Cell tower lease rates showcase the multi-decade, symbiotic relationship between the wireless carriers who are continually leasing space from the tower companies, that rent out their passive infrastructure.
A cell tower lease is a contract whereby a tower company provides access services and shared use of the vertical space on its tower, as well as portions of the land underneath its tower, for a wireless carrier tenant to place its equipment, and, in turn, receive and transmit wireless signals.
Dgtl Infra provides an in-depth overview of cell tower leases, including typical lease rates in the United States, drivers of cell tower leasing rates, examples of master lease agreements (MLAs) between wireless carriers and tower companies, as well as the nuances of rooftop antenna and 5G tower lease rates. Additionally, we review the key terms which are frequently found within cell tower lease agreements. Finally, Dgtl Infra discusses critical topics such as a cell tower lease buyout and cell tower lease value.
What is a Cell Tower Lease?
A cell tower lease is a contract to provide access services and shared use of vertical space on a tower, as well as portions of the land underneath the tower for tenant equipment. Generally, wireless carrier tenants (e.g., Verizon, AT&T, T-Mobile) lease this cell tower space from landlords (e.g., tower companies, commercial real estate owners, private individuals) on an initial non-cancellable term of 5 to 10 years, with multiple renewal terms.
More specifically, it is common to structure a cell tower lease to have four additional automatically renewing 5-year extensions. In this scenario, including renewal terms, the cell tower lease would have a minimum total duration of 25 years. However, it is also possible for cell tower leases to reach total durations of up to 50 years.
Cell Tower Lease Rates
On average, cell tower lease rates in the United States range between $1,500 and $3,500 per tenant, per month, which is equivalent to $18,000 and $42,000 per tenant, per year. Therefore, if a cell tower owner has two tenants leasing space on their cell tower site, then they can expect to generate between $3,000 and $7,000 per month, which equates to $36,000 and $84,000 per year.
The United States cell tower market typically does not offer lease rate colocation discounts to the second and third “colocating” tenants. Whereas in Europe or in other international markets like China and India, the second and third tenant lease rate discount can often be 30%, 50%, or more.
Additionally, in the United States, tenant leases for cell towers include contractual rent escalators, usually fixed at a rate of 3% annually.
Drivers of Cell Tower Leasing Rates
Cell tower leasing rates can vary significantly depending on a particular site, lease characteristics, and local market conditions.
Below are six examples of the many drivers for cell tower leasing rates:
1. Site Location
Cell towers reside in urban, suburban, and rural locations. Generally, cell tower lease rates tend to be higher in more densely populated urban areas, which have a greater number of subscribers utilizing each cell tower site. Additionally, land values are higher in urban areas, increasing the cost to construct a tower, and thus, the required lease rates to make a tower build economical.
2. Vertical Space Leased
Also referred to as wind load surface area, this is the amount of space a wireless carrier occupies on a cell tower to place its antennas, remote radio units (RRUs), or other tower-mounted equipment. More leased space is correlated with higher cell tower lease rates.
3. Weight Load
Weight placed on a tower, measured in pounds per linear foot, from transmission equipment (e.g., antennas and remote radio heads) and backhaul solutions (e.g., fiber optics, coaxial cables, microwave links). A greater weight load is correlated with higher cell tower lease rates.
4. Height of Tower
High elevation above ground level (AGL) can provide a superior line-of-sight for a cell tower’s antenna with the horizon and, consequently, signals can be transmitted a further distance, ensuring a wider coverage area. As such, taller lattice (200 to 400 feet) and guyed (200 to 2,000 feet) cell tower structures can often command higher lease rates than monopole (50 to 200 feet) towers.
The height of cell towers is crucial for minimizing signal obstructions in areas with challenging topographies, such as hilly or mountainous regions, to ensure effective cellular coverage.
5. Zoning and Permitting
Cell tower lease rates are higher in areas that have more stringent zoning and permitting regulations, which restrict where and how high towers can be built. For example, the town of Scarsdale, New York or Martha’s Vineyard in Massachusetts are notoriously difficult markets in which to erect cell towers. In contrast, many cities in Texas have less stringent zoning and permitting regulations, resulting in more competition from tower companies, and, in turn, lower cell tower lease rates.
Limited local zoning and permitting restrictions in Texas enable new “challenger” tower companies to construct competing towers within close proximity of an existing tower asset – such as those owned by incumbents American Tower, Crown Castle, or SBA Communications. In turn, these new tower companies are transitioning high rent cell sites of wireless carriers (e.g., Verizon) to their own tower infrastructure – driving rents for the broader market down.
