Sprint

Lendlease’s New Renegotiation Efforts on Sprint Rooftop Sites

May 25, 2018 by Ken Schmidt 3 Comments

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

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

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

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

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

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

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

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

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

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

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

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

May 16, 2018 by Ken Schmidt Leave a Comment

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

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

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

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

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

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

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

3. Fewer New Tower Collocations from Combined Companies.

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

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

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

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

4. Less Upcoming Modification Amendment Activity on Existing Towers.

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

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

5. Fewer Small Cells.

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

One HUGE difference now?

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

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

Want to Know More?

All in all, yesterday wasn’t a very good day to be a tower company. Want to know more? Contact us to schedule a paid expert engagement with Ken Schmidt.

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.

Research In Progress- Sprint vs. T-Mobile Site Overlap

July 17, 2017 by Ken Schmidt Leave a Comment

We are currently working on a bespoke research project for a client where we examine the overlap between Sprint and T-Mobile cell sites. The merger talks seem to have stalled while Softbank talks to Comcast, Charter, Warren Buffett, and anyone who will listen about merging or investing. Nonetheless, there is still investor interest in understanding the true overlap of Sprint and T-Mobile cell sites including those that are near each other but not on the same tower. The public tower companies (AMT, CCI, SBAC) have incorrectly tried to portray their exposure to churn by providing the number of towers they have where there is direct same site overlap. However, in previous mergers, we have seen very clearly that the merged carrier terminates cell sites that can be as much as 1 mile away from another cell site. If you have any interest in this research, please contact us.

Map with T-Mobile and Sprint cell sites. — Overlap of Sprint and T-Mobile Cell Sites.

Sprint’s not-so-mini Mini-Macro Problem

May 18, 2017 by Ken Schmidt Leave a Comment

Photo of Mobilitie Pole — Sprint-Mobilitie Mini-Macro- This One Was Permitted

Sprint’s partner, Mobilitie, allegedly building mini-macros without adequate regulatory approvals

Tickers: S, AMT, CCI, SBAC

Tags: Ken Schmidt, Wireless infrastructure

Background:

Sprint has dramatically underspent competitors over the past few years, arguing that its superior spectrum position, coupled with its densification efforts, allowed it to serve wireless customers at a fifth of the cost of VZ, ATT, and TMUS.

In our previous note “Sprint Behind the Small Cell 8-Ball (10.26.16)”, we surveyed the top 25 cities and found that Sprint was talking a lot about, but not actually deploying, mini-macros at scale. Subsequently, in “Sprint Shows Signs of Life on Small Cells (04.10.17)”, we noted that increased hiring activity by Sprint’s small cells partner Mobilitie indicated near- to intermediate-term construction activity and that we would watch construction efforts to gauge follow-through.

Recent Checks: Who Cares About Permits

On May 2, 2017, Event-Driven, a wireless industry news site, published a report claiming that Sprint approved the construction of non-permitted sites. The report includes what appears to be an internal memo from Sprint’s Vice President of Network Development to area development managers regarding a trial enabling Mobilitie to “commence construction on new wireless sites without full regulatory compliance…” See the Memo here. While the memo appears authentic, we have not received independent confirmation.

Assuming the memo and its content are real, this memo jeopardizes the timing of Sprint’s mini-macro build-out and densification efforts. If Mobilitie is not following zoning and permitting regulations or is not submitting to the FCC for NEPA, SHPO, and Tribal Consultation as may be required for some new structures, this could increase the timeline for construction of new mini-macros by six or more months.

In the memo, Sprint appears to recognize this. Sprint cites that it was building 33 new mini-macros per week, but that during the trial, new builds dropped to six per week. The memo clarifies that, in the future, Sprint will require that Mobilitie follows all regulatory requirements, and concludes that the “reputational risk” to Sprint outweighs the benefits of proceeding with the trial.

Implications:

We see an increased risk to Sprint’s ability to deploy critical wireless infrastructure, and we reiterate the historically low levels of Capex Sprint has spent over the past few years as a risk to its long-term competitive position. Municipalities in which non-permitted construction occurred will scrutinize Sprint’s (and maybe the industry’s) entire infrastructure portfolio, potentially resulting in take-down orders, fines, and possibly litigation. Sprint may find that the “site count” for this permit-less trial is neutral, or even negative after reviews are conducted by local, state, and federal authorities.

