The largest private owner and operator of communications infrastructure in the United States, by its own account, Vertical Bridge manages more than 300,000 properties. The company’s vice president of tower development, Ariel Rubin, said that Vertical Bridge builds towers with a focus on increasing its return on investment (ROI). Rubin spoke during an AGL Virtual Summit in June at the session, “Increasing ROI at the Tower,” moderated by Spencer Kurn, an analyst who leads coverage of U.S. towers for New Street Research.
Tower construction affects Vertical Bridge’s capital expense (capex), as reflected in the cost to build the sites, and affects the company’s operating expense (opex), Rubin said. Controlling those expenses helps to raise the company’s ROI.
“On the capex side, we have a great network nationwide of partners that help us not only with the services side, which include everything from site acquisition to engineering services and environmental services, but also one of our largest costs, steel and the towers we procure,” Rubin said. “The network of vendors that provide us with steel and being able to have ready access to sites anywhere in the country have been helpful at keeping some of those costs down.”
Construction is another large capex component, Rubin explained. He said Vertical Bridge has networks of regional contractors and nationwide contractors that help the company when it needs more volume in certain regions or when it needs more specialized contractors in some other markets.
When it comes to capex, Rubin said, “the less you spend, the better your returns will be. More importantly, as we look at ROI and how it’s tied to tower cash flow, the more we can keep of the rent we collect on a site is directly reflected on the return on that particular site. Thus, the operating expenses that each site incurs are one place where we looked and made sure to focus on as we build new sites.”
Rubin identified six items of opex that primarily affect tower cash flow: ground rent, maintenance, utilities, monitoring, insurance and taxes.
“The largest is ground rent,” Rubin said. “We always look to have long-term rights, or purchase the land, or have long-term easements on a property. That helps us control some of the ground rent costs that we incur.”
Vertical Bridge must maintain its sites properly, and it acquires sites with maintenance in mind. Although sites with long access roads or otherwise designing sites that would be expensive to maintain, although perhaps not costing significantly more initially, affect the company’s cash flow because those sites would need to be maintained for years and years, Rubin said. As a result, Vertical Bridge takes maintenance into consideration when designing and building the sites.
As for utilities, Rubin said Vertical Bridge typically does not have high utility costs, but it pays for tower lighting and some power accounts.
“We’ve worked with federal agencies on eliminating nonflashing lights,” Rubin said. “As an example, we were going to LED lights that not only help us reduce some of our opex costs and bring down our utility bills, we’re also helping reduce bird collisions and reducing some of the effects that our towers have in the environment. We’ve seen cost savings from $500 to $1200 to $1300 a year in power bills. We make sure that as sites are being put up, utility costs are minimized for years to come.”
Rubin said that monitoring and insurance costs are somewhat more difficult to control on a site-by-site basis. He said Vertical Bridge’s size helps the company to negotiate, because of the volume of sites.
“If somebody could figure out how to pay less taxes . . .” Rubin mused. “That’s something that we’re subject to. That’s another expense that affects our tax control framework and our return on a particular site.”
Session moderator Kurn said that controlling expenses is one side of the ROI equation — the other, improving tower lease-up.
Rubin then spoke about Vertical Bridge’s large portfolio of broadcast towers and tall towers, aside from what would be called the traditional towers for carriers. He said Vertical Bridge has been able to make the broadcast towers available for use by wireless carriers.
Meanwhile, Rubin said, the broadcast towers typically have a significant amount of land beneath them, and that is where edge data centers come in as additional lease-up.
“We have enough ground space to not only offer for edge computing, but also solar and some other applications,” Rubin said. “We to work with government entities and wireless internet service providers (WISPs). WISP rollouts are more regional, and we see groups of activity here and there. It’s a mix that continues to grow, but nothing significant at least on the new tower development side. Once the towers are up, this is where a lot of these new opportunities are coming into play.”
Vertical Bridge capitalizes on the edge computing opportunity with existing infrastructure and with what Rubin called edge-to-suit.
“We work not only with the direct carrier contacts that we have at Vertical Bridge, but also we have partnered with our sister companies. DataBank and EdgePresence, and are able to use our existing infrastructure and leverage that from some of the contacts that they bring where we can find some synergies in optimizing the use of our assets,” Rubin said.
