Wireless Telecom Blog

Our Top Takeaways from NEDAS San Francisco Fall 2017

October 24, 2017 by Ken Schmidt Leave a Comment

All in all, the conference was well done if not well attended. Personally, I think it is a rough year for wireless industry conferences. That is too bad in this case because the panels, for the most part, were thought-provoking and enjoyable. NEDAS chose the moderators and the participants well. Here is what we took from the conference.

1. The Wireless Industry Strongly Desires Predictability and Is Looking to the FCC to Obtain It.

Obviously, this is not a new theme. Despite moderately successful efforts to regulate small cell permitting and fees at the state level, the discussion at the conference was that in those states where legislation was passed, it actually takes longer to get small cell permits now than it did before. Some people suspect that this is due to the contentiousness behind the debates leading up to such legislation.

Most of the participants at the conference indicated that the difficulty is the patchwork of fees, regulations, and processes along with general ignorance by municipalities of what small cells are and what they do. We heard repetitively that industry participants understood the issues that municipalities face in getting up to speed and establishing processes and hiring staff members or reallocating staff time to address exponentially increasing small cell applications. Despite this recognition of the hurdles for municipalities, we also heard repetitively that the process still takes longer than it should. Personally, I think that the industry has a heightened and, candidly, an inappropriate level of expectation about how fast permits should be reviewed given the novelty of these applications and infrastructure. They assume that services by municipalities on hundreds of concurrent small cell applications should be handled immediately and at limited cost recovery. There were actually complaints at the conference from carriers who felt that permit turnaround in 60 days was insufficient and “impairing” their ability to roll out 5G despite the fact that standards aren’t even set yet for 5G.

The hope, though, is that the FCC will step in and create a uniform set of expectations in terms of the timing and process for small cells. Sentiment for strong FCC involvement seemed to be higher than normal at this meeting, primarily due to the slow rollout of states that have adopted small cell legislation and the vetoing of similar legislation in California.

2. Speaking of Small Cells, There Is a Disconnect Between Cities and Wireless Industry Participants and Observers on Who Does Small Cells Best.

In preparation for the conference, we spoke with multiple cities about their experience with applicants for small cells. We had lengthy discussions about what they saw that worked, who was the easiest to work with, who was most flexible, and what they did and didn’t like. In our discussions, Crown Castle’s name came up more than any other company as best to work with from the city planner’s perspective. We won’t say who came up as the worst, because they might threaten to sue us, but your first guess is almost assuredly right.

In anticipation of the conference, we ran a Twitter poll to ask whom industry participants and outsiders felt did the best job at working with cities on small cells.

Before the comments start flowing, we fully recognize that a Twitter poll should not be taken as gospel. We also realize there are many issues with the poll that include the limitation on companies considered, the form of the question, and the possibility that it is unlikely that there are 1,000 respondents with enough information about what all four companies are doing to make an informed vote. Nonetheless, it is helpful to show that, on the limited basis of this, there is a dichotomy on what we heard from our limited sample set of cities and what the public generally perceives regarding which companies are most effective at working with cities.

3. Some Industry Participants Question Whether 5G Has a Clear Path to Profitability

While there were a lot of statistics thrown around about fixed wireless, connected devices, increasing data usage, and video usage, none of the presenters or the people that we spoke with at the conference could enunciate how wireless carriers were going to generate more EBIDTA from the Capex deployed in the space. One particularly enjoyable and friendly exchange occurred between Charles McKee, VP-Government Affairs, and Milo Medin, VP Access Services of Google Fiber. After Charles discussed the issues that Sprint runs into when trying to permit small cells (all while completely ignoring Sprint’s role with Mobilitie and some of their “issues”), he addressed the need for densification in anticipation of 5G. Milo, in response, mentioned that he had a hard time seeing the rapid and robust deployment of 5G by the wireless carriers in the US. He believed that, given the industry environment with declining ARPU, increasing Capex expectations related to 5G, and broadband alternatives available to subs (now and in Google’s ideal 3.5GHz/Webpass future), he didn’t see how 5G deployment on the scale discussed by the industry would be economically viable. We don’t believe that Milo was saying that 5G in its entirety was not economically profitable, just that industry expectations relative to fixed wireless and massive densification are overstated. Personally, we believe strongly in the iterative nature of 5G as compared to 4G, but don’t see commercial 5G fixed wireless supplanting or even substantially diminishing wired share.

