One of the nation's biggest cell tower owners announced this week it would spend almost $1 billion for access to thousands of utility structures across California.

The new transaction – between utility Pacific Gas and Electric Company (PG&E) and tower company SBA Communications – is not a purchase agreement. Instead, it's a 100-year leasing deal that will essentially allow SBA to rent out space on PG&E's utility towers to mobile network operators for 5G. PG&E will get an unspecified cut of those rental fees.

"As 5G network deployments are now a reality, we are excited to use our vast experience and industry leading position in order to facilitate the future additional use of these assets by wireless service providers for the collective benefit of the wireless industry, PG&E and SBA," said SBA CEO Jeff Stoops in a release.

The novel transaction highlights the critical role that "vertical real estate" like electricity poles is playing in the development of 5G networks. After all, 5G network operators are deploying services in a wide and growing number of spectrum bands with different propagation characteristics. At the same time, they're also looking for ways to increase the number of towers in their coverage areas because a denser network design can support more customers and faster speeds.

As a result, operators are becoming increasingly desperate to find structures that can not only house their transmission radios, but that also sit in the right locations to provide uniform coverage across a city or region. The structures also need power and backhaul capabilities.

Gone are the days when a handful of massive macro cell towers on the outskirts of town could provide enough vertical real estate for every mobile network operator. As 2021 dawns in the era of 5G, operators are grabbing for the rights to broadcast their signals on everything from light poles to electricity towers to hotel rooftops.

A transaction for the republic of California

"All in all, the deal gives SBA additional exposure to US towers (that we still feel is the Best Business Ever) at a relatively reasonable price, in difficult California markets with especially high barriers to entry through strict zoning restrictions," explained the financial analysts at Raymond James in a note to investors.

SBA's $973 million lease with PG&E covers almost 30,000 structures across the utility's network. Roughly 700 of those structures already hold wireless equipment from unnamed wireless providers, generating close to $40 million annually in rental payments. SBA said it will work to rent space on the remainder of the PG&E structures covered in the deal to mobile network operators looking to expand their 5G coverage areas and improve their services.

Given the $81 billion collected by the FCC in its recent C-band spectrum auction for 5G, there's a good chance SBA will be busy. That's why the Raymond James analysts routinely describe the cell tower industry as the "Best Business Ever."

However, the financial analysts at MoffettNathanson offered some skepticism around the issue.

"Transmission lines can snake through hundreds of miles of sparsely populated land, and we suspect the vast majority of the locations would be of little to no use to carriers," they wrote, arguing the overall opportunity for SBA is "modest."

A utility harbinger

The MoffettNathanson analysts also pointed out that PG&E recently emerged from a bankruptcy sparked by its role in the wildfires of 2018, potentially driving the utility to look for financial injections like the one provided by SBA. Nonetheless, they said they expect other utilities to strike similar agreements.

"We also don't know how many license opportunities like this may be out there, but we'd guesstimate something on the order of 10,000 sites in total nationwide," they wrote.

To be clear, utilities across the country have already become major suppliers of vertical real estate to mobile network operators. For example, Xcel said in 2019 it had already received 1,000 requests from network operators in Colorado for access to its street lights. Further, the MoffettNathanson analysts pointed out that utility provider FirstEnergy sells access to its structures through Diamond Communications, while utility Duke Energy has a similar proposition with PeakNet.

However, 5G operators in some cases have been struggling to work with utilities. For example, Verizon has an ongoing disagreement with Potomac Edison in the Midwest over the fees it must pay to the utility for access to its structures. AT&T has a similar ongoing dispute with Duke Energy.

Beyond light poles

But utilities aren't the only real estate players with access to power and backhaul. For example, cities often own plenty of valuable vertical real estate across the country – which is why the wireless industry pushed the FCC and some state legislators to issue rules designed to prevent local governments from setting their own rental rates for access to such real estate. Operators argued such rules were necessary to prevent cities from profiting off the "race to 5G," while others bemoaned federal overreach into local affairs.

Nonetheless, those streamlined access rules haven't satisfied operators' desire for locations for their 5G transmissions. For big real estate companies, this represents an opportunity.

"Pebblebrook Hotel Trust today announced that it monetized 14 rooftop wireless leases, including the assignment of future wireless rooftop leases, through the granting of long-term easements at 11 of the company's properties," the company announced in a release last month.

Pebblebrook Hotel Trust is a publicly-traded real estate investment trust (REIT) that owns a total of 53 hotels across the West Coast. The company scored $12 million off its sale of its rooftop real estate to an unnamed buyer.

"In addition, the company agreed to a strategic marketing and revenue sharing agreement for future rooftop wireless assets at the company's 11 hotels and resorts included in this transaction with the third-party assignee of the leases," Pebblebrook added.

Meaning, vertical real estate of virtually any shape and size is now officially worth millions of dollars. Whether operators saddled with massive spectrum purchases and a shrinking workforce can afford such expenses – or whether they can leverage 5G to recoup those expenses – remains to be seen.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano