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.
In 2013, Marc Ganzi stood at a crossroads. His company Global Tower Partners had sold its towers to American Tower. Although he could have continued to specialize in cell tower development, an area in which he had been immensely successful, Ganzi instead opted to diversify and invest in the entire communications infrastructure (“comm-infra,” as he calls it) ecosystem.
“There has to be an understanding of your customer, and there has to be a belief that the way we have done things in the past does not necessarily predicate how we will do business in the future,” Ganzi told AGL Magazine in an interview during a tour of the company’s headquarters in Boca Raton, Florida.
He cofounded Digital Bridge Holdings, and since then, the company has made good on that vision by investing in distributed network systems, small cells, fiber optics, data centers and interconnection services, along with macro cells, both domestically and internationally.
Tower Industry at a Crossroads
Now, it is the tower industry that stands at a crossroads. In serving wireless carriers, the industry must embrace change to remain relevant to its customers, according to Ganzi.
“The winners in the successful ownership and management of wireless infrastructure in the next 10 years will be the ones that understand what the customer wants from a deployment partner,” Ganzi said.
Today, smartphones have become an essential hub of people’s lives, from executing banking and other business transactions, such as reading work emails, to listening to music, watching videos, and communicating with peers through social media. Advancing consumer needs for data puts a lot of pressure on the hardware (or mobile device) to perform, Ganzi said.
— Jeff Tobe, author of Coloring Outside the Lines
To remain relevant, the tower industry needs to take a more holistic view of the carriers’ wireless infrastructure connectivity needs, Ganzi said. Delivering this needed bandwidth requires new investment. The industry will need to cross five different points of presence: macro sites, small cells, distributed network systems, fiber and highly secure radio access points (or data centers).
“As it becomes more in focus, it is less about the towers and more about the fiber-fed infrastructure and how you connect the various points of presence and ultimately to the radio access room to the content and where you tie into the cloud,” Ganzi said.
Along with investing in macro towers through Vertical Bridge, Mexico Tower Partners and Andean Tower Partners, Digital Bridge has moved in a number of different directions. In the fall of 2015, Digital Bridge entered the business of designing, building, owning and operating distributed fiber-fed networks for use by wireless carriers and venue owners by leading a $1.4 billion recapitalization of ExteNet Systems. It quickly followed up that deal with a bolt-on to ExteNet when it purchased Telecommunications Properties in May of 2016. The company designs, builds and operates distributed antenna system and small cell networks inside high-profile venues. As of June 2017, the business owned and operated more than 350 networks, 16,300 nodes and 3,200 miles of proprietary fiber.
Digital Bridge then completed the convergence cycle when it entered the enterprise-class data center business by acquiring DataBank in July 2016. DataBank then quickly made two acquisitions, buying select 365 Data Center assets in Pittsburgh and Cleveland and picking up Utah-based C7, which owns and operates three facilities in Salt Lake City. With new facilities under construction in Atlanta and a third asset in Dallas, DataBank will have 13 properties nationwide. Not done there, Digital Bridge decided to enter the hyperscale cloud storage data center business, buying one of the largest providers of wholesale enterprise data centers: Santa Clara, California-based Vantage, from SilverLake Partners. Today, Digital Bridge owns and operates more than 16 data centers, with five assets under development and construction across the United States. Digital bridge has invested nearly $2 billion in the sector.
Vertical Market Opportunities
Digital Bridge’s investment in ExteNet increased its access to the verticals (customers with specialized needs) across enterprise wireless, which includes enhancing coverage in key sports and entertainment venues, medical, higher education, hospitality and commercial office buildings.
“We approach each of those verticals differently,” Ganzi said. “Sports/entertainment was a huge strength at Telecommunications Properties, and we continue to book victories there with an integrated approach under the ExteNet flag. In medical, we are just scratching the surface. We’ve had a couple of universities — University of Texas, Auburn and University of Michigan. Those are tough networks to build because the carriers have not taken them yet, but in time, they will. The need is just too compelling from a consumer, research and higher-education need.”
The Next Frontier
Digital Bridge’s companies have deployed in more than 200 commercial office buildings and hotels. The goal is to continue to find cost-effective solutions for the smaller indoor venues. “Hospitality is fertile ground, and we continue to invest there,” Ganzi said. “Finding solutions for hotels with fewer than 400 keys is critical, just as it is for office assets sub-500,000 square feet. Then, the next frontier or pain point in the network will be solutions for hotels with fewer than 150 rooms and office space less than 100,000 square feet.”
