure revenue share, which essentially means that Crown Castle is asking for tens of thousands of dollars back because of alleged overpayments over the last five to seven months.

What Can I Do About It?

Unfortunately, Crown Castle hasn't been too transparent about the changes or how they arrived at the revised revenue share amounts. If you have received an adjustment to the revenue share calculation in your check, we recommend that you ask Crown Castle for a business summary affidavit (BSA). If your lease requires that Crown Castle share copies of the sublease agreements they have in place with their tenants, ask for those instead. Don't be afraid to ask for a specific accounting of how Crown Castle calculated the changes in rent. We aren't suggesting that Crown Castle is intentionally trying to cheat you, just that we have found mistakes previously in their revenue share calculations that were both positive and negative to the landowner.

If you have lost revenue and aren't sure what to make of it, please reach out to us. We can review your rent statement from the last three to six months and see why your rent went up or down. We can compare it to what our other clients are receiving due to their revenue share clause from that same carrier. If we think the calculations look correct, we will tell you that and won't charge you anything. If we think there is something wrong with the calculations, we can then talk further about helping you work through sending a formal notice to Crown Castle of the discrepancy.

AT&T Wants to Buy Your Tower! (Well, Not Really)

September 28, 2018 by Ken Schmidt 6 Comments

A client of ours owns more than a few cell towers that have AT&T as a collocation tenant. They recently received this letter, yet another in a long line of letters that threaten the tower owner with some dire consequence if they don't renegotiate or sell their tower to AT&T.

In this case, the threat is somewhat comical. "The sale of your tower to certain parties may result in AT&T sending a non-renewal notice regarding our lease." How is that a threat? If a tower owner has already sold the tower to a third party, why would they care whether AT&T sends a non-renewal notice? Perhaps AT&T's thought is that if the seller needs to get an estoppel from AT&T regarding its lease to present to the buyer, that AT&T's can thwart the sale of the tower by instead sending a notice of non-renewal?

In our experience, most buyers don't really care whether a notice of non-renewal is sent, provided that there is enough term remaining before they can choose not to renew or if the tower is located in an area with zoning regulations that prohibit construction of new towers near existing towers.

The other comical part is that AT&T (through its' financial supplier) is asking for lease information about each tower so that the financial supplier can process the information and make an offer. Of course, AT&T then also has information about other subleases that the tower owner has on your tower which can be used against the tower owner in future lease negotiations.

If you are inclined to sell your tower, reach out to us and we can give you a free back of the napkin estimate of the value of the tower. We won't use your information against you and we won't threaten you with sending laughable notice's of non-renewal in order to get you to sell. If you aren't interested in selling but feel like you need some help in addressing these threats from AT&T, please call us to discuss your situation further.

Small Cell Leasing For Municipal Electric Utilities and Coops After State Small Cell Legislation

August 15, 2018 by Ken Schmidt Leave a Comment

A few weeks ago I gave a presentation to the Florida Municipal Electric Association, that I reworked here to make it a bit broader and applicable for the majority of cases in the United States.

It is primarily about small cells and considerations that private landowners/exempt public landowners should have when considering small cell leases. Prior to State Small Cell Legislation, it was a bit of the wild west. Wireless service providers or their infrastructure companies were trying to claim that they were utilities, with some going so far as erecting poles overnight without permits. Municipalities and counties were all over the board in their approaches to small cells.

You can find the entire slideshow here. To get a taste of the presentation see the short video and comments below.

Really large pizza boxes

The industry pushed small cell state legislation by making ridiculous and misleading claims like this- that small cells are the size of a “pizza box” all while pushing legislation that allowed them to put 6 cubic feet of equipment on the top of the pole and 28 cubic feet at the base. That’s a lot of pizza boxes.

What happens whet 4-6 wireless companies deploy small cells separately

This graphic shows what happens when multiple companies each seek to deploy their own poles at 200’ apart. While the wireless companies try to paint a very pretty picture of the distance that their small cells can cover, they very carefully omit to share that small cells (especially fixed wireless) are sensitive to line of sight issues and other degradation of signal from foliage and buildings and even weather. To resolve these issues, they overbuild the numbers of sites to address these issues and capacity issues as well.

