The tower industry: Heading to hype
The tower industry is trying to keep pace with the rest of the telecommunications industry. That is to say, the tower industry has gone a little nuts. With skyrocketing prices, overnight experts and overheated financial markets, the tower industry is showing all of the hubris that other market segments have enjoyed and suffered.
About 15 years ago, I was talking with one of my clients when the subject came around to his tower. The structure, a 300-footer with a half-dozen sticks on it, was used to support the client’s community repeater business. He also had a few public safety tenants depending on the tower to serve the county.
I asked him what he was charging the public safety guys, and he told me the rent was about 75 bucks a month. This seemed pretty cheap to me, so I asked him where he came up with the rental rate. He couldn’t tell me. All I could think of was that he had a good piece of commercial real estate that was netting him about the cost of the gasoline for mowing the grass around the guy wires. That’s when I knew that the tower industry was screwy. It still is.
Over the years, I advised my clients to invest more in towers and sites. The rate of return was steady: high and getting higher. Attention was shifting to the unrecognized value of these metal giants, and with the advent of nationwide paging, cellular and PCS systems, the rents were keeping pace with increasing values. Some of my two-way clients are capturing more in “passive” income off of their towers than they ever made selling two-way equipment. The tower boom was on, and the sky was the limit.
NIMBYs and numbskulls It had to happen. Just when things are going along great, the job gets harder. First there were the NIMBYs, as in “Not In My Back Yard.” Towers are big and scary and ugly and look like they produce more electromagnetic energy than Chernobyl. Silly rumors about the health risks of radio operations began to circulate and gain speed with the bogus cellphone cancer scare. Next thing you know, you’ve got every tree-hugging, owl-kissing, crystal-gazing, earth-mother type talking about the dangers of radio towers. Bull.
We prepared a study in cooperation with a licensed, professional engineer who tests and designs RF equipment for a living. The study compared the level of RF radiation that a person would receive from a 500W paging transmission (operated in direct line [main lobe], without blockage, at 100m) with the RF radiation that same person would receive operating household appliances. Guess what? June Cleaver’s being bombarded with more RF energy from the vacuum cleaner than from the paging transmitter. Add the TV, the blender, the PC and the automobile-and the Beaver’s cooked. Well, not really.
The truth is that NIMBYs don’t like towers because they ain’t pretty, and some of them blink at night. NIMBYs do want their cellphones. They want the efficiency and safety of fire and police communications. They just don’t want the tower. Now, there’s a realistic position.
So, sensing the pulse of America (read, “large carrier lobbying and contributions”) the feds passed the Telecom Act of 1996 that in essence says local governments cannot deny zoning based on RF emissions standards, as long as the tower meets the federal exposure standards (which didn’t exist when the law was passed). This set off a firestorm of protest from local governments that claimed that the feds had overstepped their bounds and were improperly usurping states’ rights.
Lines were drawn and the problem is still being negotiated. Recently, the FCC and some private associations created an arbitration board to resolve disputes. The fact that the board and its participants lack any legal authority to enforce its decision, unless the local government agrees, seems to have been ignored. But it makes for nice-nice window dressing. Sometimes the illusion of progress is the real goal.
‘Collocation’ and other buzzwords To create some sugarcoating for the medicine of carrier’s machinations forced down the gullet of local governments, the new buzzword “collocation” has come to the fore. Spearheaded by the Site Owners and Manager’s Association (SOMA), a wholly owned division of PCIA, tower owners are telling local governments “We’ve got a plan! We’ll try to hold down on the number of towers in your neighborhood by encouraging carriers to collocate on the same structure.” Anyone familiar with carpooling can understand this concept in a flash.
To kick off its collocation program, PCIA sent out a hip-deep pile of press releases and requests to the U.S. Department of Justice (DOJ) seeking “approval” of its program. PCIA sought a DOJ decision on whether encouraging collocation of carriers on sites violated antitrust laws. My conversation with a guy at DOJ who worked on this case suggested that he couldn’t understand why the question was even asked, but he was doing his job.
One can easily deduce the reason for the DOJ’s reaction to PCIA’s request and why approval was a foregone conclusion. Companies “collocate” all the time in office buildings. Why not on towers? The question was silly and the approval was meaningless. So why’d PCIA even ask?
PCIA got about 50 stories out of the trade publications about its seeking approval, fighting for approval, getting approval and acting on its approval. It created something called the “collocation clearinghouse,” which presumably is cooler than the old, moribund SOMA Web site. Now, SOMA members and others are being asked to pony up a bunch of dough to list sites on the new collocation Internet site, which is more complicated to master than a Rubik’s Cube and far less satisfying.
The whole affair smacks of a gimmick to increase membership in SOMA and make money off the GENUINE, OFFICIALLY APPROVED, ALL-NEW Web site. But then, I guess I’m just overly sensitive about an association that uses the DOJ like a rock star giving testimonials about pantyhose. DOJ didn’t say the idea had merit, only that it didn’t violate any laws.
Consolidation nation And with success comes consolidation. The big, BIG money guys have awakened to the potential of towers, bringing their investment bankers, CFOs, IPOs, and Armani-suited mentality to the industry. Towers are being bought in bunches at N times cash flow adjusted for amortized debt and earnings ratio over cost per pre-tax payment on a lightning arrester.
You always know when the institutional investors get into the act. The advertising changes. Instead of leasing space, they’re selling image. Check out the ads. Instead of the ads telling you where the tower is and how tall it is, the ads tell you that the company is the biggest or fastest or that the company “feels” your siting needs. Nowhere in the copy does it simply tell you about the product: tower space.
I’ve examined the financials of some of these artsy advertisers. They’re buying towers. They’re selling stock. They’re creating terrific financial vehicles to tantalize Wall Street with expected earnings. What they aren’t doing is leasing space and getting the earnings necessary to support their companies. Once again, these financial whiz kids are great at making a company big, but can’t be bothered with making the company truly profitable.
A word to these would-be world-beaters in the tower industry: Don’t forget that Wall Street severely punishes those companies that year-in and year-out speak only about cash flow and cannot show positive earnings. Learn from the paging industry. Wall Street is not a patient investor and two years of negative earnings will guarantee a stock price that is about the same as the cost of a McDonald’s Happy Meal.
On the whole, however, the tower industry is quite healthy. Expectations are running a bit high, and demand for space will not reach expectations, leaving some of the players chasing debt service. But the industry is solid-as long as people avoid the hype, the gimmicks and the blue sky, and do the job of building and leasing sites. There simply are no shortcuts.
