A wave of activity between carriers and tower management firms appears to be developing, signaling a growing trend toward carriers selling off their tower assets in purchase/leaseback arrangements.
In such transactions, carriers sell their towers to a tower management company and then lease back the space on the tower. The issue of purchase/leaseback was one of the hot topics at Shorecliff Communications International’s Build-to-Suit/Purchase Leaseback conference last week in Palm Beach, Fla. RCR sponsored the event.
Airadigm Communications Inc. last month signed a letter of intent to sell all of its open land sites to tower company SpectraSite Communications Inc. The companies are in the process of completing the arrangement. All indications, however, suggest the handful of agreements made public so far are only the tip of the iceberg.
AT&T Wireless Services Inc. is in the process of issuing Request for Proposals and Request for Quotations on about 20 of its towers, said Colin Holland, vice president of network operations at AT&T Wireless. The company is trying to determine the level of interest vendors have in purchasing the towers and any problems associated with selling them. Holland said AT&T Wireless has not yet made commitments to sell any of its towers.
“In general, [carriers] are not in the real-estate business. We’re in the service business,” said Holland. “We have certain assets that we can reapply in order to enhance those services, and others may realize more value from those assets than we could-such as tower management firms.
“There are details we have to work out before we move forward,” continued Holland. “Hence the trial.”
Tony Melone, executive director of network planning and development at Bell Atlantic Mobile, said the carrier has site management contracts with companies that help it collocate other carriers on its sites. Bell Atlantic also has considered build-to-suit and purchase/leaseback programs and will continue to consider them in the future, he said.
Many tower industry experts agree most carriers likely are looking into purchase/leaseback programs.
“My take on it is there are a series of mega-deals in the works that may be about to have their triggers pulled,” said Rich Berliner, president of Berliner Communications Inc. “At the show, there was a lot of activity going on-lining up who’s going with who at the dance.”
Increased competition in many markets is one reason carriers might be looking to offload their towers. Carriers have been forced to redirect money into bolstered customer-service programs and away from other business segments-such as towers.
“Wireless carriers-both old established cellular carriers as well as new [personal communications services] carriers that are still building out their networks-have realized that the core business that they have to pay attention to, and that their stock is being valued on, is their ability to attract and maintain subscribers,” said Stephen Clark, chairman and chief executive officer of SpectraSite. “If you look at the competition that is occurring in most of the major markets and the amount of money carriers spend to be competitive, there’s not enough left over to build towers.
“There’s no longer a question of if, only when and who the major vendors will be,” continued Clark, who guessed that within the next three months as many as 6,000 towers could be sold by carriers to tower management firms.
“This was not even in carriers’ minds 12 months ago,” said Jeff Ebihara, vice president of Gearon Communications, a division of American Tower. “Their business cases are tighter now, and they want to focus on their core business.
“Managing tower assets is not part of their core business,” continued Ebihara.
The value of each site can vary widely. Mark Uminski, vice president of sales and marketing at Crown Communications, said the company uses proprietary algorithms to determine the value of a site it is considering purchasing. Values are based on location, frequency, technology, whether the site can support other carriers and, if other carriers already are collocated on the site, how much revenue those other carriers are generating.
The lure of a large infusion of capital may spur carriers into crafting purchase leaseback arrangements, but they should take special precautions as well to make sure the end result is desirable.
“Once the check is cut and the deposit has been made, you still have to live with the company you’ve partnered with,” said Tom Lehr, director of finance at Airadigm. Lehr said when looking for a tower management firm, he compared their business plans to Airadigm’s to make sure they matched up. “I was looking for a company that wanted to own and manage towers in the Midwest.”
The idea that in the future wireless carriers will completely exit the tower business is a strong possibility, say industry watchers.
“I think it’s a real possibility. I’d even call it a probability that the industry would shift toward not owning sites,” said Dan Behuniak, president and chief executive officer of UniSite Inc. “The services customers are demanding cost more and prices are coming down. Carriers are deciding that towers are not of such strategic value that they have to hold on to them.” he commented.
