Wireless Telecom Blog

T-Mobile Sprint Merger Backup Plan?

June 12, 2019 by Ken Schmidt 2 Comments

One of our municipal clients has a water tower with T-Mobile and Sprint on it. T-Mobile has proposed to add antennas and equipment with Band 41 (Clearwire 2500 MHz spectrum) to T-Mobile’s rad center. See the image below with the antennas that service B41. Because the lease the client has with T-Mobile prevents the addition of new antennas, they are required to get an amendment. T-Mobile is seeking to have the amendment signed prior to the merger confirmation.

For us, it is difficult to price the amendment because the lease does not allow restriction of equipment based upon the specific frequency, but only on the size, weight, and the number of the antennas. Thus, if the merger occurs, we can make it more difficult for T-Mobile to merge the equipment and terminate the Sprint lease, but not impossible. However, if the merger does not occur, if the client signs an amendment that could allow Sprint to terminate their lease regardless of what happens with the merger.
When we inquired with the T-Mobile agent about making the amendment contingent upon the merger happening or not, we were told that T-Mobile’s legal department would never agree to such a limitation.

Is there a backup plan like spectrum sharing?

T-Mobile’s desire to sign the amendment but unwillingness to make it contingent upon the merger makes me wonder whether there is an alternative plan in the works in the event that the merger is not consummated. This could be a spectrum sharing agreement. This isn’t unprecedented- see this article. But in that case, the spectrum to be shared was PCS spectrum (1900 MHz), not Clearwire’s spectrum (2500 MHz). Thus, the existing agreement would need to be revised or a new one entered into.

Sprint has the spectrum but is a dead company walking without additional capex to deploy 5G. Over time, the distinction between those who invest in 5G specifically in densifying their network will prove greater than that with LTE and 4G. T-Mobile desperately needs mid-band spectrum as running 5G on 600 MHz will be sufficient in areas where there isn’t a significant amount of traffic but will limit their overall network performance elsewhere.

So What to Do?

First, off, it is hard to generalize a course of action that works for every site. Each situation will be different and tied to the specific lease language and exhibits. In this case, the easy but ultimately unfruitful answer is to either reject the request altogether or ask that the amendment rent match that which would be lost with a Sprint lease termination. T-Mobile won’t agree to the latter option so the only option we see is waiting until there is further clarification on the merger . The lawsuit filed yesterday by 10 states against the merger may delay the process and certainly makes the merger probability less certain.

We are curious about what others have done or will do in a similar situation. If you have successfully negotiated through this issue, please either leave a comment here or contact us or private message us if you don’t care to take it public.

Remember When Sprint Only Had 12 Employees? I don’t.

June 4, 2019 by Ken Schmidt Leave a Comment

One of the joys of being on this side of the business is the relationships we form with landowners- both leads and clients. This morning, I spoke with a lead who owns some land near Kansas City where Sprint PCS erected one of their first PCS towers. The subject tower has its own storied history- like others moving from Sprint PCS to Pinnacle Towers to Global Signal then to its current owner, Crown Castle.

The lead recalls when he was first contacted by someone from Sprint PCS when they only had 12 employees. The Sprint employee talked of building a network of towers across the country – Sprint planned to spend “over $1 billion” dollars doing it. The landowner was pretty skeptical but signed on anyway. Here’s an old Sprint PCS commercial for your enjoyment.

At that time, he recalls that the only cellular service available was from AT&T. It was expensive- $1.05/minute and it cost $300 to install the bag phone in the car. To use the service, you had to wait until the red light switched to green because the system could only handle a limited number of users simultaneously. It wasn’t that reliable and the landowner welcomed any competition.

Contrast that with today’s cellular systems. Wireless carriers spend $1 billion per quarter or more building out their networks. It’s rare to speak with an actual employee of the company building the tower on the property. Minutes of use cost next to nothing with unlimited plans. Sprint has 30,000 employees. While the cost of the cell phone has gone up ($300 in 1996 is equivalent to just under $500 today), they do so much more. Back in 1996, Sprint’s stock price was at $20.50/share. Today it is just under $7/share.

Care to see our wireless history? It obviously hasn’t been updated in a while (Cricket and MetroPCS are still on it), but you can see Sprint’s history.

Seem Like Offers to Buy or Extend Your Cell Tower Lease Are Getting Better?

May 31, 2019 by Ken Schmidt Leave a Comment

It Is Not Your Imagination. The Offers Are Better.

In just the last week, we have received five separate inquiries from past and potential clients who had recently received a cell tower lease buyout offer that was noticeably better than ones they had received from the tower company previously. Those who reached out felt that there must be something going on in the industry. They are asking the question, “Is this related to 5G?”

Yes – Offers Are Related to 5G

There is so much hype about 5G out there now – it is hard to pick up a newspaper or browse the web without seeing multiple articles on what 5G is and what it can be. The investment community has definitely taken notice. We are seeing more new entrants with serious funding ready to purchase leases than we have since 2012-2013. We have been contacted by multiple financial groups who desperately want to “get in” on 5G and are seeking our consultation on how to do so. These groups sometimes have more conservative Return On Investment criteria and are willing to make higher offers as a result.