4. The Edge Will Get Closer and Closer to the End User

Much was made throughout the day about the edge and the need for putting data centers and caches near the edge. While we aren’t sold that tower companies have any unique vantage point over other more traditional fiber and data center plays in edge computing, we did leave the conference very sold on the need for edge data services. It is way too easy for the wireless industry to trot out the latest statistics that some large advocacy firm puts out, but even if you substantially reduce those statistics, you are left with strong, compelling evidence that the push to the edge is already here and will only accelerate. All of the panel participants suggested that this movement to the edge is a real estate play. We agree, but believe that there are many other sophisticated real estate/technology players out there who either have better fiber (owned not leased), better real estate, better access to ROWs, and better and more established connections to entities that need edge servers. As Doug Wiest said, the small cell/DAS/fiber/edge computing/data center world is significantly more complicated compared to towers. One thing is clear – the edge will keep getting closer to the end user and both wired and wireless networks will need to be more “accessible.”

5. Tech Giants Like Amazon Will Absolutely Go Wireless, Or Maybe They Won’t?

Multiple speakers included references to the FANG (Facebook, Amazon, Netflix, Google) companies or spectrum owners like DISH entering into the wireless market in some capacity. Not necessarily as a wireless provider, but to provide access to their services and/or content. The problem is that not one of them gave any tangible evidence of why they expect this to occur. The general line of thinking is that these companies will need to protect their ability to serve or sell to their users on mobile. However, everything we are seeing suggests the opposite. Google seems to have very sporadic interest in broadband, Amazon is and has been in talks with DISH for some time, Netflix works out direct deals with broadband providers, and Facebook and Microsoft seem intent on acquiring and developing tech companies that they can then distribute on an open source basis for others to use. The ironic aspect of this to us is that none of these participants discussed the obvious entrants – MSOs like Comcast and Charter who continue to expand into wireless without much fanfare other than Comcast’s initial wireless MVNO launch.

6. Tower Companies Are Asked to Remember Who Their Client’s Clients Are

There was continued discussion about how the tower company business model is broken and how these companies have forgotten how to make their client’s (wireless carriers) clients happy. The supposition by some panelists is that those companies that will best serve their constituent clients will be the victors in the changing wireless and wired broadband world.

The analogy made was to the Minecraft Generation. As one panelist indicated, this generation thinks in terms of data. Voice is just another IP service to be provided on their device. These subscribers aren’t afraid to seek out the best connection – whether wired, wireless, or fixed. They just care about being Always Best Connected. The tower companies that help the wireless and non-wireless companies best connect to their subs will stand to gain more than those that just hope that increasing data usage alone will cause lease-up.

It must be stated that the public tower companies were not on any of the panels, so their point of view was not addressed. Nonetheless, we think that the play, in the US at least, is for tower companies to become more than just dumb pole providers. Vertical Bridge and Crown Castle are both pursuing being more to the carriers than just a tower owner.

Final Conclusion

Attendees were excited at the show about advancements which seem to be coming faster and faster on an exponential basis. There is also more skepticism/optimism depending on whom you spoke with regarding the opportunity for non-wireless participants to expand their wireless offerings and for traditional wireless companies to incorporate fiber and fixed wireless to offer wired-like offerings. NEDAS should be commended for sponsoring such thought-provoking discussion.

Not So Fast- California Governor Vetoes Small Cell Bill.

