Cell Tower Leaseholders who have had cell tower leases long enough understand the risks associated whenever news of possible wireless carrier mergers surface. In this article, we take a closer look at why this is so, focusing our attention to a merger already looming on the horizon – that of T-Mobile and Sprint's.
More importantly, we'll discuss whether the merger – if it does take place – will in fact affect the tower on your cell tower lease.
Sprint and T-Mobile possible merger
Early in the second week of March 2011, rumors of a possible merger between Sprint and T-Mobile began to gather steam. While this story has been going around for some time, it hasn't been generating a bigger buzz than it has now. Analysts who think the time is ripe for this deal to take place anyway further fuel the rumors.
The contention is that these two carriers are way behind the top two leading industry giants, AT&T and Verizon. Hence, a merger can put them in a better position to provide a truly competitive third force – a role neither one (Sprint or T-Mobile) could perform alone.
Effects of merger talks on the cell tower industry
What does this mean for the cell tower industry? First of all, merger talks are always understandably bad for cell tower companies. On March 8, when news of the merger started to escalate, tower stocks traded lower. American Tower, Frontier Communications Corp, SBA Communications and Crown Castle all took hits during that day.
The reason is because when mergers happen, some cell sites will become redundant.
Redundancy risk
Redundancy happens when say a Sprint cell site and a T-Mobile cell site are located close enough so that it is feasible to eliminate one of them. Carriers view each site as a sunken cost so the actual cost of the cell site does not factor in. The rents they are paying on the cell site are the largest factor. If they can eliminate a cell site, they will. They will transfer all cellular equipment (antennas, base stations, etc) from that tower to the one that will remain standing, and still be able to serve the combined subscribers of the two carriers in the area.
Thus, once a merger between these two carriers pushes through, it is expected for them to sift through their tower inventory and to knock off towers that are deemed redundant and obsolete in order to save on costs.
Some also fear that because certain cellular equipment can be merged, there would be no need to retain two-sets of co-located equipment (equipment installed on the same tower) at all. One has to go. This would thus reduce the rented space on a tower and bring down its revenue.
Is redundancy or merger risk real?
But just how real is this risk? Oh it's real all right. After the merger of AT&T and Cingular, the merged company started phasing out redundant cell towers. This also happened after Sprint merged with Nextel. AT&T eliminated 10's of thousands of sites when they merged and Sprint is talking about eliminating over 50,000 Nextel sites in 2011.
However, since T-Mobile and Sprint are using totally different technologies (T-Mobile uses GSM, while Sprint uses CDMA), the case of redundancy – particularly for equipment co-located on the same tower – may not apply as much. On the other hand, it will be a totally different story altogether if the two decide to go for only one kind of technology and get rid of cell sites bearing the other kind.
To make things even more complicated, the influx of different kinds of mobile and portable devices like feature phones, smartphones, Pocket PCs, laptops, netbooks, and – more recently – tablet PCs (like the iPad) has brought a constantly dramatic rise in the demand for better wireless coverage. Consumers want bigger bandwidths and ever-wider coverage.
The only way to satisfy their demands is to increase the number of cell sites and capacity to existing cell sites. So while some factors (like redundancy) are pushing for the elimination of certain cell sites, other factors (like increased wireless demand) are pushing for their continued existence. And these are just a few of the many factors that need to be considered.
So the question really is, will redundancy apply to the cell tower on YOUR specific location? If you ask someone from the companies mentioned below, the answer will always certainly be a big “YES”.
What agents from Unison Site Management, Communications Capital Group, Landmark Dividend and APWIP will tell you.
I won't be surprised if you already received a friendly letter from any of these companies warning you of the merger risk your tower is facing. They'll even offer you a way out. They'll offer to purchase your cell tower lease… albeit at a not-so-attractive price.
Should you succumb to a cell tower lease buyout?
Once you start receiving those cell tower lease buyout proposals, which is expected due to the rumored upcoming merger, always remember that: while there are many factors that can make a tower vulnerable to a merger risk, there are also as many that make it resistant to such.
If you want to be on the safe side, we strongly advise you to seek assistance from a highly experienced cell tower lease consultant who can give you the facts based on the actual specifications of your property and the tower standing on it. If you do decide to sell, then it would be prudent to seek advice to get the best possible price.