Tower Company Valuations Are Up.

It doesn’t hurt that tower company stock prices are up as well. Both American Tower Corporation ($AMT) and SBA Communications ($SBAC) are at all-time highs as of the end of May 2019, and Crown Castle ($CCI) is near its all-time high. When tower company stocks are up, they have more capital to purchase leases. Coupled with the low cost of capital and their recent conversions to REITs, tower companies have every incentive to convert leases (long-term operating expense) to easements (upfront capital expenditure).

Make No Mistake – It Is A Seller’s Market.

As new buyers come into the industry looking to acquire assets (leases or towers), the tower companies are forced to be more aggressive in their offers to purchase or extend their own leases lest they lose the lease to a third party that looks to capitalize on the lease in the future. Tower companies do not want to have to deal with a third-party owner, who is better informed than the landowner in most cases. The net result is that landowners are receiving escalated offers from the tower companies for lease buyouts and for lease extensions. One downside, though, is that the efforts by some of the outside agents who are trying to close these deals are getting more egregious, with some outright lying and suggesting to landowners that towers are going away due to 5G and small cells. (HINT: they wouldn’t be buying or extending if the towers were going away!)

Landowners now have more options than ever to sell their lease or to extend their lease. Tower companies and third-party lease buyout companies are becoming more creative in their offers. One of the techniques that they use to inflate their offers is to use payments over time. By showing you the overall amount they will pay, they hope that you aren’t smart enough to understand the time value of money and the additional risk you take on by doing a lease buyout under an installment payment plan. Either way, the offers are getting better, which is encouraging landowners to consider selling or extending. Clients we advised years ago are getting offers that are at or above what we recommended they ask for.

But It May Not Be The Perfect Storm.

We previously thought that the market couldn’t get much better given that interest rates are so low and tower company stocks were high at the time. Candidly, we don’t know. It remains to be seen whether the new entrants to the market are capable and serious. In Steel in the Air’s 15 years, we have seen multiple investors look to enter the sector but bow out when they realize how hard it is to scale the acquisition of leases or towers.

There are other factors that could influence offers positively or negatively. Will interest rates climb and cost of capital increase, thereby making it more expensive to buy leases? Will the tower companies continue to be the darling of the stock market as investors chase anything related to 5G? Will Sprint/T-Mobile be able to pull off a merger? If they do, will a fourth wireless carrier enter the market?

Need Help Deciphering Your Options?

We can help. We have advised 3,000 clients over the last 15 years with over 4,000 assessments. We track data from thousands of lease buyout and lease extension offers. Our breadth of data allows us to identify trends in the market when they start, not follow them after they have already changed direction.

We can provide consulting services on lease buyouts, andlease extensions/expirations. We can broker your lease(s) or tower(s) to maximize your sale price. We can help you determine whether you should consider selling, consider extending, or simply keep the lease as is for now. Our clients run the gamut from individual landowners to large multi-national corporations to large cities.

We welcome the opportunity to discuss your situation with you further. There is no cost for the initial call, and we do not pitch you services that you do not need. You may be worried about getting added to a mailing list or being called repeatedly if you take us up on our offer of a free initial consultation. Don’t worry! Just let us know up front and we will make sure you never hear from us unless you want to.

Call us for a free initial consultation.

One Step Forward, Two Steps Back; Verizon’s Small Cell Agreement with Syracuse

May 27, 2019 by Ken Schmidt 1 Comment

As a resident of the Syracuse area, I am excited to see Verizon and their interest to bring 5G via 600 small cells to our fair City. However, in their rush to try and become the “first fully 5G city,” the City of Syracuse seems to have bent over backward when entering the agreement with Verizon for small cells throughout the City. Make no mistake, there are benefits to becoming a 5G city, but this agreement no more means Syracuse will be the first fully covered 5G city than it does for other cities where Verizon promised the same thing when pitching similar lease agreements. But at least some of the other cities didn’t enter into such a one-sided agreement. For example, see agreements entered into with Sacramento, San Diego, or San Jose, each of whom receives better terms and conditions than Syracuse did and will have a robust small cell deployment as well.

SYRACUSE COULD NOT PREVENT VERIZON FROM ADDING SMALL CELLS TO ITS RIGHT OF WAYS

It is important to realize that Syracuse really didn’t have much choice of whether to allow Verizon to access the city public right-of-ways and structures due to the FCC’s Third Order regarding small cells. While the City could have negotiated a higher amount for the pole access rights or permit fees, they would have had to demonstrate that their actual costs in reviewing small cell applications and maintaining the right-of-ways were higher than the nominal fees allowed for in the FCC Third Order. As it stands, the City had to reduce its annual fee for small cells from $950/year to the FCC mandated $270/year. Over the next 10 years, that means that the City will receive $1.6M from Verizon instead of $5.4M for the small cells.

