(And How Do We Fix It?)
By: An Anonymous Contributor
First, Some History – Cellular started in the 1980s with two carriers. An A and a B block FCC license holder in various regions throughout the country. The A block was given its spectrum through an FCC lottery system. The B block license was granted to the largest wireline carrier in each region, typically one of the Baby Bell companies that resulted from the 1984 breakup of AT&T. Neither A nor B block license holders paid for their spectrum when cellular services began. The spectrum was granted free of charge. All the FCC was tasked to do was make sure it coordinated who got what so there wasn’t overlapping interference between other spectrum holders.
During the early days of cellular, tower contracting companies and the tower workforce came from other tower service sectors such as AM/FM/TV, Cable TV, Two-way Communications, and a variety of Point-to-Point Microwave users. Cellular was a new technology and a new opportunity for tower services. The marketplace for tower service contractors was still relatively small.
Telecommunications Act of 1996 – Once first-generation (1G) cellular technology started to gain traction, the federal government saw a great opportunity to both connect people wirelessly across long distances and generate revenue for the general fund. Senator Larry Pressler (R-SD) offered the perfect solution with a bill called the Telecommunications Act of 1996, which tasked the FCC with auctioning C through H block spectrum bands. Later that year and throughout the next several years, the new cellular companies started to build their networks. This is how 2G cellular technology began, bringing both voice and text to the evolution from bag phones to flip phones.
The tower services sector has now begun to grow. To quickly ramp up their significant spectrum investment, Mobile Network Operators (MNOs) handed out design/build contracts on a cost-plus basis to large, non-self-performing general contractors and original equipment manufacturers (OEMs). Small and medium-sized tower contractors began to thrive and grow, working for them. This is the same time NATE – The Communications Infrastructure Contractors Association got off to a strong start. This was also the time large-scale tower rental companies began to roll up smaller tower ownership groups, resulting in the big three publicly traded tower REITs, American Tower, Crown Castle, and SBA Communications (Towercos).
In the early days of cellular, tower service contractors were still wild-eyed cowboys. They free climbed without a 100% tie-off. They were able to ride the drum hoist load line to the top of the tower as their personal elevator to the workplace. Safety plans were basic, and there was a growing number of tower fatalities. Wireless Estimator would regularly remind the industry of the number of deaths, month by month and year by year. A couple of those early years, it was alarming how many, making our sector one of the most dangerous jobs in the USA.
NATE responded and took a strong position on elevating the industry by implementing better safety standards, improving safety equipment, educating its members on best practices, and initiating negotiations with government agencies such as OSHA for more effective and fair oversight. Soon thereafter, the number of fatalities began to drop dramatically. Thank you to NATE.
Smart Phones and 3G – By 2007, Apple introduced the iPhone and added internet access to our personal communications devices. The FCC found more spectrum to auction and a ton of money was pouring into the ecosystem. MNOs were seeing astronomical subscriber growth. Tower REITs were trading at record multiples, thanks to long-term master lease agreements and the addition of thousands of towers to their portfolios. The tower service sector was adding workers to keep up with the demand. By now, not only had businesspeople, moms, and dads acquired cellular phones, but kids were also carrying them in their pockets to high school. And later, middle school. You still couldn’t stream video without buffering, but your device was more intelligent than the computer that sent the first rocket to the moon, and included a very cool touch screen and built-in camera.
With subscriber growth during the 3G era, there was an increased demand for more spectrum so that MNOs could offer their users what they wanted: seamless streaming without buffering. Congress gave the FCC the right to find more available spectrum, and the government treasury was getting more and more flush with added cash.
Carrier Roll Up – But something more unsettling also started to occur. The cellular block-holders, A through H, started merging (here and here). Congress, the SEC, and the FCC were accommodating merger requests, and wireless phone competition began to shrink in most markets from eight options at its peak to six, then to four, and so on. It transferred more and more power into the hands of a few companies and began to reverse the AT&T breakup order of the Justice Department in 1984 by allowing the companies to roll back together. Not only were wireless carriers merging to join forces, but they were also bringing on board their wireline brothers as copper switched to fiber. This trend continues today with the proposed mergers of Verizon and Frontier, T-Mobile with US Cellular, and AT&T with Lumen.