October 18, 2017 by Ken Schmidt Leave a Comment

Sunday night, California Governor Jerry Brown vetoed a contentious statewide small cell bill (SB649) which is one of many similar bills already passed in eleven other states. The bill would have removed local control over the placement of small cells and would have limited the fees that municipalities could charge for access to municipal pole infrastructure to $250/year.

This veto is fairly significant as the legislation has sailed through most other states without much influential opposition. The wireless industry has been targeting states for such relief from what they deem to be costly and time consuming small cell jurisdictional review and fees. In our opinion, the FCC seems to prefer that states regulate the fee structure but may choose to preempt local siting restrictions and approval process. AT&T has been the primary proponent of these statewide initiatives and has brought to bear a very well-financed and aggressive lobbying campaign at the state level to help push such legislation through.

The bill can still be pushed through with a 2/3rd majority in both assemblies. The bill passed the Senate by a 22 to 10 margin with 8 votes not recorded. The bill passed the Assembly with a 46 to 16 margin with 17 votes abstaining. If the vote occurred today with the same members voting as they did before, they would override the veto. Historically though, the California legislatures have been unwilling to override Governor Brown’s vetoes.

Why is this significant?

• California has more cities with difficult zoning that almost any other state in the US.

• California is near the top in terms of average small cell fee. This is not surprising given #1.

• California represents 12% of the US population. If one assumes a conservative total of 500,000 small cells to be deployed in the US and assumes that deployment will follow population, 60,000 of them will be deployed in California. Rates for small cell leases in California typically are 10 times higher or more than what the bill allowed at $250/year.

• Small cell deployment tends to follow areas of dense population. Of the densest urban areas of over 1,000,000 population, the top three are in California with five total in the top 10.

Before you assume though that this portends poorly for other statewide initiatives, we are cautious to point out that California cities tend to be more influential in statewide politics and that the opposition to the small cell legislation was by far the most organized and substantial as compared to that in other states.

Impact on Carriers (T, S, VZ, TMUS)

Despite industry rhetoric to the contrary, this won’t stop 5G nor will it prevent deployment of advanced technologies in California. None of the wireless carriers will allow California wireless throughput or quality of service to languish while customer’s churn to the best network in their area. However, this will delay deployment of small cells in California vis-à-vis other states that have passed small cell legislation although we don’t expect the delay to be material. There will be a negative impact on Opex for all carriers if the veto is not overridden and another bill is not passed in its place.

Impact on OEMs and E&C Companies (COMM, NOK, ERIC, MTZ, DY)

OEMs and E&C would have benefitted from the looser regulatory environment in CA both in terms of timing and amount of small cell and fiber investment. Ultimately, small cells will be deployed but perhaps in fewer numbers.

Impact on TowerCos (AMT, CCI, SBAC)

There will be a slight improvement on lease-up in California for the public tower companies as wireless carriers may choose to add short-term capacity via new macrocells on towers and existing structures as the Opex for a small cell stays higher relative to the Opex of a macrocell.

The Real Reason T-Mobile Increased Its Data Cap to 50GB

October 2, 2017 by Ken Schmidt Leave a Comment

(Guess what – it isn’t because they feel their network can handle it!)

T-Mobile recently increases their data cap to 50GB before deprioritization occurs. For those who aren’t familiar with the difference between throttling and deprioritization, each of the wireless carriers has a cap on the data usage under their unlimited plans. Some carriers will simply throttle your data use to 3G speeds when you reach the cap, while others will deprioritize your data requests below other users who have not exceeded the cap especially in areas where there is network congestion. These caps are:

AT&T– 22GB

Verizon– 22GB

Sprint– 23GB

T-Mobile– 50GB (up from 32GB)

Some analysts have speculated that this is indicative that T-Mobile has a better network and believes that the additional GBs won’t impact T-Mobile as much as it would the other carriers. We tend to see this differently and point to a seemingly unrelated recent article in Fortune about how T-Mobile was asked to stop making fastest wireless data speed claims. We won’t bore you with an explanation of the actual testing mechanisms, but suffice it to say that every carrier (except Sprint) selectively chooses between various wireless testing sites and apps and pick and choose the results that best meet their advertising needs. At the end of the day, wireless is highly local for most people, and it really doesn’t matter who is the fastest everywhere else, only who is the fastest in the area that you use your device in. Furthermore, we doubt that very many people feel that LTE isn’t fast enough for virtually everything they want to do on their device other than 4K video which candidly, who cares if you can see 4K video on your phone or iPad?