BUT THEY COULD HAVE ENTERED A LESS ONE-SIDED AGREEMENT

Our concern isn’t that the City entered an agreement for 5G or that they did it with Verizon. Our objection is with this actual agreement. It seems that the City was so anxious to become a leader in 5G that they ignored the obvious issues with the agreement. Here are our concerns with this agreement:

The City has granted rights to Verizon for upwards of 45 years when it didn’t have to. The city signed a master license agreement is for 20 years, with a very limited right for the City to terminate the agreement. The master agreement details the general rights of the parties and is for 20 years. Then there is a separate pole license for each pole that will be used or installed that runs up to 25 years from the date the pole was installed. Thus, if a pole is installed in year 20, it will be there for another 25 years thereafter. In short, the City is entering a possible 45-year agreement. However, there is no requirement in the FCC Third Order about the minimum number of years a City must sign an agreement for. While Verizon surely prefers a much longer agreement, there are other cities which are entering much shorter 10-year agreements with Verizon. Here we question what benefit, if any, the City gets from a longer license agreement. Verizon retained the right to terminate “at any time for any reason or no reason by written notice to the City,” but the City does not. So, in essence, the City is now committed to this specific agreement legally, regardless of what happens with technology in the future. While there is a limited right to terminate if a court of law or Congress revokes or repeals the Third Order, this is narrowly drafted.
The agreement entered into by the City concedes unnecessary rights to Verizon under contract law. The agreement is substantially the same as other agreements proposed by Verizon to other cities. It attempts to incorporate many of the standards from the FCC Order into the license agreement. The issue here, from a legal perspective, is that these clauses did not need to be in the license agreement. If Verizon felt the city was not adhering to the FCC order or was discriminating against Verizon, Verizon by default has the option of requesting relief from the FCC or filing in federal court for injunction or damages. However, by adding the language in the license agreement, Verizon can now file in state court on a civil claim if Verizon believes that the City is in breach of the agreement. There is absolutely no benefit to the City of Syracuse to including this language in the license agreement.
Other cities have received additional compensation in the form of public safety or IOT monitoring and services, higher fees to help pay for additional staff to review small cells applications. The City of Syracuse received nothing. In fairness, the other cities are bigger and more important to Verizon than Syracuse. Nonetheless, the only concession Verizon appears to have made to the City of Syracuse is the requirement for Verizon to monitor a limited set of small cells for compliance with applicable radio frequency emission standards. There are no actual commitments by Verizon to deploy a certain number of small cells by any date. No requirement to deploy in the poorer areas of the city. No smart city initiatives or commitments to fund research on how 5G can benefit the residents of Syracuse.
The agreement gives the City very limited rights to terminate even if health risks are identified and proven in the scientific community. Syracuse procured limited rights to have Verizon monitor their small cells to confirm they comply with the FCC, ANSI, and OSHA requirements regarding radio frequency emissions. The City, in what appears to be an effort to appease its citizens that small cells are safe, inserted language that requires the testing of the small cells to confirm that they meet the minimum applicable health, safety, and radio frequency regulations. Verizon is required to test up to 5% of all installed poles each year to confirm they comply. Meanwhile, the City is allowed to test any pole themselves for compliance, but they already have this right to test any small cell without the agreement. Conceptually, there could be clear evidence of harm from small cells but no change in the applicable regulations and the City would be powerless to terminate the agreement until the small cells no longer meet the regulations. While we don’t believe that there are health risks from small cells, that doesn’t mean that the issue could not have been addressed better in the license agreement. Alternatively, if the license agreement was shorter in term, the City could have simply terminated at the expiration even if there were no regulations. By agreeing to a long-term license with limited rights to terminate, the City could be legally committed to Verizon small cells in the public right of way even if there is ample evidence of why they should be removed.
By agreeing to such a one-sided agreement, the City has condemned itself to agree to similar agreements with ANY company providing wireless services who want to deploy in the ROW. Under the FCC Order and previous case law regarding the Telecommunications Act of 1996, the City may not discriminate between similar providers of wireless services. By agreeing to the terms with Verizon, the City will have a difficult time agreeing to different terms with other providers regardless of what happens or doesn’t happen with Verizon.

It seems to us that someone was motivated to push this through quickly. Verizon would have entered the agreement without many of the concessions that the City willingly agreed to. Again, while 5G coverage over the City is an admirable goal, this particular agreement is overreaching and could have been drafted better on the City’s behalf. The proliferation of small cells requires careful management by cities. As we have pointed out before, Verizon was on the winning side of the FCC 3^rd Order and cities are on the losing side. This particular agreement though could unnecessarily put Syracuse even further on the losing side. As a resident of the Syracuse area, I applaud the City entering an agreement with Verizon for small cell deployment, just not this particular agreement.

Our Q1 2019 Wireless Update Top 10 Takeaways

May 14, 2019 by Ken Schmidt Leave a Comment

A few weeks ago we visited a large investment bank to present our Q1 2019 Wireless Update findings to a group of investors and attended some private meetings. Here is a short recap of our top 10 findings.