Failure by Sprint and/or Mobilitie to get enough sites “on-air” could cascade in unexpected ways. For instance, Sprint may be forced to revise its network densification strategy to a more tower-centric or traditional-small-cell-centric strategy, benefiting the public TowerCos. Sprint may also be forced to rely upon leased fiber or dark fiber, which could change Opex or Capex respectively.

There are M&A implications as well. Now that the FCC quiet period has come to a close, there is a slight increase in reputational risk that could potentially drive an acquirer, or a target, toward a rival. However, Sprint’s underspend on the Capex side makes their cash flow look more inviting potentially encouraging suitors.

Zooming out, this memo, authentic or not, could hamstring industrywide efforts to reduce regulations related to small cell siting. Perceptions that Mobilitie and Sprint (allegedly) deliberately circumvented municipal regulations imperils petitions to the FCC for relief from such regulations, and the industry’s desired characterization as a “utility” could take longer to achieve, slowing broader CapEx deployments.

This note was originally published on 5/2/17 to our research clients. If you are interested in getting more timely access to our research or would like to have a discussion on this note, please contact us.

Sprint’s Really Odd Antenna Configuration Proposal

May 5, 2017 by Ken Schmidt 5 Comments

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.

Sprint Enters the Lease Renegotiation Game Again

April 11, 2017 by Ken Schmidt Leave a Comment

A landowner client of ours received this email from LCC, a company allegedly acting on behalf of Sprint where they claim that if the landowner doesn't agree to concessions, that Lendlease will consider relocating the Sprint site.

Screen shot of email from Sprint — Email from Sprint Representative to Landowner

If you receive a similar request from Sprint, LCC, or Lendlease or another cell tower lease optimization company, please contact us. We can help you evaluate the proposal and determine whether it is probable that Sprint would move in the event you choose not to accept their proposed rent reduction.

AT&T Shifting Capex into Small Cells

February 21, 2017 by Ken Schmidt Leave a Comment

Implications: T, S, ZAYO, CCI, AIRO, COMM, DY, ERIC, NOK (Disclosure- author holds position in ZAYO)

Looks like T's finally cutting over to small-cell investment as S continues to under invest.

Carrier capex budgets for 2017 and forecasts for 2018 aren't out yet, but our checks indicate that AT&T, which has to-date been a relative holdout on small cells, is finally shifting investment share in this direction.

Back in June, T highlighted that 90% of its next-5-year macrocell infrastructure was already in place, but only 5-10% of the small cell infrastructure for this same period had been built.

Checks now show that T is beginning to reassign real estate department personnel to work on small cells. Furthermore, some subcontractors are reporting increased requests from AT&T to do site walks for small cells.

Notably, we are not yet seeing increased municipal permitting / leasing. Given 9-12 month lead times, this suggests that small cell ramps will occur toward the middle of 2017 with a likely acceleration into 2018.

We anticipate that T will focus its small cell efforts in Wireline markets where the company already owns existing fiber and has access to Right of Ways and Franchise Agreements. T will best be able to control costs in these areas where it is already considered a wireline utility and has existing infrastructure in place. These markets include most of the Southeast and Midwest as well as a few markets in California.

Map showing the states in which AT&T has wireline service — AT&T -Landline Markets before CT was sold (Image from AT&T)

Implications

We see this shift as an incremental positive for fiber providers and small cell operators like ZAYO, CCI and CSAL; although the effect is likely to be muted to the extent that their metro fiber overlaps with AT&T's. It's a likely positive for OEMs like AIRO and COMM that provide small cell equipment and antennas but don't have exposure to the decline in macro cell equipment. Implications will likely be mixed for DY, NOK and ERIC. They should benefit from increased small cell work but are already seeing reduced capex allocated to macro cells.

Sprint Follow-up

Related to our past comments on Sprint, (see 10/26 – Sprint (S) still behind small cell 8-ball), we continue to see additional data points supporting our thesis.

Sprint confirmed during their last earnings call that last year’s Capex was lower than their previous guidance to the market by $2B ($2.3B actual vs $5B guidance). Sprint has been talking up its plans for years with relatively little to show for it, and recognition seems to be building throughout the marketplace, and the investor community, that the Mobilitie relationship has yielded far fewer small cells than were anticipated. Sprint is giving lip service to 2017 being a better year for permits and capex, but its hopes seem to be predicated on FCC leadership changes and possible rulemaking to remove impediments to small-cell deployment in right of ways. In fact, Mobilitie seems to have pinned a significant amount of hope on a Petition to the FCC for Relief.

