05-25-2005 Council Agenda - Laserfiche WebLink

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05/17/2005 18:02 18776885933 PAGE 06 The Impact of Cellular Industry Consolidation ow A wave of consolidation and intense competition underway in the cellular telephone industry is bringing changes to cell site landlords that may not be widely understood. The recent merger between Cingular Wireless and AT &T Wireless Services that catapulted Cingular to the position of the nation's largest wireless carrier in 2004 also created thousands of redundant cell sites on the combined network. Additional consolidation is expected, including pending mergers of other carriers that have already been announced. At the same time, fierce competition has caused average revenue per user to plummet, forcing carriers to carefully manage and control costs. This document outlines the impact these changes may have on cell site landlords, including possible termination or rent reduction, as well as opportunities for prudent cell site landlords to better position themselves to maintain long -term revenue streams and take advantage of new opportunities as the wireless industry moves toward high -speed wireless Internet services and other new technologies. Cell Site Overview There are two major types of cell sites: tower sites, which are stand alone wireless access points that rent a portion of their capabilities to multiple wireless carriers, and non -tower sites, which lease a small amount of space on other business or government property to support a wireless access point, Throughout the country, thousands of non -tower cell sites are now located in industrial buildings, as well as on church, public park, school and city properties, bringing a steady monthly income to the landlords with minimal effort or inconvenience. A typical cellular site consists of a mobile telecommu- nications antenna and accompanying base station and access point equipment and wiring, In return for providing the space for this equipment, landlords receive a monthly rent. Each site has been selected by radio frequency (RF) engineers to achieve specific wireless network coverage objectives, and required an average of 18 months to bring on -line. Engineers spend an average of one to six months to identify a site that is lease -able, zone -able, and build -able. The next step, obtaining a conditional use permit, often takes six to nine months. Finally, the equipment build -out can take one to three months, for a total of up to a year and a half to bring a cellular access point online. Because of this lengthy and complex set -up process, a cell site has inherent value, even if it becomes redundant on a current wireless provider's network, as there may be other opportunities available with regional carriers or with other carriers bringing on high -speed wireless Internet services. Changing Cellular Landscape Cingular's purchase ofAT &1" Wireless Services for $47 billion (with debt), completes, in October 2004, was the first of several major mergers underway in the industry. In late 2004, the Wali Street Journal reported that third - largest carrier Sprint Corp. r€ ached a tentative agreement to purchase fifth largest Nextel Communications for $36 billion. This deal, expected t> be completed in 2005, would create a new Sprint /Nextel network with approxi- mately 35 million subscriber., compared with Cingular's 47 million and second- Iarges: Verizon Wireless' 42 million. The consolidation is continu ng with the announcement in January 2005 that Alltel, tl le sixth largest mobile operator, has agreed to buy Western Wireless, a smaller regional carrier, in a deal valu?d at approximately $6 billion. As a result, the once- fragme ited U,S. wireless market is now dominated by a handful of carriers, and there is widespread speculation in the industry about even further consolidation .i.e., T- Mobile .JSA may be next on the list. Figure 1. U.S. Cellular Market Consolidation GIngular /AT &T Wireless Verizon Wireless Sprint /Nextel 1111111111.11 35.4 million" T- Moblle USA 16.3 million Alitel/Western Wireless at 10 million* Sours= DOW Jones 'Goes nor Include land -lino customers.