Communication services take off for 2000 {rooftop revenue}

Making, or answering, a cellular phone call is something most people take for granted. If the connection is easily established, they don't think anymore about it. If it is poor, they usually just blame the phone provider, the phone itself or static. But what's really behind the wondrous capability of using this technology is much more complicated, and quite lucrative.

Less than two decades ago, it was rare to see someone with a cellular phone in hand walking down a street, in a restaurant - or anywhere for that matter - unless it was a businessman or a government agent. Likewise, yesterday's cellular users had few service options and limited numbers of telecommunications providers to choose from. Today, cellular usage is a common convenience that people of all ages and backgrounds have heartily embraced, whether they have chosen the more conventional analog cellular systems or the latest pcs digital technology.

The state of the industry Today, telecommunications in this country alone is a billion-dollar industry. A combination of factors has allowed for a boom in cell phone usage just these past four or five years. Advances in technology, lower rates, increase in demand and newer carriers all play a part. Through it all, though, one main factor is deemed significant in helping spur the growth of cellular technology - the use of commercial rooftops to allow installation of the necessary equipment to bring users a full range of communication services.

Key to bringing together the owners of these buildings with the numerous telecom carriers are companies that specialize in site management. That is, companies that basically broker deals between the potential sides involved and provide an array of services that give peace of mind to both building owners and carrier representatives.

Professionals in a site management company usually have a background in real estate. They may manage clients from a local to a national level - from one client to a whole portfolio. They market the idea of leasing rooftops, promote the potential financial rewards, broker the deal, take care of the leasing arrangement, help in preparing the site for the telecom company, and continue tracking the progress of the deal throughout the duration of the lease.

Yet, not all telecom carriers need the services of a site management company. And not every rooftop is necessarily a viable rooftop. But in an increasingly crowded field, a site management company can provide an interested real estate owner with guidance to learn more about options in the telecom industry.

Real estate owner advice "We lend support to the real estate owner to, No. 1, effectively manage the telecom equipment located on their rooftops but, more importantly, to provide a consistent revenue stream to those owners," explains John Paleski, president of Old Bridge, N.J.-based Subcarrier Communications. The importance of this revenue, adds the executive, goes beyond what the parties may pocket. "That reliable stream of income is important because a lot of lend ing institutions require a predictable revenue stream in order to underwrite proper loan amounts."

Subcarrier Communications began operations some 15 years ago, truly what amounts to ages in the rapidly changing technological world. The site management firm strives to develop tower sites specific to carrier requirements, offers co-location leasing programs, and manages, markets and designs solutions to increase revenue for tower and rooftop users.

"Few rooftop companies have been in the business longer than we have," Paleski continues. "When we started, the industry was fairly new. There were few paging companies and data companies. And there were a host of problems with these companies because they would be unreliable or simply pick up and leave. The problems would not be addressed because the rooftop users amounted to a very small percentage of the owners' overall revenue."

This created an attitude where owners never really paid much attention to the revenue generated on their rooftops, and they would sacrifice the rooftop user whenever they had to make changes. "Like knocking them off the air, just because they were paying only a few hundred dollars a month," says Paleski.

The rooftop tenant was not esteemed in the same way as an inside-building tenant. If the power went out, for example, sometimes landlords would be somewhat lax about allowing the companies access to come in and reset the breakers. The essence of the business back then was a growing list of management items that had to be dealt with in order to take the revenue stream and make it reliable and dependable.

And that's where the site management companies came in. "When cellular phones rolled out a dozen years or so ago, you had maybe two providers in each market," says John O'Donnell, president of RTE Group. The Boston-based consulting firm specializes in telecommunications issues that affect real estate, as well as real estate issues affected by telecommunications.

"Over the past two to three years, however, with the influx of pcs providers, there may be as many as eight providers in a market," continues O'Donnell. "And in order for these companies to build a network, they all need sites. In general, what most of them are doing is expanding the range of coverage to suburban areas that are further out because most already have networks up."

O'Donnell adds that RTE Group not only focuses on rooftop issues, but on all the telecommunications issues that may affect a building.

