Despite the 5G talk, investment in LTE will see plenty of runway in 2019, which is leading to more new tower builds, tower executives say. T-Mobile is building coverage sites for its low-band 600 MHz and 700 MHz spectrum, and AT&T is contemplating a network improvement project as well as its FirstNet-related project. Both of which involve ample new sites, Alex Gellman, CEO, Vertical Bridge, told AGL eDigest.
“We are in a renaissance period for good old macrotowers in the next few years ahead of 5G,” Gellman said. “The reason I feel that way is we are seeing a lot of rings for new towers. The economics and speed of collocations is hard to beat, but there will be new builds as well.
Ron Bizick, CEO, Tarpon Towers, described the new-build business as “vibrant.” It is bringing good times to the independent tower companies.
“There are a lot more towers being built in the rural areas to fill out the white spaces, particularly for AT&T’s FirstNet,” he said. “We are seeing the other carriers build out their coverage, as well. We have targeted some rural areas where we think a second tenant is possible, but only a second tenant.”
With that said, carrier capital expenditures are a quarter-by quarter-question mark. In the first quarter of 2019, tower owners will be looking closely at the capex budgets of AT&T and Verizon after the Big Two pulled back on their spend toward the end of 2018. AT&T’s reduced capex came after the Time Warner deal closed and Verizon shaved $1 billion off its guidance after announcing 44,000 in layoffs last year. Additionally, Verizon had a $4.6B write down of Oath (Yahoo and AOL).
“They pushed capex out at the end of 2018. Was that a trend or a one-time occurrence?” Gellman said. “The layoffs and the write down may be a signal a greater focus on the network in the future.”
Last year’s big story, the Sprint/T-Mobile merger, is carrying over to this year. It was bad news for some tower companies, which saw Sprint business go away after the deal was announced. Gellman believes the quiet surrounding the deal is a portent for its blessing from the Department of Justice. In the long run, he believes the merger will be positive for the industry.
“Sprint has not spent on its network in a meaningful way for a number of years, while T-Mobile has been very aggressive,” he said. “A stronger, larger T-Mobile will be excellent for our industry. T-Mobile is solely focus on its network, while AT&T and Verizon have other places to put their capital and have sometimes invested elsewhere than in the network. If T-Mobile is the same size as AT&T, it will be more difficult for it to do that.”
Jennifer Fritzsche, senior analyst, Wells Fargo, believes the Sprint/T-Mobile merger will go through in the first half of 2019. “Our regulatory checks suggest that the DoJ/FCC approval process has been relatively drama-free thus far,” Fritzsche wrote in an Equity Research note. “We do, however, believe that T-Mobile will have to divest assets – most likely spectrum – to receive approval. The New T-Mobile plans to create a more scaled, viable competitor to AT&T and Verizon, and help turbocharge the carriers’ push to 5G.”
Towers Still a Wall Street Darling
Fritzsche has written that the towers will be remain a compelling investment for shareholders 2019, despite the possible Sprint/T-Mobile merger. Tower stocks beat the S&P index in 2018 (+4.9 percent vs. S&P -6.2 percent), and in 2017 (+40.4 percent vs. S&P +19.4 percent).
“Even with these recent moves, we believe towers will remain very topical in 2019,” Fritzsche wrote. “In our view, there exists a number of tangible catalysts (i.e., FirstNet, T-Mobile’s 600 MHz deployment, 5G densification efforts, edge computing, etc.), which should more than offset expected choppiness in international markets (particularly India) and impact from carrier M&A (namely Sprint and T-Mobile) in the short term.”
Carrier leasing activity, which has grown year over year in recent quarters, is expected to continue to increase in the coming 12 months, according to Fritzsche.
“There is much ‘naked spectrum’ that has yet to be deployed (600 MHz, FirstNet 700 MHz, AWS-3, WCS, 2.5 GHz, mmWave, etc.) – where towers will clearly play a role,” she wrote. “Most deployments are part of multi-year strategies designed by the carriers and complement what they plan to build for densification needs ahead of 5G technology rollouts.”
