Rural Deployment is all the Rage this Coming Year. Here’s Why

In recent months, there have been a number of merger rumors and announcements between various wired and wireless telecom companies.  AT&T announced its proposed acquisition of DirecTV, while Comcast and Time Warner announced their merger.  Sprint and T-Mobile have been seen dancing together since the beginning of the year, and their union is currently at the table.   In all three cases, the companies are suggesting that one of the benefits to their mergers (and one of the promises that these combined companies are willing to make in order to get approval for their mergers with the FCC and Department of Justice) is that they will bring wireless Broadband to rural areas.   Furthermore, both AT&T and Verizon are actively seeking sites in rural areas.  An analysis of inquiry data from potential Steel in the Air clients with proposed leases indicated that an increasing percentage of the leads are for rural sites as opposed to suburban or urban sites.  We believe that current industry dynamics will benefit rural landowners and spur rural cell site build-outs.  Here’s why:

Next year’s spectrum auction is likely to result in thousands of new cell sites. 

In the FCC’s Mobile Spectrum Report and Order of June 2014, the Committee outlines it’s missive by asserting that the very rules of next year’s AWS-3 band auction are set to increase the chance for regional carriers to bid.  “Today, 92% of non-rural customers (but only 37% of rural customers) are covered by at least 3G or 4G networks.  The policies we adopt today aim to address this discrepancy and ensure that all Americans, regardless of whether they live in an urban, suburban, or rural area, can enjoy the benefits that competition provides.”

The FCC’s new rules governing auction of the 600 MHz band are geared to ensure that regional carriers get a slice of the spectrum, up 30 MHz in some markets, which is expected to fuel more rural LTE deployments with the goal of providing Broadband Internet to underserved communities.  The properties of 600 MHz spectrum make it ideal for rural development because lower wavelengths penetrate greater distances.  As such, this particular spectrum is very valuable and sought after by big and small carriers alike.   To encourage multiple participants in any given area, it appears that the FCC may attempt to limit the amount of lower wavelength spectrum that any one telecom company can own, thereby increasing the number of wireless providers in rural areas and subsequently increasing the number of new cell sites.

The Public Safety Initiative: FirstNet

FirstNet (The First Responder Network Authority) was created under the Middle Class Tax Relief and Job Creation Act of 2012 as an independent body within the NTIA.  Its purpose is to develop a nationwide public safety Broadband network that will be devoted first and foremost to first responders and emergency/ disaster relief personnel.

Next year’s spectrum auction will help fund the $7 billion that Congress has allotted for the project, and also help with the E911 initiative (see below).

The build-out of this public safety network will generate many new leasing opportunities on existing cell sites (by increasing carrier collocation), as well as drive rural build-out to enable a seamless stream of reliable connection across even the most hidden pockets of the U.S.

E911 deployment will ensure that you can be found anywhere

Enhanced 911 (“E911”) is an advanced location identification (“ALI”) technology that was rolled out by the FCC in two phases.  In 1998, Phase I determined that wireless carriers must be able to identify the location by which a caller placed a call within 100 miles of the cell tower used to transmit the signal.  The goal was to be able to process 911 calls and enable emergency services to locate the position of the caller.

In 2001, Phase II required that each carrier must offer location detection technology within the wireless devices themselves so that the 911 caller’s location could be determined with 100-meter accuracy.

In July 2011, the FCC proposed that, by 2019, wireless carriers would be required to meet even more stringent location accuracy requirements. If enacted, this rule would require both device and network-based location techniques to meet the same accuracy standard.  In fact, hybrid solutions have already been developed that utilize both the device and the tower network. Regardless of the strategy used (finding a 911 caller based on bouncing off a tower or by utilizing the device itself), the signal still needs to go out in the first place. Today, most of the major carriers have already achieved a +85% GPS chipset penetration, enabling them to meet the standard without too much trouble – however this proposal will also spur development in rural areas that as of yet do not have adequate coverage.

Sprint’s Marriage to T-Mobile will require a dowry

In late May, after months of speculation, Sprint formalized its intent to acquire T-Mobile from Deutsche Telecom, and the plan is now at the table.  Sprint currently serves about 63 million subscribers and T-Mobile has around 45 million.  If the union meets with approval from the FCC, the new entity’s offspring (a combined total of ~108 million subscribers) will rival both Verizon (~118 million) and AT&T (~108 million subscribers).

We believe that Sprint might have some assuaging to do before getting the FCC’s blessing.  FCC Chairman Tom Wheeler’s overt directive regarding future wireless infrastructure deployment has been stridently focused on rural build-out.  The rules were set to restrict AT&T and Verizon (who have already deployed substantive networks in rural areas by using low frequency spectrum) from eating up all the available spectrum by setting a cap on how much they could purchase.  The idea was that Sprint and T-Mobile (who don’t own much low frequency spectrum) would be able to afford to buy it and then utilize it for their own rural LTE build-outs.

Regarding the upcoming union, some regulators have spoken out against it, saying that rather than spurring innovation and spending, it would cause the newlyweds to save up.  Their reasoning is this: low wavelength spectrum, like the 600 MHz bands that are up for auction, are, as mentioned, ideal for reaching far distances, which is what needs to happen in rural areas; however, the profit from such deployment isn’t nearly as high (per square mile) as it is in more densely populated areas (which have larger subscriber-bases).

