The cell tower industry saw more unprecedented changes in 2018. The biggest news is the pending merger between T-Mobile and Sprint. Many experts, including our team, are confident the merger will be approved. The merger will make T-Mobile the 3rd biggest carrier in the United States. T-Mobile will also pick up Sprint’s massive amount of broadband, which is critical for the 5G roll out anticipated in 2019.

The probable losers in this arena are Crown Castle, American Tower and SBA. They have many towers populated by Sprint and T-Mobile. They are bracing for the thousands of sites that will be decommissioned affecting their cash flow and most likely stock value. If that news wasn’t bad enough, Tillman has put together $500 Million to build towers in areas with liberal zoning to poach AT&T and Verizon off of traditional tower sites. AT&T and Verizon are leaving tower sites to reduce their rent profile, which is the second highest expense at the carrier level.

Don’t be surprised if Dish satellite television is bought by one of the carriers. Besides Sprint, Dish owns tremendous broadband, which is a must for a 5G rollout. Look to Verizon to be the lead in acquiring Dish to bolster their network. AT&T owns Direct TV and has been successful in bundling internet, TV and cell contracts.

5G Update In the next 24 months we are going to see more micro base stations closer to macro sites. Cell sites that were once on rooftops are vacant due to small cell infrastructure moving to street level. American Tower Corporation General Counsel Rich Rossi stated that macro towers will still be part of the backbone of 5G, saying “I think we will see low and mid-band [Spectrum] deployment over macro sites.” But, don’t be fooled into a false sense of security, all cell site leases are designed for the tenant’s unilateral right to terminate. Continued competition and reasonably cheap plans will continue downward pressure on cell tower rents.

What does this mean? Nothing in this spectrum is secure, nothing lasts forever. If you own a cell lease, consider monetizing and converting the lump sum into a 1031 tax deferred exchange or pay the capital gains.

Small Cell Update There is a boom in small cell deployment coming to a city near you. Many of these Small Cell sites will be placed within the public right of ways replacing street lights and power poles. Many municipalities have worked out master leases/licenses with the rent for each pole being a couple of hundred a year or less. The micro sites will bolster the macro sites. In some cases, the carrier will seek to deploy on private property, primarily rooftops or the side of the building. In our opinion, the rent won’t compensate the landlords adequately for the access and 24/7 use of the real estate.

What NAICW believes carriers will be doing in 2019 We predict continued roll out of cell sites both micro and macro especially in rural areas to provide continuity of service. Verizon has been the most robust in new build sites with AT&T, T-Mobile and Sprint far behind. In 2014, AT&T negotiated new build sites that were to be built through 2018. We believe they will be very active in negotiating new build leases throughout 2019. T-Mobile and Sprint will more than likely go dormant for new builds if the merger is completed. T-Mobile will focus on integrating Sprint sites into their system and decommission overlapping and co-located sites first. 5G will first appear in major metropolitan areas to break the loggerhead, increasing connectivity speeds. 5G is the key to autonomous cars because today’s system is only as good as drivers on the road. We all know that story too well. Look for Tillman to build towers and poach AT&T and Verizon away from American Tower, Crown Castle and SBA towers. Lastly, the tower companies will continue their manic outreach to existing landlords offering lease extensions for a nominal amount cash up front, while inserting right of first refusal language in every amendment. The upfront cash is rarely worth the extension, be very cautious before you agree.

NAI Capital Wireless is the leader in cell site consulting. As one of the largest members of NAI Global, the premier managed commercial real estate service network with 375 offices and 6.700 market leaders spanning the globe, we provide a range of transaction, valuation, and consulting services.

"After struggling through years of unsuccessful cell tower lease renewal negotiations that were far outside of our employees’ and management company’s knowledge and comfort zone, we decided to use NAI Capital based on a referral. NAI has been worth its weight in gold. As a result of NAI’s work, we’ve completed four lease renewals, achieving vastly increased rent and obtaining clean, professional lease documents. I could not possibly recommend NAI more—its consultation has been worth every penny."

-Kevin Kent, Finance Associate, Caruthers Properties, LLC