In an unprecedented move, AT&T and Verizon have opted to use Tillman Infrastructure to build out their towers and have committed to leasing and co-anchoring the towers, with assurances that tower leasing costs will be lower. The new structures developed by Tillman will be used to add coverage but will also be situated to relocate equipment from current towers as leases expire.
While the financial details were not released, the relationship the carriers and Tillman may characterized by the elimination of amendment revenue and lower escalators.
AT&T formed its Tower Strategy team a year ago, with the primary mission of reducing rent expense. When a solution could not be reached with public tower companies, the carrier decided to develop a new tower model that included real estate rights with sustainable rents. Of the existing build to suit agreements in place, Tillman was deemed to be the strongest supplier and the only one that also had a build-to-suit arrangement with Verizon.
Nicola Palmer, chief network officer of Verizon Wireless, said the change was made to reduce operating costs. “We review all of our long-term contracts as they come up for renewal and we are excited to develop new vendor partners to diversify our infrastructure providers,” he said.
Susan Johnson, SVP of Global Supply Chain, AT&T, agreed that the carrier was looking for an alternative to the current tower leasing model, because it is “not cost-effective or sustainable.”
“We’re creating a diverse community of suppliers and tower companies who will help increase market competition while reducing our overhead,” she said. “We look forward to working with Verizon as we establish site locations and sign new lease agreements with additional suppliers in the coming years.”
Construction plans on the first towers will begin in the first quarter of 2018 and as those sites are completed, network engineers will begin installing equipment and turning the sites up.
Impact on the Tower Industry
AT&T is spreading the love, however. It currently has BTS agreements with Uniti Towers, as well as Tillman. The carrier is negotiating BTS agreements with a few other tower companies. It also has signed collocation agreements (with real estate rights, $0 amendments, low escalators) with a number of tower companies.
Smaller private tower companies, which have been the force behind new builds for several years, may see reduced work building out towers. Additionally, it may reduce the catalyst for the public tower companies that has been promised by the build out of FirstNet.
As it relates to building new towers for the relocating of equipment from existing towers, the move from the carriers may have less impact, because the towers with the highest rents are in urban areas where it is difficult, if not impossible, to build a new tower. Problems with zoning abound.
How will this affect the public tower companies, which control 90,000 or so towers? Will the agreement with Tillman cause them to renegotiate legacy leases if they lose the carrier lease revenue on a few hundred towers? It is hard to tell.
Who is Tillman Infrastructure?
Tillman Infrastructure is a relative newcomer to the tower industry. It is owned by Tillman Global Holdings, a US-based holding company that invests in telecom and energy infrastructure businesses, which was founded by Sanjiv Ahuja in 2013. Some in the industry were surprised by AT&T and Verizon’s choice of Tillman, given its lack of experience in the U.S. market.
Tillman Infrastructure provides build-to-suit services, collocations, ground lease buyouts, real estate management and tower acquisitions. It currently is building towers in 30 states.
Tillman Global has a portfolio of companies that spans five continents and more than a dozen countries in telecommunications infrastructure, renewable energy and digital cities. It has developed 1,700 towers in Myanmar.
Softbank also Makes Tower Play
AT&T and Verizon are not the only carriers looking to control their destinies when it comes to tower rent. About a month ago, SoftBank Group, owner of Sprint, established a joint venture with Lendlease to develop and own telecom infrastructure assets in the United States. The $400 million joint venture, to be known as “Lendlease Towers,” will initially buy 8,000 towers and rooftop sites and eventually $5 billion of telecom infrastructure assets.
Lendlease has been appointed the joint venture manager, asset manager and development manager.
“Consistent with our strategy of focusing on growing demand for infrastructure, we’ve identified the telco infrastructure sector as an opportunity to deploy our integrated business model,” Lendlease CEO Americas, Denis Hickey said. “Lendlease has a long-standing relationship with SoftBank in Japan.”
T-Mobile has also been vocal about its dissatisfaction with the traditional tower leasing model. It will be interesting to see its course of action.