“The second part is what we like to call edge-to-suit, which is leveraging our site acquisition teams and development teams to identify, lease, permit and build out to your power and fiber-ready location. It’s kind of like a build-to-suit, but just for edge services. We have the team in place. We think about longer term, making sure we have the ability to put up a tower if needed, but providing that service to our carrier, contacts, just for the edge solution that they need. We have the knowledge.We don’t necessarily have to go put up a tower on day one, but it’s a lot of the same skill set that we already have that we’re using on a daily basis. Using our existing infrastructure and our existing knowledge —that’s where the opportunity for us is key.”
For the June 8 AGL Virtual Summit, Total Tech sponsors included Raycap, Valmont Site Pro 1, Vertical Bridge and B+T Group. Tech sponsors included Alden Systems and Aurora Insight. Viavi Solutions sponsored the keynote address. Additional sponsors included Gap Wireless, NATE, VoltServer and WIA.
J. Sharpe Smith programmed the Summit, and Kari Willis hosted. AGL Media Group has scheduled the next AGL Virtual Summit for Sept. 8. To register, click here.
Don Bishop is executive editor and associate publisher of AGL Magazine.
Dish Network and Vertical Bridge REIT have reached a long-term agreement granting Dish access to Vertical Bridge’s portfolio of towers, rooftops, utility transmission structures, billboards, convenience stores and other sites used for wireless infrastructure deployment. Vertical Bridge has a portfolio of more than 300,000 sites in 50 states and Puerto Rico.
“Building a national 5G network requires an extensive presence across urban, suburban and rural areas, and Vertical Bridge’s portfolio offers Dish the array of coverage that we need,” said Dave Mayo, Dish executive vice president of network development. “As we continue to deploy Dish’s 5G network, Vertical Bridge’s assets, experience and commitment make them an invaluable partner.”
Alex Gellman, CEO and cofounder of Vertical Bridge, said that the tower company is committed to assisting Dish in its effort to build “a truly unique” 5G network. Just a couple days after the signing of the lease agreement, Dish had already begun signing lease agreements.
“It’s nice to get this important step behind us, so that we can really get to work on identifying sites, vetting them, leasing them and helping them get them built,” Gellman said.
In 2020, Dish became a nationwide U.S. wireless carrier through the acquisition of Boost Mobile. The company is building a cloud-native, Open RAN-based 5G broadband network. Now it is under pressure to build out a 5G network before FCC deadlines that require it to use its spectrum.
It is the second tower leasing agreement that Dish has signed. Crown Castle announced a long-term agreement with Dish last November through which the tower company will lease Dish space on up to 20,000 cell towers. Gellman said he believed Dish was drawn by the fact that Vertical Bridge is the largest private tower company and growing quickly, as well as the relationships developed over the years.
Vertical Bridge added more the 1,000 owned towers to its portfolio in 2020, including those from its acquisition of towers from Cumulus Media, its merger with Eco-Site and with newly built towers.
“Dave Mayo and I have known each other for a long time, since back when he was with T-Mobile and I was with Global Tower Partners. And a lot of his staff are known to us at Vertical Bridge,” Gellman said. “We are growing really fast. We are private, so we can be pretty flexible on some things that help them get going.”
One point of flexibility is amendments. With Vertical Bridge, the carrier can install whatever equipment it likes on a RAD center within certain wind loading criteria, as opposed to paying for each amendment to the tower.
“Bucket loading, to me, makes more sense, because it’s a real estate structure. It’s more of a square-footage play,” Gellman said. “We’re a real estate company. Our job is to deploy capital, buying and building assets, and then renting them to customers who are healthy and are happy being there. So, I don’t mind at all, a structure that allows tenants to operate efficiently in the space. It’s easy for them, and that’s good for me.”
Gellman admitted that Dish has a “gargantuan” task when it comes to building out a nationwide 5G network from scratch. He said that Vertical Bridge’s philosophy of being “fast, flexible and friendly” will help the carrier move quickly.
“We respond very, very quickly and are cognizant of how important timeliness is for them, which is important for any of our customers but especially for Dish,” Gellman said. We must be flexible with what they need so that we can help them get things done, and then the friendly part is, really, to keep an open line of communication so that we can deal with whatever may come along.”
After their company was acquired by Vertical Bridge, Eco-Site’s co-founders Dale Carey, Bob Glosson and Rich Stern joined the tower company’s executive team. Carey serves as executive vice president of strategy and convergence. Glosson is senior vice president of real estate solutions, and Stern is senior vice president of real estate.