Applications for new towers has been rising slightly.
Of applications to the FCC for new structures, nearly 70% were from mid-size tower companies or from large carriers.

3. Of the applications from mid-size tower companies, a large percentage are for build-to-relo (BTR) towers. BTR towers are purposely built near existing towers with the intention of pilfering tenants from the existing tower.
4.Of all applications, over 40% are for BTR towers.

5. Tillman Infrastructure was the most active of all mid-size tower companies by a large margin, not surprisingly given that they focus on BTR towers.
6. Of the applications for BTR towers, 80% are within ½ mile of $AMT or $SBAC towers.

7. Submitting an application doesn’t mean the tower will be built though- as less than 33% of applications are currently shown as built.
8. Texas was the most active state for applications.

9. Of the carriers, $T was the most active in terms of new tower applications.
10. Guess who wasn’t? $AMT, $CCI, $SBAC, $S, $TMUS

Care to learn more? We can be retained to provide bespoke research on topics specific to the tower industry. Contact us if you want to talk about what we can do to help you understand the tower industry better than your peers.

Will T-Mobile/Sprint’s Merger Plan for 5G Home Broadband Work without Significantly Higher Capex?

April 8, 2019 by Ken Schmidt Leave a Comment

The 3/6/19 FCC Filing by T-Mobile attempts to recharacterize how the merger “benefits” the consumer by expanding fixed or nomadic wireless broadband service. The filing suggests that T-Mobile will utilize the combined assets of the two companies to provide an alternative to home wired broadband in LTE in the near term and 5G in the future. This is a laudable goal; however, T-Mobile’s filing lacks a significant number of concrete details.

There are no shortage of claims about how wide and how fast the service will be, but barely any concrete details about how they technically intend to pull it off other than a single expert’s statement that the they reviewed the proposed concept and feels that T-Mobile and Sprint’s network is up to the task without detriment to the underlying wireless subscribers. However, there are no numbers or documentation supporting these conclusions in the filing.

The FCC has stopped the review period pending comments for 30 days. With T-Mobile providing nominal actual evidence of their claims, how can the average (or even intelligent) commenter question or comment the purported network’s benefits? It seems like this filing is an attempt to appeal to government officials who favor reducing the Digital Divide but may not know enough to question whether T-Mobile/Sprint’s merger will or will not significantly reduce the divide.

There is no doubt that adding Sprint’s 2.5Ghz spectrum to T-Mobile’s 600, PCS, AWS spectrum will enable additional capacity while expanding coverage. However, 2.5 GHz requires three to three-and-a-half cell sites to cover the same area as 600MHz. Conceptually, the 600MHz will be used for wide area coverage and 2.5 GHz for capacity. The issue is that T-Mobile’s rural cell sites weren’t designed for 2.5GHz, and Sprint virtually stopped building new rural sites years ago. While 600MHz will be suitable for LTE-A and other technologies, it also handles less capacity than 2.5GHz. Thus, our questions:

What type of service will T-Mobile be able to support with its existing macrocell network?
Will the higher speeds and capacity be reserved only for those users living within the 2.5GHz coverage areas (With or without HPUE)?
Will the combined network support the additional burden of wireless broadband to the home? Or will it require a substantial amount of new macrocells in unserved and underserved areas to support broadband to the home, which, as T-Mobile claims, will be provided above and beyond what they have already agreed to provide to wireless consumers?
While T-Mobile is promising not to impact their current service levels to existing wireless subscribers, will the addition of home broadband limit future service upgrades to wireless consumers? (Put another way, is T-Mobile trading future wireless expansion and improvement for better home broadband service?)
How many people will use the service? And what caps will there be on the service? AT&T’s 5G service is limited to 15GB/month in urban areas, and their 4G LTE-based fixed wireless broadband in rural areas is capped at 215GB. However, they only provide it in specific areas.
What assurances will T-Mobile be willing to give to the end user? With the number of users inversely impacting available capacity, will there be guaranteed uptime and speeds? Or will this be like satellite broadband, where it is either significantly more expensive to use in the day or just outright too slow?
What good is the promise of rural broadband if only so many people can sign up for it and only if close enough to a macrocell? I would agree that something is better than nothing- but is this factor alone enough to justify approval of an otherwise anti-competitive merger?
To further complicate the issue, how will rural sites be capable of handling the required backhaul to support service that is used at home and is four to five times faster than what T-Mobile currently provides under LTE? Even if we assume that ¾ of T-Mobile sites are connected to fiber, the majority that aren’t connected are assumedly in rural areas- i.e. the areas where the digital divide is most prevalent. Will the existing backhaul be enough? If not, will new fiber or microwave backhaul be needed?
If they approve the merger, will the FCC mandate conditions on coverage, speed, caps, and availability? Will they limit future rate increases to prevent T-Mobile from setting arbitrary low rates now but ultimately increase the rates in areas where they have no competitors?
If the FCC and Department of Justice allow the merger and place conditions on the combined company to meet minimal levels of service to consumers for fixed or nomadic broadband, will that reduce the 35,000 duplicative sites that T-Mobile claims they will be able to decommission (or increase the 10,000 new sites they say will be built) if the merger is approved?

