Bernard Borghei, executive VP of operations and co-founder of Vertical Bridge, spoke with eDigest on the key issues and trends facing the tower industry as we end 2019 and set off on the new year.
How did Vertical Bridge perform in 2019?
Despite the pause in activity from some of the carriers, we still had a very good year. The business grew at a very attractive rate, from a leasing standpoint.
We had a tremendous year when it came to building new towers. We set another record in terms of new towers built. It was in the hundreds. Some were capacity fill-ins in suburban areas. A majority of the sites were in what I call new frontiers, areas where their coverage was being expanded.
We will carry that momentum from the fourth quarter 2019 into the first quarter of this year. Our fourth quarter was pretty active and ended up pretty strong, because we had a lots of projects that had already begun earlier in the year.
The effects of a pause and pull back are usually not felt until the following months.
What is your take on the Sprint/T-Mobile merger?
Final arguments are scheduled for Jan. 15 and the judge will take three to four weeks to render a decision. It is hard to say. We have spoken to people who attended the court case and they all walked away with different reads.
If it goes through, we are very positive about the merger. We believe it will make the industry more competitive. You will see some integration activities between TMO and Sprint to begin with, but then the focus will turn to building out the new TMO network based on their commitments made as part of the merger. One thing is for sure, if it goes through, you will see a stronger T-Mobile come out and push hard to meet all the promises that it has made to the FCC and the DoJ.
If the merger doesn’t go through, some say the pressure will be off AT&T and Verizon. I don’t know if they can relax. We saw T-Mobile add 7 million new subscribers in the fourth quarter, despite the pending merger.
It would break my heart if the Sprint/T-Mobile merger did not go through, because they have made such strong commitments to expand rural coverage, which I really think is needed for all of our citizens in those areas to gain access to broadband services. All carriers have plenty to do to expand their footprints in rural areas.
One thing is for certain. The fate of this merger should not have taken this long to be decided. No industry can flourish in an environment of uncertainty and this merger has brought an extended cloud of uncertainty that was not necessary. I just hope that we get finality in this case as quickly as possible so we can move forward, one way or another.
In 2020, the FCC’s attention will shift to mid-band spectrum. How will that impact towers?
I think the C Band auction will be very critical for the carriers, knowing how important it will be for 5G networks, and the bidding may be very hotly contested. Depending on how much money the carriers will need to bid in order to get the spectrum in the markets that they need, that may have an impact on their network expenditures in 2020. After the awarding of spectrum to the carriers, historically there is a lag time of nine to 12 months before the new spectrum is deployed in the marketplace.
The C Band is the last attractive band for macro-tower buildings in the foreseeable future. The CBRS auction is going to be important, too, but with all the coordination with the Naval radar stations and the division between the general-access and the priority-access licenses, it will not be as straight forward for the carriers to use it. But the C Band frequencies are perfect spectrum where they sit. Unless we start taking away other parts of spectrum from the military or other sectors, C Band may be the last piece of attractive spectrum made available to carriers for a long while, which can be used on macrotowers.
Will we see any impact on macrotowers from the millimeter wave auctions?
There is a lot of technical debate about how effective millimeter wave frequencies will be in a macrotowers environment or whether they should be considered only for small cells.
What deployment trends from 2019 will carry over to this year?
T-Mobile has been aggressive about its 600 MHz buildout. There is a decent level of activity that we continue to see from T-Mobile. AT&T has continued to deploy FirstNet sites and upgrades to existing sites. They continue to add capacity in various markets. There is a steady level of investment from Verizon. They never get too hot or too cold.
Are you optimistic about future growth of towers in a 5G world?
If 5G is going to consist of broadband, ultra-low latency networks, with the speed the 5G standard is requiring, a lot more sites are needed to accommodate the promise of 5G. I think the U.S. tower sector can easily bank on 30,000 to 40,000 more towers in the next five to 10 years. I see plenty of growth opportunities for new sites. Our sector will remain extremely attractive.
AGL Media Group’s J. Sharpe Smith toured the headquarters of Vertical Bridge, in Boca Raton, Florida and discussed the important issues facing the wireless infrastructure industry with Alex Gellman, CEO and co-founder, and Bernard Borghei, senior VP, operations and co-founder.
What new opportunities do you envision for wireless infrastructure?
Gellman: Verizon and AT&T are very rapidly moving to use 5G to deploy low-latency, high-definition personalized video Over The Top (OTT). That’s new. They weren’t talking about that last year. That’s a big shift of video to wireless. They did their bench testing and realized that 5G can provide the speed and low-latency to deliver video over a skinny bundle into homes without a truck roll. It’s so much cheaper and so much better for them as a business model.
So there will be pre-5G roll out of fixed point-to-multipoint delivery of Internet and Video, which will pick up at the end of this year, but will happen mostly in 2018-2019. It will be a bridge to the traditional 5G mobility model, which is set for 2020.
Borghei: We are excited to see what AT&T does with OTT, setting the platform for 5G delivery of video content. We view OTT as an opportunity for our broadcast towers to provide space for anyone that wants to provide fixed wireless services. Verizon should continue getting its arms around its content strategy concerning its acquisition of Aol and Yahoo.
What other events do you expect to affect the wireless infrastructure industry in 2017?
