Doug Dimitroff, Partner, and David Bronston, Special Counsel, at Phillips Lytle, a full-service law firm, are bullish on the future of wireless infrastructure. The two telecom industry veterans spoke with Inside Towers about the events and trends that made up 2021 in the telecom world.
The latest trip around the sun has been marked by the continued influx of capital into the telecom infrastructure market from both private equity and public sources, according to Dimitroff. Telecom infrastructure, including towers, fiber networks and data centers, made up 35 percent of private equity deals in 2020, according to Preqin, and it is expected to be more this year. For example, in November, KKR, a New York-based private equity firm, bid $12 billion to buy Telecom Italia, Italy’s largest telecom operator, according to the Economist.
And the second influx is the federal dollars. Outside of the $65 billion earmarked for broadband in President Biden’s infrastructure legislation, the FCC has been busy on its own. It authorized more than $700 million in the fourth round of the Rural Digital Opportunity Fund, according to the National Law Review. Money was awarded to 50 broadband providers that will serve more than 400,000 locations in 26 states. Combined with the three prior funding waves, the Commission has authorized more than $1.7 billion.
The carriers’ capex budget is still the biggest driver of telecom infrastructure buildout, with three straight years of increasing numbers. More than $30 billion was spent in 2020 on all types of infrastructure in urban and rural settings, which is expected to grow to $34.6 billion in 2021, Bronston noted, while the federal broadband dollars will be very focused on unserved and underserved populations in each state.
“In terms of how the carriers spend their capex dollars, we’re seeing some overhang from the spectrum auctions and AT&T’s Warner Media purchase and sale, but there’s still a significant amount of money being spent on capex, including 5G capex,” Bronston said.
The result of the influx of additional federal capital is it leverages the cost of capital that, ultimately, the third-party infrastructure providers need in order to build fiber and wireless infrastructure, according to Dimitroff.
“The federal dollars are really reducing the costs of deployment because these grants are directing money at rural areas, which economically didn’t make sense to date to build out telecom infrastructure,” Dimitroff said.
A carrier doesn’t build out a network alone, and in 2021 the industry saw DISH sign a flurry of agreements with other companies that will be critical to its infrastructure. DISH announced agreements with all the major and some minor tower companies and several fiber vendors. It was also busy shopping for vendors, reaching agreements with a laundry list of companies from Microelectronics Technology Inc., AT&T and Oracle to Dell Technologies, Amazon Web Services and Altiostar.
Not to mention that DISH is already deploying equipment in many markets, with its first network in Las Vegas in beta mode. The carrier has begun construction in 42 markets, and its annual capex is estimated to be $1.6 billion. “In spite of the challenge of both labor and supply chain shortages,” Bronston said, “the potential is enormous for the infrastructure business. If you need 20 percent of nationwide coverage by 2022, that’s going to be a lot of deployment as well.”
It will take time before consumers can access the speeds and latency of true 5G, because of the time and expense to fully build out the 5G infrastructure, according to Dimitroff. But there have been signs of progress in the deployment of private 5G networks in enterprises, particularly industrial complexes. For example, several German automakers began testing 5G for Industry 4.0 applications in 2021, including Porsche, Mercedes-Benz and Audi. 5G is now in the Sandvik underground test mine in Finland, and it is connecting the Belgian North Sea wind farms.
“From the consumer perspective, 5G needs to continue to evolve to a greater degree,” Dimitroff said. “For the commercial user, there still needs to be use cases put together, but that’s advancing from my perspective. So, we’re getting closer.”
In terms of the impact of municipal ordinances and public opposition on the 5G rollout, Bronston said the shot clock has been successful at influencing local governments, and the pandemic may have reduced that opposition, enhancing popular support for connectivity.
Dimitroff, who was the chair of the committee to write model municipal codes of FCC’s Broadband Deployment Advisory Committee, was less sanguine about the zoning and permitting process. “There are still many areas that are stunting deployment,” he said. “It’s a mix of things, but it’s usually residents that have concerns about, frankly, health effects and aesthetics concerns in certain cases.”
Dimitroff expressed frustration with trying to get approvals for communications sites from communities that don’t seem to be willing to work with carriers on enhancing wireless coverage. “In that respect, some of the deployment is not being rolled out quickly enough,” he said. “But there are other municipalities that have figured out that wireless can be incredibly valuable for people’s day-to-day livelihoods, and even life and safety. So, it’s certainly better.”
Bronston noted that Phillips Lytle saw a lot of activity in the in-building wireless market in the last year, even though the office building market is still recovering from the COVID-19 quarantines that dominated 2020. The DAS business model continues to evolve, expanding from neutral host-funded and carrier-funded to include property owner-funded, according to Bronston.
“The building owner is really seeing the benefit and the need for this coverage,” Bronston said. “Even during the pandemic, without as many people in the buildings, we were still seeing a lot of activity, particularly in greenfield wireless infrastructure.” He cited Crown Castle International’s partnering with New York City-based Rudin Management on a Citizens Broadband Radio Service deployment at 345 Park Avenue as a bellwether for future in-building wireless systems at multi-tenant commercial office buildings.
The fiber space was very active for Phillips Lytle during 2021, Bronston said. New York City, once again, signed an Information Services Agreement with 12 different fiber providers, and Phillips Lytle began representing a company that is looking at fiber to the home. In October, formerly bankrupt Frontier Communications Holdings, LLC announced its intention to raise $1 billion to fund its fiber build.
“There’s a lot of private money looking for the next big thing,” Bronston said. “There’s a belief that there’s an opportunity to take on the cable companies and other internet service providers in certain areas where they are not doing a great job.” Next year, there will be more M&A activity in the fiber market, he added.
For more information about Phillips Lytle’s Telecommunications Practice, visit https://phillipslytle.com/practice-area/telecommunications/.