The filing seems to raise more questions than it answers. While having additional broadband providers available to consumers is an admirable goal, especially in underserved areas, the filing seems short on details and technical specifications that would allow independent commenters to be able to evaluate the merits of T-Mobile’s claims.

Winners and Losers of the FCC Small Cell Order

January 25, 2019 by Ken Schmidt Leave a Comment

On January 14, 2019, the FCC’s Declaratory Ruling and Third Report and Order went into effect and significantly reduced the rights of state and local public entities regarding their control of the placement of small cell or small wireless facilities. It limited their ability to charge wireless service providers for access to municipally owned poles in the public rights of way. It also restricted what municipalities can and cannot require access to the public right of way (PROW).

WINNERS:

AT&T and Verizon. You have to hand it to these two companies – the sheer amount of money they have paid out for lobbying and studies at the state level and the national level is dizzying. It was effective and well-orchestrated. At the end of the day, the municipalities didn’t have a chance – they were unprepared, uncoordinated in their response, and didn’t realize the consequences of their inaction until too late in the process. AT&T’s lobbying efforts dwarfed those of the municipalities at every level. Furthermore, AT&T and Verizon successfully scared (bribed?) the FCC and state legislators into believing that a vote against this 5G Order or statewide legislation is paramount to a vote against national security and against rural broadband. Even for legislators who knew that they would never see any small cells in their represented areas and would have voted against the legislation couldn’t else they be seen as voting against broadband to underserved areas.

As a result, AT&T and Verizon now have virtually limitless access to public ROWs at rates 1/6th to 1/8th of what they were agreeing to an arm’s length negotiations in those same states prior to state legislation. While other wireless carriers will share in these benefits, make no mistake, the Order will construe greater benefits to AT&T and Verizon by nature of their significant existing fiber holdings and larger CapEx budgets toward small cells. While Sprint/T-Mobile and other smaller carriers will also see some benefit, their lack of significant owned fiber holdings and limited CapEx will push them toward leasing other companies’ fiber/pole infrastructure. Furthermore, both companies are distracted otherwise with the possible merger. In addition, because the state legislation prohibits the charging of franchise fees, AT&T and Verizon will now be able to offer wireline-like services without having to pay the same fees as their wireline competitors.

Crown Castle. Crown Castle’s strategy of acquiring large fiber providers in the top 25 markets looks even better now. With reduced restrictions on the placement of small cells and new poles in ROWs, Crown Castle’s available fiber assets will be easier to access by wireless service providers. We specifically note that Crown Castle has fiber in areas in which it has historically been more difficult or costly to gain access to the ROW, like New York City and San Francisco. These also happen to be areas with pent-up demand due to spectrum deficiencies by some wireless carriers. However, the same benefits that Crown Castle will receive in terms of direct access to fiber will be shared by other competitors and by the wireless carriers with their own fiber holdings. Historically, Crown Castle has created a value-add proposition for itself by procuring agreements with cities for access to PROW that reduces the time to deployment. That value-add proposition is eroded somewhat by this Order, as the carrier’s themselves can deploy small cells and fiber much easier in what were previously difficult areas to deploy without a significant time delay. Furthermore, if a wireless carrier doesn’t like the terms being offered by Crown Castle either before they deploy or after they deploy small cells on Crown Castle fiber, there isn’t the same barrier to entry that there has been historical with macrocell towers. The fiber/small cell model just isn’t as sticky as macrocell towers, and we have already talked to private companies that are preparing to enter the space now that the regulatory burden is clearly defined and limited.

OEMs and Service Companies. While the jury is still out on whether the Order spurs significantly greater cumulative wireless CapEx, we do expect that it will cause reallocation of CapEx from macrocells to small cells across all the Big Four carriers. Some of the top cities in terms of spectrum limitations for the wireless carriers are also in states that have not previously approved small cell legislation. Now that the Order is final expect to see some adjustment of overall Capex to those OEMs who are farthest along and have the size to meet the carrier needs in the outdoor small cell realm (Samsung, Nokia, Ericsson) and those who provide the nuts and bolts that enable fiber connectivity like CommScope. However, both Verizon and Crown Castle suggested in earnings calls towards the end of last year that they did not expect to see meaningful increases in small cell activity- instead suggesting that they were already running at capacity.

Attorneys. With the first round of lawsuits challenging the order filed and more on the way, attorneys on both sides will be well fed for the coming years. Furthermore, we anticipate that some cities will be sued as the wireless carriers look to gain access to difficult areas and push the interpretation of the Order.

