The Impact of
Cell Site Termination
on Landlords
Presented by
The Coalition for Cellular Industry Information
A wave of consolidation and intense competition underway in
the cellular telephone industry is bringing changes to cell site
landlords that may not be widely understood. The merger between Cingular Wireless and AT&T Wireless Services that catapulted Cingular to the position of the nation’s largest wireless
carrier in 2004, was very short lived. When only a year later,
SBC Communications acquired the entity, then merged with Bell
South, and began operating under the global brand of AT&T in
2006. Those mergers alone created thousands of redundant cell
sites on the combined network and gave landlords their first real
glimpse of consolidation.
Although massive in its scope, the AT&T consolidation of Cingular, SBC, and Bell South, only comprises a portion of the large
scale mergers that have taken place in the marketplace. Additional consolidation continues to take place having even greater
impacts on tower leases that landlords need to understand. For
instance, just within the last 10 years, in addition to the AT&T
mergers and acquisitions, Verizon acquired MCI, Bell Atlantic,
Vodafone, and Rural Cellular, and Sprint and T-Mobile were on
the verge of merging just last year. This fierce competition has
caused average revenue per user to plummet, forcing carriers to
carefully manage and control costs.
This document outlines the impact these changes may have on
cell site landlords, including possible termination or rent reduction, as well as opportunities for prudent cell site landlords to
better position themselves to maintain long-term revenue
streams and take advantage of new opportunities as the wireless industry moves toward high-speed wireless Internet services
and other new technologies.
Cell Site Overview
There are two major types of cell sites: tower sites, which are
stand-alone wireless access points that rent a portion of their
capabilities to multiple wireless carriers, and non-tower sites,
which lease a small amount of space on other business or government property to support a wireless access point.
Throughout the country, thousands of non-tower cell sites are
now located in industrial buildings, as well as on church, public
park, school and city properties, bringing a steady monthly income to the landlords with minimal effort or inconvenience.
A typical cellular site consists of a mobile telecommunications
antenna and accompanying base station and access point equipment and wiring. In return for providing the space for this equip-
ment, landlords receive a monthly rent.
Each site has been selected by radio frequency (RF) engineers to
achieve specific wireless network coverage objectives, and required an average of 18 months to bring on-line. Engineers
spend an average of one to six months to identify a site that is
lease-able, zone-able, and build-able. The next step, obtaining a
conditional use permit, often takes six to nine months. Finally,
the equipment build-out can take one to three months, for a
total of up to a year and a half to bring a cellular access point
online.
Because of this lengthy and complex set-up process, a cell site
has inherent value, even if it becomes redundant on a current
wireless provider’s network, as there may be other opportunities available with regional carriers or with other carriers bringing on high-speed wireless Internet services.
Changing Cellular Landscape
Cingular’s purchase of AT&T Wireless Services for $47 billion
(with debt), completed in October 2004, was the first of several
major mergers underway in the industry. In late 2006, BellSouth
and AT&T closed a deal for $85.8 billion, consolidating ownership of Cingular Wireless and began operating under one global
brand as AT&T. The Wall Street Journal reported that third largest carrier Sprint Corp. purchased fifth largest Nextel Communications for $36 billion. This deal, completed in 2005, created a
new Sprint/Nextel network with approximately 63 million subscribers today, compared with AT&T’s 116.5 million and Verizon
Wireless’ 123 million. But moreover it lead to massive duplication and overlap in network coverage which caused Sprint to
ultimately disband the Nextel network in the summer of 2013.
The consolidation has continued over the last few years with
announcements in January 2005 that Alltel, the sixth largest
mobile operator, has agreed to buy Western Wireless, a smaller
regional carrier, in a deal valued at approximately $6 billion and
T-Mobile just recently merged with Dish allowing for a broader
spectrum of customers into Canada and Mexico . As a result,
the once-fragmented U.S. wireless market is now dominated by
a handful of carriers, and there is widespread speculation in the
industry about even further consolidation .i.e., the T-Mobile
Sprint merger that has been in the works for a few years may
be next on the list.
Leased Cell Sites
What’s behind this wave of mergers and buyouts? Possibly the
biggest factor driving consolidation is market maturation. According to Cellular Telephone Industry Association Annual Survey Report for 2014, there are approximately 355.4 million wireless customers in the United States. This is approximately 110
percent of the U.S. population. As a result, industry growth has
slowed and cellular service has become a commodity. To draw in
new customers, carriers have been marketing new features and
larger data plans, while cutting prices to draw in new customers
and lure old ones away from competitors.
Another important factor is a change in Federal Communications
Commission (FCC) regulations that became effective on Jan. 1,
2003. At that time, the FCC eliminated the Commercial Mobile
Radio Services (CMRS) spectrum cap and cellular cross-interest
rules that had previously been in effect. As a result, there are
fewer restrictions on the amount of the CMRS spectrum that a
single company can hold in a particular geographic area, which
opened the market to the current mega-mergers.
While average revenue per user has been declining due to price
cutting in the face of competition, costs for cell sites continue to
rise. A few years ago, when expanding cellular networks as fast
as possible was a priority, generous lease agreements were
signed, often with automatic escalators, or built-in annual increases. Today, cellular providers must evaluate the cost/
benefits trade-offs of each available site, to optimize their overall wireless network and balance the required wireless coverage
while minimizing costs.
Redundant Sites Resulting from Mergers
Looking just at the Cingular/AT&T merger as an example, the
combined Cingular network had a combined total of approximately 52,000 sites, after the companies divested radio wave
spectrum and network assets in 13 cities in 11 states, as required by federal regulators as a condition of the sale. Of these
52,000 remaining sites, approximately 20,000 are tower sites,
owned by a handful of tower companies, and 32,000 are nontower sites. Of the non-tower sites, only about 17,000 are needed, leaving 15,000 redundant sites to be terminated.
RF engineers had to evaluate the networks to determine which
sites to keep, based primarily on location, wireless coverage
objectives and cost. In accordance with their agreements, landlords were notified by the carrier when their site was scheduled
to be terminated.
Today, approximately 70 percent of all cell sites either support
multiple carriers, or are located very close to sites supporting
other major wireless carriers. As industry consolidation continues, a large percentage of operating sites today may be affected
by changes ahead.
Options Open to Redundant Site Landlords
1. Negotiate new Agreement
For landlords of cell sites that are currently in a redundant market and possibly on a list to be terminated, there are options
available to help position their sites to maintain long-term revenue. Even if a site is on the termination list, it may be possible to
renegotiate the lease agreement to make the redundant or unnecessary site more financially appealing than another site on
the keep list that provides wireless coverage in the same area.
By accepting a rent reduction, it may be possible to maintain an
income stream, rather than having the cell site terminated.
2. Repackage for Sale
An alternative that may be attractive to landlords seeking options to establish a new revenue stream is to work with the carrier that is trying to repackage groups of sites for sale to other
carriers to support other wireless services, including nextgeneration high-speed wireless Internet service. Under this alternative, the landlord can opt to retain the equipment and site
as is through a lease amendment modifying the termination provisions. Typically, the landlord would agree to abate the rent for
24 months or other specified period, to allow time for the site to
be repackaged with others and resold. Rents would resume
when the group of sites is resold.
3. Take Site Down
Landlords also have the option to stick to the terms of their original lease, forgo their rental income, and simply have the equipment removed after receiving the termination notice.
Existing cell sites offer a much more attractive alternative than
starting from scratch to
develop new sites.
References
CNET, “Sprint gets the Nextel monkey off its back,” Feb 8, 2012.
CNN/Money, “Sprint’s Nextel network gets its death date: June
30, 2013,” May 29, 2013.
CNN/Money, “Cingular Nabs AT&T Wireless for $41B,” Feb. 17,
2004.
CommsDesign, “Alltel, Western Wireless Confirm Merger,” Jan.
10, 2005.
CTIA Wireless Industry Indices, June 2014.
FCC Press release, “FCC Announces Wireless Spectrum Cap to
Sunset Effective Jan. 1, 2003,” Nov. 8, 2001.
New York Times, “BellSouth and AT&T Close Deal,” Dec 30,
2006.
Oligopoly Watch, “Industry Brief: US Phone Industry (Part 2, cell
phones),” Jan. 22, 2004.
Pew Research Center, “Smartphone Ownership 2013,” June 5,
2013.
What’s Ahead for Non-Redundant Site Landlords?
Even if a specific site is not currently among the potentially redundant sites resulting from past mergers and overlapping coverage, it may be affected by the other upcoming mergers. For
landlords of cell sites that are not currently on the list to be terminated, there are options available to help position their sites
to maintain long-term revenue.
At the present time, an estimated 90 percent of cell sites are
under short term leases that can be terminated at any time, typically upon 30 days written notice. In exchange for reduction in
rent and/or modification of automatic annual rent increases,
carriers may be willing to negotiate longer term arrangements
that have the potential to be mutually beneficial by reducing
costs for the carrier while maintaining a smaller but longer term
income stream for the landlord.
Prudent landlords who act early to negotiate new agreements
that better fit today’s cellular industry climate can minimize the
likelihood that their site will become redundant.
RCR Wireless News, “Report: Sprint/Nextel Reach Tentative
$36B Deal,” Dec. 10, 2004.
Opportunities Ahead
Wall Street Journal, “Alltel: Expecting a Call?” Dec. 27, 2004.
Given the current wave of consolidation, landlords may wonder
how strong the opportunities are for finding new cellular carriers
able to utilize their site. A new wave of wireless services is under
development to provide an alternative to DSL and cable modem
services for broadband services to the home. These services will
need widespread networks similar to today’s cellular networks.
In addition, the cellular industry will continue to evolve, and new
networks will be required to support next-generation services.
RCR Wireless News, “From Six to Four: Sprint, Nextel Link Up,”
Dec. 20, 2004.
San Jose Mercury News, “Big Deals Looming in Wireless World,”
Aug. 5, 2002.
Seattle Times, “Post-merger Work Force at Cingular to Shrink 10
Percent,” Nov. 24, 2004.
The Street.com, “Alltel Buys Old AT&T Wireless Spectrum,”
Nov. 26, 2004.
Wall Street Journal, “Will Nextel and Sprint Connect?” Dec. 9,
2004.
Wall Street Journal, “T-Mobile Stops Extra Charges for Calls,
Texts to Mexico and Canada,” July 9, 2015.
Western Queens Gazette, “Cell Phone Antenna Fees Could Bring
in $21.3M Annually,” July 14, 2004.