Nonetheless, for T-Mobile, they can’t make the claim that their network is more reliable nor can they make the claim that they have the most coverage. So, they have to push other tangibles- like the fastest network. Make no mistake, T-Mobile has done a wonderful job of building out their network and adding faster LTE and carrier aggregation. They also are aggressively expanding to get closer to Verizon in terms of overall coverage. But we don’t believe for a minute that they believe that their network can over the longer term sustain 50GB per user per month. Fortunately, the average smartphone user in the US only uses 4GB per month, so increasing to 50GB only puts a small amount of strain on the network, at least until the average users with unlimited starts to really use it as unlimited.

What T-Mobile really stands to gain from this move is that it increases the average speed across their network especially on users that have used between 22GB and 50GB and possibly even though that use more than 50GB in non-congested areas. Because the other wireless carriers throttle users at lower amounts, throttling to 3G decreases speed by a factor of 1/4^th to 1/5^th as compared to 4G. This delta will increase over time. So, by increasing the cap, T-Mobile effectively increases the average data speed, thereby perhaps enabling them to claim once again that their network is the fastest. We wish that the testing companies would just start providing information on unthrottled and throttled performance for average speed separately so that consumers can make an informed decision. If the average person uses 4GB per month, why should they care what the average speed on a throttled plan?

Fundamentally though, this is good for landowners, tower companies, OEMs, and engineering and construction companies. Any increase in the amount of data before throttling or deprioritization increases use of the networks- and increases in the use of the networks require additional capacity which ultimately yields more site deployment and modification work.

Sprint T-Mobile Merger? Who Wins and Who Loses

September 22, 2017 by Ken Schmidt Leave a Comment

It looks like the Sprint/T-Mobile merger rumors may be serious this time. Reuters suggests that the parties are close to finalizing a merger. Obviously, we have been down this road before- Sprint and T-Mobile are the Sam and Diane of today’s wireless world. Everyone knows they will eventually try to get together, but their personalities are pretty diametrically opposed. This time though, reports seem to suggest that there is more to today’s round of talks than previous ones and that the parties are closer to a deal than ever before.

We can’t forget that any merger will need to be approved by the FCC and the DOJ. Personally, I suspect that the DOJ will be tougher to get approval as the FCC seems to be positioning itself to approve this type of merger already. For proof of this thesis, look at the 2016 Wireless Competition Report- the first one in a while that came to the conclusion that wireless is competitive in the US and one where the FCC selectively chose widely varying timeframes to prove the point they were trying to make in each section of the review. The DOJ though doesn’t have to agree though, and it is hard to suggest that consumers will remotely be better off by a combined Sprint and T-Mobile merger- especially after seeing how wildly successful T-Mobile has been as the Uncarrier in almost singlehandedly creating new competition in the wireless sector.

FORESEEN CONSEQUENCES

This has obvious negative consequences for OEMs, wireless engineering and construction companies, tower cos, and landowners/site owners. We know because we have the first-hand experience in dealing with previous mergers. Like AT&T/Cingular, Sprint/Nextel, Verizon/Alltel, Sprint/Clearwire, T-Mobile/MetroPCS, and AT&T/Cricket. All these mergers occurred after we started Steel in the Air.