ExteNet is heavily involved in the commercial office building segment and has exclusive access rights to more than 180 office properties. Networks will be deployed within those buildings where there is sufficient carrier demand. Where the economics don’t support deployment in an office building, the solution may be to connect multiple buildings at once. Digital Bridge has been working on creating these wide-area, in-building networks in multiple commercial office buildings.
“If you can build a significant collocation facility in one building and connect it over fiber to five other buildings, it can make the economics work,” Ganzi said. “You can provide the ‘meet me rooms’ for all the fiber companies to get access to those buildings, provide enterprise-based wireless solutions for the tenants in the buildings, mobile connectivity for the major carriers, then you layer in Wi-Fi and public safety and you have created a really unique network that achieves the objectives of all constituents involved and saves everyone cost — this is the true shared telecom infrastructure model. It is something we are spending a lot of time on.”
One-stop Infrastructure Shop
The original business plan for Digital Bridge was to provide multiple ways to serve its carrier relationships in the mobile infrastructure space by having separate platforms to invest in the distinct components that make networks function at a high level, while also making use of all of the businesses to work in concert to deploy integrated solutions for customers. But at this time, carriers are not looking for a one-stop shop for all their infrastructure needs.
“I don’t think the carriers wake up every day and think about how to converge their networks,” Ganzi said. “Carriers do not see infrastructure as a holistic real estate cost — yet. I want to emphasize that word ‘yet’ because I believe they are beginning to. U.S. mobile carriers — AT&T, for example — now look at what portion of their costs are related to delivering the customer experience as a total cost per byte. The real question for us as a supplier to AT&T is, ‘How can we deliver a good value proposition that is seamless and easy for the carrier, while lowering their total cost of bandwidth delivery?’”
Digital Bridge does business with AT&T across multiple platforms, including macro sites, small cells and data centers. “We continue to probe them about how else we can help them — where we can reduce costs and speed up velocity,” Ganzi said.
Being diversified helps Digital Bridge command a more senior audience at the carriers, Ganzi said. Its portfolio of 6,800 towers, 18,000 nodes and 3,200 miles of owned fiber can fulfill the carriers’ needs in a number of ways.
“We can be a relevant partner to carriers,” Ganzi said. “We can help them achieve their objectives, which are inevitably: densification, capacity, coverage and cost synergies across the entire mosaic of our infrastructure.”
The 5G Future
With carriers attempting historically unheard-of data speeds and low-latency parameters, the pressure will be on wireless infrastructure to do things differently than it has in the past — or it won’t happen.
“I am the eternal optimist, and I see a lot of promise in the future of network deployments,” Ganzi said. “The promise of 5G will only be met if we as an industry can answer the bell on infrastructure in a way that is cost-effective, where the customer receives good value and the network gets delivered on time, and it performs well.”
The next generation of wireless networks will need many types of communications assets, from macro cells, small cells and DAS to fiber optics, centralized radio access networks (C-RANs) and data centers. Digital Bridge is intent on amassing a variety of assets to serve all carriers’ needs, as well as cloud and content players. It shares space in its airy, understated offices in Boca Raton with Vertical Bridge, which has accumulated assets in buildings, rooftops, utility attachments and macro cells, all as part of a turnkey real-estate communications solution.
“I take it personally when people call us a tower company,” said Bernard Borghei, senior vice president of operations and a cofounder of Vertical Bridge. “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.”
Even the real estate under suburban towers may come in handy as locations for micro data centers as wireless providers push their data centers closer to the edge of the network, according to Alex Gellman, CEO and a cofounder of Vertical Bridge. “If C-RAN is to be located at specific sites, we look at marketing the land under our sites for a C-RAN hub,” he said.
Outside the lines
During its short history, Digital Bridge has made six investments, including two in data centers, giving it $6.8 billion in assets under management. Ganzi seems to relish taking his formula of “fast, flexible and friendly” and pushing it outside the border of the tower industry and beyond the border of the United States.
“We have come a long way in our 24 years of doing this, but by no means have we perfected anything,” Ganzi said. “We are still learning. That is the fun part. We believe if you have a great market opportunity, great management teams and you seed them with the requisite capital, infrastructure, back office and discipline, it will accrete to a good investment and return for our investors.”
