From coast to coast, from Canada to Mexico and everywhere in between there is a real estate principle that always applies. You get a better deal if you have two or more properties to choose between. You always get a better deal if you play two owners against each other. This is obvious right?
There is no way I am going to out-negotiate a car salesman because I do not have subject matter expertise. So when I buy a new car, I go to two or three dealerships and play them against each other – in the end the best price wins. You have to create a competitive situation.
This principle holds true for wireless real estate as well. I have negotiated a lease for a cell site covering Wall Street, and a microwave tower in Screw Bean Draw, Texas (yes that is a real place – it is about six miles west of Orla). And I have negotiated for just about every type of property you can think of in between those two. I have been told so many times that if you want the best deal you have to be “a local” (from NYC or SBD) and that if you are not “a local” then you need to hire someone who is from there to negotiate for you. That simply isn’t true. If the landlord wants the monthly rental income, and you treat them with respect, then they’ll negotiate with you no matter how fast or slow you talk. And if you tell them you are choosing between two or more sites you have negotiating leverage.
I had to lower the rent on my rental properties in Florida because there was a glut of vacant condos on the beach four blocks away and my tenants had options – they didn’t want to move, but they certainly had an opportunity to do so and I had to lower my rent to keep them. I have been on both sides of a negotiation where a tenant had legitimate options and it always works to lower the rent.
When negotiating a lease for a new cell site anywhere in the USA, (despite the fact that RF engineers have the option to trump one candidate over another) you will do well to have more than one candidate. Finding alternatives changes the dynamics of a negotiation.
Quick shout-out to Phil Goldstein for his article posted here today on FierceWireless. Here is an excellent quote from it.
“Coverage vs. capacity: Cisco’s Visual Networking Index predicted earlier this year that mobile data traffic will increase 39 times between 2009 and 2014. To meet that demand, Clearwire CTO John Saw said there needs to be an industry-wide paradigm shift away from coverage and toward capacity. “Our cell sites are not able to meet the needs when we become a capacity-driven business and not a coverage-driven business,” he said referring to the broader industry. “Is it time to move up.”
Tower companies, Saw said, need to think less about macro sites and more about micro sites, picocells, distributed antenna systems and rooftop deployments for urban areas.”
The best location for a cellular antenna isn’t always where you think it will be – especially in a rapidly evolving wireless network.
A lot of cell site landlords claim they have “the best site in town” to locate a cellular antenna. Whether it is the lone tower in a small town, the tallest building off town square, the mountain top with the longest line-of-site, or the office building on the corner of Rodeo Drive in Beverly Hills – many claim their site is unique and best. However this is often not the case – especially as cellular networks become more sophisticated.
As wireless telecommunications technology evolves from 3G to 4G and beyond, so does the definition of “the best site in town.” As I mentioned in a prior article in AGL magazine, (What is the Market Price for Cell Site Rent?) contrary to popular belief, the Empire State Building does not offer the best coverage in Manhattan. One high site can’t handle the millions of calls made each day in New York, nor can it accommodate the bandwidth needed to run voice communication, video, email, music, photo transfers, download apps and more. In other words, taller is no longer better. Today’s network relies on a greater number of low elevation sites to accommodate the growing number of users and the bigger bandwidth requirements necessary to meet technology demands.
Landlords often think that their site is more valuable because it is in a high-traffic area, or it’s the tallest, or it’s centrally located. As noted above, advances in technology are redefining what makes a good cell site. But further, as cell sites come closer to the ground and closer to each other, carriers are less particular about their location. This flexibility, combined with an increasing ability to use non-typical cell sites (such as light poles), creates a competitive environment that drives cell site rents down. The landlord who once had “the best site in town” must now acknowledge that carriers have many viable options to choose from.
The wireless “dumb pipe” is inevitable. The iPhone is certainly accelerating its arrival and it is just a matter of time. The entire strategy of new wireless entrant LightSquared is to be a wholesale dumb pipe. While many believe that the Verizon network is a competitive differentiator, even it is evolving into a commodity. And in a commoditized market, the low cost provider wins.
It is simple business school math. If all wireless networks have relatively comparable coverage that simply transfer bytes back and forth between a handset and the internet then the only differentiators are the handsets themselves and the price for access to the system. While the buzz on the FCC investigation into handset exclusivity has cooled for the time being, price competition is hotter than ever. And price competition means each cellular operator must get more aggressive on cost cutting or their margins will suffer and they will get priced out of the game.
One of the largest items in a cellular operator’s OPEX is the rent roll for tens-of-thousands of cell sites around the country. The largest operators have an estimated seventy-thousand cell sites at an average of $1,700 per month. With built-in rent escalators averaging between three and four percent per year it won’t be long before nation-wide cellular rent rolls top $1.5 billion annually. But wait, it will grow beyond that! The high-tech wireless dumb pipes are actually 4G LTE and WiMAX networks built on top of already existing cellular networks. It is reasonable to expect the number of cell sites in the United States to double or even triple over the next five to ten years.
That’s good news if you own the only zoned and permitted cell tower in Middle America and the mayor is your brother-in-law. But what about more congested areas where traditional roof-top sites and micro/pico cells can be flexibly placed in more than one location? In that scenario cellular operators have options.
With OPEX pressure, any prudent wireless CFO will be looking to lower average rents on their rapidly expanding portfolio of cellular real estate and you can expect that pressure to trickle down to lease negotiators. And those lease negotiators will be more closely weighing their options when negotiating new cell site leases. Expect that trickle down pressure to impact the average rent on new leases.