To see our upper-level recommendations regarding evaluating small cell leasing for public utilities and coops in the wake of state small cell legislation please see the presentation in its entirety.
If you are interested in learning more about these and other recommendations, please don’t hesitate to contact us.

American Tower’s Aggressive Response to Build-To-Relo Towers

June 11, 2018 by Ken Schmidt Leave a Comment

Previously, we wrote about Tillman Infrastructure, a tower company that has expanded significantly to build towers near existing towers to encourage wireless carriers to move from the existing tower to the new tower, all in an effort to reduce lease rates. For over a year now, tower companies have publicly discounted the impact of these “build-to-relo” tower companies as non-threatening. However, in the clearest confirmation yet that the public tower companies are worried about the build-to-relo tower companies, we are starting to see concentrated efforts by American Tower to combat these new tower company threats.

Recently, we noticed that American Tower was calling its landowners to convince them to call American Tower if they noticed a new tower being proposed or constructed near the tower owned by American Tower on their property. We questioned how effective this would be, as we suspect most of the relocation towers are being built in areas where there is no zoning, so the landowners wouldn’t know about it until a new tower was actually being built, at which point it would be too late.

We were recently shown a copy of a letter that American Tower sent its vendors in the last week that indicates American Tower believes the practice of building towers in close proximity to existing towers is “unnecessary, short-sighted, and reckless.” American Tower further suggests that this practice “harms existing landlords, needlessly clutters otherwise peaceful neighborhoods (ask the neighbors of any existing American Tower about needless clutter), wastes precious resources, and does nothing to improve the coverage, capacity, or quality of today’s stressed wireless networks.” In a further appeal to governmental entities, American Tower further states that “it could even delay the badly needed deployment of next-generation wireless technologies.” American Tower fails to state the real reason they object to these efforts – that it removes AT&T or Verizon or T-Mobile, or more than one, from an existing American Tower site, thereby significantly reducing revenue and reducing same tower operating margin even more.

American Tower then indicates in the letter that its vendors must sign an amendment to their Master Contractor Agreement with American Tower that states the vendor will not “participate in the development of any new towers that are within a half mile of an existing ATC site.” Failure to sign the amendment by June 15, 2018 will result “in an immediate change in your vendor approval status, up to and including removal of the ability to be hired for work directly by ATC and the ability to access any ATC site on behalf of others.” (Bold emphasis added by us) In short, if you don’t sign, you can’t work for us and you can’t visit our sites while doing work for anyone else.

We have to question whether there wasn’t a less heavy-handed method of addressing the problem that didn’t alienate contractors and force them to consider whether they really care to work for American Tower at all. First, the universal half mile restriction is unreasonable. It is completely possible that a wireless carrier would want to build a tower within a ½ mile of an American Tower site for reasons that have nothing to do with relocation. Furthermore, the language of the amendment includes all American Tower sites including managed sites, which means a vendor would not be able to participate in the development of any tower near sites that American Tower manages, which includes thousands of vacant rooftops that have no wireless carriers using them. Secondly, the decision by American Tower to bar vendors that don’t sign from accessing American Tower sites on behalf of other parties seems vindictive and ultimately divisive. While American Tower suggests in the letter that they try to act in an “ethical and professional manner in each of the 16 countries where we operate,” we question whether this restriction is more vindictive than professional. Are they also going to restrict companies that aren’t their vendors from accessing American Tower sites if they find they worked on competing towers? Would this extend to all vendors?

