Cell Tower and Wireless Telecommunications Blog

Since 2004, Steel in the Air has served over 3,000 clients, reviewed over 10,000 cellular leases and tracked over 2,000 lease buyout offers. We represent private landowners, corporate property owners and public entities in lease negotiations against wireless carriers and tower companies. We also consult on cell site and cell tower valuation and brokerage. Our cell tower and cell site database has grown to encompass over 285,000 cell site locations nationwide.

Tenant Collocation and Subleasing

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

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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)

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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.  

 

Weird Revenue Sharing Clause

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One of our clients received a proposal from a tower company that included a revenue share clause. Generally, revenue shares are not proposed by wireless carriers and even less so by tower companies. However, because our client is a governmental entity, I assume the tower company figured it would be better to put a revenue share out for discussion instead of waiting for it to be added. 

However, this particular revenue share being proposed is a bit odd. For tenants added in the first 5 years of the lease, the landowner will get $150/mo. per tenant. For tenants added after year 5, the rate drops to $75/mo. For tenants other than AT&T, Verizon, Sprint, or T-Mobile, the rate is $50/mo. no matter when they are added.

There are a number of issues with this proposed revenue share language. First, we generally advise landowners not to accept fixed-rate revenue shares; instead, they should look for a % of revenue. A revenue share is intended to give the landowner participation in the revenue and often comes with a lower base lease rate to accommodate the future upside. A fixed revenue share though does not tie the landowner’s upside to that of the tower company- instead, it limits it no matter how much the tower company is getting for the lease. Furthermore, the reduction here from $150/mo. to $75/mo. after year 5 is ridiculous and serves no benefit other than to take advantage of lesser informed landowners. Even worse is the $50/mo. for any other tenant – which could include tenants that will pay more than traditional cellular tenants and would exclude future entities that enter the business regardless of how much they pay. From the tower company standpoint, having a fixed rate revenue share is much simpler from an accounting standpoint and much more profitable. 

This particular proposal won’t be accepted by the landowner- who will and can counter with a % based revenue share given the fact that they own pretty much everything around this location. However, in other situations, the landowner may have to accept these types of terms especially if there are other readily available options. The key of course if trying to figure out whether your property is unique or not. If you need help, please contact the experts at Steel in the Air.

For those of you in the industry- have you seen other revenue share proposals that are innovative or outright ridiculous?

What’s Happened So Far in Wireless in 2017?

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As we look back over the first half of 2017, there has been much non-activity on the merger front. Many people (myself included) expected greater merger and acquisition activity but other than a few fiber related transactions, nothing material has transpired. Sprint and T-Mobile are still separate companies, and DISH has not merged with or been acquired by anyone. So here are the most important stories or events of the year on a carrier by carrier and tower company by tower company basis so far.

 

1. AT&T is awarded FirstNet, but benefits still haven’t flowed down to tower companies, original equipment manufacturers, and landowners. There has been much discussion, but there haven’t been any substantive modification or new build activity as a result by AT&T. In short, we are all just waiting for the project to start in earnest. However, when it starts, it will start not with a whimper…

 

2. In the more of the same category, Verizon is refocusing its efforts on reducing leasing costs. So far, we have seen Verizon choosing not to join the very public and vocal opposition to traditional tower leasing models as AT&T, T-Mobile, and Sprint. However, they have hired Accenture to help them use standard renegotiation efforts like those from Md7 or Blackdot to try to renegotiate leases. What Verizon has done very effectively is push for 2% annual escalation or less in their new leases. The benefit of this change may be tempered though by their site acquisition agent’s willingness to increase the base lease rate to adjust for the reduction in escalation. We also see increased activity by Verizon to build their towers next to existing public tower company towers to avoid collocating on those towers.