By the time 4G began to roll out, the industry was in its heyday. Both densification of cell sites and coverage were at peak demand in the tower services sector. Towers went from 10 miles apart in flat, rural areas to less than seven miles apart. Urban and suburban towers have moved from being two miles apart to being one mile or even closer in densely urban areas. Technology was improving, and new antennas and radios were constantly evolving, demanding more tower touches per year than ever before. People waited for September of each year to learn what new bells and whistles the next generation iPhone would be offering and phones were being exchanged every two years as contracts expired. Towercos were buying up MNO tower assets and building more sites of their own. Interest rates were low, and the money for investment was plentiful.
With no more low-lying fruit to invest in new mobile network operators or towercos, investment money began to pour into the tower services sector. Equity fund managers, always eager for a new high-margin/high-demand sector, began rolling up tower service contractors and other telecom infrastructure service companies. Strategic buyers, not wanting to fall behind the equity-funded tower service company roll-ups, got into the play and began buying up small and mid-sized tower contracting companies. With big money pouring into the sector, competition became fierce. The largest tower service companies started scrambling for market share over profit. The name of the game was to tie up as much of the MNO’s capex dollars as you could. The focus was on revenue first, with profit coming later. The price per hour for tower services began to fall. Small and mid-sized independent contracting companies began to feel the squeeze on margins without the benefit of outside capital to bolster their balance sheets.
Race to 5G – In addition to all this activity, the government began to hype the race to 5G, emphasizing the importance of the United States outpacing China in rolling out fifth-generation wireless services, both for strategic and economic reasons. In advance of the 5G rollout, it was believed that the sector would grow dramatically, demanding even more tower workers. Trade schools responded by introducing tower technician training programs. NATE scrambled to add services for its members. Tower service companies, small and large, invested in growth. And even more outside capital began to pour into the sector through private and public equity.
However, something more troubling began to brew, which would harm the main street tower service contractors and their workforce for the next several years. The supply of tower crews began to outstrip demand. Prices continued to plunge for tower services. The billable price per hour for tower crews fell to a decade low, dragging hourly wages and salaries with it. MNOs saw blood in the water.
Their procurement teams began to capitalize on the regressive pricing, creating what became known as “matrix pricing”. In years past, carriers had asked tower service contractors to populate their spreadsheets, presumably so they could categorize where capital costs were allocated in the construction process. But whereas in the past the tower service contractors populated the fields based on site-specific conditions, now the spreadsheet was populated by the MNO procurement teams. At first, they asked for input from their local contractors, giving at least the impression of free market pricing. But later they learned they could put their preferred pricing into the spreadsheet themselves and offer it as take-it-or-leave-it. After all, they would remind the contractors, if they didn’t like the price, there were two or three others lined up behind them who would accept it.
For a while, tower contractors developed new methods to increase efficiency. However, they soon reached peak efficiency, and the regressive fixed pricing continued, resulting in margins that fell below a sustainable level. Then third-party outsourcing companies swooped in offering the MNOs to take over onboarding, vetting, accounts payable, safety and other services they had been managing in-house. Not only that, but they also sold the carriers on it being a no-brainer, as they would simply charge the tower contractors for the services they offered. The MNOs could reduce their expensive workforce by laying off people and transferring those services to third parties, which would be paid by their vendors, the tower contractors. Yet the fixed unit pricing on the matrix didn’t change to accommodate the extra costs.
Then came COVID, and with it double-digit, year-over-year inflation. The cost of operating a contracting company, including wages and overhead, increased dramatically. Yet the fixed pricing didn’t change. MNOs soon learned they could close their expensive regional warehouses and deliver their very expensive critical infrastructure to the tower contractors’ warehouse at no cost to them, allowing more downsizing of their operations by shifting costs and liability to the tower contractors. Yet the fixed pricing didn’t change. One year passed. Two years passed. Yet the fixed unit prices on the matrix still didn’t change. It was as if the MNOs had found their sweet spot many years earlier and had fixed it at that moment in time.