Borghei: It is going to be a transformational year from the megamerger standpoint. The AT&T/Time Warner deal will go through with the new administration. There will be attempts to acquire T-Mobile, which, if successful, would be huge for the industry. Not necessarily negative. We are not nervous about it. As Alex says, a marketplace with four carriers and only two spending money is not as good as a market with three healthy carriers spending money.
Overall, 2017 should be a gradual improvement in leasing over 2016, which saw stronger growth over the second half. Additionally, there are deadlines coming up for DISH to do something with its spectrum.
Gellman: The long term wireless infrastructure demand outlook is good. Even though organic growth has been muted, tower stocks held up because 5G is coming. You are going to need to amend the existing sites, roll out new frequencies and densify the network. All of that is good for towers.
What kind of impact do small cells have on your bottom line?
Gellman: In the area of densification, the carrier spend, which has been pretty muted in the last few years, is coming. We are hitting our projections coming out of the gate but they are pretty modest projections. Over time you will see it grow. So far, small cell buying has been geographically driven based on traffic and traffic projections. The carriers are looking for bulk answers: a single company to give them, for example, 300 small cells in Chicago. That does not lend itself to the sites that we have. As the carriers get more specific on the location of their hotspots and they get comfortable with billboards, they will call us if they have a traffic problem in a certain intersection.
Gellman: Shockingly, small cell site deployment is still driven by RF propagation analysis. There is going to be a shift by the carriers where they do their capital deployment based on traffic, more than RF. It is about the location of the high school. What do your sites look like when school lets out? That’s the peak. I guarantee you they need small cells all around those high schools. Where is the Instagram and Facebook traffic? That’s where the carriers are moving. That’s where our billboards come in. We have a pretty good pipeline, but it should increase by an order of magnitude in the next 12 to 18 months.
How will network virtualization affect Vertical Bridge?
Gellman: Where Digital Bridge and Vertical Bridge are focused is on the physical layer of the network. When people talk about network virtualization, that is really the software and the computerization of the network, but there still needs to be a physical layer to get to the cloud. You need antennas, towers, radios, fiber and data centers. That is what Vertical Bridge focuses on, the physical layer of the network. When AT&T talks about virtualization, I think it is terrific. The more efficient the carriers are, the healthier they are, the better.
Outside of your towers, you now have 40,000 assets that you market for wireless facilities, including rooftops and billboards. What need does this fill for your customers?
Borghei : The densification of the heterogeneous networks will drive the need for different types of assets: urban, suburban and rural. When you have indoor solutions handing off to small cells that hand off to macrocells, that’s where having different types of assets complementing our macrocell network is always going to be key for us. Densification is going to take place on all of these different morphologies. The various types of assets we have accumulated in buildings, rooftops, utility attachments and macrocells –– all are part of a turnkey real estate solution.
Borghei: I take it personally when people call us a tower company. We are no longer a tower company. We are a real estate solution provider. We have all these different types of assets to meet the demands of today’s advanced technology leading into 5G and beyond.
Gellman: We bought a lot of suburban towers with a lot of real estate. If C-RAN is to be located at specific sites, we look at marketing the land under our sites for a C-RAN hub.
Former Global Tower Partners executives Alex Gellman, Mike Belski and Bernard Borghei just couldn’t walk away from the cell tower industry. Less than a year after the sale of their towers to American Tower, the three have emerged as co-founders of Vertical Bridge Holdings, a privately-owned tower company headquartered in Boca Raton, Florida, that will focus on owning, operating and managing cell towers and rooftop sites in the U.S. Market.
“When we sold GTP, we felt like we had unfinished business,” Gellman, company CEO, told AGL Link. “We saw the rapid emergence of new sites at levels that we have not seen in our industry for quite a while. We wanted to be a part of it.”
With the pipeline shifting from amendments to new leases, tower building is on the rise, according to Gellman. “The opportunities are to acquire as well as build. We are looking to do both,” he said. “We have good people, a good market and access to capital. Why wouldn’t we do this?”
Vertical Bridge recently completed two acquisitions expanding its sites portfolio in several states including Pennsylvania, New Jersey, Delaware, Florida, Georgia, Illinois and Texas.
“We acquired premium locations: some roof tops and some towers, well-tenanted (Verizon, Sprint, T-Mobile, AT&T) locations in good markets,” Gellman said. “It is a good start for us and we have an active pipeline for additional transactions queued up. More to come.”
Vertical Bridge plans to function very similarly to GTP, but will probably grow faster than that company did in the early years because of its established relationships with carriers and increased access to capital.
“We are going to grow pretty quickly. We are going to focus on building towers more than GTP did, but that is more of a function of the current market. Prices are pretty high right now,” Gellman said.
GTP was in business for 10 years and had a financial relationship with the Macquarie Group that lasted seven years. Gellman said the new company has no exit strategy.
“We are looking to build Vertical Bridge for the long haul. We believe the market is strong and it is a good, stable business,” he said. “Where we see our short term opportunities for growth is predominantly macrocell driven.”
Building the Team
Vertical Bridge has also announced the formation of its executive team. Along with Gellman, Borghei is senior vice president of operations and Belski is senior vice president of leasing and development.
Formerly with Brown Brothers Harriman, Bob Paige joined Vertical Bridge as senior vice president of mergers and acquisitions. Daniel Marinberg, previously with the international law firm Greenberg Traurig, is vice president and general counsel. Johnny Crawford, who was with SBA Communications, is vice president of development. Suzanne Docobo, a tax consultant for GTP, joined the company as vice president and corporate controller.