Cell Site Rents Must Line Up with Other Costs

The marketplace has changed significantly since the first cellular network launched in 1978. Unlike yesterday’s networks, which were designed for voice, today’s networks are designed for data. Data today does not support the same margins as delivering voice, so operators must drive down their costs, both for equipment and for rent.

Moreover, data is an in-building issue— that is, data typically is used indoors. Until lease costs fall enough to make data cost effective, operators must offload their traditional outdoor macrocells with picocells and WiFi hot spots. As a result, tall cell sites and lumbering base stations are quickly becoming has-beens in this 4G world. With denser networks and shorter antennas, operators are adapting to accommodate the public’s voracious appetite for smart phones and the limitless videos, data and connectivity they serve up.

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Lease costs are the lost piece of the puzzle that operators must tackle in order to have a cost effective network that can handle the demands of the new subscriber — the smartphone subscriber and, increasing the launch of new cellular-enabled tablet devices, such as the Apple iPad.

Shrinking Equipment

One of the byproducts of this new technology is the shrinking size – and cost – of cell site base station transceiver system (BTS) equipment.

Compare three generations of base stations. In 1990, a Motorola HDII AMPS analog base station fully configured would span five refrigerator-sized cabinets. In 2000, the multimode (analog and digital) Motorola SC4812 base station fully configured downsized to two cabinets. In 2010, the Motorola Horizon II multimode base station has shrunk to the size of a suitcase. What’s more, with advances in microwave backhaul, reduced power requirements, and distributed architecture BTS equipment is not only easier to install, but easier to relocate. Just set it down and plug it in.

generations

Most significantly, the expense of today’s BTS equipment per cell site has decreased dramatically. What cost $450,000 in 1990 is now procurable for a mere $40,000, and this trend is expected to continue.

Reasons for the significant price drop for base station equipment vary:

  • Increased competition from foreign markets
  • Pressure on suppliers from operator consolidation
  • Technological improvements, such as improved integrated circuits, network simplicity with all IP-based architectures, software defined radio, and distributed architectures.

On the Move

These two factors – more easily relocated BTS equipment and the diminishing capital costs to operators – have drawn serious attention to lease rates. When equipment costs exceeded $450,000, it was acceptable for the annual cell site rent to be $20,000. At that time, the rent represented a fraction of the total cost of the site. But take that $20,000 in 1990, apply a typical 3% escalator that brings the rent to $35,000 in 2010, and you’ve got an operator questioning why the cell site lease costs as much as the equipment.

typicalcostsIn the past, operators tolerated high rents because they represented a fraction of total cell site costs, but this is no longer the case. Moreover, current lease rates for new sites are being contracted at $7,200 per year, not $35,000. So it becomes difficult to justify the high rents for an existing site when the rent for a new site is available at the fraction of the price.

Operators are determined to rectify this inequity. Thanks to smaller BTS equipment, they are better positioned to accomplish this expense reduction. If the lease does not make financial sense, operators are not tied to that site because equipment relocation is no longer a deterrent.

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