Good News (Maybe)...

According to an article in the 9/20/99 issue of RCR, John Kelly, Chairman of the Site Owner's and Manufacturer's Alliance (SOMA) went to Congress to "dispel notions that the number of towers will increase as the FCC licenses more wireless carriers …"

As PlanWireless reported back in its April 1999 issue, carriers are selling their "towers" to tower companies in order to raise much needed cash. The tower companies, according to the RCR article, "have a built-in economic incentive to co-locate as many antennas as possible on towers." Since carriers aren't as fond of building towers for co-location (or so the argument goes), the tower companies, are actually reducing the number of towers needed in the future by consolidating carriers on new "build-to-suit" facilities. In the best case, this is counter-intuitive; in the worst case, it's nonsense. Companies don't start up to build less of what they specialize in, they start up so they can build more.

There are just a couple of flaws with Mr. Kelly's argument. First, as more and more tower companies enter the field, the number of "spec towers" increases. A spec tower is approved without carriers on it, but the builders don't worry. "If you build it, they will come," say the tower builders.

However, most of the demand for new cell sites is not going to be where there are "towers" now or where local government is likely to allow them: most of the demand will be in or near residential areas. So, we're likely to see many new applications for towers in two kinds of places: either where we don't need them or near residential areas where homeowners don't want them.

Mr. Kelly's assumption, it seems to PlanWireless, is that his expanding industry is going to be content with their existing inventories and maybe with building a few more towers in the rural areas to allow for growth. The fact is, once successful with all those assets, what's a company to do but build more of them?

Now let's examine some of the reasons why tower companies are so successful that aren't being mentioned to Members of Congress:

• Most of the tower companies' growth comes from new towers, not new space available on their existing assets. (See related story on "The Sky's the Limit.")
• When a carrier with a brand name applies for a permit to build a tower, it may make immediate enemies among neighbors who oppose the tower. These "enemies" talk to others, go to neighborhood gatherings and make small talk at work, not to mention getting on the Internet and "flaming" the carrier wherever they can … this is bad public relations for the carrier selling wireless services. Instead, the carriers hire tower companies to build the towers.
• Carriers will tell you that they can achieve capacity by adding equipment to an existing tower. But in the same issue of RCR, another industry expert opines "Without new wireless sites, carriers won't be able to … meet the growing demand for their services." Greg Sweet, who consults to "build-to-suit" tower companies, says that his clients "are willing to build new networks and add to existing ones with little to no up-front costs to carriers." In other words, entire companies are devoted to building out entire networks, so should we expect a few more "towers," or should we expect a lot more?

• A tower is a cash cow four times over: First, new colocatees (later additions to existing towers) are considered "gravy" or "frosting" because they were not calculated in the original pro forma and are sometimes added without a permit (no approvals costs); second, improvements made without permits are often not taxed (how else would the assessor know if no permit is issued?); third, many times the lessor of the land lease for the tower has no idea of the new colocatees, so there is no sharing the wealth; fourth, a tower is a low-cost asset (minor depreciation) with rapidly increasing cash flow (new colocatees at much higher returns). Wall Street loves these companies because their earnings potential far exceeds their capital cost requirements.

Now comes word that two large corporations are buying up the licenses of MMDS (Multi-channel Multipoint Distribution Services). Those two giants are Sprint and MCI WorldCom and, in keeping with the merger mania of the day, these two will merge into the biggest provider of MMDS in the nation. Is it coincidence or do they know something that we don't?

The answer is that MMDS will be used to bring broadband capabilities to residential users of Sprint's wireless (and other companies') services. At 2-plus Gigahertz, the signal is not too far removed from PCS (1.9 GHz) and capable of traveling up to 30 miles … if it is sent or received by a "tower." So, here comes the "last mile" for getting into the single family house, but how many towers will be needed? Anyone who thinks that a house 30 miles from a tower can receive a dependable MMDS signal would be dreaming: too much "clutter" including trees.

But MMDS will need towers – a lot of them – and unless there's space on existing towers near residential areas, the tower companies have ten to 20 years of frantic growth ahead of them.

Bottom line: if you think companies are flocking to the tower business because the nation will be building fewer towers, then PlanWireless has a bridge to sell you. PlanWireless believes the opposite will be the case: many more towers, many more local controversies, and many more cities and counties calling Kreines & Kreines, Inc. to ask "what can our local government do to work with these tower companies?"

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Kreines & Kreines, Inc.
58 Paseo Mirasol, Tiburon, CA 94920
Phone: (415) 435-9214
Fax: (415) 435-1522
e-mail: mail@planwireless.com