The Sprint/T-Mobile, Tower Company Quandary

By: Brett Reall

I just received an all too familiar call from a tower company regarding one of our customer’s cell tower sites. This was a ‘friendly’ notification that Sprint and T-Mobile had merged, and that Sprint would likely be removing their equipment within the year; implying that our customer would be losing the rent on the site. More on this later.

Many property owners are receiving similar calls from a variety of entities, all with similar implications – act now or you will lose out on rent, buyouts, security, etc. What is difficult for property owners to ascertain is the likelihood of their cell site actually being decommissioned, due to both a lack of information available, the presenting entity, and general industry uncertainty.

We frequently see calls and letters sent out in merger situations from several different entities, including the following:

1. Lease Buyout Companies: Companies that buy cellular leases use mergers as opportunities to spotlight what they present as the volatile nature of cellular leases. When a merger happens, they present property owners with case studies of cell sites decommissioning, hoping that property owners will feel that their cell site is vulnerable and exchange the lease for a one-time payment.

a. The issue we see with this logic is once a merger has been announced, buyout companies immediately adjust their pricing so that they either eliminate or reduce pricing for high risk tenants, only buying tenants they feel are ‘investment grade’. This limits their risk. While there is strength in spreading risk over a portfolio, lease buyout companies don’t like losing rent any more than property owners, property managers, or public entities.

2. Tower Companies: Owners of cell towers who lease to wireless tenants use mergers as opportunities to contact property owners for a variety of reasons. Specifically related to the Sprint/T-Mobile merger we have seen requests for rent reductions, term extensions, more restrictive lease terms, expanded compounds, etc. I’ll address a few of these below:

a.  Rent reductions: Leases we have seen between Tower companies and cellular carriers have contracts with for fixed periods of time. Many times the property owners are told the lease will suddenly disappear one day, however there is generally advanced notice, and it is not based on the amount of rent paid to the property owner, rather it is based on RF propagation or corporate initiative.

b. Term extensions: Tower companies present that unless the term of the lease is extended for several decades, the tenant may leave the site. While there may be some limited truth to this on specific sites, generally if a wireless carrier is concerned about this it will be before a new tenant colocates on the tower, and the lease can be negotiated specifically for that tenant.

c. Expanded compounds: Tower companies have indicated that there is a need to expand the lease compound either immediately or in the future to allow for expansion. In our experience wireless carriers avoid expanding their equipment outside of their current footprint as they will be usually be charged additional rent for any additional space. While it is nice for the tower company to have, it is generally not a reason a site is decommissioned.

3. Wireless Carriers or their agents: We have seen calls from wireless carriers and some of the industry other standard players asking for rent reductions. The logic behind the request is that the wireless carriers are reviewing sites, and making decisions to terminate based solely on the property owner’s willingness to reduce the rent. In some cases these requests have become more sophisticated, showing average rent vs. the current rent paid to property owners.

In our experience, unless a property owner is requiring rent that is extremely high, a rent reduction alone is usually not enough to prevent a site from being decommissioned.

With regards to the specific request mentioned in the first paragraph of this article, both Sprint and T-Mobile are at the tower site; however the Sprint lease was assigned to the tower company, meaning the tower company is obligated to pay this rent. T-Mobile has a separate ground lease with our customer, and their antennas are located on the tower. There is a chance that T-Mobile will terminate their ground lease with our customer and relocate their equipment into the Sprint space, however there are also two additional potentials that the industry doesn’t currently discuss. (the first is the most plausible)

1. T-Mobile retains its current equipment space and space on the tower. While counter-intuitive, we have seen leases where it is less expensive for a wireless tenant to pay the property owner ground rent, and pay the tower company tower space rent. This is an issue for the tower company because they are obligated to pay the property owner rent for as long as the tower is present, and they are obligated to provide a tower for the colocated tenant. Sometimes, when colocation agreements pre-date their ownership of the tower, the colocation rent is extremely low.

2. Dish Network has yet to announce which (if any) Sprint tower sites they will acquire. Dish is currently hiring crews who will work on their towers, and it will be much more expensive to build a tower network from scratch than to assume some of the Sprint leases. This is speculative at this stage, but it is a factor that needs to be considered prior to any decisions being made.

There are many factors that go into which cell sites are decommissioned and which ones remain in service following a merger. Every cell site is different and has different factors that affect it. Before making a decision that may cost you hundreds of thousands of dollars, contact Gunnerson Consulting to review the specifics of your cell site. We understand that cell sites are not your primary business - they are ours!