"Rooftop revenue is just a single element of the telecommunications infrastructure," continues O'Donnell. "And that applies to any building, whether it's industrial, office or retail."

Different kinds of buildings, then, allow for different kinds of possibilities.

"Because of the nature of the tenants in a retail mall, say, vs. those in an office building, it just creates different dynamics for the providers," explains O'Donnell. "Malls can have an advantage in that they enjoy a lot of vehicular or pedestrian traffic. With office buildings, it depends on urban or suburban situations. Depending on usage, there may be a site every five miles."

Ironically, even though they may have a large traffic population, many mall owners only provide the most basic technology available to allow shoppers better service on their phones. Thus, newer technologies, such as the so-called wireless local loop, are unlikely to find their way into retail centers unless the center has a tenant that's a significant data user.

As such, it is part of the site management company's responsibility to reach these property owners and convince them of the benefits of implementing new technologies. And although demand is not as intense as it was two or three years ago, when everyone seemed to jump on the bandwagon of building networks, it is still significant.

New technologies equal opportunities "Once they understand the services we are providing, property owners can begin to recognize the existing opportunities," says Bud Blinick, senior vice president for site development at Chicago's US RealTel. "Retail properties offer opportunities for cellular, pcs carriers, special mobilized radio, two-way radio and a host of different services. What is unique about all this is that it keeps changing. New companies and new technologies are coming out constantly, creating new opportunities for the property owner."

US RealTel, founded just two years ago, seeks to do just that with its clients. The company acts as a nationwide landlord of telecommunications sites. It provides, for example, the types of documentation property owners need and the kinds of leases that suit them best.

"Our approach is to master lease the telecom companies," Blinick continues. The company master leases, with the building owner, the right to place equipment in the property and markets those rights to the telecom carriers. Revenue comes from the rent paid by the telecom carriers, with a percentage of the profits going to the real estate owner.

In the early stages of the industry, Blinick remembers, many property owners didn't really know what they were doing. Real estate companies would bring sites to the telecom companies, but there would be no one representing the owners. For example, owners didn't know they had the ability to control what monopoles - antennas deployed on the tops of buildings - would look like. Now, says Blinick, "Owners are a bit more savvy and demand that installations be hidden a bit better. As a result, the equipment has gotten smaller and more attractive."

"Inside malls, with the equipment telecoms deploy, you don't even know it's there," Blinick adds.

More on telecom and the mall Actually, for malls, the transmitting equipment - particularly for digital phone cellular services - can go either on the rooftop or inside the building. Most, however, are found inside in the way of microcells, which are small installations. In terms of the exterior, due to height, many shopping centers opt not to use outdoor devices.

"There are a number of malls that are located on a high piece of ground or in major metropolitan areas with a lot of traffic, and they do employ exterior installations," interjects Todd Lewers, vice-president of Apex Site Management, near Philadelphia.

"Sometimes a taller building in an area will handle the type of traffic carriers need to cover," Lewers maintains. "But in order to transmit efficiently, they will do so at lower levels - such as a three-story building instead of a 20-story building. Remember that what you want to cover is the people inside the mall and the parking areas."

Microcells came to solve the problems carriers faced when they went to shopping centers, promoted their products but discovered that, because they didn't have a site nearby or the necessary technology inside the mall, communications were impaired. Antennas in buildings nearby only handled a certain capacity of calls, exceeded by the too-successful push of products by the telecom carriers.

"The carriers were so successful in selling their phones and their services that the existing installations in those areas couldn't deal with them," recalls Lewers.

Still, with all the growth and opportunities available, you'd think most of the population of the country would be hooked on cellular or pcs systems. At this point, however, only 25% use the technologies available.

Telecom abundance abroad "In Europe the percentages are bigger," says Lewers. "European telecommunications don't have the type of wired infrastructure that the United States has. They have had to go wireless to build their telecommunications systems. In places like Finland (home of Nokia phones), more than 60% of the population uses cell phones."

And it is not only that they use them, but also how they use them that puts them ahead of the American market. Overseas, people access the Internet, as well as data and texts, via their cell phones. Due to different needs, even less-developed nations are ahead in the game.