Wireless communications carriers have become much tougher on equipment space rental terms for tower sites, according to Bob Paige, senior vice president for mergers and acquisitions at Vertical Bridge, a private tower company based in Boca Raton, Florida.
“We focus on towers in our business, but also data centers and small cells,” he said. “We are, I think, the largest private tower company today.”
Paige spoke at a conference session about privately owned tower companies at the Connectivity Expo convention conducted by the Wireless Infrastructure Association in Charlotte, North Carolina. “Vertical Bridge is seeing increased rental activity from AT&T Mobility and, surprisingly, from Sprint,” he said. “I would tell you their terms have certainly gotten a lot tighter, whether it’s pricing, whether it’s reserve loading or whether it’s escalators. They’re certainly a lot tougher on terms than they were a few years ago when they were active last time.”
AT&T Mobility and Verizon Wireless not only have expressed dissatisfaction with rental rates. They took action last year to have alternative tower sites constructed on their behalf with the potential for moving equipment from towers they now lease to the new towers. Tower-owning companies such as Vertical Bridge may be responding by negotiating new rates.
“Once we set the new paradigm, we set the new pricing, we set the new loading, we set all the other terms and conditions, I think we’ll go back to business as usual,” Paige said. “Something to notice is that the wireless carriers are doing this at a time when they haven’t been very busy. They’re focused on it because they have resources. Once they get busy, this won’t be off the table because they’ve got to produce. With FirstNet and the AT&T build-out, they’re going to not focus on terms. They’re going to want speed-to-market real soon. When you start seeing 5G rollouts, the wireless carriers all will focus on that. In its build-out, T-Mobile certainly has started to focus on just getting things done. We’re at this paradigm shift in a time when we’re shifting terms. But once we set those, I think it’ll be a new business as usual.”
FirstNet is the First Responder Network Authority, a federal agency to which Congress gave the responsibility to construct, operate and maintain a nationwide public safety broadband wireless network. FirstNet contracted with AT&T to build the network, and AT&T has been using many of its existing facilities, including the towers it rents, to fulfill the contract.
Paige had praise for T-Mobile US, saying it had done an incredibly good job of moving TV broadcast stations from the 600-MHz spectrum the wireless carrier bought in FCC auctions. He said that three years ago, when it became obvious that the FCC would schedule the auctions, T-Mobile started talking with broadcasters to make sure they could exit the spectrum in a timely manner.
Announced about three weeks before the conference at which Paige spoke, the intended merger of T-Mobile and Sprint requires approval by the FCC and the U.S. Department of Justice (DoJ). Paige said that if the merger had been announced three or four weeks earlier, he would have given it no chance of obtaining approval.
Paige recalled when the DoJ turned down the AT&T and T-Mobile merger in August 2011 and issued a 16-page document explaining its position. He said when he plugged the metrics of the Sprint and T-Mobile merger into the document’s calculations, the merger looked even more anti-competitive by the Herfindahl-Hirschman index measure of market concentration. “That’s why I took a purely objective view, and I would have said there was no way the DoJ would approve the Sprint and T-Mobile merger,” Paige said.
But he said T-Mobile has done a masterful job of marketing the merger.
“They painted the future,” Paige said. “They said, ‘Don’t just look at today. Look at how this business will look three years, five years, 10 years down the road, and the amount of investment we have to make. It’s two separate companies.’ That’s resonating. We’re not seeing a public outcry against the merger. We’ve had a number of the FCC commissioners go on record as saying they are actually for it. The only uncontrollable force out there that may thwart this is the DoJ.”
Paige said the two companies might have to compromise with the DoJ to obtain approval, and such a compromise could involve spinning off Sprint’s Boost Mobile subsidiary, divesting some radio-frequency spectrum or possibly some anticompetitive markets.
Regarding the pending merger of T-Mobile and Sprint in which T-Mobile would control the resulting combination, Paige said he sees opportunity.