J. Sharpe Smith is 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.
July 18, 2017 —
Speaking in Orlando, Florida, on May 23, executives of five large tower companies answered questions at a session named “The View From the Top.” The occasion was the Wireless Infrastructure Show, and the executives were Steven C. Marshall, executive vice president of American Tower and president of its U.S. tower division; Jay Brown, president and CEO of Crown Castle International; Jeffrey A. Stoops, president and CEO of SBA Communications; Alex Gellman, CEO and co-founder of Vertical Bridge; and David E. Weisman, president, and CEO and co-founder of InSite Wireless Group. Jonathan Adelstein, president and CEO of the Wireless Infrastructure Association, was the moderator. The following are highlights from the session, edited for length and style.
Adelstein: Could you reflect on how you thought the FCC’s broadcast incentive auction came out and what it means for wireless infrastructure?
Marshall: The incentive auction has been a really great success. It obviously makes available additional low-band radio-frequency (RF) spectrum that will be deployed in the next three years or so.
American Tower will be working to decommission and reinstall our broadcast tenants where appropriate. We’ll see some churn from some of the broadcasters that are exiting the market. We see an upside from auxiliary broadcast antennas.
Brown: To have another band of spectrum and more opportunity for us as infrastructure providers represents long-term growth. I encourage people on the investment side to think about the long runway of growth. Whether the new RF spectrum band is built this year, next year or later, the demand curve suggests that it is needed. When it does get built, it will be good for our industry.
Stoops: Given the characteristics of the SBA Communications portfolio, network deployment in the 600-MHz band will be quite positive. I’m encouraged by the actions of the leading winner, T-Mobile US. It would not surprise me if they really got a good jump on things and got a lot done well ahead of the 39-month targeted timeframe. They’ve already done an excellent job of getting ready.
Gellman: My view is slightly different. If you look at the FCC Auction 14 for Wireless Communications Service spectrum, if you look at the incentive auction, and then if you look at the bidding between AT&T and Verizon for Straight Path Communications and its spectrum holdings, we’re seeing real differentiation and a change in perception of the value of spectrum. Before FCC Auction 14, beachfront real estate was considered to be at 800 MHz, 700 MHz and even 600 MHz. Now, I think it’s more mid-band because of the demand and the density of demand. And then you have this bidding for Straight Path, which is obviously for millimeter-wave spectrum. There’s a clear evolution in the value of different spectrum bands. The next step we’ll see will be carriers rationalizing their use of spectrum by geography and density.
Weisman: It is all good news in terms of utilization of the 600-MHz band by the wireless telecommunications carriers, particularly now with more spectrum being purchased by Dish Network, building up the inventory of undeployed, future-use spectrum, which is great for the wireless infrastructure tower side. For those who own broadcast towers — and I know American Tower and InSite Wireless Group do — it finally broke a wait-and-see attitude that has prevailed in the telecom broadcast TV industry until these auctions took place. Now, we have a much more robust, active broadcast market that is adding value to our infrastructure assets in the broadcast world.
Adelstein: The First Responder Network Authority (FirstNet) network shows signs of getting up and running. What effect will it have on your companies, and what do you see in the timing?
Marshall: The FirstNet contract winner, AT&T, has a clear plan that will be great for the United States and great for the wireless infrastructure industry. The American Tower portfolio of towers will be extremely important for AT&T to achieve its goals.
Brown: It’s a new network build. It’s been a long time in the industry since we had a full new network build that happened nationwide.
Stoops: Not only will the FirstNet network be deployed at 700 MHz, but AT&T, to its credit, spoke publicly about waiting for this to deploy a lot of the undeployed AWS3 spectrum, the Wireless Communications Service spectrum. It is a smart move on AT&T’s part to piggyback this with the FirstNet rollout, for which they are receiving a big check from the government to help with facilitating the construction. FirstNet will be a good thing for our industry for many years to come.
Gellman: It was three years ago at this show when AT&T basically pulled the plug, literally in real time. It’s great that for the market that AT&T is returning to invest in the United States in wireless, and it’s a great thing for AT&T. Having healthy carriers is good for all of us. AT&T deploying 16 megahertz of pretty much clean spectrum will give them a tremendous capacity boost. That can’t be anything but good for all of us.
Weisman: FirstNet is not just an urban play; it’s a rural play as well. The benefit and the build out will be felt nationwide. It’s going to take place where there is a need for coverage, and that will be a catalyst for growth for the infrastructure builders.
Adelstein: How are your companies preparing for fifth-generation (5G) wireless technology? Are you involved in some testing? What effect will 5G have on towers?
