A Time to Sell

As you scramble to expand your footprint as quickly and cost-effectively as possible, the tower industry is responding by consolidating assets, personnel and services. In recent months, several leading tower companies announced plans to acquire related and competing companies. American Tower acquired OmniAmerica and Telecom Towers. SpectraSite Communications acquired GlobalComm, and Westower acquired Teletronics Management Services Summit Communications, not to mention numerous smaller mergers and acquisitions. This growing trend allows tower companies to expand service offerings and compete more aggressively, ultimately allowing you to build out your network faster.

Mergers are not the only trend among tower companies, however. They also are taking an active role in the financial aspect of build-outs by purchasing carriers' tower sites and leasing them back. Powertel and Bell Atlantic made recent headlines when they sold their towers to Crown Castle International. Nextel sold its towers to SpectraSite earlier this year. But before any of these carriers realized key benefits to this alternative, C-blocker Airadigm Communications led the way, selling off its towers last August to SpectraSite.

THE SALEIn 1996, Airadigm's initial strategy was to build its entire network infrastructure using internal resources and retaining network ownership. It maintained control over the entire operation and performed all site-development functions in-house. The process included site acquisition, zoning, permits, compliance issues, and tower maintenance and management services.

As Airadigm expanded, it became clear the company needed to leverage the capital it had invested in the network infrastructure into a revenue-generating asset. Airadigm considered co-location, but doing so would have meant becoming a property manager and, therefore, devoting significant time and resources to building and managing towers while trying to market and maintain carrier leases. Airadigm abandoned this option because it would drain resources and impede network expansion.

"The decision was pretty easy," said Tom Lehr, Airadigm vice president of finance. "We're a small, C-block, PCS, GSM company. Money is scarce and we don't have an excess supply. Towers come out of the capital."

When Lehr joined Airadigm's executive-management group two years ago, he said the company either had to get into the landlord business or get out of the tower-ownership business. The company even talked about starting a separate business to handle the tower-landlord issues. Instead, it relinquished its in-house involvement in site development in favor of significant cost savings and quick footprint expansion. Airadigm set out to select a strategic partner that would take control of these functions. On a tactical level, the partnering company would be responsible for all site-development work as Airadigm continued its network build-out. On a financial level, the partner would purchase Airadigm's entire inventory of existing towers and finance the entire cost of new site construction.

Selecting a partner to assume these functions wasn't easy. Lehr made it known that Airadigm was looking to sell every one of its ground-based towers. The result? Tower companies were coming out of the woodwork, he said.

After narrowing it down to three companies, he spent a great deal of time with their management and staff members, including engineers and field people.

"Basically, I was interviewing my future landlord," Lehr said. "The asset purchase was a short-term thing, but the build-to-suit relationship is long term."

Although he was looking for a company that was financially capable of handling the size of the purchase, Lehr opted for "a larger fish in a little smaller pond," and did not focus on the biggest companies. In the end, Airadigm sold most of its existing towers to SpectraSite Communications. Airadigm's partner also assumed all marketing, maintenance and management functions associated with owning a site.

"There were tower companies out there that would clearly give me a whole lot more money than SpectraSite would," Lehr said.

Airadigm now leases space on each tower and will use SpectraSite for future financing needs in its build-out process. By selling its towers, Airadigm freed up capital that was invested in the tower network so it could expand its footprint throughout Wisconsin and Iowa. The company no longer had to dedicate in-house resources to building and maintaining the tower sites. This enabled it to focus time and resources on core competencies -- marketing, branding and customer service. Airadigm was positioned to improve coverage, compete with incumbent carriers and win customers.

CONSIDERATIONSMost carriers complete network build-out in phases, depending on the amount of available capital. A purchase-leaseback agreement is a viable alternative because it allows you to reduce debt and launch an aggressive build-out schedule. It also eliminates the need to focus time and resources on tower management and maintenance issues.

There are several companies throughout the country with tower development and ownership capabilities. If you decide such a partnership is a viable option, you should thoroughly investigate the possibilities.

First, determine your primary criteria. For example, experience and financial stability should be key factors. Although many companies have the capacity to perform tower-site development work, few have adequate capital available to purchase all existing sites and to finance new site construction and maintenance. You also should consider the tower company's co-location capabilities and track record for tower maintenance and infrastructure management. You should find a partner with a similar philosophy and business model, which is key in creating a mutually advantageous relationship.

Once you've selected a partner, both companies must work together closely for a period to ensure a smooth transition of management, personnel and maintenance. Airadigm stands as a model for other service providers as they grow businesses. Like Airadigm, you can find a successful venture if you follow these steps.

First you get euphoric about one another. Then you step back for a reality check. As you're planning the wedding, sometimes things get a little tense; you don't always agree. You wonder, "Should we really get married? Maybe we're not the couple we thought we'd be." Then comes the wedding. As you start to live together, you continue to discover things. Some are fun, and some require a little more patience.

This is how Tom Lehr, Airadigm vice president of finance, described the evolving relationship between Airadigm and SpectraSite, the company that purchased Airadigm's towers and is providing build-to-suit services to the PCS carrier.

The two companies closed on the asset purchase in November 1998 and wrapped up the build-to-suit portion in January.

Lehr said he feels confident about the partnership, and he has some advice for other carriers also thinking about selling towers:

1. Know the company you're dealing with. Lehr attended tower-industry conferences, surveyed all the companies, narrowed the field and spent a lot of time with the three finalists.

2. Look for a partnership or relationship, not just a business transaction. This relationship has to last a long time. After all, changing landlords would mean moving your sites.

3. Develop a strong element of trust, which goes both ways.

"We're control freaks," Lehr said. "We want to sell our towers and get our money back, but we still want to maintain our control. That's the issue in putting these contracts together: How much can we relinquish?"

4. Get it down to the shortest time period possible. Get it done and go with it. Lehr said the initial deal and handshake were relatively easy, but getting the deal on paper was a nightmare. It took eight months to get the documents signed, and the deal was essentially unchanged, he said. The problem was all the unknowns.

"I wish we had been able to do it without the attorneys," Lehr admitted. "There's so much that can happen in the next 20 years. One-hundred-year floods. Tornadoes. It's like deciding to get married and then having to put in writing all the things that are going to happen."

Lehr finally got on the phone with Stephen Clark, SpectraSite chairman & CEO, and suggested it was time to sign the documents, trusting that if they should reach a roadblock along the way, they can get on the phone and talk to each other.

"And that's what we did," Lehr said.