Carriers Are Unable To Get Tower Rates Reduced

Wireless carriers have been totally dependant on the tower industry ever since they began operating, but their mutual demand for tower companies to lower leasing rates has risen to a crescendo of late, even though chances of a compromise are dim, says MoffettNathanson Research, an equity research firm specializing in telecommunications, internet, cable, satellite and media sectors. The firm adds that while wireless carriers have so far been persistent on this demand, they are now resorting to threats of migrating to viable alternatives if the tower industry does not heed to their demands. Such viable alternatives could either be alternative sites, alternative structures or alternative technologies.

Dave Mayo, senior vice president of technology at T-Mobile, listed out key hurdles that carriers have to face while maintaining and upgrading leased towers at an event hosted by the Wireless Infrastructure Association in May. Calling the wireless infrastructure market ‘rife with opportunity’, he said that maintaining towers is complicated and unsustainable and that it needs to be industrialized. At the same time, Sprint has also lowered its capex budget for the year from an expected $4.5 billion to $3 billion, and is reportedly overhauling its cellular network by relocating towers from land leased from tower operators to cheaper government-owned land. Even though Sprint’s idea of relocating towers to save costs can be termed as a viable alternative, the current practice of leasing towers from tower companies is still far cheaper than carriers building their own networks which will be prohibitively costly in terms of infrastructure as well as real estate costs. According to MoffettNathanson, it has been reported that AT&T has also asked developers to target several high-rent towers in exchange of offering them contracts to built new towers in their vicinity.

The firm believes that until carriers can come up with viable alternatives, tower companies will be under no pressure to reduce costs or to change leasing terms. At the moment, chances of tower operators changing lease terms, which include amendment fees, base rents and escalators, are at best remote. According to analysts at New Street Research, AT&T is building a network of its own using the WCS spectrum it acquired from NextWave, and is building new towers and using 40% of the sites it acquired from a deal with Leap to cover 80% of the country. However, there is a chance that this spectrum will not be utilized for offering LTE services. At the same time, Sprint is expected to utilize small cells and new urban sites to expand its network coverage apart from converting its 2.5GHz sites to CDMA. This way, the carrier may add 25 new markets to its coverage. However, given that carriers are yet to come up with a comprehensive, nation-wide alternative to the current practice of leasing towers, a major reform in the workings of the tower industry is still a long way off.