While we understand that reasonable people can disagree on the need for the amendment to the Master Contractor Agreement given the circumstances, we have to believe there was a better way to handle this matter. The short time frame for response given and the threatening tone of the letter suggests a disdain for all contractors who do work for American Tower, regardless of their intentions or involvement in actual relocation. This letter seems focused on penalizing all contractors and exacting revenge on the carriers who are considering relocation. This letter also completely fails to acknowledge American Tower’s own role in this matter in their unwillingness to negotiate lease amendments with AT&T and Verizon that would encourage them to stay on the towers as opposed to resorting to moving their equipment to adjacent towers.

We agree that tower companies need to protect their assets and that building new towers near existing towers doesn’t make a lot of sense, but this particular approach seems rash and not fully baked. It alienates contractors and ultimately won’t have that much of an impact on the build-to-relo tower companies. Fortunately, there is no shortage of work these days for contractors, so we wouldn’t be surprised if some of them just choose not to sign this agreement. One has to wonder what will happen after the first time American Tower rejects contractors that are hired by a carrier to perform modification work on that carrier’s site at an ATC tower.

Lendlease’s New Renegotiation Efforts on Sprint Rooftop Sites

May 25, 2018 by Ken Schmidt 3 Comments

If you have followed our musings over the years, you know that we don’t like the lease renegotiation industry. In the past we have observed some companies (not Lendlease, Tower Alliance, or Softbank/Sprint) use high-pressure tactics, sometimes outright misrepresentations, and downright aggressive salespeople to convince landowners to agree to terms that are not advantageous to the landowner. These tactics can tarnish the landowner/carrier relationship in our opinion. Some renegotiation is necessary, especially on overly high leases; however, the lease renegotiation industry often targets all leases, not just those that should be reduced – all in the vein of needing to reduce costs and to generate a fee for the lease optimization company. Again, we don’t object to the renegotiation efforts themselves, but we do strongly believe that the tactics used can be shady and manipulative. Recently, we have become aware of some letters and requests that Lendlease (or their agents, Tower Alliance) are using with building owners with Sprint leases that we believe are not advantageous for the landowner/building owner.

First a little background. In late 2017, Lendlease (a global infrastructure company that has formed a tower company) and Softbank (majority owner of Sprint) formed a joint venture to acquire 8,000 cell sites from Sprint across the US. We believe that these acquired sites are mostly rooftops. We suspected at the time that this was a financing transaction that Sprint entered into because it knew that if a Sprint/T-Mobile merger came to pass, Sprint might end up terminating a good number of those leases. We suspect that Lendlease/Softbank paid a reduced value for the leases as compared to what the market was paying, probably because both parties knew of the potential risk from a T-Mobile/Sprint transaction. You might ask why Lendlease/Softbank would buy these leases if there was potential risk? There are three reasons:

1. They know how long Sprint is likely to continue using those leases or have negotiated a guaranteed term.

2. They intend to try to “remarket” the Sprint lease space to other carriers if and when Sprint terminates.

3. Lendlease sees the potential to renegotiate with building owners to expand the Sprint lease area and, even if Sprint doesn’t terminate, still lease space to other carriers.

Fast forward to today and building owners whose Sprint leases were acquired by the Softbank/Lendlease joint venture are being contacted by third parties like Tower Alliance to “renegotiate” their leases. Tower Alliance (hired by Lendlease to renegotiate on the JV’s behalf) shares industry articles like “A merged Sprint/T-Mobile will shutter 25,000 towers, and Crown Castle with suffer most” and “Sprint and T-Mobile to Merge, in Bid to Remake Wireless Market”. The email our client received contains these articles and includes the following justification:

It was a pleasure speaking with you this morning. The intent of my telephone call and this follow up email is to inform you of the project currently underway in the US by the Sprint/Lendlease Joint Venture as described in the press release and Letters of Authorizations. Sprint is assessing all of its rooftop network real estate in order to assure maximum cost efficiency. It has relocated many sites that are not efficient. The site as referenced above currently remains one of a group of sites identified as a cost efficiency target in the Sprint/Lendlease Joint Venture. In addition, I have attached some press releases speculating on the outcome of the announcement regarding the possible merger of Sprint/T-Mobile for informational purposes only. My goal is to have an amended and restated lease executed once we have negotiated the most favorable terms for the mutual benefit of both Landlord and Tenant.