We helped numerous landowner clients deal with the initial rounds of threats from the combined entity that they would terminate the ground lease if the client didn’t agree to revised terms. We advised private tower owners who were in the process of selling towers on newly revised (and lower) offers they received from prospective buyers after a merger was announced. We provided guidance to private equity on tower portfolio valuations both prior to and after failed and successful mergers. We tracked how many leases were terminated and how many sites were decommissioned. We observed how the wireless carriers reviewed their portfolios and which sites they ended up choosing to terminate. We watched new construction activity from the merged carriers abate for some time while they figured out what sites to keep or not and what additional sites they needed. And we observed what happened when they did start constructing again.

BUT…TODAY’S WIRELESS ENVIRONMENT IS DIFFERENT

All beneficiaries of new wireless construction (OEMs, Towercos, E&C companies) like to suggest that there is increased site development after the merger. They allude to the fact that they increased site counts after previous mergers. However, none of these companies directly address the loss of future business or growth that would have occurred if there had been no merger. Nor do they point out that today’s wireless environment is different and the merger of these two companies will be different if it occurs. How so, you ask?

1. Macrocells are no longer the only means of meeting capacity demands. Furthermore, in most of the previous mergers, there wasn’t the same amount of overlap in macro cells as there is today on Sprint and T-Mobile’s networks. We are currently working on an analysis of the exact amount of overlap between the two networks in areas of the country where we have data with all or most of the Sprint and T-Mobile sites in an area. We will examine same site overlap and adjacent site overlap in this study as we found in previous mergers that some sites as far apart as 1 mile were terminated.

2. Both networks already cover most urban and suburban areas– so macro sites won’t need to be kept for coverage reasons as they might have been in previous mergers.

3. Previous mergers were more difficult to complete than this merger due to different technologies used by each carrier in most of the mergers. Today’s environment is mostly LTE- with the focus of going all LTE. Sprint legacy CDMA subs and T-Mobile legacy GSM will need to be addressed- but much easier today than it was for Sprint CDMA and Nextel iDEN.

4. Sprint hasn’t been doing a lot in the last two years from a CapEx perspective- but T-Mobile has. We anticipated an increase in wireless CapEx in 2018 primarily driven by new Sprint work- but that won’t occur now. E&Cs and OEMs will lose this anticipated upside, making existing carrier contracts more valuable and new ones more competitive, ultimately driving down margin after an initial spike from decommissioning activity.

5. For Towerco’s, the loss of a fourth active NATIONAL carrier has a significantly greater impact overall as compared to the loss of a fifth or sixth active REGIONAL carrier. The margin in operating towers increases with each additional wireless carrier on the tower. Decrease the number of carriers and not only do you decrease the revenue but you decrease the margin.

SO, WHO BENEFITS?

Personally, I struggle to see how consumers benefit and the investment community must agree with me as AT&T and Verizon’s stocks both increased after the new rumors came out. Investors anticipate that both companies will be able to increase their pricing with lesser competition from two smaller competitors trying to grab market share.

Sprint benefits the most. With their primary focus over the last two years being cleaning up their P&L and balance sheet in anticipation of a merger, their network has suffered. As a result, they either had to start spending or merge. T-Mobile will gain subscribers and scale.

Free market proponents will benefit, especially those that think that the market should dictate competition, not regulatory entities.

What’s Happened So Far in Wireless in 2017?

September 20, 2017 by Ken Schmidt Leave a Comment

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.

Will Apple’s New iPhone X and iPhone 8 Work with all your Wireless Carrier’s Frequencies?

September 13, 2017 by Ken Schmidt Leave a Comment

So, with great fanfare, the iPhone X and iPhone 8 were announced yesterday. The phone display looks amazing while it remains to be seen whether the new features on the phone are as game changing as Apple presents them to be.

As the features on each phone are widely covered already in virtually every newspaper and blog, we decided to focus in on the wireless tech inside the phone, namely the wireless frequency bands which Apple decided to support in the devices. The technical specifications list the following frequency bands as being supported.