For a time, tower contractors held onto the jubilation of the 4G boom days, believing they would eventually return. After all, the equity-funded companies and large general contracting companies (often referred to as turf vendors because of their geographical or “turf” footprint) would eventually focus on profit instead of revenue, and price would eventually go up. That didn’t happen.
Recession of 2023/24 – The year 2023 brought a wide-scale pause in MNO capex spend, almost as if coordinated between the three carriers. Purchase orders were cancelled or paused. Previously delivered equipment in the tower contractors’ shops stood idly on the shelves. A large number of workers were laid off. The hype surrounding 5G, with all its revolutionary applications, turned out to be a disappointment. No use cases came to fruition. In fact, more complaints than ever began to arise that cell phone service had gone backward in quality. Some argued that 5G was never about amazing new use cases but rather the operational cost savings it offered the MNOs due to lower power consumption and programmable radios, limiting tower climbs. Cell phone customer growth flattened, and many contractors were in dire financial straits. Companies began to terminate their workforce and close their doors. Profits dropped to zero and below. Even one large publicly traded turf vendor declared bankruptcy.
During this period of low volume and abysmal profits a new problem entered the ecosystem. Large general contractors and midsized tower contractors began to turn to unqualified subcontracted tower crews to perform the work they couldn’t self-perform at the mandated low fixed pricing. An independent workforce (known as 1099 because they don’t do federal withholding or social security taxes or offer workers’ comp insurance, etc.) started springing up. Rogue, unqualified crews would take on the work at rates far below what qualified contractors who paid their employees using W2 wages could afford.
Technician certifications required by the MNOs were easily falsified. Social media sites were filled with “have crew, will travel” offers for non-credentialed, sometimes foreign, and undocumented workers, willing to build cell sites for far less than main-street tower contractors with qualified crews could afford. When legitimate tower contracting companies would bring this to the attention of their local market MNO leaders or national procurement teams, they were told to get back in their lane or risk never being offered any work in the future. In other words, the MNOs were taking advantage of their years-earlier locked-in pricing, even if it meant employing a workforce that would never meet the standards to which they held their legitimate contractors. The turf vendors and original equipment manufacturers (OEMs) were taking advantage of the ecosystem and not holding their subcontractors to the standards to which their master service agreements obligated them. The system was sick and rife for change.
In late 2024, a widely read letter to the editor was published in Wireless Estimator outlining all that was wrong with the tower services industry. NATE released a letter of its own warning that, without change, the industry was risking collapse. Then, a petition to FCC Chairman Brendan Carr asking industry stakeholders to make their voices heard was circulated. Industry representatives far and wide began to call on the MNOs to come to the table and make things right.
Situation Today – Which brings us to today. A new US President has entered the Whitehouse. A President that is advocating for the middle class, the working class, or as his Secretary of the Treasury calls it, Main Street over Wall Street. The President has named an FCC chairman who is a champion of the tower workforce and the tower contractors that employ them. Chairman Brendan Carr, the climbing chairman, has signaled that he wants to see an end to the unfair practices employed by the MNOs at the expense of small and mid-sized tower contractors. An end to the use of an unqualified and illegal workforce touching the nation’s critical wireless infrastructure. An end to profit-taking at the expense of critical infrastructure workers. An end to MNOs jeopardizing years of progress in the safety and security of their very important FCC-licensed networks.
This author calls upon Mobile Network Operators to restore fairness to their partnership with the men and women who build their networks. We request a return to true market-based competition by allowing only a workforce that meets your high standards of safety, liability, and legality. We request fairness in pricing that reflects the outsourced services you have asked us to absorb, given your downsizing of your workforce and other overhead costs. We ask for a return to mutually beneficial contractual agreements, rather than the one-sided, take-it-or-leave-it contracts currently being offered.
We ask that you consider us your partners once again in utilizing the precious natural resource of wireless spectrum, which should benefit not only you but also the public and the ecosystem that utilizes that spectrum to its best advantage. There is enough for all in America. There is no need to be selfish. Both of us can profit as we deliver amazing wireless services to the American public.
What do you say? We’re ready to be your partners once again.