Before we go on to the “ask” from Lendlease and why we recommend that building owners don’t consider it seriously, we have to question the statement, “It (Sprint) has relocated many sites that are not efficient.” Unless they are referring to lease decommissions from the Clearwire/Nextel portfolios, we are unaware of any sites that have been relocated by Sprint due to cost efficiency. Perhaps there are some, but we haven’t seen them. At any rate, we highly doubt many is more than 50.

Tower Alliance on behalf of Lendlease then asks for a number of concessions from the building owner on the new lease, which we have listed below along with our thoughts on why such changes are ultimately really bad for the building owner.

What happens if the landowner doesn’t agree to these really bad terms? Tower Alliance suggests that “if we aren’t able to come to a new agreement, the tenant will be forced to evaluate alternative site locations.” Note that they don’t say they will terminate the agreement – there has been litigation previously between landowners and another carrier that clearly prevent carriers from saying they will terminate if they don’t get their desired terms. However, the language is carefully worded to imply that termination is a risk. In reality, by not signing, in most cases, the landowner will be in exactly the same position both now and in the future. Sprint is either going to terminate or not. Another replacement carrier will either be interested in your rooftop or not. This deal doesn’t change either of those eventualities for most landowners. There will be a small subset of high-dollar Sprint rooftop leases where Lendlease may end up terminating and moving to a new rooftop. But for most landowners, this proposal from Lendlease is not a good deal and is one we would advise against. If Sprint and T-Mobile don’t merge, there is even less of a reason to agree to these terms. Fundamentally, we don’t like this type of renegotiation effort and will strongly counsel our clients against agreeing to these terms.

Got a Sprint lease and feel anguish over what to do? Contact us and we will be happy to discuss your situation and identify whether we can provide any value to you in your decision-making process.

20 Things Leaseholders Must Know About the T-Mobile/Sprint Merger!

May 16, 2018 by Ken Schmidt 1 Comment

Recently T-Mobile and Sprint announced a merger that will make them the second largest wireless carrier in the US. For more details, please see this article we posted the previous Monday on LinkedIn regarding the impact of the T-Mobile/Sprint merger on the public tower companies. Already we have received numerous emails and calls regarding what landowners should expect regarding their Sprint or T-Mobile leases.

Here is what you should know:

1. The merger still has to be approved by the Department of Justice and the FCC.

2. DOJ and FCC approval probability are less than 50% but may improve if the combined company is willing to divest spectrum or markets.

3. Assuming the merger is approved, the combined company will be terminating 35,000 cell sites out of 110,000 combined.

4. This will occur over multiple years.

5. But, it is highly doubtful that any terminations will occur within 18 months.

6. Sprint sites are definitely more likely to be decommissioned then T-Mobile sites.

7. If you have both Sprint and T-Mobile on the same location, there is a strong likelihood that one of them won’t be there in 5 years.

8. If Sprint and T-Mobile are on separate structures near each other, there is a strong likelihood that one of them won’t be there in 5 years.

9. There will be a small percentage of occasions where it makes more sense for the company to keep a Sprint site over a T-Mobile site.

10. There will be even a smaller percentage of occasions where both sites will be kept.

11. If you received a lease buyout offer regarding a T-Mobile or Sprint lease or a tower company lease where T-Mobile and Sprint are sub-tenants, you may see the offer pulled back or reduced.

12. If you have already signed an agreement to sell a T-Mobile or Sprint lease, don’t be surprised if the buyer looks to renegotiate the terms or chooses not to close.

13. The combined company has said that it will be “business as usual” while they try to get approval for the merger, but we think there will be some changes. Such as:

14. If you recently signed a lease with Sprint or T-Mobile which hasn’t commenced, they may choose not to go forward with the lease.

15. If you have been approached by either company for a new lease, they may go quiet for some time while they try to figure out what they need or don’t need in the combined network.