Marshall: The wireless infrastructure business is at the sweet spot at the moment, with T-Mobile on the 600-MHz band, and FirstNet, and then a new technology coming along. With 5G, the standards are still evolving. It’s highly unlikely that we’ll see significant deployment of 5G-specific equipment into the network for a few years, probably not until 2020. There may be some early testing and some fixed broadband. But for truly mobile 5G, it’s going to be post-2020 before we see anything significant. Meanwhile, there is much work to be done to understand the siting requirements and help the carriers prepare for the transition from 4G to 5G.
Brown: 5G brings an opportunity for our carrier customers to increase average revenue per user (ARPU) with wearables, autonomous cars, smart cities and other applications. They need a financial return for the investment of capital that they are making in their networks. 5G looks like it presents a real opportunity to be a game-changer for their returns and, therefore, it justifies a significant investment in the network.
Whether we think about macro towers or small cells, carriers will invest in them to take advantage of a new revenue stream. In the early days, what drove the first several years of the massive investment in wireless infrastructure was the opportunity for wireless carriers obtain a terrific return on investing in infrastructure and spectrum by building out of their networks. 5G may be the next big wave in the investment cycle.
Stoops: At SBA Communications, we have been watching how 5G is developing. The 5G millimeter-wave application primarily for use in dense urban markets seems to have attracted the most attention. What’s not receiving as much attention and what’s exciting for us because of the nature of our tower portfolio is mobile 5G. T-Mobile and some others have spoken of plans to use some 600-MHz spectrum for mobile 5G, which would roll out nationwide. It will take several years to accomplish the frequency changes and other things that will make 5G what it’s expected to become. What we’ve been told by many folks is that the carriers will need all new radios and probably mostly new antennas.
Gellman: A year ago, we were thinking about 5G as achieving some mobility by 2020. What’s different a year later is more expectation of deployment of fixed 5G as an onramp for mobile 5G. That means there’s something to expect before 2020 that will require significant investment to deliver over-the-top content
The original wireless application took the phone and made it wireless. The carriers monetized it well, making a profit and replacing landlines. Next came the internet. They didn’t do as good a job at monetizing it, and they suffered a little. Now, with video, which is even more competitive, they haven’t really monetized it. Their ARPU is falling.
The 5G ecosystem with the internet of things and connected devices gives wireless carriers an opportunity to expand the revenue base. The most recent results are pretty bleak. It didn’t give any of us in the wireless infrastructure business much comfort to see ARPU falling. We like unlimited data plans, but wireless carriers have to have the money to support the network to support unlimited data plans. Thus, opening up new frontiers of revenue opportunity is important.
Weisman: As 5G rolls out and develops, an infrastructure provider goes through a number of iterations, trying to understand the variance of the “what ifs.” What are the networks going to look like? What are the deployments going to look like? How is it going to affect our existing infrastructure?
The second item is how is it going to add to more opportunities to layer in additional places for our infrastructures? InSite Wireless Group has acquired portfolios of real estate assets or other sites that may work in a densification strategy, as well as taking steps to understand the backhaul or fronthaul opportunities at our sites.
Adelstein: Another aspect of 5G is smart cities. How will your companies fit in with the smart city movement, and what is needed to support it?
Marshall: In smart cities, many new services and capabilities will be deployed that will lead to improvements in efficiency and effectiveness. Ninety-five percent of American Tower’s assets lie in urban and suburban areas outside of the dense urban areas of smart cities. Thus, the smart city movement doesn’t offer an immediate opportunity for us. However, because of the opportunities that exist, we continue to evaluate whether there are types of shared infrastructure where we can bring our model and add value for the carriers, and help them with an acceleration of deployment. That’s somewhat in the future for us.
Brown: I put the smart city movement in the category of enterprise opportunity for wireless. For the past 20 years, most wireless telecommunications growth came from consumer applications. Smart cities present a new enterprise revenue opportunity for wireless carriers Smart cities will require additional wireless infrastructure and are likely to lead to additional returns for wireless carriers.
In smart city initiatives, small cells will benefit greatly. Meanwhile, in dense urban areas, macro sites, including rooftop sites, will be incredibly valuable as hub sites in providing overall macro coverage for mobility and other things. To place wireless access points closer to the application base requires significantly increased site density, and small cells will be a big part of that.
Stoops: SBA Communications focuses on macro sites outside of urban markets. Smart cities will be another extension of urban architecture, primarily consisting of fiber-fed small cells. Where macro sites are involved, we’ll be involved. But the smart cities will develop alongside some of the efforts of our customers as they build out these dense urban quarters.