LOSERS:

Cities. There is no way of sugar-coating it. Cities lost big. Not only did they lose the additional income from small cells on city-owned infrastructure, but they also lost the ability to dictate requirements for how and where small cells are deployed. They have no means of ensuring that all citizens benefit from 5G. They have limited control over the placement of new poles and can’t require the shared use of the infrastructure. They get all of the burden of small cells without any reciprocal benefit other than vague promises that 5G will generate what industry speculatively claims will be hundreds of billions of dollars of economic benefits. The severity of the problem for cities is further increased by the sheer volume of small cell applications. Only large cities currently have the manpower and the expertise to review small cell applications in bulk. Smaller cities and towns do not have it and will need to add staff or retain outside help. As Arthur Scott of the National Association of Counties put it, “(the Order) forces local governments to make a decision between rubber-stamping applications or facing crippling litigation with these providers in court.” Applicants could submit hundreds or even thousands of applications simultaneously, all subject to the shot clock.

Public/Private Partnerships. If you look at some of the agreements that were negotiated between wireless carriers and municipalities before the Order that include some type of partnership, the only way these came about was due to the cities being able to bargain with wireless carriers by extending pole top rights in exchange for services, including IoT and Smart City services. For example, see the agreements worked out between the City of San Jose and Verizon and AT&T. The new Order prohibits cities from negotiating for these types of arrangements. There is a good reason for this – each of the wireless providers envisions being able to force the sale of these types of services to the cities instead of having to provide them in exchange for pole access. In this environment, Smart City means that the carriers were smarter than the cities.

Citizens. The FCC seems to believe that any investment in 5G warrants near total disregard for local authority. By placing the burden of small cell deployment on cities while simultaneously removing the right for cities to charge or negotiate anything remotely approximating fair market value for use of their ROWs or poles, taxpayers will have to pay the delta between the actual cost of providing access to the ROWs and municipally owned poles and that which the FCC deems fair. Furthermore, they will get taxed further when an AT&T or a Verizon effectively charge the cities for access to these same 5G networks for IoT or other public safety-related purposes. Furthermore, citizens in less profitable areas will not receive 5G services on a timely basis or, in some cases, at all. One study conducted by an investor analyst found that 90% of the small cells being deployed to date are in dense urban areas, with most being in areas with a significantly higher-than-average income. Despite FCC supposition that this Order will spur development of small cells in rural and underserved areas, cities have lost any leverage they have in encouraging or regulating where and how small cells are deployed. While the industry has generated unsupported suppositions that this Order will generate $2 billion that will now go towards small cells, there isn’t any evidence that this will flow to rural areas or underserved areas. Just as corporate tax breaks spurred record stock buybacks instead of in infrastructure investment, raises for employees, or R&D, carriers will either pad their earnings with lower small cell costs or invest faster in the areas where the return on investment is quickest. (As an FYI, $2B is slightly more than what Sprint will spend in wireless CapEx in the past quarter alone. It is a drop in the bucket.)

I think that Blair Levin, (previously with the FCC) said it best:

“Third, the FCC’s draft order is based on a fallacy that no credible investor would adopt and no credible economist endorse: that reducing or eliminating costs for small cell mounting on public property in lucrative areas of the country (thus reducing carriers’ operating costs), will lead to increased capital expenditures in less lucrative areas– thus supposedly making investment more attractive in rural areas.”

Furthermore, those citizens who are lucky/unlucky enough to have a new small cell pole placed in their front or back yard will have to deal with the construction, the ongoing maintenance, and the appearance of a new pole without receiving a substantial benefit from it unless they are subscribed to that carrier.

Indoor DAS. We will readily admit we are going out on a limb on this one, but we expect to see even more pull back from new deployments of traditional indoor DAS as carriers find that access and costs related to capacity deployments are easier and cheaper respectively outdoors. There has already been a shift from carrier funded/leased indoor DAS to building owner funded indoor DAS because the carriers just aren’t willing to spend money to reach anything other than the largest venues or those with enterprise customers.

Tower Companies. While Crown Castle will stand to gain from the deployment of small cells due to their fiber holdings and small cell initiatives, all public tower companies will end up losing some current and some future macrocells that would have otherwise gone on public company-owned towers. We continue to hear of wireless carriers actively comparing the total cost of ownership (TCO) for coverage and capacity solutions, including small cells, DAS, in-building, and traditional macrocells, and selecting the best solution that meets their objectives in the cheapest overall way. Wireless carriers are no longer beholden to tower companies for capacity solutions. Assuming that the FCC Order stays in place, they can just as easily add multiple small cells and avoid costly macrocells or move off existing primarily capacity-oriented macro towers in urban and suburban areas. Make no mistake, there are many locations where macrocells are and will continue to be the best or cheapest option. However, the barrier to entry of competing solutions is definitely lower now than it was prior to the FCC Order. There has been a clear trend of wireless carriers doing whatever they can to avoid new macrocell co-locations on public tower company towers – look for that trend to continue.

What Makes Cell Towers Competitive?

January 8, 2019 by Ken Schmidt 1 Comment

Recently, Fierce Wireless ran an article about AT&T’s threat to public tower companies about how “successful” their tower development project with Tillman Infrastructure has been. The article cites a Morgan Stanley report which claims that “On a national basis in a 0.5-mile radius, ~65% of towers have no competitor and just ~15% have more than one competitor. Within a 1-mile radius, ~45% of sites nationally have no competitor and just ~35% have more than one competitor.”