“The other thing that’s really beneficial for us is, with the recently completed merger with Eco-Site, we added a lot of talent to our team,” Gellman said. “So we’re in a good position to really bear-hug the Dish opportunity and really apply a lot of resources to it.”
Gellman doesn’t believe the Dish agreement will result in a lot of growth for his company in 2021. “This year they’re going to be identifying and doing a lot of work on leasing sites,” he said. “I don’t think their rent will commence for until next year. So I think it’s going to be a build over time in terms of the impact on our income statement.”
Mid-year 2022 is Dish’s deadline to cover 20 percent of the population. A year later, mid-year 2013, that coverage requirement jumps to 70 percent, but Dish can get an extension if it reaches 50 percent population coverage.
Bernard Borghei, executive VP of operations and co-founder of Vertical Bridge, spoke with eDigest on the key issues and trends facing the tower industry as we end 2019 and set off on the new year.
How did Vertical Bridge perform in 2019?
Despite the pause in activity from some of the carriers, we still had a very good year. The business grew at a very attractive rate, from a leasing standpoint.
We had a tremendous year when it came to building new towers. We set another record in terms of new towers built. It was in the hundreds. Some were capacity fill-ins in suburban areas. A majority of the sites were in what I call new frontiers, areas where their coverage was being expanded.
We will carry that momentum from the fourth quarter 2019 into the first quarter of this year. Our fourth quarter was pretty active and ended up pretty strong, because we had a lots of projects that had already begun earlier in the year.
The effects of a pause and pull back are usually not felt until the following months.
What is your take on the Sprint/T-Mobile merger?
Final arguments are scheduled for Jan. 15 and the judge will take three to four weeks to render a decision. It is hard to say. We have spoken to people who attended the court case and they all walked away with different reads.
If it goes through, we are very positive about the merger. We believe it will make the industry more competitive. You will see some integration activities between TMO and Sprint to begin with, but then the focus will turn to building out the new TMO network based on their commitments made as part of the merger. One thing is for sure, if it goes through, you will see a stronger T-Mobile come out and push hard to meet all the promises that it has made to the FCC and the DoJ.
If the merger doesn’t go through, some say the pressure will be off AT&T and Verizon. I don’t know if they can relax. We saw T-Mobile add 7 million new subscribers in the fourth quarter, despite the pending merger.
It would break my heart if the Sprint/T-Mobile merger did not go through, because they have made such strong commitments to expand rural coverage, which I really think is needed for all of our citizens in those areas to gain access to broadband services. All carriers have plenty to do to expand their footprints in rural areas.
One thing is for certain. The fate of this merger should not have taken this long to be decided. No industry can flourish in an environment of uncertainty and this merger has brought an extended cloud of uncertainty that was not necessary. I just hope that we get finality in this case as quickly as possible so we can move forward, one way or another.
In 2020, the FCC’s attention will shift to mid-band spectrum. How will that impact towers?
I think the C Band auction will be very critical for the carriers, knowing how important it will be for 5G networks, and the bidding may be very hotly contested. Depending on how much money the carriers will need to bid in order to get the spectrum in the markets that they need, that may have an impact on their network expenditures in 2020. After the awarding of spectrum to the carriers, historically there is a lag time of nine to 12 months before the new spectrum is deployed in the marketplace.
The C Band is the last attractive band for macro-tower buildings in the foreseeable future. The CBRS auction is going to be important, too, but with all the coordination with the Naval radar stations and the division between the general-access and the priority-access licenses, it will not be as straight forward for the carriers to use it. But the C Band frequencies are perfect spectrum where they sit. Unless we start taking away other parts of spectrum from the military or other sectors, C Band may be the last piece of attractive spectrum made available to carriers for a long while, which can be used on macrotowers.
Will we see any impact on macrotowers from the millimeter wave auctions?
There is a lot of technical debate about how effective millimeter wave frequencies will be in a macrotowers environment or whether they should be considered only for small cells.
What deployment trends from 2019 will carry over to this year?
T-Mobile has been aggressive about its 600 MHz buildout. There is a decent level of activity that we continue to see from T-Mobile. AT&T has continued to deploy FirstNet sites and upgrades to existing sites. They continue to add capacity in various markets. There is a steady level of investment from Verizon. They never get too hot or too cold.
Are you optimistic about future growth of towers in a 5G world?