“Let’s assume that the merger goes through and T-Mobile decommissions all 35,000 sites,” Paige said.” We don’t have that many sites with Sprint today. And they’re going to put 10,000 new sites up and they’re going to favor private tower companies. We’re good. We would be net positive if they do that. Having a third healthy carrier that is growing is much better than having four, with two that do not have enough free cash flow to invest in 5G wireless communications. I won’t say T-Mobile and Sprint are not healthy, but they don’t really have the cash flow today to invest in 5G.”
Holding out the prospect that after the merger reduces the count of national carriers to three, a fourth network could start, Paige said: “At some point the FAANGs — Facebook, Amazon, Apple, Netflix and Google — have to do something.”
Paige referred to Dish Network, too, mentioning that its chairman, Charlie Ergen, spoke at the convention to say Dish would build a nationwide network for low-capacity internet-of-things service. He also mentioned cable TV companies as possible fourth network operators.
“Comcast is in the wireless business, whether they know it or not,” Paige said. A mobile virtual network operator doing business as Xfinity Mobile, Comcast uses the Verizon Wireless network to serve its 380,000 customers. Paige said if Xfinity signs up 2 million more subscribers next year as planned, Comcast will need the economic advantage of a network owner, sooner or later. He said Comcast could not keep using Verizon’s network and make a profit.
Whether or not a fourth network starts up after the T-Mobile merger with Sprint, Paige said he expects the near-term effect of the merger to be positive because the merged company’s growth will provide enough business to exceed what will be lost from decommissioned sites.
Vertical Bridge Buying Towers
Vertical Bridge has been a prolific buyer of towers during the past four years, Paige said. “As we are underwriting today, we are giving careful thought when Sprint is a tenant on a tower,” he said. “We have to perform a deeper-dive analysis to figure out whether Sprint is a long-term tenant. We would be acting irresponsibly, if we didn’t.”
On April 18, AT&T and Crown Castle signed an agreement simplifying and expanding their long-term leasing deal for wireless network infrastructure. “Everyone sort of skeptically looked at Crown’s strategy of moving into fiber, and this agreement is the perfect example of where it plays out really well for them,” Paige said. “They’ve extended the conversation with the customers that say, ‘I don’t just talk to you about macros anymore. I talk to you about your network.’ From a strategy perspective, Crown has done a great job of being able to expand the conversation with the customer.”
The Role of Small Cells
Paige said if state governments enact small cell legislation that adheres to the model the Wireless Infrastructure Association recommends, it will be good for the wireless industry. As long as the legislation does not choke the playing field to one technology — small cell versus macro — he said he is on board with it. Paige sees possible trouble with what he calls scope creep, in which legislation defines the size of the antenna structure large enough that small cells begin to approximate macro towers. He said small cell legislation will expedite the rollout of the greater coverage and lower latency that wireless communications users look forward to with 5G.
Small cell is a different business, Paige said, because the value-add is not the node, and it is not the small cell. He said the value-add in that equation is the fiber and managing a network, and a network requires more resources, more people, to manage it than macro sites do.
“We wrestle with small cell decisions as to whether we should stick our toe in some of the small cell things that come our way,” Paige said. “We always take a step back and say if it’s node only, where Verizon is going to build a fiber and we only have to put the pole up, that’s a great business for us. But if they really want a small cell solution, if Verizon or T-Mobile comes to us with a small cell solution, we should let our sister company do that because we don’t really have the technical expertise to handle it.” Digital Bridge owns Vertical Bridge, and it owns ExteNet Systems, a company that builds and owns distributed network systems, of which small cells can be a part.
Revenue from 5G?
Although some speak of the release of standards and the introduction of equipment as leading to 5G deployment, Paige said he believes it will depend more on market demand. He cited estimates of $175 billion to $275 billion to be spent deploying 5G network equipment, and it isn’t obvious to him how this investment will generate another dollar of revenue. “You have to figure how you’re going to generate the revenue to pay for that $200 billion-plus of investment before you actually deploy it,” he said.
