Disruption has made its way to in-building wireless leases – meaning cellular voice and data, not WiFi. Unlike most industry disruptions, there are upsides for all the players involved, including property owners, tenants, carriers, and third parties. Rather than a change to the technology itself (although that is starting to evolve as well), the key to this industry disruption is the evolving business model.
Traditionally, carriers (such as AT&T, Verizon, T-Mobile, etc.) wishing to increase their coverage or capacity inside a property would approach property owners about installing an in-building distributed antenna system (DAS). If they could agree on rent and other lease terms, the carrier would then install the DAS – or partner with a third party operator to own and manage the system. In addition, the carrier may have subleased this wireless coverage to their competitors for a fee, which they may or may not have shared with the property owner (an optional part of most lease agreements).
Think about this scenario for a moment in a different context. Say you have a house that has no plumbing and no electrical wiring. Regardless of whether the house was historic or brand new, you would have no running water and no electricity. Would you expect your local electricity and water providers to come out and install all the plumbing and electrical wiring for free? Would you also expect these utility providers to pay you – every year – for the luxury of having this modern-day convenience in your home? Of course not. Installing these key infrastructure elements and paying for the ongoing services would be fully your responsibility.
A similar shift is beginning to take place for in-building wireless coverage. Wireless carriers are becoming less and less willing to pay for all of the costs and management associated with an in-building DAS. It was a nice deal for property owners while it lasted, but we can’t exactly blame the carriers. If you think of wireless coverage just like any other utility, it makes sense for this responsibility to lie with the property owner.
“We’re seeing a transition where tenants are viewing wireless coverage more as a required utility rather than an amenity,” says Maxwell Ellerhorst, a managing director for Trimont Real Estate Advisors, a worldwide provider of asset management, servicing, due diligence, and other commercial real estate solutions. “Taking responsibility for their building’s wireless coverage allows property owners to preserve or even increase the value of their real estate asset. As properties are developed and infrastructure evolved, public connectivity grows with it.”
Luckily for property owners, the shift involves a compromise to help ease the financial burden and technological hurdles. Third-party companies have stepped in to save the day. They have the capabilities to install distributed antenna systems for the benefit of the property’s tenants and visitors. Typically, these third party owner/operators pay some or all of the upfront capital costs to install the system. In exchange, the operator gains the exclusive right to lease the wireless capacity to carriers. This shift hasn’t increased rental prices for tenants – and isn’t expected to cause rental increases down the road unless the overall model goes in a different direction. In fact, most industry observers predict the overall cost of in-building systems will decrease as new technologies are perfected and adopted.
“Simply having WiFi throughout your building is not a solution,” says Dan Harkness, president of Quantum Wireless, a nationwide commercial wireless solutions provider that owns and operates DAS networks. “Commercial real estate owners and managers know that they will lose tenants if they have poor cellular coverage, and WiFi alone cannot handle the capacity needs in most high-volume locations. Increasingly, we are seeing a shift towards property owners taking responsibility for funding their own in-building systems, or working with a third party like Quantum to offset the cost of a solution.”.”
Under the new model, everybody wins. The property owner avoids the significant upfront capital costs, gains a necessary utility/amenity, and improves the property’s value and marketability. Building tenants and visitors can use their smartphones just like they’d expect to. Meanwhile, the third party operators profit from leasing access to the system. The carriers eliminate the hassle of negotiating tons of individual rent contracts and managing loads of DAS installations and maintenance. Unlike many industry disruptions, there’s really not a downside for any of the players here.
Need help negotiating your wireless infrastructure contracts?
During the transition of wireless coverage from amenity to utility, one thing hasn’t changed: the necessity of strong, well-written contracts. Whether you’re a property owner, third party operator, or a wireless carrier, InTown Legal is prepared to bring our expertise to the table for you. We provide agile, creative solutions to solve your legal needs at the speed of business.