If 5G is going to consist of broadband, ultra-low latency networks, with the speed the 5G standard is requiring, a lot more sites are needed to accommodate the promise of 5G. I think the U.S. tower sector can easily bank on 30,000 to 40,000 more towers in the next five to 10 years. I see plenty of growth opportunities for new sites. Our sector will remain extremely attractive.
As seen from the vantage point of an executive with a large tower company, the best opportunities for small companies to develop towers lie in geographic areas where they have expertise and an economic advantage that larger companies cannot match. According to Allan Tantillo, vice president of new technologies at Vertical Bridge, there is an opportunity for entrepreneurs to build towers in rural areas, on tribal land and on federal land where they can develop cooperative relationships with local authorities and populations in a way that some larger companies cannot.
Speaking on Jan. 24 at the AGL Local Summit in Newport Beach, California, Tantillo said that Vertical Bridge has an aggressive build-to-suit tower program, and that Vertical Bridge works with smaller tower companies to develop towers and then later purchase their portfolios.
“There is still a tremendous opportunity to build towers,” Tantillo said. “It is the most efficient way to provide broadband coverage across a geographic footprint. Towers will be needed in suburban areas and in rural areas. Small tower developers play a crucial role, because they have expertise in specific jurisdictions. They have an opportunity to build towers through relationships that they’ve developed and through knowledge they have that larger tower companies cannot obtain, at least not without a lot of expense.”
Asked whether Vertical Bridge helps to fund small tower companies, Tantillo said: “Vertical Bridge is a very creative tower company, and we look at all opportunities to develop their portfolios and support the community.”
Vertical Bridge specializes in wireless base station equipment collocation services, including renting space for antennas on towers, and constructing build-to-suit towers. A statement on the company’s website says that Vertical Bridge is the United States’ largest private owner and manager of wireless communication infrastructure.
The tower business will be affected by several new technologies, Tantillo said. He mentioned 5G wireless communications, millimeter-wave technology and massive multiple-input multiple output (MIMO) communications. He said T-Mobile US has committed to roll out 5G on its 600-MHz spectrum across every inch of the country. As companies like T-Mobile continue to deploy along that front, there will be a great opportunity for the tower industry,” Tantillo said.
There is a lot of talk about how technologies deployed on Citizens Broadband Radio Service (CBRS) frequencies will influence the in-building wireless world, Tantillo said, along with using CBRS outdoors to augment mobile network coverage in rural areas.
An evolution in television involving the roll-out of a new broadcasting standard, ATSC 3.0, uses advanced transmission and coding techniques for video and audio to deliver new services to viewers. Tantillo said it will have an effect on the tower business, but to what extent is not clear. He said Vertical Bridge owns the largest portfolio of broadcast towers, and that American Tower has a large broadcast tower portfolio, too.
The question of who will pay for the millions of in-building wireless systems needed to provide the density of wireless access points that mobile network operators will need in the coming years remains to be answered, Tantillo said. He said that because 80 percent of a wireless carrier’s network traffic originates and terminates indoors, there will have to be some kind of shift in financing and ownership.
Uploading and downloading video accounts for much of the increase in network traffic. Tantillo said that when the networks begin to carry 4K video, augmented reality and virtual reality content, a revolution has to happen. “In the in-building wireless world, a large community says the landlords are going to pay for it — and they are,” he said. “Another community says there is no way the landlords are going to pay for it, because the ownership of the buildings turns over, and they don’t see any value to it. The solution will require a tussle and the outcome is unclear.”
In Tantillo’s view, the three or four major wireless carriers do not have enough money and will not have enough money to pay for all of the in-building wireless systems. He said that is where third parties such as Vertical Bridge and other towers owners come in.
“Where we have capital and opportunities, it’s our job to figure out what the solutions are,” Tantillo said. “There will be a tremendous amount of experimentation over the next two, three or four years until we start seeing how that fleshes out.”
On the Edge
With in-building wireless, Tantillo said he sees similarities with what is happening with data centers, edge computing and how content has to move to the edge of the network to make 5G wireless communications possible.
“We understand that network latency has to be reduced, but we do not know what the data centers will look like,” Tantillo said. “I have seen proposals from data centers at the edge designed to put 5,000 square feet of equipment at a cell site or another location, and that will be the data center on the edge. I have seen other proposals that say all that is necessary for edge computing is a rack that fits into a standard Ericsson or Nokia cabinet.”
Tantillo questioned whether many typical urban or suburban cell sites have 5,000 square feet, let alone that the space already is leased by the tower company, and whether there may be another 5,000 square feet adjacent an existing cell site or in close proximity to it. “How many edge computing facilities will be necessary?” he wondered.
