New entrant 5G facilities-based national mobile network operator (MNO) DISH Wireless selected Crown Castle to provide up to 20,000 tower collocation cell sites for a fixed monthly rental fee in a lease agreement signed November 2020. In addition to space on the towers for radios and antennas, the lease provides five-by-seven feet of ground space at each site. Crown claimed that DISH should pay additional rent for National Electrical Code working space (an electrical safety requirement) outside that footprint. DISH counterclaimed for damages resulting from unexcused delays by Crown in completing tower preconstruction services with design and planning of individual sites.
As reported by Law360, a Denver jury’s April 11, 2024 verdict rejected both Crown’s claim for more than $22 million in disputed additional rent so far and DISH’s $35 million counterclaim for damages due to the alleged delays. However, this verdict also most significantly means that DISH is not on the hook for this disputed additional rent in future. Crown’s claim was only for around 8,000 towers that have been commissioned in the few years since the lease was signed. Had Crown prevailed at trial, DISH might have had to continue paying proportionately more, as commissioned tower numbers soon increase to 20,000 and for every month in the remainder of the 36-year lease term. Total additional rent could thus be many, many times more than £22 million. In contrast, DISH’s counterclaim was a limited demand. Once all the maximum of 20,000 tower sites have been made ready for construction there can be no more pre-construction delays.
Divorce is not an option
It is unusual in a commercial dispute like this, in any industry, not to settle before the public glare of a trial. The lease is very unlikely to be terminated despite the conflict. The parties are severely constrained to replace partners in this market with huge switching costs and very few large suppliers or customers. Collocating is very costly and time consuming. National MNOs have no choice but to collocate to some extent with both Crown and American Tower, each with around 40,000 towers in the US. The next largest tower company—SBA Communications—has thousands fewer than 20,000 towers. No other tower company has more than around 5,000 towers.
Tower companies pride themselves on low tenant churn of less than a couple of percent. That’s a per year percentage not a monthly churn figure that can run to several percent for a wireless carrier’s prepaid subscribers. Significant tower tenant churn only occurs very sporadically with market consolidation, as occurred with T-Mobile decommissioning 30,000 macro cells within two years of its Sprint acquisition closing in 2020. Tower company executives have been careful to talk about historic low tenant churn and the outlook for low churn rather than quantify it for the short duration of that consolidation shock. However, national MNO market entrant DISH Wireless is enabling tower companies including Crown Castle, American Tower and others to reverse some of the that attrition.
Leasing-up for revenue growth
Tower companies have a simple core business model. It is more economically efficient to collocate the RAN equipment of several MNOs on the same tower and ground space than for each MNO to have its own separate facilities. National and local planning authorities also favor collocation to minimize the environmental impact which would be greater with more towers in the same locality.
Tower company revenue and earnings growth is a achieved by leasing-up their towers. This was primarily achieved for many years by adding tenants to an initial anchor tenant. According to figures in public SEC 10K filings, Crown and SBA Communications had averages of 2.4 and 1.9 tenants per site, respectively, in 2022. Annual rent price escalators—typically up to a few percent annually in recent years—protect tower company incomes against inflation and have provided revenue growth in real terms with low inflation for many years until 2021. The other way of increasing rental income is by charging tenants for more space and additional equipment. Crown and SBA Communications averaged $3,752 and $4.477, respectively, in revenue per tower per month in 2022. That means a large MNO such as T-Mobile with around 80,000 macro sites spends several billions of dollars per year on collocation.
Old-gen mausoleums
While DISH’s growing collocation rent payments will somewhat mitigate rent lost by tower companies through market consolidation with T-Mobile’s acquisition of Sprint, DISH has been able to minimize its costs by negotiating payments for use of less collocation space than the other MNOs. For example, in contrast to DISH’s small outdoor 5G-only cabinets sitting on a five-by-seven foot equipment platform, many AT&T and Verizon tower sites have the legacy of lease agreements signed long ago with ground space contracted to accommodate shelters measuring ten-by-twenty feet or even more in some cases. These and other MNOs also have compact 5G equipment, but, unlike DISH, are also still operating 4G equipment. In some cases MNO tenants do not even bother to remove their even older generations of bulky equipment that has been decommissioned but remains onsite without telltale LEDs flashing.
Transition and renaissance
While DISH has done remarkably well so far in the unprecedentedly rapid construction of a new nationwide cellular network including 70% population coverage by mid-2023, its war for survival and success as a national facilities-based MNO is far from won yet. DISH still faces enormous challenges as a market entrant versus incumbents AT&T, T-Mobile and Verizon with strong brands and distribution as well as huge economies of scale in marketing and network operations. Competing for profit margin against supplier pricing is but one of many different battle fronts for DISH. In addition to paying collocation rents to tower companies, DISH must still also pay substantial wholesale voice and data charges as a Mobile Virtual Network Operator (MVNO) until it weans its subscribers’ network usage off T-Mobile’s and AT&T’s physical networks and largely over to DISH’s own 5G SA network nationwide. MVNOs commonly pay out very approximately half their revenues in wholesale charges to their MNO hosts.
Crown has also sought to increase its revenues through diversification into providing fiber connections and small cells. That has not gone well over the last four years. The firm has consequently faced a backlash from activist investor Elliott with allegations of $18 billion in value destruction from a $19 billion investment in Crown’s fiber venture diversification. In November 2023, Elliott demanded and is subsequently obtaining new executive and board leadership, a strategic and operating review of the fiber business, and improved corporate governance. Crown is also in a proxy fight with co-founder Ted Miller.
Both companies urgently need to strengthen their positions and progress effectively in their respective markets, including any diversifications—to the benefit rather than to the detriment of each other. It’s time to bury the hatchet and play nice. The appointment of outsider Steven Moskowitz—formerly with Centennial Towers and American Tower—as Crown’s new CEO provides an excellent opportunity to do just that.
Disclosure
I was engaged as an expert witness by DISH’s attorneys Wheeler Trigg O’Donnell and I testified at trial on various industry issues including 5G market developments, master lease agreement terms and financial damages in this dispute between Crown and DISH.