“The equipment manufacturers would have you believe that you have to spend the money to drive the innovation,” Paige said. “But I don’t think you’ll go whole-hog on leading with a speculative build before you have some reason to believe it creates some revenue.”
With respect to Paige’s area of focus — mergers and acquisitions — he said acquiring more towers for Vertical Bridge is a matter of supply and demand.
“There’s just not a whole lot out there anymore, and so we’re sort of grabbing from the bottom of the barrel,” he said. He said when towers haven’t had previous ownership changes, there probably is a reason that could be related to problems with documentation, regulation or environmental considerations. “As we get into due diligence with these towers, we’re seeing things we didn’t see several years ago, and you’re seeing it more often. The increased level of due diligence is really a function of supply and demand. There are just not that many transactions these days. What you’re seeing are more challenged transactions.”
The next Connectivity Expo is set for May 20–23 in Orlando, Florida.
Edge computing is becoming part of the network conversation as more companies go public with their solutions for wireless communications. Placing data center infrastructure, i.e. content, at the edge of the network will give immediate access to the internet to billions of mobile devices, such as smartphones, medical devices, industrial controls and IoT sensors.
But that vision of the future goes out a few years.
What carriers need right now is a way to cut their backhaul costs which have risen because of the increased traffic caused by unlimited data plans, Greg Pettine, founder and EVP of business development, said in a phone interview with AGL eDigest.
“The [carriers] know that if they can get some of the content out beyond their core data centers out to the wireless edge, they can significantly maintain their operating expenses regarding fiber to the tower. That’s big,” Pettine said.
Also important to today’s carrier operations is the performance of the network, which can be negatively affected by traffic congestion. “The [carriers] have admitted to throttling back users of certain applications, such as YouTube, Facebook, Netflix and Amazon,” Pettine said. “This results in churn, which they don’t want to happen.”
EdgeMicro’s answer to the traffic congestion problem is to locate the data from these websites in a micro datacenter positioned at the cell site or a central office or a mobile telephone switching office. Then, when a data request comes into the tower, the system redirects it to the micro datacenter to get the data, instead of backhauling it to the regional data center.
The organizations may take advantage of storing data in a micro datacenter because they are the ones driving the most content across the internet. Those companies including Facebook with Facebook Live; Instagram; Google with YouTube, Akamai Technologies, which is used by the ad networks; Amazon and Netflix.
Data traffic in EdgeMicro’s network-neutral micro data centers is managed by a technology known as Tower Traffic Xchange (TTX), which is a Local IPAccess (LIPA) solution that combines all the necessary LTE network components into a single, low-power, collocated appliance.
EdgeMicro gave a preview of its TTX and micro data center at the Competitive Carriers Association’s (CCA) Annual Convention earlier this year in Fort Worth.
The company’s medium-term plan is to deploy at 500 tower sites in the next five years. First, 30 micro datacenters will be deployed at busy multi-tenant towers that serve 100,000 people in the next 18 months in tier-two cities, which don’t have a lot of backhaul, content or ISP peering.
“That will provide us with the data to proliferate our micro datacenters,” Pettine said. “EdgeMicro’s prefabricated micro data centers will be deployed at ultimately thousands of cell towers globally.”
EdgeMicro’s collocation model is based on an 8-foot by 20-foot container with six racks. A quarter rack would be sold to each content provider, which works out to 24 customers in each container.
“We are in various stages with the [carriers], introducing it into their labs for testing. Ultimately, they need to start field test the acquisition of data,” Pettine said.
Micro Datacenters: Good for Towers?
What is in it for tower companies? Providing micro datacenters will make towers stickier, reducing carrier churn. Tower companies would make good strategic partners and could fund the effort as an alternative cash flow.
“Tower companies get increased rent and have the potentially to be strategically aligned in bringing in innovative cash flow,” Pettine said, “But they don’t know anything about data centers and that is where we come in. We understand the collocation model from a datacenter perspective: the cost-to-build and opex.”