A tower is considered competing when it fulfils the same coverage or capacity goals or both as another nearby tower. Because coverage and capacity goals can vary widely depending upon the terrain, population density and distribution, time of day, difficulty of zoning, and proximity of other existing sites, there is no uniform distance where a tower would be considered as competing with another tower. We regularly assist our tower company clients with evaluating prospective acquisitions to determine how many competing towers are present across the portfolio of target towers. A tower is considered competing if it falls within the same search area or search ring as another tower. It’s not hard to see that the AMT and CCI towers in the photo above are competitive.

However, when looking at large numbers of towers, it isn’t feasible to look at each set of towers and we must make assumptions. As a rule of thumb, we tend to use the following distances for urban, suburban, and rural areas- ¼, ½, and 1 mile. In other words, if a tower is located within ¼ mile of another tower in an urban area, it could compete for the same prospective tenant. Of course, there are situations where that distance could be less or greater. For ease of analysis though, we utilize these distances.

For example, we previously completed an analysis of our proprietary tower data for a large hedge fund. Specifically, we examined each of the public tower companies’ tower datasets and compared to our own tower data. We looked separately at each large public tower company’s exposure to competitive towers in urban, suburban, and rural areas based upon multiple radii. We chose to use urban/suburban/rural designations instead of BTAs. While BTAs are used by the public tower companies as a proxy for urban/suburban/rural, we find that is misleading as BTAs can include urban and suburban and sometimes rural sub-areas in the same BTA.

We also examined each public tower company portfolio individually so that we could see which company was better positioned for rural expansion, urban infill and densification, and suburban expansion and densification. We also looked to see on average how many competing towers each tower company’s urban, suburban and rural towers had within a distance where a wireless carrier could choose one or the other tower.

We found that on average the public tower companies have .2 competing towers for each of their towers within ¼ mile, .4 competing towers within ½ mile, and just over 1 competing tower within 1 mile on a nationwide basis.

Please note that this doesn’t directly contradict Morgan Stanley’s findings as our methodology looks at average number of competing towers per tower while theirs appears to look at the number of towers with any competing towers within a given distance.

Interestingly, the public tower companies have different levels of exposure to competing towers depending upon whether their towers are in urban/suburban/rural areas with some tower companies having more exposure in rural areas and less in urban areas and vice versa. When you examine how each tower company acquired or built their towers, this stands to reason. SBA chose to acquire towers from other tower companies while Crown Castle and American Tower acquired large chunks of their portfolios from wireless carriers and tower companies.

The tower companies have differing exposure to competing towers depending upon where and how they acquired their towers.

Another point of interest is that there are more competing towers within the assumed “competitive” radii than there were 10 years ago across urban, suburban, and rural towers although this is more pronounced in urban areas as should be expected. We examined the number of competing towers in 2007, 2011, and 2017, and found that the number of competing towers had increased between 25% and 50% between 2007 and 2017. This despite more difficult zoning regulations in many areas that would prevent new towers near existing towers.

Our next near-term project will be using this previous analysis to evaluate how many new towers have been proposed or built near existing tower company towers to date- not just by Tillman but by other build-to-relocate (or BTR) developers as well. If you recall from previous articles, some wireless carriers have simply told any tower company that would listen where they would like to move off an existing tower, with the first tower company to have a tower standing being the one they would lease from.

If you are interested in discussing or purchasing any of our findings, please contact us.

Verizon’s Adds Insult to Injury to Cities After Successful Lobbying the FCC to Reduce City Small Cell Fees

December 11, 2018 by Ken Schmidt 2 Comments

So here it comes – after Verizon, AT&T, and others successfully spent tens of millions on lobbying the FCC and state and federal legislators to provide nearly free access to city public rights of way and infrastructure, Verizon is now using the fact that they were successful in getting the FCC to make the order to further pressure cities to reduce their lease rates on macrocell leases that the cities have with the carriers. And they are doing this prior to the Order going into effect next month. Apparently, their victory in getting nearly free access to ROWs from the FCC without ANY reciprocal burden of providing service to the underserved or less profitable areas wasn’t enough for Verizon.

Here is Verizon’s agent’s latest request to a city client to one of our municipal clients who has several leases with Verizon and other wireless carriers for difficult to replace macrocell sites on City land/towers/etc. Please note that this verbiage is unadulterated other than removal of the name of the City and removal of the rent guarantee amount.

I hope you’re well and Happy Friday!!!

I am the authorized agent for Verizon and they would like to renegotiate the current lease as the attachment attests to.

I’d like to start with saying that Verizon enjoys and treasures the current relationship which is why Verizon would like to renegotiate lease terms and continue a long term (sic) relationship instead of exercising any termination rights they have.