Note the two models (A1865, and A1901)- one of which will accommodate CDMA and the other one which does not. As the note indicates, CDMA is used by Verizon and Sprint, although both companies are converting now or will convert from CDMA (2G/3G) to LTE (4G and soon to be part of 5G) entirely in the near future. Unfortunately, this list is difficult to decipher, so we put together this chart to help illustrate which bands are on the iPhone and notably, which ones are not for each of the Big 4 wireless carriers here in the US. This chart shows what LTE bands each wireless carrier uses in the last 4 columns and which LTE Bands are supported or not in the On New iPhones column. If you aren’t familiar with LTE, see this article that explains it further.

List of carrier bands in use are from this chart at Phone Arena.com– also, LTE Bands came from Wikipedia

So, what does this chart tell us? It tells that most LTE frequency bands used in the US are supported by the iPhone 8 and iPhone X. In other words, your new and shiny iPhone 8 or iPhone X will work on the majority of all LTE bands. The only two bands not supported are AT&T’s FirstNet 700MHz spectrum and T-Mobile’s (and other smaller carrier’s) 600MHz spectrum that they recently won in the Broadcast Incentive Auction. In other words, public safety users won’t be able to use the phone to connect to FirstNet. As it pertains to T-Mobile, while you will be able to connect to their 700MHz and PCS/AWS frequencies, you won’t be able to have as fast speeds in rural areas due to the lack of inclusion of 600MHz frequencies. Without making this article too technical, the more frequency bands available to your phone, the more simultaneous sets of data that can be sent back and forth. This is known as carrier aggregation, and it is what allows carriers to provide faster and faster throughput speeds to your device.

We suspect that Apple chose not to include these frequencies in the phones primarily because neither set of frequencies has been deployed on any scale, so users aren’t inclined to complain if they aren’t available. We anticipate that Apple will include Band 14 FirstNet frequencies in the next iteration of the phone, but the absence is notable especially given the number of public safety users that are potential subscribers on the AT&T/FirstNet network.

Is This a Small Cell or Just a Small Macrocell?

September 7, 2017 by Ken Schmidt Leave a Comment

Verizon pole attachment in Arizona — What appears to be a macrocell attached to a utility pole.

So in this article about Verizon attachments to Arizona Power (APS) utility poles in the Phoenix market, it is interesting to see how Verizon is installing a 6-panel array on top of utility poles. Also interesting is that Verizon is leasing ground space adjacent to the pole from the nearby landowner for their equipment space. Given the size of the equipment space, it appears that this is a macrocell. However, the APS representative states that this is being treated as a pole attachment under the FCC pole attachment rate schedule. I am surprised that APS allowed this large of an installation to be placed on the pole for the nominal FCC pole attachment rate.

It is hard to tell whether the antennas would fit within a 6' cubic space that is allocated within the Arizona small cell law for antennas. There is a better photo of the equipment and pole inside the article. The City of Phoenix is pretty favorable to pole attachments in general, so whether it meets the 6 cubic feet of space limitation or not may be immaterial. However, in other jurisdictions, this installation may not be approved administratively under the state law.

AT&T’s Brilliant Strategy to Double Dip from Public Funding to Build a Better Wireless Network (Investor Research Note from Steel in the Air)

August 29, 2017 by Ken Schmidt Leave a Comment

We have been getting a lot of questions from investors related to FirstNet equipment and the potential impact on TowerCos, with most questions pertaining to the timing and revenue from amendment activity from FirstNet antenna modifications. You may recall that in AT&T FirstNet Revisited, we reviewed the impact of AT&T winning the FirstNet RFP and the impact on TowerCos, Equipment OEMs, and FiberCos. We believe that investors may understand and appreciate AT&T’s one-truck roll concept for modifying existing cell sites, but we don’t believe that they understand how AT&T will “double dip” by using both FirstNet and CAF II funding to reduce Opex and Capex related to legacy wireline assets and to more effectively compete in rural areas with satellite broadband providers and even MSOs.

