As mobile networks are evolving to become increasingly complex and critical to daily life, so too are the lives of those responsible for securing and managing the physical space that cell sites operate from. Dealing with the burdens of the pandemic, managing the challenges posed by lease aggregators and learning to work with a new kind of landlord on a much bigger scale are just some of the challenges facing property managers and site acquisition teams.
Local government landlords
As requirements for more and more sites in busy metropolitan areas increases, towercos are working more closely with local governments. Using existing street furniture such as lamp-poles and traffic lights offers benefits in terms of reducing required investments in poles and power connections. But it also means moving away from the norm of renting space from private landlords.
Local governments and municipalities are more likely to be familiar with leasing space to the private sector, which means approaching and contacting them is a simpler process.
Other benefits include the guarantee of fair or even heavily subsidised lease rates. In the US for example legislation and lobbying on the part of MNOs ensured access to public ROWs at rates 1/6th to 1/8th of rates they were able to negotiate bilaterally. Lobbying an unorganised body of private landlords would have never yielded the same results.
Once sites are secured, lease conditions are also standardised if an entity deploying infrastructure can agree to deploy the hundreds of sites needed in urban locations with a single landlord. This simplifies rent payments and contract management compared to working with individual landlords across the same area.
The downside of course is that once initial contact has been made, the bureaucracy involved with getting a site online is significant. With the time sensitive nature of next generation network rollouts, working with private, smaller businesses with little or no red tape will yield the best results for towercos and MNOs in terms of getting a site online quickly. It’s a matter of achieving scale that makes local government more appealing.
The effects of the pandemic
Local governments must also contend more with public opinion. Misinformation on the connection between telecom infrastructure and the Covid-19 pandemic is rife in certain locations in the world and while virtually all governments authorities know these claims hold no grounds, they still have to entertain complaints. Enquiries and canvassing the local population for their views on a site leads to further delays.
Private landlords on the other hand can be a bit more resistant to local opinion and while both parties must still deal with enquiries during the permitting process backlash is less severe.
Towercos and MNOs themselves are working hard with community outreach projects to dispel these myths. Property managers in South Africa reported that complaints of this nature were far more likely in more affluent urban areas, where good connectivity had already been established. In poorer connected areas, the tower was generally well received by the local population, so efforts have been focused on these areas.
The pandemic has also caused delays in site approvals. Back-logs in less organised regulators, or those whose workflows were more severely disrupted by stay-at-home orders were severe and are still being sorted through now.
Working with permitting departments
Property managers are also spending time building relationships with and educating government departments responsible for permits. While they might have experience with leasing, knowledge of future telecom networks is understandably limited.
Permitters are used to approving macro tower sites and rooftops. The increased density of 5G network infrastructure dictates that far more sites of a smaller nature be agreed in any given urban area. At the early stages of network development, towercos and MNOs are reporting they are facing objections from permitters on these grounds.
Working with these teams to help them understand why so many sites are required as early as possible is essential to prevent delays.
Work is also ongoing among towercos to try and establish common workflows and procedures across a whole country. In Indonesia for example, towercos are frustrated that the process for securing a site is decided by a local government permitting agency, but each agency has their own way of doing things. This creates unnecessarily complex workflow management for the towerco and once again can lead to delays.
Are lease aggregators becoming more prominent and assertive?
A growing challenge for towercos is the threat posed by lease aggregators. A lease aggregator is a company that purchases ground lease agreements from landlords and typically aggressively increases the rent that the towerco pays to maintain access to the sites. Lease aggregators have bargaining power that individual landlords do not in the sense that the risk to the towerco is binary – either they pay the increased rent or risk losing access to several sites – a terrible outcome for their clients. For the lease aggregator, the lease is hedged by hundreds or thousands of other leases in their portfolio.
The best way to mitigate the threat of lease aggregators is to maintain strong relationships with landlords and understand why they would be interested in selling their lease in the first place, which include access to immediate liquidity rather than regular rent payments or plans to sell a property. Most parties buying real estate are ill-equipped to value and purchase a telecom lease in combination with the existing property, so often the lease is sold separately.
Being aware of these needs as a towerco and making sure that the landowner comes to you first is crucial.
A less cynical take on lease aggregators is that they offer towercos an opportunity to specialise in the steel and power elements of passive infrastructure, and leave the property side of things to a third party. In the same way that leasing multiple sites from a local government offers value to a towerco in terms of standardising agreements and negotiating with a single party, the same benefits could be extended to a lease aggregator.
How do ground leases fit into SLB deals?
MNOs and towercos will place different importance on ground leases. For an MNO, as long as they have access to the site to service passive and active equipment, clauses that prohibit co-locations or exclusivity rights that prohibit the landlord leasing space to another tower operator are non-essential.
For towercos, the efficacy of a lease is central to their core business and their ability to raise capital will depend on the value of said leases. Most towercos required that a ground lease has a certain term or require that the lease is renewed prior to a site being transferred from an MNO to the towerco, so they can review and renegotiate.
For a towerco – a clause that prohibits co-locations would clearly be in direct contrast to the intentions of the towerco acquiring the site. Recent trends in ground leases have seen exclusivity clauses triggered by towercos that have lost business to a competitor building a tower on the same land and offering MNOs cheaper rent to mover their base station a few hundred feet.
As such, if an MNO is considering a tower sale and leaseback in coming years, it should consider ensuring that when leases are renewed they are renewed on terms that would be acceptable to towercos such that as many sites as possible can be transferred over to the towercos at the first closing of the transaction. One practical step that an MNO can take prior to commencing a sale and leaseback transaction is to have a full site list which shows, amongst other things, the number of years left on a ground lease, whether the landlord’s consent to transfer ownership is required and whether it restricts co-locations.
This year, TowerXchange Meetup Asia will deep dive into permitting, lease management and the growing trend of lease aggregators in a series of interactive roundtable discussions. To discuss these issues and share your own thoughts, make sure you register today.