We think Sprint's capex will increase in 2017 off of an ultra-low 2016 number, but the service provider continues to struggle to deploy capex dollars. We wouldn't be surprised to see major revisions to the strategy as well as Street expectations.

Steel in the Air – Wireless Predictions for 2017

January 4, 2017 by Ken Schmidt 2 Comments

As we have done in years past, we look ahead to 2017 and share our forecasts for the coming year. All things considered, 2016 was a mediocre year for the industry. 2017 looks to be all about repositioning – meaning that while we don’t expect growth in CapEx, we do anticipate industry development in some areas and contraction in others. With that said, here goes:

1. AT&T gets serious about small cells. Again.

For those of you who don’t recall, AT&T previously had an Antenna Solutions Group focused on both Distributed Antenna Systems (DAS) and small cell deployments. While most of the emphasis was on DAS, there were a decent number of small cell deployments, although nowhere near the 40,000 small cells AT&T led the industry to believe they were going to deploy. We believe that AT&T will end up increasing its capital expenditures on small cells this year at the expense of building new macrocells. However, that doesn’t mean that AT&T will stop investing in macrocells altogether – see the next point.

2. AT&T wins the FirstNet RFP and starts to deploy both FirstNet and AWS-3 spectrum via site modifications to existing macrocells.

Per our previous notes, we (and others) anticipate that AT&T wins the FirstNet contract. As we have pointed out before, if AT&T has done 700MHz modifications at a site previously, the old antennas may be able to accommodate the additional FirstNet 700MHz spectrum, but that doesn’t mean they can accommodate AWS-3 frequencies. The AWS-3 spectrum is in the 1700MHz and 2100MHz ranges, and we are just starting to see modification requests from AT&T that cover the full range of the spectrum in both 700MHz and 1700-2100MHz bands. We anticipate that this continues. Note that this doesn’t mean that AT&T will pay more rent for all modifications.

3. Verizon gets slightly more serious about small cells. Again.

In 2016, it seemed that Verizon had slowed down its deployment of small cells as compared to 2015. While we don’t have access to the number of small cells they deployed via Crown Castle, we do know that the municipalities that have retained us experienced a downtick in the number of new small cell applications. We suspect that Verizon has revised its strategy on small cells after discovering what does and didn’t work through trial and error in 2016. Previously extensive efforts by Verizon to enter master lease agreements with municipalities will pay dividends in 2017 as Verizon will experience quicker speed to market than other wireless carriers who haven’t negotiated such agreements in bulk.

4. T-Mobile will focus on adding capacity to their network no matter how costly.

In 2016 T-Mobile negotiated and presumably signed a significantly increased number of leases to add equipment to existing DAS systems across the US. Furthermore, we have heard (but haven’t yet confirmed) that T-Mobile is entering collocation agreements on rural towers to avoid roaming agreements with rural carriers. Our experiences with rural tower-owning clients seem to confirm this – but we don’t know whether their leases are representative of what is happening with all tower companies. We surmise that T-Mobile doesn’t want to spend cash building its DAS networks or new towers, which is why they may be willing to agree to higher than average lease rates. We also assume that T-Mobile needs desperately to add capacity and to do it quickly – which supports why they would be willing to jump on current DAS systems and collocate on existing towers.

5. Sprint will continue to spend historically low levels of CapEx and somehow still convince market analysts that its spectrum holdings give it the flexibility to significantly limit spending on its network.

When Sprint announces its 3Q2016 fiscal year results in January, they will again surprise with lower than expected CapEx. Reduced lowered CapEx from Sprint could very well continue into the middle of 2017 based upon the limited activity we are seeing from Sprint now. Tower companies have already rightfully stopped projecting any income from Sprint in 2017 with the expectation that if it comes, we can all just be grateful. Despite these harbingers, market analysts will still continue to rate Sprint a Buy primarily due to the potential for a merger with T-Mobile which seems to be increasing slightly in probability every day. If Sprint seriously believes this merger will take place, they would be wise not to invest CapEx.

