Tower ownership can be a risky endeavor, but it can also deliver hefty profits for those who know how to properly allocate their resources and build strong relationships with carriers.
On this weeks Cell Tower News show, Alex Gellman, co-founder and CEO of Vertical Bridge, gave insight into ways to maximize profits for owners, what to look for in a tower site, advice for leasing to a carrier and predictions for the market in 2016 and beyond.
Vertical Bridge is a tower ownership and leasing company Gellman started with co-founder Marc Ganzi when the two invested in rooftop towers during the MetroPCS expansion. Since then, Vertical Bridge has become a leading tower leasing company, working with all the major U.S. carriers.
“Our job is to deliver sites to the wireless carriers, any radio operator who wants to use wireless antenna technology,” Gellman explained. “We deliver that real estate and that real estate can come in a bunch of different forms. One form would be a tower that we own, but other forms can include a rooftop where we don’t own the building, but we sublease the rooftop. It could include billboards. It could include water tanks, all different kinds of structures and it can be all kinds of different towers from a stealth pole to a 1,500-foot radio tower.”
Carriers have a choice to either lease or own towers. Gellman says they are increasingly moving toward leasing because it requires less capital investment up front, which has created profitable partnerships for tower companies.
“The advantage for a carrier is if they own it, they’ve stranded capital in that site and that’s capital they can’t use to add more radios and capital they can’t use to get more customers,” Gellman said. “So I think as carriers have evolved their thinking, they have recognized that owning the site isn’t very strategic and they had varying degrees of success in terms of leasing it out…The site would be more valuable to the tower companies.”
Gellman says there are four main characteristics he looks for in a possible tower site. Location is first and foremost on his mind. The tower must be in a place where there is not much coverage so the value of the site goes up for carriers.
“Primarily carriers will do what they’ve always done which is take a network design, they’ll draw ‘X’ marks the spot on a map, draw a circle around it and say I need a site here and generally they’ll look for existing structures first, but if not they’ll have somebody build a new one for them. It used to be they built it themselves, now pretty much nobody builds for themselves,” Gellman explained.
Second is whether the structure is physically sound and has the proper capacity. Third, is what Gellman calls “good paper,” which means the site has collateral value, a clean title and no environmental issues. Finally, Gellman looks at the creditworthiness of the tenant.
Maintenance is another issue Gellman addressed, noting the responsibly falls on both the tower owner and the tenant.
“What we maintain is … steel and concrete,” he said of Vertical Bridge’s end of the deal. “The electronics are not maintained by us, they’re maintained by the carriers so our business is really fairly simple. We have to maintain access to the site, the physical site itself, the tower, the foundation. But the electronics, the antennas, the lines, those are maintained by the tenants.”
Gellman’s advice to potential tower owners is to build a solid relationship with carriers and have your paperwork in order.
“It’s hard to get them if you don’t have a good relationship with the carriers,” Gellman said. “They don’t really like to go to new locations and negotiate a lease from scratch, it’s very time consuming so one thing I would say is go as fast as you can … and secondly have your diligence together, have the documents … as far as environmental and title. A lot of these carriers will want to see that to satisfy themselves because they’re planning to be at these sites for decades so they want to make sure they can stay there.”
Finally, Gellman made his prediction for the future, saying 2015 saw a lull in carrier activity, but he expects business will pick up as carriers move into new phases of network development.
“We’re at an ironic time in that asset values are very high, but the carriers have not been that active in the past year, so only Verizon has been investing significantly in their network constant with past years. AT&T, T-Mobile, Sprint have really not invested much and AT&T is well down from prior years. At the same time, three of the four carriers are laying people off. Verizon, AT&T and Sprint have all announced programs … to cut out some middle management,” Gellman said. “So they’re all going through these reorganization processes, yet asset values are really high.”
Gellman explained the biggest factor driving asset values is data demand.
“This explosion of video on the mobile devices is really driving incredible bandwidth growth from the carriers. They have to invest in their networks in order to meet it,” Gellman said.
But, Gellman predicts a bright future for tower owners based on where he sees the network cycle heading into next year.
“In the long run the carriers will need to invest in their networks and there’s sort of these cycles where they invest in new technology, they harvest the new technology and then they fill it in and then comes the next technology, so I think really where we are is they’ve invested in LTE, they’re harvesting it the last year or two, they’re going to start investing in it and filling in so we’ll start to see more amendments next year and more capacity added to the LTE networks that are out there and then there will come 5G, which will be a new network they’ll invest in building. … It’s a cycle and it’s unavoidable.”