Gellman: The Vertical Bridge portfolio looks more like SBA Communications’ portfolio than the others, so my answer is similar. Ancillary opportunities, the internet of things and smart cities will place carriers in competition with one another to offer instant availability and ubiquity versus more niche-integrated plays that offer specific savings and efficiencies to specific enterprises. It’s going to be difficult for the niche players to succeed if they can’t find verticals [customers with specialized needs] to penetrate that market and really establish a presence versus the already-there, giant footprint and ubiquity of the big carriers. Some will make it. I just don’t know how.
Weisman: Outside of urban areas, InSite Wireless Group’s portfolio is similar in a macro sense, but we have in-building wireless projects. And, we built out the Boston subway system with 22 miles of underground tunnels and 39 train stations. We’re building out Los Angeles and Atlanta. During that process, you can see what happens. The municipal authority comes to us with additional asks. We had no Wi-Fi offering when originally building in Boston. We now have Wi-Fi provided by one cable company on all the platforms, inside and outside.
In Atlanta, we were awarded the project, and they came back to us and said, “We want free Wi-Fi deployed in a certain timeframe.” The mayor of Los Angeles came to us and said, “We have a 75-year history with Union Station. I need free Wi-Fi in 30 days.”
What we find is the dangers in the ask. The smart city is a great desire, and it will be a great add-on, but the implementation will be complicated.
Adelstein: Are small cells a substitute for macro sites, or are they more of a complement or supplement? What do you see as the future for the small cell business?
Marshall: Small cells inside buildings differ from small cells outside buildings. Small cells deployed in open areas outside buildings are complementary to the macro overlay. They add capacity in dense urban areas where there’s a lot of demand for data coverage. American Tower has not attacked that market.
The growing need for in-building coverage to meet wireless data levels expands the need for more buildings to have a discreet wireless capability. We see opportunity there.
Brown: Crown Castle has built more than 20,000 small cells, mostly in the top 10 U.S. markets. We have 25,000 nodes under contract to build, the majority of which are in the top 20 U.S. markets. Those systems are being built relatively near existing macro sites. We don’t perceive the small cell roll-out as a threat to the macro sites because the macro sites continue to be the most cost-effective, efficient way for the carriers to deploy their networks
Given the current data use with 4G and the anticipated data use with 5G, it wouldn’t be possible to place enough macro sites into the environment and reuse the RF spectrum in ways that would fully meet the demand for wireless services.
Think of it as small cells being the lamp in a room, and macro sites are large overhead lights. Large overhead lights do what towers do — they provide broad coverage and cover large geographies, and you also need lamps in the room in order to accentuate a room and improve the wireless coverage. That’s what wireless carriers use small cells for, and we see it as complementary.
Where macro sites will meet the need and small cells won’t be needed, you won’t see carriers deploying small cells. For large portions country for some time to come, macro sites will support the wireless networks. In more urban and dense urban areas, you will see a combination of macro sites and small cells.
Experience seems to support this view. All wireless infrastructure companies use long contractual terms with the macro sites. At the same time we see carriers commit to using towers for 10 to 15 years, we’re working with them in the same neighborhood on small cells. They don’t view small cells as anything other than complementary in accomplishing their network goal. We expect that pattern of network development to continue.
Stoops: Jonathan (Adelstein), the SBA Communications investor base has been keenly interested in the answers to your questions about small cells almost since the dawn of small cells. To speak to that point, I’m unaware of a single macro site that has been taken down and replaced by small cells.
Carriers use macros to provide basic coverage, and then add small cells for capacity where necessary. That’s how our customers think about it. That’s how all the engineers that we speak with think about it. I am more convinced than ever that small cell use is complementary architecture and not competitive.
Gellman: To date, small cell use has complementary, unquestionably. You always need the umbrella within which the small cells operate. Where small cell architecture is competitive is on the margins. In certain geography, small cells make the most sense for the cost per megabit and density delivered. In the vast majority of the U.S. land mass, using small cells will never make sense. But on the margin, where carriers seek the lowest cost per megabit delivered, there will be some competition to deploy small cells instead of macro sites. What the size of that geography is will be a function of the relative cost of the two types of sites.
I agree with Jeff (Stoops) that you won’t see small cells replacing existing macro sites, not for a long time, if ever.
Weisman: The use of small cells is completely complementary. The competition is probably for the capital allocation dollars — what the carrier is going to spend in a particular year. The pie of allocation is but so large, and they’re going to now allocate X for macro, Y for DAS and Z for small cells.
Gellman: I’ve seen geography where one carrier will have a DAS and another carrier says, “Please build me a tower here.” That tells me ultimately there is some layer where there’s a choice. The carriers believe there is a choice.