6. Network Design
New cell tower placement is often driven by a wireless carrier’s existing or proposed network, particularly where there may be holes in its coverage or a capacity need. For example, wireless carriers often develop a ‘search ring‘, commonly with a one-mile radius, within which the company’s site acquisition team identifies cell towers to lease.
Given the focused nature of this type of search, the wireless carrier’s “demand” to lease a cell tower is high, while the “supply” of cell tower space in a one-mile radius is low. This dynamic shifts greater bargaining power to the cell tower owner, which can lead to higher lease rates paid by the wireless carrier.
Cell Tower Lease Example – American Tower and T-Mobile
In September 2020, American Tower and T-Mobile signed a new holistic master lease agreement (MLA) with an average non-cancellable term of nearly 15 years. This MLA secured ~$17 billion in incremental (~$23 billion total) contractually committed revenue over the contract term. This holistic MLA includes:
- Rent escalators fixed at 3% to 3.5% annually for the term of the MLA
- Fixed annual charges which permit T-Mobile to place a pre-determined amount of equipment on American Tower’s sites
- Incremental lease payments for exceeding pre-determined equipment levels
As part of American Tower’s holistic MLA, T-Mobile pays a “use right fee”, for incremental colocation and amendment activity (i.e., to install new antennas and radios), in addition to the base rent escalator of 3% to 3.5%. This use right fee is described by American Tower as a “bonus escalator” which lasts throughout the 15-year MLA. As T-Mobile’s revenue base with American Tower increases, the use right fee will continue to grow on an absolute, dollar-value basis, but will become smaller on a relative, percentage basis.
Rooftop Antenna Lease Rates
As a general rule, rooftop antenna lease rates are lower than ground-based (monopole, lattice, guyed) cell tower lease rates. Specifically, rooftop antenna lease rates in the United States range between $1,000 and $3,000 per tenant, per month, which is equivalent to $12,000 and $36,000 per tenant, per year.
Rooftop antenna sites are more common in urban areas where tall and dense buildings, as well as zoning restrictions, do not enable traditional ground-based towers to be built.
5G Tower Lease Rates
To support the significant increases in mobile data traffic that 5G is enabling, more equipment is being placed on towers. As shown below, this incremental 5G equipment includes additional antennas and double the amount of fiber strands connected to those antennas. Therefore, as 5G is deployed, wireless carrier tenants are putting more equipment and, in turn, more weight on cell towers.
As noted above, two key drivers of cell tower lease rates are the i) vertical space leased (or wind load surface area) and ii) weight load. Thus, as 5G necessitates more equipment (space) and weight being placed on towers, 5G cell tower lease rates will increase.
READ MORE: What’s the Difference Between 4G LTE and 5G?
Cell Tower Lease Rates by U.S. Wireless Carrier
Historically, the United States’ largest wireless carriers, namely Verizon, AT&T, and T-Mobile, have struck sizable master lease agreements (MLAs) with tower companies, such as American Tower and Crown Castle. Given the scale of these transactions, the cell tower lease rates paid by the wireless carriers have trended towards the lower-end (i.e., $1,900 per month), as compared to the mid-point industry average of $2,500 per month.
At the same time, the rent escalators of 2% annually agreed in these MLAs are below-market, when evaluated against prevailing cell tower rent escalators of 3% annually.
Lease Rates – Wireless Carriers and Tower Companies
Verizon Cell Tower Lease Rates
On average, Verizon’s cell tower lease rates range between $1,500 and $3,500 per month, which is equivalent to $18,000 and $42,000 per year. An example of a significant Verizon MLA is:
Lease Example – Verizon and American Tower
Verizon entered into a 10-year, $5.056 billion sale-and-leaseback agreement with American Tower for 11,489 cell tower sites. In this transaction, the cell tower lease rate for Verizon as a tenant was set at $1,900 per month, which is equivalent to $22,800 per year. Additionally, the cell tower rent escalator was 2% annually.
AT&T Cell Tower Lease Rates
On average, AT&T’s cell tower lease rates range between $1,500 and $3,500 per month, which equates to $18,000 and $42,000 per year. An example of a significant AT&T MLA is:
Lease Example – AT&T and Crown Castle
AT&T entered into a 10-year, $4.85 billion sale-and-leaseback agreement with Crown Castle for 9,708 cell tower sites. In this transaction, the cell tower lease rate for AT&T as a tenant was set at $1,900 per month, which is equivalent to $22,800 per year. Also, the cell tower rent escalator was 2% annually.
