Opinion Pole

I was pretty excited a few months ago when I bought a new Femtocell device from my cellular service provider. My wife and I had noticed that we had begun having problems connecting to the network and calls were dropping more frequently so I swallowed my pride and paid $250 solve my carrier’s coverage problem. I expected to get maximum “bars” in my house easily and seamlessly. But my experience was far from plug and play. Actually when I called the carriers help desk they said something to the effect of “oh it doesn’t work with data plans yet. You’ll need to turn off the data portion of your Blackberry each time you walk in the house.” I promptly packaged it back up and returned it to the retail store. I figured I’d wait a generation or two before trying it again. Maybe the price would come down in the meantime.

While I am still not ready to try again to solve my carrier’s coverage problems, I must admit my interest in femtocells is revitalized. At a recent CommNexus San Diego SIG focusing on “Femto Services” I got a glimpse into the future and like what I see. If femtocells live up to expectations it could become the link between your mobile phone and embedded wireless devices in your home such as your TV, HVAC, and utilities. Via a femtocell, you will be able to remotely communicate with your house to manage every embedded device such as turning on the oven, or responding to a SMS reminding you that you left the lights on. There will also be presence enabled capabilities that detect your phone as you walk through the door and immediately turn on the TV, air conditioner and appropriate lights as you move throughout the house. In addition to knowing when your kids are home because their phone comes within range of the femto, you can also leave them a “digital post-it note” reminding them to clean their room as soon as they get home.

There are several devices vying to be the hub of the future digital home but unless those devices connect to your smart phone then they won’t work. I can see a combination Femto/Wi-Fi device controlling those connections in our future homes where we live just like the Jetsons.

According to Wikipedia a “perfect storm” is an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically.” The term gained popularity when George Clooney stared in a film called The Perfect Storm (based on the book by Sebastian Junger of the same name) about the 1991 Halloween Nor’easter in which three weather conditions combined to generate a perfectly fierce and deadly situation:

• warm air from a low-pressure system coming from one direction,
• a flow of cool and dry air generated by a high pressure from another direction, and
• tropical moisture provided by Hurricane Grace.

Today in both Europe and North America, the wireless industry shows its own combination of circumstances which could create a future perfect storm:

• market saturation – it is estimated that 85-90% of Americans own a cell phone and the number in many European countries are estimated to be at or over 100%,
• cheaper “all-you-can-eat” rate plans – in the USA, all of the four major carriers offer voice/data plans for $99/month and Metro PCS offers voice plans for as low as $50/month, and
• increasing OPEX – the two largest expenses for wireless carriers are payroll and rent roll and both are inflating.

It doesn’t take a meteorologist to forecast enormous pressure on cellular operating margins. And it is safe to assume that cellular operators have and will continue to focus on this issue.

On the revenue side of the equation, operators will battle it out for the final 10-15% of market share, and operators will continue to search for more ways to increase ARPU by adding cool apps and services as well as introducing cooler handsets to encourage subscribers to remain loyal and/or switch to their service. The iPhone/Blackberry battle is the classic example of this.

On the expense side, these conditions place pressure on payroll and rent roll and operators are looking for ways to lower OPEX. Expect to see more outsourcing and tighter cost controls. Also expect to see more rigorous scrutiny applied to lease costs. With annual rent rolls in the billions, operators will be keeping a close eye on the rent expense.

In my first Opinion Pole blog I commented that PCIA 2008 in Hollywood, Florida was silent on cellular leases – not the site acquisition process itself, but on the actual leases documents and what can be done to improve them for the betterment of the entire industry.  Well I am happy to note herein that PICA 2009 in Nashville, Tennessee was better.  The company I work for (Md7, LLC) pushed the topic and began driving the conversations a bit more than usual this year.  While it is not my goal to turn this blog into a promotion for my company, it was through the presence of Md7 on two panels and hosting a hospitality suite that we were able to have several public and private conversations about leases and how to make them better.

My colleagues, Thomas Dolislager and Sudeep Gupta both participated on panels in which improved leases were at least part of the conversation.  Thomas’ panel was called “Outsourcing to Experts: How to Reap the Benefits” and was sponsored by Message Center Management.  The biggest take away from this discussion was to trust experts and select specialists who do one or two things really well.  Lease documentation is no exception.  While lease negotiations and preparations have long been entrusted to site acquisition companies and law firms, I do see a trend to concentrate in this area even further. 

Meanwhile, Sudeep participated on a panel called “Innovative Strategies for Reducing Network OpEx” where he raised the very valid point that over time the single biggest cost of operating a cell site is the rent expense.  Monthly rent that escalates each year will eventually outweigh the cost of base stations, zoning, maintenance and even construction.  So if rent is in fact the largest expense, then it makes sense to concentrate on managing it and making the documents themselves more efficient and standard.   
 
While not everyone agrees with me that there is a LOT of room for improvement in the hundreds-of-thousands of cellular lease documents currently in existence in the United States and abroad, most agree that rents are high and leases have to be negotiated and renegotiated multiple times – especially each time and upgrade is made to a cell site.  Let’s find ways to improve this process.

In the middle of the 2008 PCIA show in Hollywood, Florida I asked Dustin Cahill who works with me at Md7 if he heard anything and with a strange look on his face he shook his head and said “I don’t hear anything.”  To which I responded “Exactly!”  He thought I was crazy, but I was making a point – the wireless infrastructure show (and the wireless industry as a whole) was noticeably silent on my favorite professional topic – cellular leases and how to how to improve them.

Oh, there is always plenty of talk about site acquisition, zoning problems, and regulatory issues.  That is the same ole stuff.  In 2008 I also heard a lot of talk about DAS, “drop and swaps” and of course the “Titans of Tower” hour was very interesting.   But no one was talking about the leases themselves.  Things like: What are the key terms in a good lease? How can these key terms be improved?  Can we bag CPI escalators forever? And the all important one our industry seems to never openly discuss, why are rents so high and what can be done about it?

I have committed the last five years of my career to these very questions and had some very interesting conversations – some positive and some not.  Some people liked what I was saying and some told me I was crazy – some even hurled a few personal insults.  But seriously, we need to be talking about this topic and others.

It took me several months since that inspirational moment in South Florida last year to figure out Web 2.0, social networking, tweeting, connecting, making Facebook friends and the hardest of all – WordPress. But you are reading the result; my first blog!  This is the introduction of my contribution to sharing information among wireless industry players to encourage what I call “mutually beneficial outcomes.”

I’ll try not to be narcissistic in here.  I am not blogging to change the world, self-promote or generate business for myself.  I simply would like to engage in legitimate, interesting, respectful conversation and make acquaintances within the wireless industry – whether we agree or not.  Let’s call it stimulating professional conversation.

So, I hope you’ll enjoy the Opinion Pole and check back in regularly.  I look forward to chatting with you!