"You'll find that in many of these countries, it was easier to erect cell towers and expand on mobile and cell communications than to work in string and copper lines," Paleski says. "It was easier to receive rights of way and, in a lot of cases, string and copper turned out to be a very poor decision because individuals would cut the copper lines and sell them. It is easier to erect cell towers. They can be fenced in and not as many towers are needed. It's a much more cost-effective way."

American carriers, meanwhile, underestimated how quickly the market here would grow. Which sounds like good news, until you realize there are not that many sites around that could fulfill all the necessary requirements. Hence, the ever-increasing role of the site management companies in finding and securing these sites.

Dealing with risks Risk-free, though, this industry is not.

"Local zoning and public perception are probably the two biggest problems the wireless industry currently faces," says Brian Powers, vice-president of acquisitions and engineering for Iselin, N.J.-based AAT Communications Corp., a site provider for the wireless industry. AAT has more than 40 years in the business and is a true pioneer in locating and licensing prime antenna sites to the radio communications business. AAT is also a constructor of towers, tower networks and site facilities.

As Powers adds, "In local zoning, you can't place any antennas on a rooftop in a certain type of district. And public perception can be a deterrent. Sometimes people believe that the placement of antennas in their neighborhood could create a health concern or could devalue real estate. These are common misconceptions. In actuality, these technologies enhance real estate values."

Powers believes both issues can be tackled honestly and successfully. In dealing with zoning requirements, there are lots of ways antennas can be camouflaged and blended into the environment. "Most of the carriers are good at addressing those needs," he adds.

Regarding the public perception problems, these often stem from fear.

"Basically, it's fear of the unknown," Powers continues. "Most people aren't familiar with how these things work, and they have concerns about our operations. We look to the wireless carriers and our companies to help explain this to a level of satisfaction for the local folks. Clear, competent information is everyone's responsibility."

Whatever problems exist, however, most agree there is huge growth potential - maybe not as dramatic as a few years ago, but still quite good. New technologies and services are being offered to the general public, and the carriers understand the importance of reacting to local issues, needs and concerns.

"The industry will continue to grow," concurs Lewers. "We see a rapid pace over the next five years."

"I would be very cautious with the word 'boom,'" says Paleski. "But there will be steady progress. I think that as cell rates come down, which they have been, and cellular communications become more practical, they will be more popular. Again, this will dictate the need for more telecom sites. It's a self-perpetuating cycle."

A cycle that is good for everyone involved, the professionals agree.

"Owners can make use of space they never dreamed they could make money from - extra money as far as the owners are concerned," continues Paleski. "The telecoms sell their services and the sites are profitable for them. They can capture customers in each location where the real estate is, and we bring everything together and make it happen smoothly and effectively."

Elements of a solid deal Some of the aspects site management companies are on the lookout for to guarantee a smooth and effective transaction include:

* Making sure there is adequate space for the equipment that needs to go inside a facility

* Having enough power to sup- port the carrier's electricity use

* Creating ways to market the real estate, and identifying the carriers with licenses in and around those areas

Most transactions have five-year terms attached to them. The carriers are the ones investing all the capital, so they want longer spans. Thus, the arrangements actually are license agreements more than tenant-type leases.Inves tments vary, because most buildings are different. Each time a carrier goes to a new site, it is not uncommon to find completely unique conditions. And when you add up the costs of architects, engineers, contractors, license fees and equipment costs, each installation is quite a significant investment - easily costing between $50,000 and $150,000. Monopoles in parking lots can be even costlier, due to zoning requirements and stealthing features that integrate them into the landscape.

The challenge ahead for the site management companies, say its proponents, is to go out there every day and convince owners of new opportunities. The trend now, for example, is toward bundled services where various features - dial tone, long distance, high-speed Internet connections, high-speed data transmission and even video conferencing - are all brought together under one umbrella.

In addition, cost efficiency will become a competitive advantage - one that won't be lost on property owners. More and more, these owners will realize what a smart investment it is to bundle services, giving a whole new meaning to the term "smart" building. O

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