We, however, see another angle, and believe that Sprint has, in fact, been thinking ahead to this very issue.  In other words, it’s been working on a strategy to gain the FCC’s thumbs-up on the merger.  Here’s how:

In March of this year, Sprint teamed up with both the Competitive Carrier Association (a non-profit organization representing over 100 regional wireless carriers) and the NetAmerica Alliance. By doing so, it stated its intent to partner with regional carriers to build-out broadband networks through low-cost reciprocal roaming agreements, which include cooperation on mobile devices and spectrum sharing. The idea is that each carrier’s customers will be able to share each other’s LTE networks without being charged data roaming fees. Specific rural operators have yet to be determined, but if they do choose to participate, the idea is that they will get access to Sprint’s burgeoning LTE network in both urban and rural areas. Meanwhile, Sprint will be able to expand its footprint into parts of the country its mobile broadband network doesn’t touch – at a lower cost than it would it if built all new cell sites.

Additionally, as part of its deal with CCA, Sprint has agreed to modify its devices to support the 700 MHz band that most carriers use. If 700 MHz does indeed make it into Sprint smartphones, it could give rural carriers access to a much bigger portfolio of devices as well as a nationwide network.  It’s also worth noting that CCA members will certainly be taking part in next year’s 600 MHz auction, and a pre-ordained partnership with Sprint is likely to benefit all parties.

Sprint’s deal with the NetAmerica Alliance is set to offer rural carriers access to Sprint’s spectrum in areas where they don’t have LTE networks of its own. NetAmerica members that participate would build and run their own networks using Sprint’s 800 MHz and 1900 MHz PCS frequencies. The deal would allow Sprint’s customers to roam onto rural towers with no additional fees.

The setup is actually similar to the LTE in Rural America program that Verizon set up several years ago, in which it leased it airwaves to regional carriers, allowing them to bring 4G LTE to their smartphones and satisfy subscriber demand.

All in all, we believe that the new Sprint/ T-Mobile will inevitably do its best to build-out rural broadband.  In fact, it will have some catching up to do if it wants to truly enjoy its new status as a “Big Three” wireless carrier.

What about AT&T’s fixed wireless local loop?

On May 18th, AT&T announced it’s bid to acquire DirectTV, the country’s second largest provider of paid-TV services (after a combined Comcast – Time Warner Cable).  AT&T does already have a TV service – “U-verse” with about 5 million subscribers, but with the addition of Comcast’s 20 million subscribers, AT&T will control more than half of the paid-TV market. As part of its effort to gain FCC approval, AT&T has also pledged to enhance broadband communications in rural areas across the U.S. and has stated that the new coverage would include approximately 15 million locations where coverage currently does not exist.

AT&T states that this will be done through a combination of fiber to the home (FTTH) and fixed wireless local loop capabilities. Essentially, this technology allows customers to enjoy Broadband data service by accessing a wireless connection that transmits to the nearest cell tower, rather than using a wire connected to the house. Pending FCC approval, and by using the investment from DirecTV,  AT&T will be able to make good on its commitment to build out broadband in rural areas.

Not, just rural – but everywhere, including in the sky

AT&T recently announced that it would be developing an air-to-ground solution to meet subscriber demand both in-flight and at airports.  While WiFi on airplanes is still relatively new, more subscribers are evaluating in-flight connectivity when choosing their flight plans.  In order to accomplish this strategy, which will be competing with Gogo Wireless (which currently has a monopoly on in-flight Wi-Fi), AT&T will need to build at least 2000 new cell sites.  The new towers will not need to be exceptionally tall, they’ll just need a clear vision of the sky at 30 degree angles.

Since most airports are located in rural or sub-rural areas, the benefit to rural subscribers will be collateral, but it will exist, as the new sites will be built out within 100 miles of the airport.

AT&T will need both FCC and FAA approval for the plan. Additionally, AT&T spectrum must be cleared for ATG usage by the FCC. As Gogo currently owns all the FCC spectrum licenses designated for an air-to-ground network, this announcement presumes that AT&T will be given FCC permission to use the terrestrial band (Wireless Communications Service/ WCS), which is at about 2,300 MHz.

This innovative partnership may encourage other carriers to compete in a similar way, resulting in even more towers and cell site leases.

4G LTE Goes Rural
4G LTE Goes Rural

SITA’s Forecast

It’s important to realize that 83% of the U.S. population resides in suburban or rural areas, which are almost exclusively serviced by tower-based macro sites.  Additionally, across the nation, over 31% (and growing) households are “wireless-only” meaning they have completely given up their landlines.

Combine this with the list of industry initiatives above, which are necessary to meet both projected data growth (which is increasing as much as 50% per user per year) and Public Safety goals, it’s quite clear that rural build-out is going to be a big deal in the coming years.

Not only are we witness to the rising popularity of “wearable” devices, like Google Glass and others that are just now hitting the market, we also know that subscribers have become accustomed to fast data speeds, and, to be frank, will no longer put up with connections being lost as they travel – or with high roaming costs.

The bottom line is that its in everyone’s best interests to get the ball rolling on rural build-outs, and it’s become evident that we will see a big number of new cell sites builds across the country (and new cellular leases), as well as significant modifications – specifically pertaining to carrier collocation and equipment modifications on existing leases.  Once, again, great new for our clients and anyone involved with wireless telecom leases.

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