FirstNet Update

As of 8/17/2017, 12 (editors note- it is now 15) states and the USVI have opted into FirstNet. Noticeably, many of the larger more populous states have not signed up yet, and AT&T needs additional State-level “wins” before declaring FirstNet a success. For a list of states, please see the chart at the end. The deadline for Opt-in/Opt-Out decision by states is the middle of December, so we see a key indicator of FirstNet activity being large-State adoption in late Q3 and Q4.

To date, our checks continue to indicate that there has not been any substantive activity on the deployment front. Our private tower company checks are indicating that they have not entered into lease amendments for equipment modifications, and none of the public tower companies or OEMs are reporting guidance related to FirstNet as of yet. We did see our first AT&T modification request to a client for an existing macrocell which included FirstNet specific antennas and modifications. If you would like to know more about the size and capabilities of these antennas and the probable impact on public TowerCo leasing revenue, please reach out to your Detwiler salesperson.

Connect America Fund II and Fixed Wireless LTE

To encourage the build out of rural broadband, the FCC authorized grants to provide broadband services of at least 10 MB/s down and 1 MB/s up. In 2015, AT&T accepted a grant of $427M per year over six years to build out broadband services to 1.1M rural subscribers, approximately 70,000 of which are connected currently. AT&T indicated that it expected to use WCS (2.3GHz) spectrum to meet these requirements and that buildout would occur between now and 2020 in 18 total states. To see which states are part of the CAF II funding, please see the chart at the end of this note.

Fixed wireless broadband for AT&T works by connecting to standard AT&T LTE base stations and antennas. A fixed antenna is professionally installed on the roof or the side of the residence or business being served. AT&T commits to providing 10MB/s to the end user, the bare minimum to meet CAF II funding requirements, although we anticipate that AT&T will adjust the throughput dynamically upwards if there is excess capacity at the subject cell site.

Service runs $60/month and includes 160GB data bucket with additional 50GB blocks available for $10/month. We anticipate that AT&T carefully chose this amount of data in order to encourage purchase of DirecTV bundles. Fixed wireless plans are separate from mobile wireless plans.

Implications for AT&T

AT&T has consistently discussed the value of deploying FirstNet along with fallow AWS and WCS spectrum. They refer to this as a “one-truck roll”, meaning that they only have to visit each cell site to be modified once. This reduces amendment costs and time delays. Given the reliance on WCS spectrum for CAF II rural fixed wireless broadband, it makes a lot of sense for AT&T to focus on those areas where it expects to have to meet both CAF II requirements and FirstNet coverage requirements. Furthermore, to the extent that AT&T continues to effectively lobby state utility commissions to allow it to abandon landline service as fixed wireless takes over, AT&T benefits from reduced operating expenses from costly to maintain copper landlines.

Implications for TowerCos

Previously, we indicated that TowerCos would benefit from the award and nothing has changed in that regards other than the delayed timing of guidance from the TowerCos related to FirstNet. As we start to see our first modifications, we see slightly larger antennas than we described in previous notes, which could support the higher end of the range on modification revenue. We anticipate that AT&T will focus on modifying existing sites as opposed to new collocations on public tower company towers so most of the opportunity for the public TowerCos will come from modification amendments. As we addressed in Rip-n-Replace- When Moving Off One Tower to Another Makes Sense (private note, if interested, please contact us), we expect that AT&T will utilize private build-to-suit companies for new site locations instead of collocating on existing public tower company towers, even if it means building a new tower next to an existing tower.

Implications for Satellite

One of the more regular questions we receive from clients focused on VSAT and SATS is regarding the impact of rural fixed wireless broadband and the scope of expansion by MNOs and other entities into those areas predominantly served by satellite broadband. Specifically, whether the economics are justified for MNOs to expand into rural areas. While the economics may not be sufficient based solely on providing broadband services, the calculation changes when the FCC or FirstNet starts to fund part of that buildout. At this point, we don’t know the total addressable market of current satellite only subscribers that would potentially churn to AT&T service. Stay tuned though as we are working on a bespoke research project looking specifically at the extent to which fixed terrestrial wireless could supplant the need for satellite broadband services.

