Future imperfect – deal with changing times

Recent developments in the telecoms sector to reduce operating costs will inevitably have an impact on estates portfolio property owners and private landlords. Collaboration is one of industry’s management buzzwords at the moment, as manufacturers, supply chain specialists and retailers all look for ways of cutting costs without reducing customer satisfaction or flexibility of delivery. Clearly, this thinking has filtered into the telecoms market, which has seen two of its biggest names – T-Mobile and 3 – commence a consolidation project to share infrastructure and equipment costs. These two companies have embarked on a collaboration project, which is being undertaken through a joint venture company – Mobile Broadband Network Limited (MBNL). Other players in the market such as Vodafone and O2 are evaluating similar network and site sharing initiatives. Clearly, while Orange is yet to make its intentions known, a move towards some form of collaboration is a reasonable assumption.

Having commenced some months ago, the T-Mobile and 3’s network consolidation project is expected to be largely completed over the next 12 to 18 months, and will reduce the current number of T-Mobile/3 sites from approximately 18,500 down to 13,000. While this will lead to significant long-term savings in terms of rent, rates and maintenance costs, it is not a development that many landlords are relishing.

However, as partners all playing a specific role in the larger broadcast and telecoms industry, landlords, telecoms operators, infrastructure providers and even content providers, need to appreciate that this is a long-term game.

Inevitably, as the market matures and changes, collaboration and consolidation will occur. Rallying against the inevitable will no doubt cause a lot of heat and light, but will, ultimately, achieve little.

What is needed is an understanding of the pressures that are having an impact on the industry, so that informed strategies can be developed by landlords. Estates managers need to look at their portfolio planning more strategically, aligning themselves to partner organisations that are not just rental streams, but like-minded businesses that can work together in an open and flexible environment. Although the exact nature and financial implications of change are as yet not clear, landlords need to be aware of these fundamental shifts in the structure of the telecoms sector.

The saving game
While the potential savings from the T-Mobile/3 initiative are yet to be fully realised, the move towards consolidation amongst the UK’s mobile network operators has been on the cards for some time. Indeed, faced with the pressure of maintaining customer ARPU (average revenue per user) against a backdrop of rising opex and capex costs the mobile network operators are contemplating initiatives that would have seemed unthinkable not that long ago.

Single platform
The move towards operators sharing networks takes many different forms. The T-Mobile/3 initiative is investigating everything from sites through to the RAN (Radio Access Network), while the Vodafone/O2 initiative is initially looking at the sites of both organisations. However, it is still early days and the main players in the market are to a large extent coming to terms with the likely outcomes of network consolidation. The stance being taken by both agent/landlord and operator varies, but many landlords have taken a pragmatic approach and secured the benefit of future technology rental incomes and a stronger investment yield.

It is a complex, emerging picture, however issues such as the take-up of surplus sites, progress with decommissioning and future consolidation projects (such as Orange’s next move) will shape the degree to which the market is affected. T-Mobile and 3’s initiative will certainly have an impact on private, single site, landlords, certain portfolio owners and the other mobile operators who have site-sharing arrangements with either party. In reality, it is still impossible to read the runes and see which way the negotiations fall and if rental levels are affected across the board.

Since T-Mobile and 3 are consolidating existing networks, the combination of sites provides greater opportunity for choice for site selection. It is likely that the primary factor of choice will be network coverage, but the leasing terms and rental levels will be factored into their decision process. Our advice to landlords is not to become too ‘site-obsessed’ when it comes to negotiation and focus more on developing long-term relationships and meeting the operational needs of the operators.

A landlord that refuses to negotiate could find his long-term income is seriously affected or even terminated. So, although it may be a bitter pill to swallow in the short term, being a player in a developing marketplace with inevitable peaks and troughs, is better than not being in it at all. There is undoubtedly a negotiating opportunity where operators are seeking concession from the landlord, but their funds are not unlimited and cost saving is the key.

Whether landlords like it or not, network consolidation is here to stay. Granted, where sites are vacated landlords can get full reinstatement of premises, but those that exit the telecoms and broadcast markets altogether should have clearly developed strategies to replace lost revenues. From our perspective, we are in the market for the long term and want to foster partnerships with landlords, not simply transactional relationships that live and die solely on the rental income. While there are no cast iron guarantees, it is likely that those landlords with positive, open relationships and secure long-term infrastructure agreements will fare better, as and when new technologies come on stream.