What Cities Should Know Before Entering into Small Cell Master Lease Agreements

SITA recently held a workshop for a major metropolitan city regarding its small call infrastructure deployment policy.  Here are some points that we covered and would like to share with our audience:

The Players Involved

The City was recently approached by a major wireless service provider (WSP), and multiple third party management companies with proposals to manage the City’s wireless infrastructure builds.  Such Management Agreements are typically called “Master Lease Agreements” or MLAs.  Upon reviewing the various proposals, it was clear that all parties, including the City, were viewing them in the exact same way that they would any traditional macrocell tower proposal,  and were using the standardized language and process.

The WSP, using its typical, fairly one-sided language was asking for a 25-year MLA, which the City was initially interested in entering into, in part due to assertions made by the WSP regarding the number of individual small cell lease amendments that would be allowed over a 10-year period (and despite the fact that the WSP wouldn’t commit to any specific number).

Meanwhile, the Management Companies, as well as some Neutral Host Providers, were also presenting proposals to the City.  Theirs, like the WSP, didn’t differentiate between types of network infrastructure (macro vs. micro) and also used the same terms that they used for Cell Tower Management Contracts.  Tower Companies, as we know, are in the business of building, leasing and managing tower sites. Their standard business model of “build it and fund it” is quite different from the approach and strategy presented by the Third Parties, specifically because the latter are not involved nor invested in the build part of the process (and do not fund any construction or deployment costs).  At the moment, this hasn’t changed – even with regards to small cell solutions.

It’s standard for these Third Parties to present themselves as doing [you] a favor by “offering to accept just 40%” of the City’s lease revenue accrued from future tenants – in exchange for what, you ask?  The answer is unfortunately, nothing much at all.  Since no risk has been accrued on their part, they basically act as glorified middle-men, taking a cut of the rental revenue (40%) without any direct investment or risks associate with it.  At the end of the day, their “marketing efforts” to attract new tenants, are essentially fruitless.  WSPs will come to your tower if and when they want to, and no amount of coercion will tempt them if the location doesn’t meld with their existing network and its needs.

It wasn’t until we sat down with the City that we collectively began to understand that there was real opportunity for the City above and beyond any marginal boost of the revenue component.  It was also obvious that potential future opportunities would be at risk should the City move forward with the WSP’s proposed Lease Telecom Lease Agreement –  As Is, which other cities with less vision are doing as we speak.

The Role of the City

Even beyond the above, the real issue that Steel in the Air wishes to bring to the forefront is that WSPs and so-called “management” companies are basically pushing a myopic vision of small cell architecture that dumbs-down the role of the City to mere “Structure Owners”.   In fact, WSPs have always discouraged (and in some cases successfully lobbied for legislation that directly prohibits) the regulation of wireless services by Municipalities (Cities and Counties) themselves.  To WSPs, MLAs are simply a means to an end, and are thought of as an efficient reduction in the otherwise substantial site acquisition costs for structure leases.  WSPs believe that cities and counties should enter into long-term leases with unilateral termination rights vested only in the WSP.  However, the leases, if poorly drafted, restrict redevelopment of the poles and inhibit future growth both in infrastructure and in wireless telecommunications.  Furthermore, poorly drafted MLAs could impair current and future public safety communications in unknown and unforeseen ways.

It is our belief that municipalities need to consider the role of both public and private telecommunications in any small cell or wireless shared infrastructure policy.  Policies and strategies need to consider both the direct and indirect monetary benefits that the City can receive from small cell builds, whether the City wishes to have its own wireless platform and infrastructure or not in the future.  Cities that focus on the short-term benefit of revenue from small cells are missing a much broader opportunity.  As the Internet of Things becomes more entrenched in everyday monitoring, and devices begin to communicate on levels we haven’t even begun to contemplate, cities that have leased away valuable infrastructure without having a forward thinking policy will be wishing they hadn’t.

We aren’t suggesting that cities avoid leasing public infrastructure to WSPs altogether.  Instead, we recommend that cities create cross-functional teams from multiple departments to consider all of the potential opportunities enhanced communications offer to public safety and public commerce, stemming from a well thought out small cell deployment policy.  If you need assistance putting together the team or developing a list of the questions that you should be asking, feel free to contact us.  

Whatever you do, we strongly suggest NOT doing the following:

1. Do not retain a management company or a neutral host to manage your small cell infrastructure leasing.
2. Do not enter into an exclusive agreement to lease infrastructure with just a single WSP.
3. Do not grant rights to your infrastructure without fully understanding your own current and future municipal public safety and non-essential communication needs.
4. Do not grant long term, non-cancellable rights to any one WSP.