KPR Consult: The real costs of decommissioning towers

An increasing proportion of tower markets feature a decommissioning component – particularly in developed markets such as Europe. One international towerco strategist told us “no towerco has ever completed a large scale decommissioning project to prove the economics of consolidating towers, deploying capex to release oneself from lease costs, and improving EBITDA in the medium term.” Cellnex has an ongoing decommissioning project in Spain, and ad hoc decommissioning has taken place in the UK, but since no towerco has completed a decommissioning project of sufficient scale to prove the economics, TowerXchange spoke to tower gurus KPR Consult, who completed an 1,100 tower decommissioning project in Scandinavia recently.

TowerXchange: Please reintroduce KPR Consult in terms of your decommissioning experience in particular.

KPR Consult is a tower engineering company specialist established 11 years ago. KPR are leaders in analysis, strengthening and co-location management of telecom towers in the Nordic regions. KPR Consult is a partner and backbone in Intelli Towers, which provides innovative tower doctoring throughout the globe.

KPR Consult was engaged in a substantial decommissioning project for the past two years when two Nordic operators decided to merge their tower networks. As a result, they concluded that they had 1,100 overlapping sites, some of which were to be sold, some of which had to be dismantled.

When dealing with overlapping cell sites, your first question is whether you really need to decommission them, or whether you get any value out of the sites? Can the contract be transferred, and can you sell the sites to a towerco or another MNO? If you can’t sell the sites, can you give them away? (Editor: it seems that the recent transfer of 7,700 Telefónica Germany cell sites – mostly rooftops – to Deutsche Telekom and ultimately to Deutsche Funkturm might have been the result of this kind of thinking). Parallel infrastructure which may be needed for infill capacity in future is typically mothballed not decommissioned.

If you can’t sell or transfer the site, you need to release yourself from the lease obligations and dismantle the site as cost-effectively as possible. The biggest challenge is negotiating the cancellation of hundreds of land leases some of which may have up to ten years still to run at €5-6,000 per site per year.

TowerXchange: Let’s start by talking about the cancellation of land leases – how should this delicate matter be approached?

You need to appoint an independent expert intermediary to literally go door to door and meet with each landlord, negotiate with each and find a closing deal. The worst thing to do is send someone from the operator – this risks the landlord being more belligerent and seeking to enforce the full remaining lease term, and you risk ending up in court.

You’ll need local knowledge, local language skills and specialist skills, so you might use a site acquisition firm, perhaps supported by a specialist lawyer. In the case of the nordic decommissioning project, KPR Consult were subcontracted by the MNOs concerned, and we found that we could reach agreement on breaking lease contracts without a lawyer.

We joint-owned and managed the contract, we charged a cost price for the project management of decommissioning, and our profit margin from the project was determined by the difference between what the operator was obliged to pay and our share of the savings we realised.

Before you talk to landlord you have to know the remaining lease term left on the contract, and how much of that you can absorb in worst case scenarios. You need to know who you’re working with – we need copies of contracts, any useful information indicating what’s important to that particular landlord.

The more positive dialogue you have with landlords, especially further outside cities, the more chance you have to secure permission safely leave some equipment or foundation materials on the site, again saving costs. On the flip side of that, if you make a mess of the compound, you again risk ending up in court.

TowerXchange: What environmental obligations have to be fulfilled when decommissioning a cell site?

The resale and/or disposal of network material is a big focus in Europe, and is conducted in accordance with ISO 9001, ISO 14001 and WEEE standards.

There’s a process to be followed and a set of strict environmental rules. Companies decommissioning towers, and their subcontractors, are subject to compliance with MNOs’ code of business conduct and CSR policies, and a host of other environmental obligations, the most common of which are summarised in figure one.

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1. Handle logistics, resale and disposal in accordance with ISO 9001, ISO 14001 and WEEE standards

2. Provide a certificate of destruction for all destroyed materials

3. Document sold equipment, including details of receiving customer

4. A detailed report on waste broken down by recycled material, household waste and any hazardous waste

5. A detailed report on obsolete electrical and electronic equipment and E-waste discarded, reused or recycled

6. Report any accidental spills, particularly any accidental releases of hazardous substances

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TowerXchange: What can be left on site?