STATE BY STATE LIST OF LAND LINE, CAF II, and FIRSTNET ADOPTION AS OF 8/17/2017

Important Disclosures

This report is for informational purposes only and should not be construed as investment advice. It is not a recommendation of, or an offer to sell or solicitation of an offer to buy, any particular security, instrument or investment product. Our research for this report is based on current information obtained from public sources that we consider reliable, but we do not represent that the research or the report is accurate or complete, and it should not be relied on as such. Opinions and estimates expressed herein constitute judgments as of the date appearing on the report and are subject to change without notice. Any reproduction or other distribution of this material in whole or in part without the prior written consent of Steel in the Air, Inc. is prohibited. Any projections, forecasts, and estimates contained in this report are necessarily speculative in nature and are based upon certain assumptions. No representations or warranties are made as to the accuracy of such forward-looking statements. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results. Steel in the Air, Inc. accepts no responsibility for any loss or damage suffered by any person or entity as a result of any such person or entity's reliance on the information presented.

Verizon’s Tricky-Tricky Cell Site Lease Assignment Language

August 22, 2017 by Ken Schmidt Leave a Comment

We applaud Verizon for their interest in preventing their leases from being sold to third parties like lease buyout companies. It is understandable that Verizon (along with other wireless carriers) would prefer not to have an informed third party purchase the rights to a Verizon ground or rooftop lease. Having to work through a lease aggregator or whomever that lease aggregator sold their tranches of leases is difficult and time-consuming and likely exposes Verizon to increased cost because the aggregator is incentivized to maximize the rent. To that end, we have heard of litigation between wireless carriers or tower companies and third party buyout companies who unreasonably withhold consent for modifications.

However, in Verizon's newest template lease, they have gone too far. For some time, Verizon has had a Right of First Refusal (ROFR) clause in their lease which prevents a landowner from selling the lease without giving Verizon the right to match the offer. While we don't like the Right of First Refusal clause, we can accept it with some changes that limit the scope of the ROFR. In their most recent lease template though, Verizon has added language that would make it difficult if not impossible for a landowner to assign the lease or sell the lease to a third party EVEN IF Verizon chooses not to match someone else's offer.

Without any approval or consent of the other Party, this Agreement may be sold, assigned or transferred by either Party to (i) any entity in which the Party directly or indirectly holds an equity or similar interest; (ii) any entity which directly or indirectly holds an equity or similar interest in the Party; or (iii) any entity directly or indirectly under common control with the Party. LESSEE may assign this Agreement to any entity which acquires all or substantially all of LESSEE's assets in the market defined by the FCC in which the Property is located by reason of a merger, acquisition or other business reorganization without approval or consent of LESSOR. As to other parties, this Agreement may not be sold, assigned or transferred without the written consent of the other Party, which such consent will not be unreasonably withheld, delayed or conditioned. No change of stock ownership, partnership interest or control of LESSEE or transfer upon partnership or corporate dissolution of either Party shall constitute an assignment hereunder. LESSEE may sublet the Premises in LESSEE’s sole discretion.

In other words, Verizon is saying: "If you get a poor offer to buy the lease that we want to match, we will. Conversely, if we don't want to match, we will not match and then we will decline to consent to your sale of the lease so you can't sell it anyway." This is a crappy deal and we advise all landowners to remove the anti-assignment language from the lease. If Verizon doesn't want you to sell to a third party, great. They can opt to buy the lease directly; if not, they shouldn't be able to prevent you from selling to someone else. Landowners who agree to this language will end up devaluing their leases as buyout companies won't make offers on leases that aren't assignable.

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

August 15, 2017 by Ken Schmidt Leave a Comment

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.