16. For some proposed equipment modifications on existing sites, there may be a delay while the combined company examines what equipment they need or don’t need at each of their sites.

17. Leaseholders should definitely not rush to renegotiate their leases even though there will likely be a lot of marketing directed at them suggesting that time is of the essence.

18. After past mergers, the market typically takes some time to adjust, meaning that valuations are thrown out the windows but will ultimately rationalize.

19. Despite this volatility, you are unlikely to get less in the future for your lease either in renegotiation or a buyout than you will the day or week after a merger is announced.

20. In other words, you have time to make an informed decision about your cell site lease assets.

Steel in the Air, Inc. is available to discuss your situation and help you understand the ramifications to your cell site leases as needed. Please contact us if you have any questions.

Impact of Proposed T-Mobile/Sprint Merger On Public Tower Companies in US

May 16, 2018 by Ken Schmidt Leave a Comment

Before the announcement by Sprint and T-Mobile of their merger, Reuters ran a story that suggested that a T-Mobile/Sprint deal “may cast shadow over tower companies”. The article points out that one of the major synergies of the Sprint/T-Mobile merger is “decommissioning cell sites”. No surprise here so far other than why the author of this article uses the word “may” in the title- there is no scenario where the tower companies are better off because of the merger than without it. So how is this a terrible not good very bad day for tower companies?

1. Lease Terminations Where Both Sprint/T-Mobile are on Same Tower.

As the article points out – there is ~5% of the revenue from the tower companies where they exist on the same tower. American Tower put out a press release explaining that on towers where both Sprint and T-Mobile have cell sites, their leases represents 4% and 3% of AMT’s consolidated property revenue respectively.

It’s just a matter of time (after the 3-4 years non-cancellable term), but most of the 4% of Sprint related revenue where both carriers are on the same tower will be gone.

However, what the American Tower press release fails to address is the following:

2. Lease Terminations Where Both are on Nearby Towers or Structures.

You may not recall but both Sprint and T-Mobile sold towers to multiple tower companies. (Sprint/Nextel sold to SBAC, CCI, AMT, T-Mobile sold to CCI and AMT and was the anchor on many of the build to suit towers purchased by SBAC). So, looking at same company towers ignores nearby cell sites on towers by other tower companies and even worse, those macrocells on non-tower company structures like buildings, water towers, and billboard. The numbers in the Sprint/T-Mobile presentation are simple enough – the combined company will emerge after a few years with 85,000 macrocells and 50,000 small cells. They indicate that 35,000 sites will be terminated which almost likely be Sprint sites and many of which are not on towers where T-Mobile is as well but on other towers nearby.

3. Fewer New Tower Collocations from Combined Companies.

The tower companies and some analysts love to point out how after the AT&T and Cingular merger or the Sprint and Nextel merger that the combined company ultimately deployed more macrocells than were ultimately terminated. Even assuming that factually this is correct (it’s not for all mergers) there are two significant fallacies in this argument.

First, it presumes that still even more sites wouldn’t have been built if the combined companies had stayed separate.

Fallacy #2 is that the period after these mergers was the onset of 4G and the first round of LTE buildouts, both of which caused a significant amount of cell splitting and infill. That simply won’t be the case this time around. The merger announcement clearly demonstrates that T-Mobile and Sprint are indicating that they intend to decompress (the opposite of densify) their network from 110K current macros to 85K over a few years period. This means 25K fewer macros after accounting for 10K new macros and 35K decommissioned macros. Surely this is less than would have been added by both companies separately. Furthermore, we suspect that the MLAs with the tower companies will mean that many of the new macros will just be replacements of some of the 35K decommissioned macros- yielding slightly less terminated sites for towercos- but also fewer truly additive new colos over time.

As an interesting aside – this also impacts tower companies that are building towers near existing public tower company towers in order to encourage carriers to move off the public tower company tower. With one less potential tenant on ALL towers, what was a slim margin business model becomes even slimmer.

