AT&T has been working for years to reduce the amount of money it spends to rent space for its equipment on cell towers owned by other companies. And, according to the company’s vice president of tower strategy, that effort is now paying off.
Specifically, AT&T’s J.R. Wilson said the operator is in some cases cutting its tower rental costs in half.
Wilson’s statements come just days after AT&T announced that Tillman Infrastructure has built “hundreds of new macro cell towers” for AT&T’s network equipment, and that “hundreds of [additional] tower builds nationwide are underway, completing on a monthly basis.” AT&T added that the Tillman towers would “serve as an opportunity for AT&T to relocate equipment from current towers with other landlords as leases expire.”
The announcement essentially represented a message from AT&T to other tower companies: If you don’t lower prices, Tillman Infrastructure or other tower companies will build a tower that AT&T will use instead of yours.
In this interview with FierceWireless, lightly edited for brevity and clarity, Wilson provided details:
FierceWireless: What does AT&T’s new announcement with Tillman really mean?
Wilson: There is effectively two models that exist in the tower infrastructure space.
One is the legacy model, where if you rent an apartment and you've got a 50-inch 1080p TV and you want to swap it out for a 4K TV that's also 50 inches, you're going to get charged for that. Not only will you be charged for that month, you'll be charged for it in perpetuity. The same thing is true if you swap out your couch or you want a different color rug. That's the model that we view as unsustainable, and we don't think it's going to be around five years from now, maybe even less.
The new model is the one that we have with companies like Tillman, who are very efficient, who can build towers, they can build to scale, they can get a fair return. In effect, we at AT&T get a dedicated amount of space on the tower and we can move gear in and out. We can swap gear without incurring additional charges for that. Of course, the cost [to rent space] on these new towers is much more reasonable than the cost of a legacy tower.
That's effectively what we're doing, is when there's any new build that we're doing—and for that matter, any really high cost spikes that we have—we're building a competitive facility, and we're moving off the high-cost facility to a lower cost facility and directing our new business towards these lower cost facilities.
FierceWireless: How do these two business models compare in terms of cost?
Wilson: The new business model is generally 50 or 60% less per month from a lease-rate perspective. So, it's much more favorable, much more lucrative while still providing the tower with a fair return.
FierceWireless: So the cost to build towers varies by location and type, but the amount of money that AT&T is paying for the rent to access the tower is 50% lower in the new business model?
Wilson: Exactly.
If you had a business that's super high margin, 80% margin, that business is more likely to be disrupted because it's so lucrative. Someone would come in and say ''I'm willing to accept the 20 or 30% or 40% return and that's still highly lucrative for me."
FierceWireless: So how widespread is this new business model across AT&T's total tower footprint?
Wilson: We don't disclose specifics in terms of how many towers we have and the owners of those towers. For certain though, we have built hundreds [of towers under this new business model] and there's hundreds more coming.
And again, it's not just relocation from an existing facility to a new facility. It's also just a function of economics and where you're going to direct your new business.
FierceWireless: Is it only Tillman towers or is it Tillman and others?
Wilson: I've been in this job for 10 months, and I have not met a tower company that's not big three [Crown Castle, American Tower and SBA Communications] that hasn't come to me and said, "We'll do that same deal." They do. There's a very, very robust marketplace of tower companies that are willing to build, and build and offer rent at a lower cost with those real estate prices attached to them.
So, I think from my perspective, it's been widely accepted.
I'm not going to name names or anything, or speak to any of the big three. I'll leave them completely out of the equation. But it's very robust.
FierceWireless: Is this the same case for small cells?
Wilson: I think small cell is different and new. With small cell, you have a lot more alternatives come in. Any time you have more alternatives, I think you ultimately end up with a more reasonable set of economics.
FierceWireless: But this discussion we're having is mainly about big macro cell sites?
Wilson: This is macro cells.
FierceWireless: And that's where the bulk of AT&T’s spending is, is in macros?
Wilson: That is true.