Tower companies have already shown an interest in micro datacenters. For example, Crown Castle International is a minor investor in Vapor IO, whose Project Volutus enables cloud providers, wireless carriers and web-scale companies to deliver cloud-based edge computing applications via a network of micro data centers deployed at the base of cell tower sites.
“The cloud of the future will extend past today’s large, centralized data centers. The next generation cloud will follow your car. It will follow your phone. It will follow your sensors. It will be distributed and data driven and everywhere,” Alan Bock, vice president of corporate development & strategy, Crown Castle.
Vertical Bridge announced in late September that it has partnered with its sister company DataBank to host edge computing at the base of cell towers. Additionally, AT&T has announced it also has micro datacenter plans.
One pundit has claimed that the Cloud is “dead.” While that may be an overstatement, the global market for micro data centers is certainly alive and projected to be $8.47 billion by 2022, according to a report on MarketstoMarkets Research.
J. Sharpe Smith and the senior editor of the AGL eDigest. He joined AGL in 2007 as contributing editor to the magazine and as editor of eDigest email newsletter. He has 27 years of experience writing about industrial communications, paging, cellular, small cells, DAS and towers. Previously, he worked for the Enterprise Wireless Alliance as editor of the Enterprise Wireless Magazine. Before that, he edited the Wireless Journal for CTIA and he began his wireless journalism career with Phillips Publishing, now Access Intelligence. Sharpe Smith may be contacted at: email@example.com.
States opting in for the First Responders Broadband Network (FirstNet) surged past the halfway point earlier this month, with the addition of Pennsylvania, Oklahoma and Utah. Even with the momentum FirstNet is gaining, the tower industry is still uncertain of when or where the buildout will occur.
For now, 29 states and two territories have signed on. States that haven’t already opted in have until Dec. 28 to make their decisions.
With an opt-in decision, first responders can begin signing up for service, and thousands of connections on the network. First responder subscribers will have priority access to interoperable voice and data across the existing nationwide AT&T LTE network.
Both AT&T and FirstNet have committed resources to improve public safety communications. With each opt-in decision, FirstNet and AT&T bear the financial risk associated with the network build in that state or territory. FirstNet will also drive public-safety-focused infrastructure build out first on existing towers through modifications and then through collocations. And eventually through new builds.
“We expect to hit the ground running and issue work orders in January after the opt-in period closes. We’ve already committed more than $200 million in capital to the project in preparation for its start,” John J. Stephens, AT&T CFO.
“The needs of public safety demand more than what commercial offerings provide today. FirstNet will be a force for good, forever changing the way first responders think about and use communications,” said Chris Sambar, senior vice president, AT&T – FirstNet.
The 31 states and territories that have opted in, including Alabama, Montana, Alaska, Nebraska, Arizona, Nevada, Arkansas, New Jersey, Hawaii, New Mexico, Idaho, Oklahoma, Indiana, Pennsylvania, Iowa, Puerto Rico, Kansas, South Carolina, Kentucky, Tennessee, Louisiana, Texas, Maine, U.S. Virgin Islands, Maryland, Virginia, Michigan, West Virginia, Minnesota, Utah and Wyoming.
“We’ve had a tremendous response [to the FirstNet opt-in process] so far. Already, 31 states and territories have opted in, and we are just a month into the 90-day opt-in window,” Stephens said.
AT&T must meet a timeline of 20 percent geographic coverage annually starting in April 2018, until it is finished.
“So we do think this is going to be constructive to the tower industry next year and for many years to come,” James Taiclet Jr., American Tower president, CEO and chairman, said in a Q3 2017 earnings call. Daniel Schlanger, American Tower CFO, also expressed his optimism about the potential for growth associated with FirstNet.
Smaller Tower Companies Less Optimistic
During the AGL Local Summit in Fort Worth last month, Ron Bizick, CEO of Tarpon Towers, said that FirstNet is currently the biggest catalyst for growth on the horizon for towers but the speed of the process has not been without some frustration. The large public tower companies stand to benefit the most, he added.
