mid dle man (m d l-m n ) n. 1. A trader who buys from producers and sells to retailers or consumers. 2. An intermediary; a go-between

Transcription

1 Do Local Jurisdictions Really Need A Middleman? mid dle man (m d l-m n ) n. 1. A trader who buys from producers and sells to retailers or consumers. 2. An intermediary; a go-between by Mark Carney, Director of Development, Core Development Services When I look out on the wireless landscape I m always amused and amazed by the myriad of service companies and the niches they ve found for themselves. I spend some of my hour-long daily commute comparing and contrasting what I know about these companies and what they say their business plans looks like versus the way they really do business, what their corporate mottos are and what truths and falsehoods are revealed by their elevator statements. The companies that fail to live up to their values or work against them come and go in quickly. So let s put them aside and focus on the ones that seem to hang on for far too long. As far as I m concerned, one type of company that falls in that category is municipal wireless consultants or MWCs. If one were so inclined, one could also say the initials stand for Middleman Wireless Consultants. No rational business people would hang out their shingle without asking themselves a few basic questions. In the case of a wireless middleman, those questions would probably go something like this: Step One - Do local jurisdictions really need a middleman? Step Two How will the middleman get paid for his services? Step Three How does the jurisdiction benefit? Step Four Are you really an expert? The answers to those questions will lead you down one of two paths. One, you come to the conclusion that the wireless middleman business model is faulty and decide to allocate your resources elsewhere. Two, you come to the

2 conclusion that the wireless middleman business model may be faulty, but decide that smoke and mirrors is a profitable substitute for outstanding service. Am I being too harsh? Let s go back and take a closer look at each of the questions and answers. Do local jurisdictions really need a middleman? Is there a need for someone to connect wireless carriers with the jurisdictional landlords or JLs (cities, school districts, water districts, counties, etc.)? The answer to that is a definite No for several reasons. First, site acquisition companies are excellent at finding the right people to talk to no matter who owns the property. What about connecting the JLs with the carriers? It s true that many jurisdictional entities are fairly passive when it comes to marketing their sites and may need some marketing help. The MWCs argue that a JL s staff isn t qualified to negotiate real estate contracts with wireless companies and that they can do it more effectively. On its face, this argument may make sense. But look at it a little closer and it falls apart. The fact is that MWCs don t really remove the process from the JL. They don t, negotiate, design and then turn over a completed site lease. JL employees are involved throughout the process, so in the end, they really won t realize any significant employee time savings. Nearly every JL has completed previous wireless leases, so the old leases are typically used as templates and JL staff is extremely competent at negotiating all types of leases. It would be great if there was a single, universal jurisdictional template, but there isn t. Each JL is different and that eliminates the argument that a third party can be more effective or additive. Whether the carriers are negotiating directly with the JL or through the MWC, the JL staff is involved. The consultant is simply an additional layer in the process. Bottom line: JLs are thoroughly familiar with wireless telecommunication sites these days, they ve already negotiated and signed leases, they have a process and they don t appear to need a MWC.

3 How is the middlemen paid? In a word, handsomely, because MWCs have figured out two completely different and very profitable ways to dig deeper into a JL s pocket. First, they sell the JL a master plan. It s usually nothing more than a faux effort to demonstrate wireless competence that nets the JL a fancy-looking report that tells them what properties they own (as if they already didn t know). Sometimes, the MWC will even offer a free plan if it will help them close the deal. Second, the MWC takes a cut off the top of every lease they facilitate (a ten dollar word that s defined as getting in between the JL and the carrier). Sometimes this fee can be as high as 25% of the monthly rent FOR THE LIFE OF THE 25 YEAR LEASE. If the lease is $2000 per month, that s $6000 per year that goes straight into the WMC s pocket in the first year of the lease. With just a modest 3% annual escalator, that adds up $218, over the life of the agreement. Obviously, that s a lot of money for simply helping to negotiate a lease and manage a 3-4 month process. Sometimes the MWC decides that s not enough immediate income, so it capitalizes the lease. The revenue streams is packaged and sold on the open market, which gives the JL a hefty lump sum payout, but creates an awkward issue for the JL. They now have a partner in the lease that they don t know and have never met. The MWC is no longer involved, so who manages the lease for the next 25 years? What happens when the final lease expires? Some JLs have even been encouraged by their MWC to capitalize their own leases for pennies on the dollar. They trade a steady income stream for a one-time payment, but cede some control and lose a lot of future earnings in the process.