4. Less Upcoming Modification Amendment Activity on Existing Towers.

For the first time in a while, both T-Mobile and Sprint are actively modifying existing cell sites by adding new antennas or replacing existing antennas. These new antennas are significantly larger than the existing antennas due to incorporating MIMO or multiple carrier aggregation. This modification revenue (and guidance related to it) will be reduced. We suspect that Sprint won’t be willing to completely stop its modification activity while waiting for regulatory approval, but there will be adjustment and prioritization. They won’t sink money into the 35K sites that are likely to go away. There may be a delay while the two companies try to rationalize their deployment efforts and determine what technology choices best work for the combined company.

To make matters worse, not only do the tower companies lose some of the current already slated (and included in guidance) modification activity, but also any future amendment activity on top of that from any new collocations and any of the terminated sites. SBAC and AMT can’t be happy with the timing of this announcement- one and two days respectively before they announce their earnings. Should be interesting to see how they make lemonade out of these lemons.

5. Fewer Small Cells.

This won’t significantly impact AMT or SBAC, but it will impact CCI. While the combined company will be larger in terms of pops, we won’t remotely see the same number of small cells from the combined company as we will from each of them separately. During the investor call on the merger, they directly indicated this. Furthermore, with AT&T and Verizon more than capable of going it alone on the small cell front due to the substantial fiber holdings, Sprint and T-Mobile both seemed primed to use a third party small cell developer like CCI because both lack any substantial fiber of their own. CCI keeps comparing small cells today to towers in the early days.

One HUGE difference now?

A post T-Mobile/Sprint merger environment has 3 active participants, whereas the late 1990s- early 2000’s tower environment had 6-7 active participants in most markets. (Don’t even get me started on the Facebook like argument that TMO/Sprint seems to be preparing to argue that 5G has 6-7 active participants). There fundamentally cannot be the same upside in a three-carrier market especially when the third carrier just announced that they intend to primarily use macros and superior spectrum to densify their network for 5G.

Personally, I don’t believe that T-Mobile/Sprint will be able to support true 5G use cases with 50,000 small cells, but this merger if consummated definitely causes greater concern over the returns from small cells. Fortunately for CCI, they already announced earnings, so it may be a while before we get any substantive guidance from them. Nonetheless, the ROI for their fiber acquisitions just got a bit longer.

Want to Know More?

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Opinion: Stories of small cell application agreements failure between carriers and cities are too often part of the wireless lobby efforts (in the media) to maintain profit margins.

April 11, 2018 by Ken Schmidt 2 Comments

This type of fluff pieces provide no actual statistical data on how most cities treat applications for small cells instead relies upon anecdotal examples from isolated cities. There is no statistical information about how many municipalities “are acting as if they’re 100-foot towers”. No study or other reference proving this oft-stated dictum from the carriers and their lobbyists.

Where the author chooses to cite an actual city with high lease rates for small cells, he fails to acknowledge that the cited lease rates for Newport Beach are historic data from old DAS agreements. Furthermore, he ignores that the wireless providers in CA still have the right to utilize Joint Pole Authority poles from utilities at lower rates. This type of piece suggests that the municipalities alone are restricting the deployment of 5G- and fails to acknowledge that there are actual utility poles available to the wireless carriers that are available at federally prescribed rate schedules. This article also ignores the fact that many times the wireless carriers prefer to install new poles in the ROW because it is cheaper for them not to have to do a structural analysis on an existing pole despite the added impact on residents aesthetically and to the city from a public safety and operational standpoint.

5G isn’t imperiled because of municipalities- its imperiled by wireless carriers desire to maintain 40-50% margins and their concern that such margins may erode without public welfare. It is imperiled by the unwillingness of utilities like the very companies asking for relief to share their poles- either existing ones or new ones. I don’t doubt there are difficult municipalities and those that may be overreaching- but using unsupported platitudes to justify a fluff opinion piece like this is a disservice to the discussion. But then again, that seems to be the wireless industries playbook. Point to the bad actors without providing any substantive data on how many good actors there are.