 

3. While this is not that much of a surprise, T-Mobile has been killing it, and their network performance is increasing. Churn is historically low, cost of services is low, subscriber growth is high, and they have started building out 600MHz. Wouldn’t want to be one of the other wireless carriers trying to compete with the T-Mobile marketing juggernaut- T-Mobile gets away with snarky while when their competitors try it, it comes across as desperate (Sprint) or stodgy (AT&T and Verizon). We already see increased activity from T-Mobile modifications and new towers, and they are not even really started yet.

 

4. Sprint deserves kudos for their turnaround especially on their cost cutting having demonstrated profitability for the first quarter in the last 13 or so. Of course, they may have had more to cut than the other wireless carriers. Sprint also deserves accolades for their stream of quarterly earnings calls where they try to explain how they can continue to underspend their competitors quarter after quarter, year after year, with new technological innovations like HPUE, MagicBox, Spark, and Mini-macros. (Hint- they cannot as evidenced by Sprint’s Capex increase last quarter of over 100% from the previous quarter. Expect to see similar or higher Capex in this quarter from Sprint and perhaps even higher in the last quarter of the year). Equally enjoyable is the timing of all of the leaks related to potential mergers and acquisitions of Sprint that somehow happen to occur just before a bad earnings report or after a bad news story comes out. (Not saying that Sprint leaked the stories, just pointing out the odd but consistent timing). The good news with Sprint is that it is never boring. I do have to commend Sprint on their Double the Price pop-up stunt- snarky worked in this case.

 

5. All four carriers have gone Unlimited. Following T-Mobile’s lead, the other wireless carriers each have moved to unlimited plans. As a result, overall wireless service revenue has declined. This “race to the bottom” appears to have stabilized. Before you feel too bad for the wireless carriers, remember that each of them generated over 25% EBITDA (profit) margins this past quarter from wireless and Verizon has one of its best quarters ever regarding profit margin. If revenue is declining, how can profit margin be increasing, you might ask? The wireless carriers have been squeezing contractors and vendors to reduce their operating expenditures all while increasing the efficiency of their wireless networks. Despite attractive profit margins, expect further cost cutting and a renewed emphasis on negotiating better leases with landowners and tower companies as shown in the articles on our blog below.

 

6. Crown Castle has had an active year purchasing fiber, announcing the acquisition of both Wilcon and Lightower Fiber Networks and completing the acquisition of FPL Fibernet. Crown sees a vision of a small cell world where fiber is critical to being able to persuade wireless carriers to place their small cell infrastructure on Crown fiber and poles. We would agree with them but would temper expectations slightly due to the next point below and due to efforts by wireless carriers to deploy their own fiber networks.

 

7. The wireless carriers collectively have been successful at convincing eleven states to pass bills that limit local review of proposed small cells, prohibit the forced collocation on existing poles, and reduce the lease rate that cities can charge for attachment rights to existing poles or to the public right of way. Some of the most populous states (Florida, Texas) have these bills in effect or about to go into effect. We hear of increased litigation already filed or planned to oppose these statutes, so expect more controversy on this legislation in coming months. Conceivably, these statutes will reduce the number of small cells leased on private property and could in isolated situations allow for termination of existing macrocells. In the eleven states that have passed such legislation, expect to see small cells and new poles popping up across urban areas in the very near future.

 

Md7 Sending AT&T Renegotiation Letters- without Disclosing Letter is from Md7

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We had heard previously that AT&T wasn't willing to allow lease optimization firms to send out letters on its letterhead without disclosing that the letter did not include actually come from the AT&T.   A client just received a letter though that clearly does not include anything identifying that Md7 (a lease optimization company) is involved.   We assume that Md7 is involved because the address on the letter as shown in the letterhead below

just happens to match that of Md7's offices.