T-Mobile Cell Tower Lease Rates
On average, T-Mobile’s cell tower lease rates range between $1,500 and $3,500 per month, which implies pricing of $18,000 and $42,000 per year. An example of a significant T-Mobile MLA is:
Lease Example – T-Mobile and Crown Castle
T-Mobile entered into a 10-year, $2.4 billion sale-and-leaseback agreement with Crown Castle for 7,180 cell tower sites. In this transaction, the cell tower lease rate for T-Mobile as a tenant was set at $1,905 per month, which is equivalent to $22,860 per year. Additionally, the cell tower rent escalator was referenced to CPI (Consumer Price Index).
DISH Network Cell Tower Lease Rates
DISH Network’s cell tower leases are averaging $1,500 per month, which infers pricing of $18,000 per year. DISH has been able to negotiate with tower companies for lower cell tower lease rates given that its Open RAN-based 5G network requires equipment with a lower “weight load” than traditional deployments on cell towers.
To this end, DISH’s Chairman, Charlie Ergen, has previously stated that the company has a simpler antenna and radio design, which means that the total weight on the cell tower will be less, the cabling will be less, and the amount of real estate DISH needs at the cell tower site will be less.
Cell Tower Lease Agreements
A cell tower lease agreement is a contract in which a landlord, typically a tower company, allows a tenant, usually a wireless carrier, to install and maintain their equipment on the landlord’s cell tower in exchange for regular lease payments. These agreements incorporate key contractual obligations between the two parties – the tower company (landlord) and the wireless carrier (tenant).
Essential elements of the agreement include the lease term, rent amount, rent escalator, allocated tower space, ground space, utilities, property tax responsibilities, termination conditions, and the right of first refusal (ROFR):
- Term: Initial non-cancellable term of 5 to 10 years with multiple renewal terms, extending the total contract duration to 25+ years
- Rent: Cell tower lease rates in the United States range between $1,500 and $3,500 per tenant, per month, which is equivalent to $18,000 and $42,000 per tenant, per year
- Rent Escalator: Fixed at 3% for U.S. towers
- Tower Space: Defined area for portions of the cell tower on which antennas, remote radio units (RRUs), amplifiers, filters, and other tower-mounted equipment are placed
- Ground Space: Defined area for equipment pads capable of accommodating exterior cabinets or equipment shelters, and electric generators. These buildings house a tenant’s communications, radio, and network equipment
- Utilities: Tenant is granted a non-exclusive easement for the use, operation, maintenance, repair, and replacement of all utility lines (gas, electricity, telephone service)
- Property Tax: Tenant will pay any property taxes related to its occupancy and use of the cell tower. Additionally, in a typical cell tower lease, the tenant is responsible for paying any incremental property taxes levied against the property due to tenant improvements or the construction of a new cell tower
- Termination: Tenant has the right to terminate its lease by giving the landlord 30 days written notice of termination
- Right of First Refusal (ROFR): Tenant can hold a ROFR which restricts the landlord’s ability to sell the cell tower lease in the future, without first giving the tenant the right to match any offer received
Additionally, cell tower lease agreements generally include provisions related to assignment, condemnation, defaults & remedies, environmental, ground leases, holding over, indemnity, insurance, and subleasing.
Cell Tower Lease Buyout
A cell tower lease buyout is a lump-sum payment given to a property owner in exchange for the right to receive all future rental revenues from a cell tower lease. These cell tower lease buyouts involve a seller, who is typically the land owner or building owner that is leasing out the site, and a buyer, which can often be a wireless carrier, tower company, or ground lease aggregator (e.g., Radius Global Infrastructure / AP Wireless, Landmark Dividend, Everest Infrastructure, Symphony Wireless).
The cell tower lease buyout transaction involves a lump-sum payment and granting of an easement:
- Lump-Sum Payment: One-time payment, following a closing process handled by a title company. This smaller upfront lump-sum payment is less than the larger cumulative sum of rental revenues that are paid out over the duration of the cell tower lease
- Easement: Granting the long-term right to collect rent from the cell tower lease, to the company buying the lease rights. The term of the easement can often be 30 years (or less), 50 years, 99 years, or perpetual
In contrast, ground leases typically involve leasing land for an extended period, often spanning decades, without selling the land itself. The lessee, often a tower company, is permitted to develop the leased land. However, at the end of the lease, they must return the land and all improvements to the property owner, unless otherwise negotiated. Once a cell tower is established, the tower company may then sublease space on the tower to various wireless carriers.
Cell Tower Lease Value
Cell tower leases are valued on a multiple of tower cash flow (TCF), which is calculated by taking tenant revenue and subtracting operating expenses. Particularly, these operating expenses include ground rent, site maintenance, insurance, and utilities.
Recent precedent M&A transactions for cell towers in the United States indicate that leases are being valued at tower cash flow (TCF) multiples of 30x and higher.