Lease Optimization – that old familiar story

Increasingly, wireless telecommunications landlords are being approached by firms representing their wireless carrier tenants for the purpose of securing a reduction in the rent and/or rent escalator the carrier pays to the landlord. Sometimes the demand is for a ‘rent vacation’ for up to several years.

Generally, the process described above is called, “Lease Optimization.”

Two well-known firms that perform Lease Optimization on behalf of the wireless carriers are Blackdot Wireless, and MD7.

In fact, Blackdot states on its website that it “pioneered the first expense reduction” program, also known as lease optimization. Lease optimization may seem innocent enough. After all, Blackdot is “substantially reducing carrier and tower company operating cost, while securing billions of dollars in rent guarantees for landlords.”

Securing billions of dollars in rent guarantees for landlords?

Lease optimization though results in substantially under market rents for unsuspecting landlords.

The approach is generally the same, as a landlord, you may be told that the wireless carrier is reducing the number of sites it operates and it has been determined that your site is one of those sites the carrier can live without.

That is, unless the landlord is willing to substantially reduce the monthly rent, and skip rent increases for some number of years, or even waive rent payments altogether for a period of years.

What’s in it for the landlord? Not much in reality. The usual ‘carrot’ is that if the landlord complies with the tenant’s demands, he or she will receive a ‘rent guarantee’ that will run for a few years. This is interesting, since the lease is the best indication of the rent that the landlord is supposed to receive.

I can see that a landlord is generally unwilling to lose all the rental income from the site and buys into the lease optimization story – at least there’s still some income, right?!?

If you are approached by a company interested in ‘optimizing’ your lease (and you), be suspect. Discuss the proposed terms with an attorney who is knowledgeable in the area to determine what the best step is forward for your situation. If you need a referral to a knowledgeable attorney to advise you, why not contact us.

In the end, don’t be afraid to trust your instinct: It’s usually the case that if a proposal doesn’t feel right to you, then it’s not right for you.

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So, you don’t like your wireless store sales clerk?

J.D. Power and Associates has released their 2008 report on consumer satisfaction with wireless retail sales.  It turns out that if you’re with Verizon or its newly purchased (consumed?) Alltel unit, then you’re

JD Power 2008 Wireless Retail Sales Satisfaction Survey

among the happiest customers.  It’s another story altogether if you have Sprint Nextel.

But look closely at the scale: On the 1,000 point scale, Verizon/Alltel barely squeaked into the bottom of what would be called a “C” grade in school, and the industry averaged a high “D”.

Perhaps that why customers keep asking, “Can you hear me, now?”  “Huh?”

So, while Verizon may take the trophy for best in show, it was the prettiest mutt amongst a bunch of really mangy critters.

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Lost the Edge?

Edge Wireless has been absorbed by AT&T Wireless when it purchased the outstanding 64% of the stock of the firm.

Edge was formed in 1999 by Wayne Perry (a member of the Board of Directors  and a former Vice Chairman of of AT&T Wireless), Cal Cannon and Donnie Castleman (alums execs of McCaw Cellular).

Edge had a roaming agreement with Cingular (later AT&T Wireless).  Lately, the large wireless carriers have been triggering buy-out provisions in the roaming agreements.  Whether that’s the case here is unknown, but I rather suspect it.

Here’s AT&T’s PR puff regarding the completion of the transaction:

AT&T Completes Acquisition of Edge Wireless to Enhance Wireless Coverage

Transition to Begin in the Second Quarter; Customer Benefits Will Include Improved Network Coverage and Access to Innovative Products and Services

San Antonio, Texas, April 18, 2008

AT&T Inc. (NYSE:T) today announced that the company has completed, through a subsidiary, the acquisition of Edge Wireless. Edge is a provider of wireless communications services in Oregon, northern California, Idaho and Wyoming.

The addition of Edge’s wireless network will allow AT&T to deliver broader wireless coverage to customers in the Northwest, including Edge’s existing subscribers. Edge customers will also gain access to AT&T’s portfolio of products and services, as well as to the nation’s largest voice and data network, which covers more than 290 million people.

The two companies have a long-standing relationship as roaming partners, and AT&T expects a smooth customer transition. AT&T will immediately begin to implement a carefully planned process to integrate the AT&T and Edge Wireless networks, combine product portfolios and merge customer care initiatives.

The acquisition of Edge Wireless follows review and approval by the Federal Communications Commission.

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Wireless Carterfone Policy Paper from New America Foundation

The New America Foundation has released an interesting policy paper regarding Carterfone-type competition in the wireless sector. The following is from the New America Foundation website:

Working Paper

Wireless Carterfone

A Long Overdue Policy Promoting Consumer Choice and Competition
Rob Frieden, Penn State University
New America Foundation | January 2008

Abstract

Wireless carriers in the United States operate as regulated common carriers when providing basic telecommunications services, such as voice telephone service, text messaging and speed dialing to services and content. Remarkably, stakeholders debate whether this clear cut regulatory status requires wireless carriers to provide service to any compatible handset, subject to a certification process to ensure that such use will not harm carrier networks.

Thirty-nine years ago the Federal Communications Commission (FCC) established its Carterfone policy establishing such a right for wireline subscribers. Consumers now take for granted the right to purchase their choice of telephones and other devices (e.g., computer modems, answering machines) and to attach them to wireline networks without carrier-imposed limitations. After announcing its Carterfone policy, the FCC identified ample consumer benefits and applied this fundamental right in several instances so that consumers can freely use their handsets to access services, applications and content. This fundamental right has accrued unquestionable benefits to consumers and the national economy.

Wireless operators have vigorously opposed efforts to convince the FCC that it should establish a wireless Carterfone policy. Opponents claim that Carterfone offered an industry-specific remedy to a monopoly environment where the Bell System controlled both the manufacture and distribution of telephones and telephone service. They assert that the lack of such vertical integration and the existence of robust competition in the wireless marketplace obviate the need for rules requiring carriers to unlock the handsets they sell and to open their networks for access by any compatible handset.

This paper explains why wireless Carterfone policy constitutes a long overdue policy response to carrier practices that often have nothing to do with protecting their networks from technical harm or other legitimate network management needs. For example, blocking the implementation of wireless Carterfone enables carriers to continue locking subscribers into two-year service contracts with substantial penalties for early termination. In exchange for the service commitment, consumers acquire a carrier-subsidized handset, but they also consent to carrier-imposed restrictions on the use of the handset they bought, including the ability to access telecommunications and content services of competitors even after the carrier has recouped its subsidy.

This analysis explains how wireless carriers benefit financially by avoiding Carterfone obligations and refutes the rationales and justifications for this behavior. The paper also demonstrates that the FCC has ample statutory authority to apply wireless Carterfone policy based on the largely ignored fact that when wireless cellular telephone companies provide telecommunications service, they remain subject to most common carrier regulations regardless of the fact that they also may offer less regulated information services. Finally, this report explains that wireless carriers must comply with public interest regulatory mandates even though they might conflict with carriers’ preferred business plans. The Commission has undertaken a number of analogous initiatives to protect consumers from mandatory bundling arrangements, such as its 2005 order mandating alternatives to cable set-top box leasing, which underscore the continued importance of Carterfone principles to protecting the public interest.

For the full working paper, please see the attached PDF below.

Wireless Carterfone Policy Paper from New America Foundation

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