Mergers and Technology Risks to Revenue
“Mergers and Acquisitions will eliminate the need for your cell site.”
It is true that landlords have received termination notices resulting from mergers and acquisitions in the past. The Internet is abuzz with news of cell site termination letters going out to landlords. In fact, cell site shutdown is one of the primary reasons for companies to merge—improve efficiency by cutting costs to boost profits. Unless there is a specific reason why you should worry about your site, you should not make business decisions based on a general fear of site termination.
Today, of the hundreds of thousands of cell sites in operation in the U.S. For the past ten years, each year the FCC and companies report that on average 6,500 sites were deactivated for various reasons (site duplications due to mergers and landlord bankruptcies). That is a 2.0% deactivation rate, but if your site was a duplication and needed to be terminated, you would have received a termination letter by the carrier exercising their 30-day termination clause and providing you notice that they will no longer need to be on your property anymore. They would NEVER send a contractor out to renegotiate the lease with you if it is no longer needed. Let’s think about this: Does lower rent make the site’s RF duplication problem suddenly disappear? In our twenty-five years in the wireless industry conducting RF designs and building cell sites for the wireless carriers, we have never allowed rent rates to determine if a site is to be eliminated from the design. That is an engineering decision, not a leasing or accounting one. Leasing and accounting departments are never accountable to dropped calls, poor-quality calls, or low data throughputs on smartphone devices. Only RF Performance Engineers are accountable to that metric, and only they can authorize a site going off-air. So if your site is going off-air because of duplication in location due to a merger or acquisition, no amount of rent reduction will change that fact. So why bother lowering your rent at all? Those two factors are totally independent of each other.
If you get a call that says “sell me your lease because your site is going away” or “lower your rent or your site will get terminated,” your best course of action is to hang up the phone. The caller is either dishonest or uninformed. In either case, you do not want to work with these individuals.
“Technology evolutions will eliminate the need for your
cell site.”
True only in specific situations and geography and companies. So many self-professed experts have claimed in the past ten years that technological advances will eliminate the need for cell towers. Recently, some quote the most recent chipset advances by Qualcomm and exaggerate its capabilities. It is true that such companies as Qualcomm are finding ways to provide connectivity at the fringes of coverage by allowing one user’s cell phone to relay the content (voice and data) of another user’s cell phone and so on until they are able to reach a user that is within the coverage of a tower. Such service, however, is fraught with many technological, battery life, privacy, and RF safety issues that it is unlikely to have a measurable effect in the industry for years to come. And even if all those issues are overcome, that chipset cannot replace the need for cell towers. Consider the amount of power that is built into every cell site as shown in this photo. They expect all this will be replaced by a cell phone that can’t even power itself through one day of use?
“Satellites will eliminate the need for ground towers.”
Not true. Satellites are powered by solar energy, which has a very finite capacity (both collected from the sun and storage as satellite batteries). Even if we can overcome the battery power problem, consider the $5 million price tag to launch one payload the size of a cell site each time. Assuming 100% launch success, we still have the capacity issue (we need 312,000 satellites to match 312,000 existing cell towers), frequency issues (where are the frequencies coming from to transmit this bandwidth of voice and data traffic?), the path loss of sending a high-frequency signal into space and then down from space would make the signal unreachable after 160KM (100 miles) of distance. Remember that astronauts can do this because they use special Unified S-Band frequencies that aren’t available to the consumer market. Then there’s the physics of audio delays. When Mary says something, it would have to travel up to the satellite, come back down to John below, and then when John responds, the signal goes up to space and back down to Mary, a path that takes 1/4 of a second delay. The delay would make real-time communication unbearable. Compare that to a ground-based cell tower that is only a few miles away from the caller, and cell towers are constantly being upgraded and maintained about once each month. If wireless carriers are complaining about field technicians traveling five miles to maintain a cell site, how will they feel about traveling 100,000 miles to maintain a cell site in a space suit. The idea is just not economically practical.
Your site is too expensive so we will move the tower to a cheaper location.
Possibly true only in some situations involving tower companies purchasing cell sites from many different carriers in the same general area. In our experience, having designed, developed, built, and maintained thousands of cell sites for wireless carriers, we have never authorized a single site to be terminated because the rent was too expensive. If that were the case, we would never have developed the site in the first place. Business decisions are based on a rate of return on investment. If a new cell site is to be constructed to replace an existing cell site to save $100 a month, there is no justifiable way to get $500,000 in capital funding to save $100. That engineer would get fired for making that request. In the wireless industry, it is known as a CLM—Career Limiting Move.
In reality, engineers do not care how much it costs to operate wireless systems. They only care that it is operational so that they can make their assigned territory perform at its best. Engineers’ assigned territory (group of sites) are constantly being monitored for key performance indicators, including drop call rate, call quality, data throughput, and congestion. Their bonus metrics—thus compensation—are based on system performance, not cost savings. Engineers do not care what the rent is for each site. They would never recommend deactivating cell sites because it does not benefit them in any way. In fact, once a site is on-air, its capital and operational costs are built into all future budgets. Corporate finance would be interested in reducing rent as a national incentive, but they would not dare suggest that local markets terminate sites to save a few hundred dollars here and there. That’s why corporate finance would hire “lease optimizing companies,” such as MD7 and Blackdot, to do whatever they can to reduce rent in exchange for a commission from your wireless carrier tenants such as AT&T or T-Mobile. So, if a marketer tells you that you must reduce the rent or else your site will be terminated, just hang up the phone. Then contact us.
Improperly Terminated Site Left Behind For Landlord
Termination Notices of Cell Site Leases.
When a wireless carrier terminates a lease, much needs to be done to assert your contractual rights in this scenario before it is too late. There is a proper way and an improper way to terminate a lease. We have seen so many landlords not asserting their rights at lease termination periods, causing many complications and financial hardship for themselves later. Even if your lease is not continuing, contact us and let us help you determine the best course of action and create an exit strategy that properly compensates you for the event. Our fee? Nothing unless we can bring financial value for you.
If you do not contact us and the carriers leave without you asserting your contractual rights, then it may be too late. Contact us now to tell us about your situation.