Research Paper: Business Proposal for Tower Construction

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[. . .] Tower company attends to municipal zoning requirements to facilitate erection of a mast /tower at the location/vacant site secured;

5. Tower company offers locations/sites to networks / mobile companies;

6. Tower company secures leases (tenants) for a location and thereafter proceeds with development of the tower;

7. Towercos install mast and necessary infrastructure (electricity, base station enclosure if required, perimeter fencing and entrance gate, etc.);

8. They maintain tower and infrastructure;

9. They generate revenue from tower rentals.

RoI from a high-rate tenant can average approximately R 500,000 per year.

A single tower may host 10+ tenants, which equates to an annual return of R 5 million +.

2.2 Municipal Tower Supply Business Model Whereby Municipality Provides Land for Tower/Mast

2.21 Location

Towers must be located in areas that service the requirements of various tenants (mobile phone networks, data suppliers, ISP’s, radio transmission services, etc.)—Cities, Towns and Rural Areas—all of which have municipal land holdings.

Access to available sites for MNOs, in a variety of locations, with suitable zoning is in short supply. This business model affords access to arguably the largest single landowners in the country in ‘one transaction’—namely, municipalities.

2.22 Municipal Revenue Generation Potential:

For a portfolio of 100 towers with 5 tenants conservatively priced at R 200,000 per tenant: R 100 million+ per annum. (Margins increase as the number of tenants per tower increases).

2.23 Average Rentals for Space on Towers

Lease terms can vary by customer and place. The average yearly cell phone tower lease rate per client will be approximately USD 40,000 or R 525,000. Consultation firms are available for developing contract terms.

American Tower provides the following guidance:

· Revenues Long-Term Customer Leases

· Contracts are typically non-cancellable

· Typical contract terms include an initial term of 10 years with multiple 5-year renewal periods

· Annual lease escalators in the U.S. of approximately 3%

· Escalations in international markets are typically based on local inflation rates › Historically low annual churn of approximately 1 - 2%[footnoteRef:8] [8: “Introduction to the Tower Industry and American Tower.” American Tower, 2014. Accessed 15 Sept 2017.]

2.24 Tower Company Financial Feasibility

The chart below provides an illustrative example of the financial feasibility of the project, where RoI is calculated as Gross Margin divided by Construction/Upgrade Costs.

A concrete example of how this model might operate in a Municipality such as JHB:

1. Municipality Signs Development Lease with mast developer/investor for 15 years WHEREAFTER Municipality owns all infrastructure, mast, takes over tenants lease on mast and earns all revenue etc. going forward at no additional cost;

2. Municipality to earn either fixed (current market rentals for a ‘site / land’ on which a mast is erected is say R10 000 per site per month OR revenue share income based on say 30% of income;

3. Cost of tower / mast, inclusive of infrastructure, R600 000.00 to R1 200 000.00 m per site;

4. Number of sites for mast installations - 500;

5. An average of 4 tenants per mast at a rental of R15 000 per tenant, namely R60 000 per site per month;

6. 5 or 10 year loan from financial institution to mast / tower company investor erecting masts / towers on leased land at an interest rate of 11% (Prime plus 0.5%).

7. Management costs, if applicable: R46 000.00

2.25 Short and Long-Term Enhancement of the Municipal Balance Sheet

Municipal balance sheet enhancement both in the short term (immediate rental income) and long term (future ownership of all the assets / masts / towers due to development lease structure, affording ownership to revert to the Municipality following expiration of the development lease in which time all assets would have been paid by the mast / tower developer).

3 Cost

If Management is Outsourced: “The cost per site depends on the scope of work, but our average cost per site is USD $3,500 [R 46124.75]. However the cost varies according to what we have to cover.”[footnoteRef:9] [9: “How to Build a Separate P&L for Each Tenant.” Tower Xchange, Issue 4 (2013), pp. 58.]

While “costs of maintenance, rentals and electricity are considerably lower in SA than in other African nations,”[footnoteRef:10] there remain some considerations when gauging the capex requirements per year. American Tower supplies the following criteria for assessment: [10: Thabiso Mochiko, “Tower Sharing Benfits.” Financial Mail, 9 Sept 2016. Accessed 14 Sept 2017.]