“It is slow coming. We all expected more activity sooner, but it is coming,” Bizick said. “From a revenue standpoint, Crown Castle International will benefit the most, because they have the AT&T portfolio, followed by the rest of the public tower companies. You can kill the most birds with one stone by going to the [bigger tower companies], if you can get a good deal done.”
Bizick has seen applications for tri-band antennas that would utilize the AWS, WCS as well as FirstNet frequencies. “What that suggests is that AT&T, true to its mission, is going to deploy one time, one truck roll,” he said. “It looks like they will have equipment deployed in the field ready to be turned on when a state opts in.”
AT&T plans to roll out FirstNet service to around a total of 45,000 towers, with 15,000 seeing new equipment in the first five year. There will be plenty of room for negotiation between AT&T and the public safety agencies concerning where that buildout occurs, according to Bizick.
“The public safety agencies will want coverage where they current don’t have it, and AT&T wants to deploy coverage where they don’t have to build towers,” he said. “I think the mixture should include coverage where there it currently is not available to public safety.”
Bernard Borghei, co-founder of Vertical Bridge, sees FirstNet as the last, best hope of getting broadband wireless deployed in rural areas. Collocating on existing towers will be essential for AT&T to achieve a return on its invest on its investment.
“A lot of us have rural towers and there is the possibility for a partnership there. We have a healthy relationship with AT&T. It is a timing issue. How aggressive they will be; how fast they will deploy; I don’t know,” Borghei said.
Collocating FirstNet Antennas May Not be That Simple
Not surprisingly, the FirstNet antennas covering multiple spectrum bands are bigger than the LTE ones.
“They are trying to go with one antenna per sector. Under Rev. H [of ANSI/TIA 222), the new tower engineering standard, a lot of the mounts are going to be stressed with the FirstNet antennas,” Borghei said.
Tony Peduto, CTI Towers CEO, said AT&T is looking for additional height beyond the standard 10 feet in the FirstNet rad centers, which may lead to reconfiguring the tower. He was not confident, however, that the Dec. 28 deadline for states to opt-in would hold.
“You have Oregon and Washington with a joint RFP out there which is due in mid-November. With the holidays, I think you are going to see an extension of time granted for states to opt-in as they try to figure it out,” he said. “It’s a tailwind. Just a matter of when.”
States opting out could lead to a FirstNet network with multiple providers, Peduto said
“A network will be built, but it may mean multiple players. Verizon has gone to states and lobbied them to build their network. Ultimately you are still going to need interoperability across the country, even if has Verizon in Washington state and AT&T in Oregon. I am not sure what it will look like in the end.”
To support Puerto Rico as it continues its recovery efforts from Hurricane Maria, Vertical Bridge, the largest private owner and manager of communication infrastructure in the United States, announced that it will make a $100,000 donation to One America Appeal through its philanthropic program, the Vertical Bridge Charitable Network (VBCN).
Funds from One America Appeal are being distributed to Unidos Por Puerto Rico, which is providing much needed water, food, hygiene products, and other supplies to those affected by Hurricane Maria.
“Hurricane Maria’s impact on Puerto Rico is unprecedented, and it will take a tremendous effort to recover,” said Alex Gellman, CEO and Co-Founder of Vertical Bridge. “Being based in South Florida, we’re very fortunate that Hurricane Irma was not worse for us. However, our fellow citizens in Puerto Rico were not so lucky, which is why it’s important to us ‒ and our employees ‒ that we support the island’s recovery in whatever way possible.”
Vertical Bridge has a history of supporting natural disaster relief efforts including those involved with Hurricanes Matthew, Harvey and Irma, as well as areas of South Georgia and Northern Florida that have experienced significant tornado damage. The company operates in many of these regions and often works with various local businesses to build and manage its telecommunications infrastructure.
In addition to its $100,000 donation to One America Appeal, VBCN is also matching any employee contributions to the relief efforts. By year’s end, VBCN expects to have donated over one million dollars to various philanthropic organizations, all of which were chosen by Vertical Bridge employees or clients.