Edge computing will be highly transactional, Tantillo said. By way of example, he said that the edge may house the top five Netflix movies and TV shows, and everything else has the same demand. “It is still too early to tell what the landscape is going to look like,” he said. “But it is an exciting time to be involved and to help to craft that landscape.”
Despite the 5G talk, investment in LTE will see plenty of runway in 2019, which is leading to more new tower builds, tower executives say. T-Mobile is building coverage sites for its low-band 600 MHz and 700 MHz spectrum, and AT&T is contemplating a network improvement project as well as its FirstNet-related project. Both of which involve ample new sites, Alex Gellman, CEO, Vertical Bridge, told AGL eDigest.
“We are in a renaissance period for good old macrotowers in the next few years ahead of 5G,” Gellman said. “The reason I feel that way is we are seeing a lot of rings for new towers. The economics and speed of collocations is hard to beat, but there will be new builds as well.
Ron Bizick, CEO, Tarpon Towers, described the new-build business as “vibrant.” It is bringing good times to the independent tower companies.
“There are a lot more towers being built in the rural areas to fill out the white spaces, particularly for AT&T’s FirstNet,” he said. “We are seeing the other carriers build out their coverage, as well. We have targeted some rural areas where we think a second tenant is possible, but only a second tenant.”
With that said, carrier capital expenditures are a quarter-by quarter-question mark. In the first quarter of 2019, tower owners will be looking closely at the capex budgets of AT&T and Verizon after the Big Two pulled back on their spend toward the end of 2018. AT&T’s reduced capex came after the Time Warner deal closed and Verizon shaved $1 billion off its guidance after announcing 44,000 in layoffs last year. Additionally, Verizon had a $4.6B write down of Oath (Yahoo and AOL).
“They pushed capex out at the end of 2018. Was that a trend or a one-time occurrence?” Gellman said. “The layoffs and the write down may be a signal a greater focus on the network in the future.”
Last year’s big story, the Sprint/T-Mobile merger, is carrying over to this year. It was bad news for some tower companies, which saw Sprint business go away after the deal was announced. Gellman believes the quiet surrounding the deal is a portent for its blessing from the Department of Justice. In the long run, he believes the merger will be positive for the industry.
“Sprint has not spent on its network in a meaningful way for a number of years, while T-Mobile has been very aggressive,” he said. “A stronger, larger T-Mobile will be excellent for our industry. T-Mobile is solely focus on its network, while AT&T and Verizon have other places to put their capital and have sometimes invested elsewhere than in the network. If T-Mobile is the same size as AT&T, it will be more difficult for it to do that.”
Jennifer Fritzsche, senior analyst, Wells Fargo, believes the Sprint/T-Mobile merger will go through in the first half of 2019. “Our regulatory checks suggest that the DoJ/FCC approval process has been relatively drama-free thus far,” Fritzsche wrote in an Equity Research note. “We do, however, believe that T-Mobile will have to divest assets – most likely spectrum – to receive approval. The New T-Mobile plans to create a more scaled, viable competitor to AT&T and Verizon, and help turbocharge the carriers’ push to 5G.”
Towers Still a Wall Street Darling
Fritzsche has written that the towers will be remain a compelling investment for shareholders 2019, despite the possible Sprint/T-Mobile merger. Tower stocks beat the S&P index in 2018 (+4.9 percent vs. S&P -6.2 percent), and in 2017 (+40.4 percent vs. S&P +19.4 percent).
“Even with these recent moves, we believe towers will remain very topical in 2019,” Fritzsche wrote. “In our view, there exists a number of tangible catalysts (i.e., FirstNet, T-Mobile’s 600 MHz deployment, 5G densification efforts, edge computing, etc.), which should more than offset expected choppiness in international markets (particularly India) and impact from carrier M&A (namely Sprint and T-Mobile) in the short term.”
Carrier leasing activity, which has grown year over year in recent quarters, is expected to continue to increase in the coming 12 months, according to Fritzsche.
“There is much ‘naked spectrum’ that has yet to be deployed (600 MHz, FirstNet 700 MHz, AWS-3, WCS, 2.5 GHz, mmWave, etc.) – where towers will clearly play a role,” she wrote. “Most deployments are part of multi-year strategies designed by the carriers and complement what they plan to build for densification needs ahead of 5G technology rollouts.”