Mobile network operators are increasingly pressuring tower companies to lower their fees and make it easier for carriers to maintain their antennas. And at least one major carrier is openly soliciting developers to build new towers close to existing structures to cut costs, according to MoffettNathanson Research.
"Over the last year or so, some of the large wireless carriers – most notably AT&T (NYSE: T) – have been vocal about ways in which the tower leasing model could better suit their needs," MoffettNathanson analysts wrote this week in a research note. "In some instances, there have been explicit threats to migrate cell sites off of incumbent towers if accommodations are not made, whether to alternative sites (existing or new builds), alternative structures, or using alternative technologies. AT&T has reportedly published a list of high-rent towers it specifically wants developers to target with promises of their business in exchange for building new towers nearby."
Indeed, carrier dissatisfaction with the tower industry was a major topic in May at the annual event hosted by the Wireless Infrastructure Association, which recently rebranded from PCIA. Dave Mayo, T-Mobile's (NYSE:TMUS) senior vice president of technology, told attendees that the infrastructure segment is ripe for disruption as the industry moves toward 5G.
Mayo offered a litany of headaches network operators regularly deal with when maintaining and upgrading their towers, from birds' nests that essentially bar access to the sites to workers in the field who don't bring the right keys to gain entry. "It's too complicated, it's not sustainable," Mayo said, calling for "industrialization" of the infrastructure market. "The area seems rife with opportunity from my perspective."
And Sprint (NYSE: S) made headlines early this year with reports it was moving forward with plans of a "radical overhaul of its cellular network" that would see the carrier relocate at least some of its towers from space leased from Crown Castle and American Tower to government-owned land where rent is cheaper in an effort to save as much as $1 billion. Sprint has refuted those reports generally, but the carrier has also lowered its capex guidance for the year to $3 billion, down dramatically from analysts' estimates of $4.5 billion.
Regardless, MoffettNathanson said, operators have few options when it comes to maintaining their nationwide networks. Leasing tower space is more economical than building an entirely new network, after all, and tower companies have both the infrastructure and the real estate that carriers need.
"We find the prospects of there being any change in the underlying pricing model – whether in terms of base rents, amendment fees, escalators, or any other core lease term – to be exceedingly slim," MoffettNathanson analysts wrote. "The balance of negotiating leverage between the parties rests on the ability of the carriers to identify viable alternatives. And as much as the carriers might like to believe they have viable alternatives, for the overwhelming majority of locations they do not. Even if they did, the existing model would prove to be less expensive. These arguments rest on the pillars of cost and availability."
T-Mobile's Dave Mayo calls for 'industrialization' of the wireless infrastructure space
Sprint's lowered capex guidance - from $4.5B to $3B - concerns investors, despite $11B in liquidity
Sprint faces questions on Mobilitie's small cell rollout efforts, handset write-off costs