The letter is the same as many other letters that are going out predominantly to private tower owners and municipal tower owners indicating that AT&T may extend or terminate the lease at the end of the current term and that AT&T is implementing a new program to "evaluate terms and conditions of all leases coming up for renewal, explore advance renegotiation options and consider alternative site locations." (emphasis added)   AT&T further requests that the tower owner: 

It appears that Md7 and AT&T have decided to remove any indication that Md7 is involved here altogether (except for the address).  Is that because the renegotiation efforts have been unsuccessful otherwise or is AT&T just looking to ratchet up the heat on tower owners to remove the opportunity for rent increases due to possible FirstNet modifications?  How many times can a company threaten to terminate a lease but not actually terminate it before owners just completely ignore the requests?   AT&T knows and based upon the fact that they keep sending the letters, there must be some tower owners that accept the revised terms with each round of letters.  

Et Tu, Brute? Verizon Appears to Have Hired Accenture to Renegotiate Cell Tower Leases Using Same Tired Threats of Relocation

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Photo of Cell Tower
A cell tower with a substantial amount of equipment at the third RAD center
A municipal client, who has multiple public safety towers upon which Verizon is colocated, received a call and letter from a Verizon representative asking for reduced lease rate terms and escalation. The letter is on Verizon letterhead and does not make clear the relationship between Accenture and Verizon but refers to the Accenture employee or contractor as a "Verizon Representative." However, in the email from this representative, the signature block is for Accenture.  We surmise this means that Verizon is using Accenture instead of Black Dot or Md7 to renegotiate its leases. This is disappointing because Verizon has historically chosen not to stoop to these types of misleading negotiation tactics. And lest you think it is because of the ever more competitive wireless industry – Verizon still generates a very healthy 45.7% wireless profit margin.  

The letter states:  

As discussed during your recent call with ________, a Verizon representative, we are currently reviewing our real estate portfolio to assess market rates and trends. To remain competitive and provide the best value to our customers, we propose to modify our site lease terms, based on our knowledge of the market and our analysis of each site as follows:

 

 It further goes on to state (and this is the funny part):

Additionally, for all sites identified in this document, payment of rent shall include the following equipment rights:

  • 30,000 square inches wind load surface area at the RAD center (if available);
  • 10’ tip to tip RAD, if available. If not, space available up to 10’;
  • All you can build fixed fee amendments for the contract duration within the allotted tip to tip vertical and 30,000 square inches wind load surface area;
  • 16 cables;
  • No additional rent or fees for any additions or modifications to equipment throughout the contract term as long as the equipment rights identified above are not exceeded.

If we can't reach an agreement, we will remove you from our relocation list as we continue to evaluate our real estate portfolio.

As always, there is the implicit threat of termination – although carefully couched in language that doesn't constitute an anticipatory breach. So in essence, Verizon wants 30,000 square inches of equipment space in their 10' RAD center along with 16 cables. So no matter how much capacity this reduces on the tower or how much a tower owner would have to pay to structurally upgrade the tower to accommodate it, Verizon expects not to pay any additional fees. Generally, this is ludicrous and no tower owner should ever agree to this loading, regardless of whether they end up negotiating more favorable rent terms, in order to ensure the longevity of the lease. We aren't suggesting that Verizon may not eventually relocate some cell sites, just that it won't be that common and will be reserved for situations where they can save enough money by moving to justify the substantial expense of doing so.   

In this case, our municipal tower owner will be telling Verizon that they can keep their name on the relocation list. There is no chance on any of them that Verizon will end up moving. If you receive one of these Verizon/Accenture letters or calls threatening to renegotiate your lease or relocate the tower, please contact us.  

Sprint’s Really Odd Antenna Configuration Proposal

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On one of our municipal client's towers, Sprint submitted a request to replace three existing antennas with new antennas that add 2.5GHz capability to their equipment.  The subject tower is in a difficult zoning jurisdiction and one where Sprint really doesn't have any other options.   Their collocation rent was on the higher side but not unreasonably so- and the three other wireless service providers were all paying the same or higher rent.  

Because the antennas were the same size or smaller, we did not recommend a rent increase for them.  However, Sprint was adding remote radio units and other equipment so we recommended a fairly nominal increase.  Rather than accept the newly proposed lease terms, Sprint instead asked whether they could replace the existing equipment on the tower with three of these antennas and get a reduction in rent. 

