PART TWO
In a wide-ranging, exclusive two-part interview with Inside Towers Managing Editor Jim Fryer and Business Editor John Celentano, Alex Gellman, CEO of Vertical Bridge REIT LLC, based in Boca Raton, FL, shared his perspectives on the current state of the tower business and his outlook for 2022. This is the second installment of a two-part series.
Alex Gellman, CEO of Vertical Bridge, the nation’s largest independent tower operator, made no bones about it: he is bullish on the macro tower business. With cash flow generated from multiple master leases and strong operating metrics, he echoed the BBE acronym offered by an industry analyst: “Best Business Ever.” But Gellman said even in a roaring market, a company must be careful as to how they use their assets and what opportunities they pursue.
“We need to be more disciplined in what to accept and what sites to deploy,” he said. How carriers play the various hands they are being dealt is key. C-band, he said, will drive network activity for Verizon and AT&T.
“Macro infill will take a bigger share of capex. That will shift [to small cells] when true 5G happens, but we won’t see it before the next five years,” he said. “Two areas of activity will prevail in that time: densification of the macro network with C-band and 3.5 GHz, and to a lesser degree, 2.5 GHz PCS frequency for wide area coverage.”
There have been lots of promises to cover rural America, according to Gellman and he feels that has yet to materialize. Similarly, monetization of 5G will come with apps that customers are willing to pay for.
“We’ll first see the shift to adapt the macro network, then the move to small cells,” he said.
Data Centers
“Public tower companies buying data centers poses challenges,” he said. “The data center business has evolved inside-out, from existing data centers to the edge. Now edge applications are driving the business outside-in, but it is not clear what the killer app is, and how sensitive it is to latency.” Gellman questions whether a 5 millisecond latency is necessary where many applications can tolerate 10 milliseconds or more.
“With hyperscale data centers having several (~10) large customers, like Microsoft, AWS, Google, Facebook, they are still not producing much revenue,” Gellman observed. Distributed co-location data centers like DataBank, another DigitalBridge portfolio company, serve a broader range of customers from both regional and edge sites.
“The data center business involves density of demand, density of storage,” Gellman said. “Public tower companies buying data centers means coming at it from a different angle.”
Leasing Active Gear
Gellman said Vertical Bridge is always open to additional revenue streams. With a lot more active gear, like radios, being deployed worldwide because of spectrum auctions, towercos may start to include that equipment in master lease agreements.
“It’s a question of closed vs. open systems,” Gellman said. “Telcos like AT&T and VZ have built closed systems – national networks that are proprietary and very reliable.”
“We’re starting to see a more open approach such as DISH using AWS for core functions. But is that the future?” he asked. “What are we comfortable with? Shared networks are a more efficient use of capital, but what is to be shared?”
The question is, according to Gellman, how to move from a closed to open network. “DISH has an agreement with AT&T and may not build its own facilities where AT&T already has coverage,” he said. “Having enough spectrum is the challenge in trying to offer ‘Network as a Service.’”
Gellman does not see Open RAN being the same as shared RAN since there are high switch out costs in moving from a purpose-built network to using commercially available radios even though they save the MNOs capex. “Shared RAN is harder to get to, certainly in the U.S. How would it work?” he questioned. “There is not widespread support for it yet.”
Sustainability/ESG Strategies
Gellman said their success has also meant putting a premium on being responsible stewards of their drive to build out infrastructure in its various forms. Vertical Bridge has been proactive in adopting socially responsible initiatives. The company puts the emphasis on “E” for environment when it comes to sustainability, Gellman said. “When CDPQ invested in 2019, it was important to them. They asked, ‘what can we do to become carbon neutral?’”
Vertical Bridge has been a leading proponent of carbon neutrality in site deployment (“the first,” in fact, according to Gellman), using microgrids with wind turbines and solar power. “We’re targeting sites that rely on generators,” he said, “and trying to reduce that need, but it comes with challenges. Our goal is to neutralize and reduce the carbon footprint.”
“With microgrids,” Gellman explains, “we can have solar panels on the ground where we have excess space, and small wind turbines low on the towers where they are less impacting on capacity so we can still have multiple tenants.”
Philanthropic Endeavors
Inside Towers recently reported on the philanthropic efforts coming from Vertical Bridge, particularly a seven-figure donation to industry causes such as the Tower Family Foundation and Warriors4Wireless.
“We have always had a giving program, going back to Global Tower Partners (GTP) Cares,” Gellman said. “DigitalBridge has a strong social responsibility commitment. Recent donations were made by the Executive team who did it personally, not from the company. We have a great business, and we wanted to do something to give back as a team, on our own.”
Vertical Bridge sets aside one percent of tower cash flow for donations, nearly $2 million for 2021, to programs that employees care about. Gellman said although management donates to select causes out of pocket, company charitable giving is dictated by employees.
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