3.1 Direct Cost of Operations:


· Ground rent

· Monitoring

· Insurance

· Real estate taxes

· Utilities and fuel

· Site maintenance

Land Interest Attributes

· Long-term leases: average remaining ground lease term is approximately ~12 years internationally

· International escalators are typically based on local inflation indexes

Pass Through

· Our international markets typically pass through a portion of their operating expenses to the tenant (e.g., ground rent, fuel)

Fixed Cost Structure of Towers

· Additional tenants result in minimal incremental operating costs[footnoteRef:11] [11: “Introduction to the Tower Industry and American Tower.” American Tower, 2014. Accessed 15 Sept 2017.]

Towers are not limited to their initial outlay. Height can be expanded to accommodate more tenants. Multiple antenna mounting scenarios can be devised using whips, panels, microwaves, and many other combinations through RF design. Port hole additions may be utilized to allow for more coaxial cables. Tower reinforcements can be added to provide structural strength. Foundations can be strengthened to increase the load capacity of the tower. Backup power generators can be supplied to ensure maximum productivity. Shelters can be stacked, one atop another, to maximize ground space. Ground space can be extended to accommodate maximum equipment of tenants on the tower. In short, there is no end to the variations that can be constructed to meet the needs of both tower tenants and owners.

4 Socio-Economic Benefits

4.1 Improved Infrastructure

Greater tower infrastructure rollout opportunities for use by MNOs and other tenants on a scale never seen before. This would prepare municipalities for 5G- integration and superb service for all consumers.

4.2 Broad-Based Black Economic Empowerment (BBBEE)

This proposal will also meet governments’ Black Economic Empowerment goals in affording historically disadvantaged people the opportunity to participate in opportunities they would usually be unable to participate in. By using land to construct towers and expand MNOs, the Municipality creates jobs particularly for BBBEE. A BEE rating certificate of level 1 could easily be obtained by the Municipality by selectively hiring or outsourcing jobs to address racial inequalities in the following ways:

1. Small and Medium Enterprise Development and Job Creation in terms of establishment of a service and maintenance team to maintain the towers being erected;

2. Pre-negotiation of leases with mobile phone operators, networks, data providers etc. for various sites to facilitate easy raising of funding by Black Economic Empowerment, small enterprises or other entities who may need to raise finding for capital investments to be incurred in tower infrastructure.

4.3 Increasing Leverage

Additionally, tenant leases of 5-15 years would be leveraged to raise funding, pay for the tower within the lease period, and afford a significant profit to the investor undertaking the tower development after having secured the ‘development lease’ over the land provided by the municipality.

Pre-determining the full development costs of infrastructure, supply and install prices of different types of towers in different locations (as may be required by the networks and tower tenants will give an idea of the scope of the project. This, in turn, will enable successful bidders to have an idea of the cost of the tower together with the pre-negotiated revenue (minimum) for the mast. This essentially enables the investor to merely raise funding and have the mast installed.

Leverage leads to investment which in turn leads to development and, ultimately, more leverage and investment. Market sounding (initial discussions with banks, financiers, etc.) can be conducted in terms of willingness to enter into funding arrangements for successful clients who are allocated sites. It is envisaged that the Municipality would have tested the market and essentially pre-arranged funding for successful bidders based on the strength of the ‘offers to lease letters of intent’ with the corporate tenants who wish to utilise the towers.

There is also the opportunity for municipalities to securitize (create a publicly traded entity) the tower portfolio and unlock up front value if so required. The sheer scale of the tower opportunity will create a significant opportunity for a sustainable publicly traded entity from which Municipalities could earn ongoing revenues along with unlocking up front value through sale of equity in the listed / publicly traded entity.

The opportunities to leverage the tower initiative are virtually endless.

4.4 Adding Competition

By making more towers available, price savings are ultimately passed on to consumers. The Big 4 Cell providers in SA are Vodacom, Telkom, Cell C and MTN. The map below provides a visual image of Vodacom’s 2G Network towers in and around the city of Johannesburg.[footnoteRef:12] This is but one example of coverage that exists. Similar maps can be created… [END OF PREVIEW]

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APA Format

Business Proposal for Tower Construction.  (2017, September 16).  Retrieved November 11, 2019, from

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"Business Proposal for Tower Construction."  16 September 2017.  Web.  11 November 2019. <>.

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"Business Proposal for Tower Construction."  September 16, 2017.  Accessed November 11, 2019.