6. More fiber companies will be acquired and the values paid per route mile (especially metro fiber) will continue to increase.

We know that this isn’t that much of a reach regarding a prediction, but it is an important one nonetheless. 2016 saw several fiber acquisitions: Zayo/Electric Lightwave, Windstream/Earthlink, CenturyLink/Level3, and Crown Castle/Fibernet to name a few. Notably, both Zayo and Crown Castle are actively positioning themselves to be “the” small cell metro fiber providers. These companies know that fiber is the backbone of any 5G/small cell/fixed wireless network and that controlling costs of the fiber is paramount to the wireless carrier’s ability to keep pricing of wireless plans low.

7. Speaking of fiber, landowners will receive more requests than ever before for new fiber routed across their property.

We are just starting to see requests from Verizon and other carriers to bring in “redundant” fiber from different cross-property routes from existing wireless lease utility easements. Our research shows that with the advent of small cells, and C-RAN particularly, companies like Verizon need redundancy and are willing to pay for a second utility easement across the property so that an aloof contractor cannot cut both fiber cables at a singular location. Unfortunately for large incumbent fiber providers, this fiber won’t be lit fiber.

8. 2017 will be the year of cell site hardening.

With FirstNet likely being awarded to AT&T, and the FCC’s recent order requiring wireless carriers to disclose the percentage of their sites that are out of commission during emergencies, we anticipate that carriers will begin improving power backup systems at individual sites. Cell site hardening will translate to more on-site generators, which means lease expansions and increased rent to landowners and tower companies. Sprint and T-Mobile will need to play catch up to AT&T and Verizon, both of whom have previously begun site hardening agendas.

9. Wireless carriers are doing more than just talking about what they consider to be a lopsided relationship with the tower companies, and clear and demonstrable proof of this will emerge in 2017.

To date, tower companies have largely ignored inquiries and very public comments from the carriers about “expensive and unsustainable” collocation rents and modification requests. Despite some slight downward pressure on tower company stocks and analysts’ questions at industry events, the tower companies haven’t yet felt any real pressure from this carrier positioning. However, we believe strongly that the wireless carriers aren’t sitting idly by but are instead actively seeking to relocate some of their more expensive sites. Whether these efforts are selective and focused primarily on “scaring” the tower companies, or they represent actual and significant savings on operating expenditures going forward, we don’t know. Either way, we believe that there will be clear proof of the extent of these efforts in 2017 and that this will negatively impact the tower companies.

10. The carriers will not deploy any real 5G in 2017.

Despite claims to the contrary by Verizon and others about their 5G-like systems, they aren’t mobile, and they aren’t 5G. Mobile 5G specifications aren’t expected until 2020, and even pre-specification systems won’t meet the eventual 5G standards. 5G preparation will continue in earnest in 2017, to include robust fiber deployment and small cell site acquisition. None of this will prevent the carriers from saying they are deploying 5G. (Stay tuned on this topic- we anticipate doing a workshop for financial and tower company clients in NYC and Boston in February to address the common questions and concerns we have been hearing from analysts and reporters regarding 5G).

It is unlikely that these projections will be 100% correct – and if I had to pick one projection where we are more likely to be wrong (and where we hope we are wrong) – it #5, that Sprint won’t be deploying CapEx this year in any sizeable amount. The tower companies have fared well over the past year, considering the lack of any real, sizeable revenue growth from one of the “Big Four” wireless carriers.

If you disagree with any of our projections, we’d love to hear why. If you want further information about how we arrived at the predictions or wish to discuss the likely winners and losers, we welcome the opportunity to set up a private (paid) consultation to discuss our beliefs further. We have no confidentiality agreements in place with the companies listed above – and to the extent that we do have confidential information about them, we won’t disclose it.

Sprint vs. Verizon Standoff on Network Reliability and Capex

August 2, 2016 by Ken Schmidt 4 Comments

Verizon wasn’t happy about Sprint stealing their “Can you hear me now?” spokesperson or Sprint’s efforts to suggest that Sprint’s network reliability performs within 1% of AT&T and Verizon‘s networks. Verizon issued their own press release full of pretty interesting facts that attempt to demonstrate that network reliability is important- but that Verizon’s network is far more extensive and they have devoted far more resources to their network performance. [Read more…] about Sprint vs. Verizon Standoff on Network Reliability and Capex