Again, Verizon would like to renegotiate lease terms instead of exercising any termination rights they have. Verizon enjoys and treasures the current relationship and we hope you do too. But timing wise, we need to resolve this soon.

With The (sic) City being the landlord, Verizon understands the reluctance of negotiating or accepting different terms. At the same time, Verizon believes if you understand their point of view, then it makes these tough decisions easier to agree to.

Verizon’s intent is to reduce rent and look into the flexibility to make changes to meet network demand. Why does Verizon want to do this? Legislation and technology have changed.

First, small cell technology and 5G is the future and Verizon’s goal is to update their network accordingly. You can get a quick synopsis of small cell technology here:

https://www.youtube.com/watch?v=0oqITdNQfsg&t=4s – Verizon’s Small Cell video.

https://www.youtube.com/watch?v=YvDuyoXEXJQ – 90 minute installation of a small cell in 30 seconds.

Small cells and 5G has made the older larger towers and antennas expendable especially since the carriers have teamed up with the FCC, state and local governments to stream line the implementation of this new network.You can verify here:

https://www.fcc.gov/5G

https://www.nytimes.com/2018/09/26/business/5g-technology-fcc-rules.html

https://www.bloomberg.com/news/articles/2018-09-26/fcc-seeking-more-5g-deployment-limits-fees-as-new-york-objects – Confirming lower fees for new small cell antennas.

https://www.cnet.com/news/fcc-limits-fees-for-5g-deployment/ – Confirming lower fees for new small cell antennas.

This has all happened within the last couple of months, even though it’s been in the works for years. If you notice, the dates for these articles are 09/26/2018. The FCC just approved this and all the major carriers are moving forward.

The advantage of Verizon partnering up with the FCC, state and local governments is that the fees for putting up the new antennas are much lower than what private land owners charge for the current soon to be outdated towers and antennas. This is why Verizon would like to renegotiate.Verizon is comparing what is more economical in the long term. Verizon is calculating the difference between your rent compared to what it would cost to update the surrounding areas with small cells using the public right of ways.

The FCC has capped the fees and rent to keep them under $1000 per year and average $500. That’s a huge difference from what is currently being paid on the current lease.

Plus Verizon will be submitting a lot of permits for the installation of 5G in your city. So in fact, the city will be making more than the sum of this lease. We are asking for this reduction as a courtesy since we are going to be partners on the next generation network in your city and Verizon sees potential in this site as is with upgrades. Especially with all the work that went into completing this site and lease in the first place.Verizon appreciates your efforts.

In Verizon’s estimation, they feel we can maintain a long term relationship at the current site with the terms I have attached. As a token of good faith, Verizon is willing to guarantee rent for 60 months or 5 years ($xxx,000).This way you can budget with the confidence that the rent money is coming for the next 5 years.

I hope what I have described makes sense and you see Verizon’s point of view. Again, Verizon would like to renegotiate lease terms instead of exercising any termination rights they have.Verizon enjoys and treasures the current relationship and hopes to maintain it for the long term and we hope you do too.

Please respond or call with any questions. I’ll follow up in a few days as well since Verizon needs to resolve this by the end of December and year so their engineers know to include your site or not in the construction of the new 5G network in 2019.

Please forward the email to the decision makers or board since I am the last attempt to solidify a long term agreement.

If the city has no intention of wanting to be a landlord to Verizon, please have them put that in writing or respond to this email so we can have it in writing and inform Verizon.That way Verizon knows exactly where things stand and can plan accordingly.

If the city has a counter, let me know as Verizon will entertain it. I know they’re (sic) offer is low so make sure you counter. No guarantee it gets accepted, but they will review it and move towards an agreement. They want to keep the new rent under a specific number which I’m not previewed to (sic) but I can submit counters.

Out of 90,000 current 4G sites, less than 5,000 sites have been flagged for potential involvement in the new 5G network and this site is one of them. Especially with all the work that went into completing this site and lease in the first place.Verizon appreciates your efforts.

Verizon hopes the city wants to be involved in this relationship long term.

I find the following sections interesting:

Out of 90,000 current 4G sites, less than 5,000 sites have been flagged for potential involvement in the new 5G network and this site is one of them.

Verizon will be submitting a lot of permits for the installation of 5G in your city. So in fact, the city will be making more than the sum of this lease.

As a token of good faith, Verizon is willing to guarantee rent for 60 months or 5 years ($xxx,000). This way you can budget with the confidence that the rent money is coming for the next 5 years.

First, Verizon doesn’t have 90,000 macrocells – so they are including small cells in this count. Secondly, I strongly doubt that Verizon has only flagged 5,000 sites for potential involvement in the “new 5G” network.Third, a 5 year “guarantee” in this business is virtually worthless. Ironically, Verizon already pays the least of the wireless leases this city has in place at this location.

If you have been contacted by Verizon (or their agent Md7) feel free to reach out to us – we can let you know whether there is anything to be concerned with which in most cases, there isn’t. We can help review the proposal and your current lease and let you know if any concessions are worth considering. Please read this article about Md7 first – and then contact us if you need more help.

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.