Sprint Proposed Canister Antennas
Possible Sprint Replacement Antennas

The proposed antennas are larger than the existing antennas, but Sprint appears to be wanting to go from 9 panels to 3 of these antennas.  (Not 3 of the canisters)  These panels will accommodate all of Sprint's spectrum bands but would seemingly limit their capacity and number of simultaneous users.   These appear more suitable for a mini-macro as opposed to a macrocell, but I would welcome any thoughts readers have regarding this topic.  

At the end of the day, we advised the client that the value of their tower is its unique location, not the specific loading that Sprint is placing or removing from the tower.   Obviously, there will be situations where a reduction in loading or equipment would justify a reduction in lease rate, but this isn't one of them.  

FL State Representative pushes Small Cell Legislation while his City Issues RFI on Leasing City Property for Macrocells

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In the Florida House of Representatives, a bill is being pushed through to significantly limit the control that a local municipality can exert over small cell installations.  The bill also limits the fees that a city may charge for access to municipal poles.   

In committee hearings, Rep. Nicholas Duran (D-Miami) said that the “City of Miami actually is the second worst city in connectivity—digital divide—in our state and in this country in many respects, so for me, this is a question of how can we break down this digital divide.”  While the goal of decreasing the digital divide is certainly an admirable one, one has to question how likely it is that small cells will be deployed in areas that don't already have sufficient wireless coverage.   Certainly, increasing capacity in underserved areas is beneficial.   However, the bill doesn't encourage or regulate where small cells are deployed, letting the industry decide on its own where they should go.   One has to question whether this specific bill will remedy the issues related to the digital divide, especially when considering how the wireless companies tend to deploy infrastructure in the areas where they profit most, not where lower income and disadvantaged people reside.  For an example of this, see this article about how AT&T deploys fiber differently to rich and poor areas.  

Simultaneously, Miami/Dade, the combined City/County government in which Rep. Duran resides issued an RFI for the management of City/County owned properties.   This specific RFI has been debated for years.   Various requests and meetings have been put forth to the wireless industry over that time frame with the City/County choosing not to move forward for various reasons.   We previously attended a meeting at Miami/Dade ourselves.  

Image of Miami Dade RFI Request
From Miami Dade Website
The irony here though is hard to miss.  First, in delaying this RFI/RFP process for years, Miami/Dade has missed out on a significant amount of interest in its property.  Secondly, if the Florida legislature is successful at reducing the fee structure for what municipalities can charge for access to their poles, Miami/Dade will not only get far less than it would have without such legislation but it will also reduce the effectiveness of the RFI.   Respondents will have less incentive to respond because there is less incentive for wireless companies to build macrocells on public property if they can use the ROW at virtually no cost.  Furthermore, with the fee cap, Rep. Duran's specific district and its taxpayers will generate less revenue while incurring additional incremental costs from having to manage and maintain poles that were built with taxpayer money but which are being used by private companies for profit.  

Obviously, this is a tradeoff that Rep. Duran and others could have legitimately decided was worth taking.  We aren't trying to criticize him or anyone else for making that choice- just trying to point out how complex the issues related to small cells and densification are for state legislators.   While the wireless industry has been successful at simplifying them to "you are voting against technological advancement", the issues aren't remotely that simple and there will be far-reaching but inherently local impacts for years to come.  

Towers and Tenant Collocation Rent Trends: 2016-Beyond

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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. [Read more…] about Towers and Tenant Collocation Rent Trends: 2016-Beyond

Sprint’s Network Overhaul- Radical Impact on AMT, CCI, and SBAC?

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The website Re/code posted an unconfirmed article on Friday re: Sprint’s Next Generation Network which stated “sources familiar with the initiative said Sprint plans to cut its network costs by relocating its radio equipment from tower space it has leased from Crown Castle and American Tower to spots on government owned properties which costs much less.” [Read more…] about Sprint’s Network Overhaul- Radical Impact on AMT, CCI, and SBAC?