It depends on what the landlord will allow, as well as the aforementioned environmental considerations.

It is not illegal to leave concrete in the ground. It certainly reduces the cost of decommissioning the site if you can negotiate with the landlord to leave an enclosed concrete foundation in place, but it’s generally easier to do so at rural rather than urban sites. If reinforced concrete remains enclosed there should be no pollution risk, but if you break up the foundation and don’t take it away it will corrode and pollute.

TowerXchange: Does the steel removed from a decommissioned site have any re-use value?

A telecom tower might have a 20 year lifespan, but if one measures the zinc in the steel it’s usually undamaged, a little discoloration aside, so you can use it again. There are a number of specialist brokers of scrap metal from whom you can recover some value from tower structures, shelters, copper wiring et cetera. The resultant savings are typically split between MNO and subcontractor.

You still have to pay to take down the structure and remove the steel. Reinforced concrete, typically used in foundations, is more difficult and costly to recover and has no resale value. This is one of the many reasons why I would advocate using steel-only foundations: steel is much easier to extract and relocate, it can be re-used, and risk of pollution is greatly reduced. In just about all cell site scenarios, concrete no longer need be poured for foundations. The only exceptions are areas prone to flooding, such as parts of Myanmar, but even there steel foundations can be raised and natural drainage designed to ease drainage from below.

TowerXchange: What does it cost to decommission a cell site?

Here is some example pricing for the full decommissioning of sites (before our share of lease negotiations and other cost savings):

1. Decommissioning the entire site inclusive of tower, foundation and equipment: US$16,800

2. Decommissioning just the tower and foundation:

US$12,600

3. Decommissioning the equipment only, leaving the tower and foundation: US$8,700

4. Decommissioning rooftop site with equipment room: US$10,300

5. Decommissiong a rooftop without equipment room: US$6,900

Other costs to be considered include the MNO / towercos own costs incurred reviewing contracts.

MNOs and towercos often have preferred turnkey infrastructure subcontractors who can execute the actual dismantling of the sites and disposal of material. In our case, if we’re project managing and another company is carrying out the work, we charge a 15% admin / financing fee and a further US$2,500 per site to talk to landlords, to redesign and redraw sites as necessary to satisfy communities, and to update the asset register.

TowerXchange: What does the transfer of the BTS consist of and cost?

Height and capacity permitting, you put up a temporary site to ensure continuity of service. An example temporary structure is shown in figure three; a Y tower with concrete blocks for ballast. In some countries the concrete blocks used for roadblocks are readily, cheaply attainable and stackable – a good choice for ballast.

Depending on height, a basic temporary tower might cost US$10-15,000 inclusive of concrete, but most MNOs and towercos have a number of temporary towers in inventory. You might incur US$150 per meter in assembly costs, then the same again to dismantle. Rapid deployment towercos cost more upfront but assembly and dismantling costs can be much lower.

In Europe everything is typically assembled on the ground then erected by crane; it takes just a day to erect a 40-50m temporary tower.

 TowerXchange: And what’s the typical total time taken for the decommissioning of a tower?

It needn’t take more than one to two days to take up the steel, rising to three to four days if you’re using a temporary structure. Taking up the foundation is less predictable – much depends on the materials used and their condition.

TowerXchange: Do you personally buy-in to the economics of decommissioning as a value accretive part of the European towerco proposition?

I definitely buy-in to the decommissioning and rationalisation business model, even if European towercos have to decommission around 10% of the towers they’re buying.

There is an established process for decommissioning towers. There are usually several subcontractors in any market to whom MNOs and towercos subcontract build to suit projects who can take care of dismantling, and recover some value from materials removed from sites – indeed it is often possible to recover most of the cost of dismantling a site from scrap.

MNOs and towercos sometimes do the commercial work themselves, but I recommend working with a trusted, proven intermediary partner to manage the project and to be an independent party in lease negotiations.

My guess is that it might take two to three years to achieve return on investment in decommissioning (when the capital costs of dismantling sites and paying lump sums to cancel leases are recovered through lease and other opex cost savings). However, the cost of breaking leases is by it’s nature unpredictable, and much depends on the individual circumstances of the MNO or towerco concerned.