Introduction: Hot Topics in Telecom with Ken Schmidt of Steel In The Air 

Thanks for tuning in today to 5G Talent Talk. My name is Carrie Charles and I am your host. I am thrilled to have with me a guest that I have been following on LinkedIn for years and years, reading his posts, and finally, I just reached out and said, you’ve got to come on the show. So I’d like to introduce everyone to Ken Schmidt. He is a wireless infrastructure thought leader. I think he’s a thought leader because, as you’re going to hear in a few minutes, he’s got just an incredible insight into our industry. He’s also the president of Steel in the Air, which we’ll hear a little bit more about in a few minutes. So Ken, thanks for joining me. Welcome.

Ken Schmidt’s Path to Wireless Infrastructure Expertise

Carrie: Let’s talk about you and how you got into the industry. Tell us a little bit about your story.

Ken: Sure. About 25 years ago, in 1997, I graduated from law school. A gentleman that I went to law school with had started a local tower company and brought me into the industry, along with a couple of other people from law school, to help him build what would eventually become a couple hundred tower company down in the southeast. Through a number of things, I ended up doing some site acquisition on the side of the tower companies and the carriers and zoning, etc. Then I realized around 2000 that landowners were significantly underrepresented in the standard cell tower lease transaction. There wasn’t a lot of information available to them, and they were making mistakes, either by negotiating too aggressively or not negotiating aggressively enough. So, the thought came to me that I needed to start a business. In 2000, we started Steel in the Air. This is our 20th year providing service exclusively to the landowners.

Carrie: Congratulations on 20 years.

Ken: Thank you.

Exploring Steel in the Air and SteelTree Partners

Carrie: Let’s go into detail a little bit more about your other company as well. Steel in the Air and also SteelTree Partners, I believe that’s your other company, right?

Ken: That is correct. SteelTree Partners is a company I’m a minority partner in. The majority partner is Bruce Wendt. Around 20 years ago, Bruce started an M&A advisory service for private tower owners. He had been handling acquisitions for a larger private tower company and felt that there was a market in terms of assisting tower owners in selling and representing their towers. Since then, we’ve sold three and a half billion towers on behalf of our clients. I think it’s around 3000 plus towers over that timeframe across the United States, South America, Central America. One of the things that has given me, as you mentioned earlier, the ability to have a lot of thoughts, whether they’re all good or not, I’ll let other people make that decision. But the thing that’s given us a lot of visibility to all different types of the sector from tower developers to landowners’ perspectives to doing expert services for investors, etc. As a result, I started posting a lot of those thoughts on LinkedIn, which is how you found me.

Carrie: I will share with you that every time I go to one of the industry conferences and I go up to a booth or I talk to somebody new and they’re like, “Ken Schmidt, Ken Schmidt, I know that from somewhere.” And then I’m like, “LinkedIn,” and they’re like, “My goodness, yes, I follow you as well.” LinkedIn has been a great place to meet a lot of people, share a lot of thoughts, and get a lot of dialogue going back and forth positively in terms of all types of things happening in the wireless industry.

Ken Schmidt: Authentic Insights on the Wireless Industry

Carrie: You know what I love about you, Ken, is that you tell the truth and you’re real. And like you said, you’re in a very unique position where you can do that, right? And it’s just so refreshing. Typically, your posts generate a lot of activity, and I love to see that because the only way we are really going to be successful is if we all get real with where we are and where we’re going, right?

Ken: Absolutely. I fully agree. From the perspective of not having any carrier clients, we don’t have any large public tower company clients. So from that perspective, I’m not beholden to them. I can afford to say things that are on my mind that may not be something that other industry vendors can say at risk of offending one of their larger clients. So that has certainly given us some flexibility. But on the opposite side, I don’t always have as good information as other people do. One of the things that I’ve really enjoyed about LinkedIn and meeting people on LinkedIn is they do have good information. With the volume of people willing to review and respond, etc., I get as much information back as I put out there.

5G Update: Current State and Future Prospects

Carrie: Here’s what we’re going to do today. We’re going to go through what we’ll call hot topics. We’re not really going to have a theme, but we’re just going to hit on all of these topics and just talk about them. So, very similar to a lightning round, similar to what you do on LinkedIn, but live. Why don’t we start with 5G? Where are we now? Where is this going?

