Towers and Tenant Collocation Rent Trends: 2016-Beyond

In their article “Tower Rents May See Pressure from Carriers”, AGL Magazine cites three sources to justify their overreaching conclusion that cell tower collocation rents may soon see downward pressure. Incorporating statements from Ron Bizick II of Tarpon Towers, Jennifer Fritzche of Wells Fargo Securities, and Alex Gellman of Vertical Bridge, AGL surmises that the traditional tower development business model is transforming. Following is SITA’s response to that assertion.towers

In part, we agree with the statements above, however, there are more elaborate industry dynamics happening above and beyond the assertions in quotes, the significance of which may have been overlooked by the author. Ron Bizicks states clearly that on Build to Suit (BTS) and new collocation leases, which aren’t subject to Master Lease Agreements (MLAs), there will be downward pressure on pricing.  This makes sense but doesn’t support the broader conclusion that tower rents will pervasively decline across the board. We can say that we are definitively seeing a reduction in the number of BTS agreements originating from the Big 3 tower companies; however, we are simultaneously witnessing a significant increase in the number of propositions to landowners from emerging tower companies.  In fact, nearly every week, we are contacted by at least one landowner who is seeking help negotiating a new cell tower ground lease proposed by a small tower company.

Jennifer Fritzche is quoted as saying that AT&T will elect to relocate some of their tower collocations in order to secure lower lease rates. Her analysis is not incorrect here, generally speaking, since in the past, and even recently, AT&T and Sprint have conducted internal audits with the intent of identifying their most expensive sites. They then issue Request for Proposals (RFPs) to smaller and mid-sized tower companies asking those companies to develop BTS towers near the “High-rent” towers. To our knowledge, these RFPs have been highly ineffective. In fact, we are familiar with very few cases in which a tower was actually built as a result of these indirect relocation efforts.  The BTS tower companies quickly come to discover that building a new tower near an existing tower that competes for future collocation opportunities is not fiscally sound, except in the very rare cases. This is because the purchase prices paid for the newly built adjacent tower would be significantly lower than most BTS towers due specifically to the fact that future collocation options would be minimal, especially when tenants are already operating successfully at the standing tower.

In the past, wireless carriers, like T-Mobile, have utilized site acquisition agents (I was one of them) to scour land in the vicinity of Big 3 towers looking for lease rates lower than what they were contracted to pay the Big-3 companies. These lower-valued rents are then used as leverage to persuade the Big-3 to agree to a reduction in lease rates. The issuance of RFPs along with other alternative site acquisition efforts, mentioned herein, are basically part of a strategic effort by wireless carriers to favorably negotiate rents. This well-seasoned game play is fairly constant, and looks something like this: build or relocate onto a few new towers, attempt to scare the Big 3 prior to upcoming MLA negotiations, then reset back to status quo.

A piece of from AGL’s article that we do agree with is that top-line growth rates for tower companies may be impacted. The article quotes Alex Gellman as stating that the pressure on rent escalators is only logical.  There is no doubt that the Big 4 wireless carriers are now aggressively pushing for 2% escalations, because we witness this daily.  We also see more aggressive efforts to control the per-unit cost of equipment modifications to existing collocations.  However, in our experience, the need to complete the modifications on a timely basis most often trumps the degree to which carriers are willing to push back on higher rate requests, provided that the initial offer is reasonable.

Additionally, it is interesting to note that, contrary to the norm, we are actually witnessing one of the Big 3 US tower companies pushing to raise lease rates for new collocations in rural areas, as well, which is a very aggressive move. We have found that tenants who do not yet employ MLAs, especially those with few to zero tower builds planned can easily be intimidated by the Big 3. We believe that both of these scenarios are indicative of the Big 3 tower companies’ intent to protect future capacity on their towers. We also anticipate that, as their focus (and asset base of towers), grows outside the US, the balance of power in the negotiations will tip back towards the tower companies.   To the extent that a public tower company isn’t pursuing a BTS opportunity and/ or long-term small cell opportunities with the Big 4 here in the US, it can, and will, be more aggressive in negotiations for their collocation leases.

3 comments

  1. I am happy to furnish any further info. I am appreciative of your news letter. I never see much conversation about ‘indexing’ rent increases to COL, etc. My thought was it is too much trouble for the industry to get in every year. Any comments?

  2. Dear Ken, I have a 12 year old, 150′, mono pole tower on my land. American tower bought the tower about 3 years ago from GTP. There are 5 carriers on the tower, including Sprint, T-mobile, Verizon. Clear wire is going off the tower soon. American tower calls constantly asking me to extend the lease, with a re-signing bonus. 5 to 10 other companies have contacted me over the past 2-3 years to buy me out. I have a 3% escalation clause in my lease and have been getting additional money for the carriers over the 1st one. What are some of my options, and what do you charge to negotiate a renewal lease? Sincerely, KC Fisher

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