Adelstein: Speaking of capital expenditures, where do you see that heading for the carriers? They are in a difficult situation in which prices are dropping dramatically, yet they’re competing with one another on network quality. How can they make the necessary capital investments to keep up with the huge growing demand? What do they expect to see in capital spending by carriers?
Marshall: We’re seeing historically that the carriers in aggregate are spending around about $30 billion a year. We’re seeing that data growth across the network has been growing about 40 percent a year. There are projections widely quoted that show data consumption continuing to grow at 35 to 40 percent a year up until 2021.
Carriers recognize they have no option but to continue to invest at that level to meet the growing needs of the marketplace. Carriers also see a future in the wider applications and revenue sources that Jay mentioned. On top of that, they complement existing capabilities with content, availability and delivery that increase the appetite to use their networks and services, and to consume their content. We will see a continuity of investment, and we might even see a slight pickup.
Brown: In the wireless infrastructure business, on our worst day, we had really good growth, and on our best day, we had really good growth. Within that experience, the return for investors has long been terrific. The reason is because carriers have invested within a reasonable band of activity, a similar amount over many different economic cycles as they follow the consumer and the usage on their networks. The investment they make is justified.
Where carrier capital expenditure budgets are concerned, there’s a long trajectory and runway of investment. At times, maybe we see variations of plus or minus 10 to 15 percent, but I expect to see as much opportunity and growth in the next 10 to 15 years as there has been in the past. The wireless infrastructure business does best when we think about the investment over a long period, rather than trying to judge the right inflection point that may or may not occur in the next six to 12 months.
Stoops: The past 20 years have shown that there’s always more to do on the networks, whether it’s technological change or keeping up with wireless demand. Variations in our customers’ capital spending are purely financial as opposed to operational or anyone feeling like, “Okay, I’m ahead of the game on the network.”
All of us in the wireless infrastructure business would like to see our customers as healthy as possible. I’m optimistic about the current prospects for tax reforms that would be good for our customers. What happened in May with net neutrality could possibly help our customers monetize their networks to maximize the value that a number of other folks in the ecosystem have been somewhat riding on for free.
Those are two important things that will help our customers, who are involved in difficult price wars. I don’t know that the price wars can last forever. It’s hard to believe how much more we receive for our money today compared with what our wireless builds were and the quality of the service three and four years ago. We should all pay more for our wireless service. At least, the people in this room would be happy with that.
Gellman: Another factor is scale. Carriers are trying to gain the scale that would allow them to squeeze efficiencies out, create more free cash flow and use it to invest in the network. An ultimate example could be Sprint and T-Mobile. If they combine, prices will go up and unlimited data plans will go away.
Weisman: Today, two of the four largest carriers are deploying capital, and we’re still receiving an excellent increase in returns and organic growth. If we had three robust carriers building out their networks, we would have much more ability to sell them access to wireless infrastructure.
The other matter is undeployed RF spectrum and network capacity demand that flows from new service offerings in mobile data. The carriers won’t all stop spending capital at the same time. As long as one or two continue to build out, the others will be forced to take steps to remain competitive.
The next Wireless Infrastructure Show is scheduled for May 21–24, 2018, in Charlotte, North Carolina. Photography by Don Bishop.
March 30, 2017 —
Zinwave and Vertical Bridge have partnered to provide in-building wireless systems. Under terms of a Master Services Agreement, Vertical Bridge will offer Zinwave’s UNItivity wideband DAS as a preferred solution for in-building wireless challenges with Zinwave providing equipment, service, and maintenance capabilities. Vertical Bridge will also directly manage all customer relationships.
The partnership represents a new business model for acquiring in-building wireless infrastructure, allowing customers to pay as an operating expense, opposed to budgeting for it as a capital expense.
“[Vertical Bridge] understands how carriers and private companies have struggled to find a solution to easily implement in-building wireless,” said Scott Willis, president and CEO of Zinwave, “and by offering our UNItivity system to their extensive network, together we can provide a new way to give building tenants the wireless services they expect and want.”
Vertical Bridge plans to offer Zinwave’s UNItivity platform and services to its a portfolio communication sites, 3,000 of which represent real estate building assets.
“By bringing together Vertical Bridge’s extensive portfolio of managed locations and Zinwave’s unique technology platform, we’re able to offer a new solution for in-building wireless communication, which traditionally has been significantly underserved,” said Bernard Borghei, co-founder and senior vice president of operations at Vertical Bridge.