Ken: I think that 5G from a carrier perspective has been somewhat disappointing. We can’t ignore that there was a lot of efficiency gained by deploying 5G in terms of operating a network and being able to handle the additional volume and capacity necessary in wireless networks today. But simultaneously, there hasn’t been a significant growth opportunity. The industry likes private networking, 5G deployment, small cells, etc. But fundamentally, there hasn’t been a substantial increase in terms of the ARPU, the revenue per user that each of the wireless carriers has. As a result of not being able to generate more revenue from 5G, we’re sitting in a position where the carriers had to step back this year or last year, primarily the last half of last year, and say, “What are we doing? Where are we generating? Where is this likely to go? Where are we going to be able to generate revenue?” So far, that use case doesn’t exist where every wireless user has to say, “I got to use my phone today and I need 5G to do it.” 4G is more than sufficient. So I think that’s where we’re at with 5G. The carriers have all taken a step back to say, “What do we do with this? How do we really make money from developing and deploying this much capital towards spectrum and infrastructure?”

Private Networks: Monetization and ROI Insights

Carrie: Companies have really invested a lot in private networks. Are they seeing monetization? Where’s the ROI here?

Ken: The ROI is primarily from getting the enterprise to invest in that private networking. From a neutral host standpoint of being able to go out there and encourage companies to come onto the private network, etc., it’s not really occurring. It occurs at some of the large venues, the sports venues, etc., where they absolutely need that type of capacity and use, and that there are must-haves for the wireless carriers. But from the perspective of the average-sized, middle-sized, and all these enterprises, there’s just not an opportunity there for monetization from public operator participation. It’s primarily the internal use case that is driving those that need greater security, faster throughput to operate industrial infrastructure within their facility. They have very dedicated and specific use cases that are really what we would call private networking as opposed to public operator private networking.

How Inflation is Shaping Cell Towers Development

Carrie: We’ve had a very interesting economy this last year and moving into this year. What has been the impact of inflation on tower development?

Ken: Historically, over the last 20 years, the inflationary impact was about 4.5 percent per year, exceeding the typical consumer price index over that period. In recent years, various tower companies have come out and said that the cost of developing towers has increased by half, by 75 percent, from where it was just five years ago. A lot of that’s from the cost of steel, the cost of labor, etc., and also from MLAs, the master lease agreements, requiring additional loading on the tower. So collectively, what would have cost $300,000 to build the average tower five years ago is closer to $400,000 today.

Carrie: Wow, that’s significant.

Ken: Yes, it is.

Evolving Master Lease Agreements: What’s Next?

Carrie: What about these master lease agreements you just talked about? How do you see this changing in the future?

Ken: Historically, master lease agreements were formed between the public tower companies and the wireless carriers. The public tower companies used their weight and ability to price to really inflate those, increase the cost to the wireless carrier, and make the terms of the master lease agreement restrictive so that every time a carrier had to put new equipment onto a tower, it became more expensive. They were getting charged every time they did that, and they didn’t like that. There’s been a clear push within the last five to seven years for the wireless carriers to look to alternative private tower company models that allow them a predictable lease rate at a lower amount, the ability to make improvements within a bucket of equipment as opposed to specific equipment, reduced escalation, and improved terms and other restrictions they didn’t like within their public tower company master lease agreements. So, whereas doing a master lease agreement with a public tower company was the primary way of developing towers, it’s no longer. It’s all private tower companies. Recently, we’re starting to see some pushback where some tower companies are saying, “No, we’re not going to agree to these onerous terms you’re trying to enforce.”

Challenges and Opportunities for Smaller Tower Companies

Carrie: I know a lot of people that own small tower companies all over the country. How is this going to affect the smaller tower companies? Is there an opportunity to get into this world as a tower owner or a tower company?

Ken: To answer the latter question, no. If you’re not already in it, if you’re not coming from a tower company and you don’t have the relationships with the wireless carriers already, it’d be very difficult to jump into the sector and try to make any type of movement, even with a lot of money. Tillman Infrastructure tried exactly that. They’ve had their successes and their failures. They’ve developed over 1500 towers, so it’s by no means a failure, but they’re also finding their way. So anyone else trying to get into the sector, well-capitalized or not, would still have similar issues. For the smaller tower companies, it’s challenging. The carrier goes back and takes all of the worst terms from different agreements and bundles them together in a master lease agreement that is more onerous for the private tower company. There’s a give and take, and some of that is deserved. The carriers deserve better master lease agreements than what they were entering into 20 years ago. The world is a different place. Many private tower companies are more than interested in doing build-to-suit agreements. It’s just a question of that give and take and at what point do you push too hard. For the private tower companies, to the extent that they’re doing master lease agreements with the carriers on anchor builds, where they’re building just for the carrier, they have to give a lot. There’s no shortage of tower companies interested in doing that, so they have to agree to it. Where I find some difficulty is when tower companies agree to these negative terms on their regular co-location leases. When additional carriers come onto the tower, it reduces the overall value of the towers they’re developing.

Carrie: So, it’s really a challenging landscape for smaller tower companies.

Ken: Indeed, it is.