4 How does the jurisdiction benefit? Certainly, an experienced wireless leasing manager will acknowledge that every JL is an enigma, both from a legal perspective and a process perspective. Weaving an agreement through a JL requires quite a bit of talent, a bit of luck and more than a bit of persistence. If there were an expert who could help carriers understand JLs from a wireless perspective, translate their needs and help fast track a lease agreement, that would be a person who would deserve every penny of an expediting fee. Instead, MWCs typically create more problems for carriers and JLs than they solve. For example, I was representing a carrier that was working with a city that was represented by a MWC. The city made one unreasonable demand after another because their middleman assured them that carriers had agreed to these requests before and they were positive they would agree to them again. The negotiations finally failed, the site was not built and the city lost out on almost $800,000 in rent. It s possible, I suppose, that the MWC was simply representing the JL s interests to the best of its abilities. But understanding what carriers have agreed to is the past in only half the equation. The MWC must also balance that historic knowledge with today s reality. The unreasonable demands created a scenario in which the JLs properties could be tagged with an industry-wide label that says, Viable only if it is absolutely necessary and there are no other options. And on top of that, imagine how frustrating it is for a JL to pay a steep fee to a middleman only to have him make difficult negotiation even more difficult.

5 Are you really an expert? Who are these MWCs? Often, they are simply individuals from the wireless industry who switched sides of the table. They learned the industry from working for the wireless carriers and now seek to profit from them in another way. Unfortunately, all too often they interpret ad-hoc historic decisions as proof of future acceptance. Just because one carrier listened to one bad vendor and designed a $750,000 clock tower site, in the days of the cellular network boom, it should not be touted as an acceptable and reproducible design. The recession is national and global. The carriers cannot afford to build these types of sites today. Giving JLs false hope of massive capital contributions, exorbitant rent rates and intricate site designs simply keeps the JLs from gaining additional revenue. Based on my experience, the lack of MWC knowledge is not limited to understanding the wireless economic topography. It also extends to far more mundane areas. If you are going to represent a JL you d better be an expert on their processes, procedures and leases. I ve too often seen carriers led down the wrong path by MWCs, causing unnecessary friction, missed timelines and frustration. My experience tells me that MWC sites cost more to build, the lease rates creep higher and negotiations slow to a crawl. As Einstein pointed out, Any intelligent fool can make things bigger and more complex. It takes a touch of genius and a lot of courage to move in the opposite direction. How MWCs can serve their clients and save themselves There may be a place for a middleman in this process, but a different type of middleman, a different type of MWC. Carriers are pushing deeper into the surrounding communities eager to provide the coverage and services that the community needs. Preferred sites

6 are becoming parks, schools and other public properties located in or near neighborhoods. The JLs are clamoring for new income streams and new ways to attract or keep residents. More often than not, the new residents are young families that have lived without the tether of a landline based phone. Ask them to buy a home or open a business in a wireless unfriendly community and you ll hear a resounding, No, thanks! So, there is a valuable product to sell with producer and consumer being forced together by the constituents that they both serve. If, and that s a big if, a middleman is going to survive in this environment, then current and future MWCs need to change the way they answer the four questions above. No one asked, but here s the way I think they should answer them: Step One Start marketing the JL-owned sites to the carriers. Passive marketing (waiting for the carriers to approach you) is insufficient for your client. Help them create a streamlined procedure and eliminate wireless unfriendly terms from their code. Speed to market serves the JL and the carrier. Step Two Take a one-time fee or an hourly rate and leave the income streams alone. You ll make up the loss in individual site earnings with volume. The JLs need all the money they can get right now and high rent rates (caused by adding in your 25% fee) are a primary reason carriers are walking away from public properties. Quit selling master plans. Step Three Work with the wireless carriers and the JLs to develop a win/win lease that doesn t have to be reinvented with each proposed site. Prepare a simple process chart with agreed upon timelines for you and the JL Staff. Help move the sites forward when the projects bog down in the bureaucracy and stop being the reason a site bogs down. Step Four Become the expert you ve always claimed to be. Manage your JL properties like a tower company manages its assets. Drive the carriers to your sites, not away. Bring your clients more income and help bridge the gap between wireless providers and the JLs. Considering that both entities serve the same people and need each other, you should have a fairly profitable business model. If you don t make these changes sooner rather than later, the JLs will come to the same conclusion as I have and simply eliminate the middleman.