Lacking a Shared Sense of Urgency (Norwich ListServ)

This past week, proponents of the VTel deal have insisted that a decision by voters to build and own this tower ourselves may delay our emergency communications upgrade by a year or more. 

These claims simply ignore reality.

First of all, this talk of 24-30 months flatly contradicts our Town Manager's own timetable for building this tower ourselves, set out in his September 7, 2012 "Additional Communications Studies" memo to the Selectboard.   

On the second page of that memo, he clearly states that the permitting process would likely take five months and construction of the tower -- from "request for bids" to "project complete" -- would require another five months.  It's conceivable the bidding process (two months in his memo) could overlap the latter part of the permitting process, compressing a ten-month project into as little as eight, if that September 7th memo is to be believed.

Second, the assumption that VTel is on some fast track to build this tower doesn't hold up.  VTel is already more than five months behind the schedule our Town Manager announced last August.  The agreement he negotiated with VTel allows them two years from the date that agreement is signed to actually build this tower.  In fact, the agreement doesn't require VTel to build the tower at all.  After those two years, VTel can simply walk away without having built anything and without any repercussions.  On the other hand, once our TM signs this agreement, Norwich cannot terminate it, meaning we have no option but to wait patiently for VTel to make this tower -- among the many they are pursuing right now -- their top priority. 

VTel is a private commercial company looking to build out an ambitious multi-site wireless broadband network far beyond anything they have accomplished so far.  The assumption they somehow share our sense of urgency about this current emergency radio "gray out" -- with everything else they've got on their plate -- is simply naive.  I'm not suggesting they are bad people or even indifferent.  They're busy, they may be over their heads statewide, and they are in the business of making money, not of protecting the people of Norwich. 

Third, the VTel agreement allows them to unilaterally terminate the agreement if, after "commercially reasonable efforts" they feel this tower project isn't worth it to them.  That's a pretty subjective standard, so the agreement helpfully states that spending $40,000 "shall definitely constitute commercially reasonable efforts," meaning a lesser amount might too.  Why would VTel walk away from this tower project?  Ask the Windham County Sheriff.   Last week, VTel decided they preferred a hilltop site in Newfane to the tower they had agreed to build where the Sheriff planned to locate his narrowband antennas: 

"(VTel President Michel) Guité acknowledged that the change in plans represents "a little bit of a headache, because we went through the trouble of signing a contract with the sheriff.""

So I'd say it's time those supporting the VTel agreement stop trying to scare us with outlandish talk of year-long delays.  There's simply no factual basis to support their claim that VTel can or will build this tower faster than we can ourselves.  The facts actually suggest the opposite.

This is vital infrastructure and the need is urgent.  Why entrust it to a for profit who just last week left the Windham County Sheriff in the lurch on the eve of permitting?  Were his narrowbanding needs any less urgent than ours?

VTel is in the broadcast and tower rental business.  We are interested in public safety -- our safety.  Maybe this tower is too important to us to rely on VTel to get done?

Playing with the Big Boys

Open Letter to the Norwich Selectboard
Monday, February 25, 2013

Today, just two days before a vote will be taken, the Town Manager released the proposed definitive agreement with VTel and, as some had feared, it is is not a pretty sight.  In my opinion, it appears we've simply accepted VTel's opening offer, resulting in such a lopsided deal that the Selectboard and taxpayers should reject it out of hand.  I explain my reasons for this at length below.  My apologies for any rough edges, this is a lot to get done on such short notice.  I have posted an annotated version on my blog where you can click through to source documents, so you can confirm for yourselves if you have questions about sources for my information:

Now bear with me here, it's not rocket science, but it does require some explanation.

First, let's all remember this VTel contract is a business deal.  VTel isn't offering to build this tower our of altruism or community spirit.  This tower will generate several million of dollars in revenue for VTel over proposed 60-year term of this lease, so the initial cost of tower construction and permitting are a no-brainer for them.  VTel is in this for the profit -- I have no quibble with that -- but please be realistic about whom we are dealing with here.

Seeking profit, VTel wants to minimize their costs and maximize their revenue, plain and simple.  Any rent or revenue share VTel is required to pay Norwich to lease our land under this contract is a cost.  Naturally, they are going to offer as little as possible up front in terms of rent and revenue sharing to see what we'll accept.  That offer is nothing more than an opening gambit to get the best possible deal for VTel.  Unless we are willing to approach this as a business deal -- looking to maximize our rent income and revenue share -- we are giving up something of value (municipal property) for much less than it's worth to VTel.

So let's say VTel came to me, a private landowner, asking if I would be interested in leasing the top of my hill for a cell/LTE tower.  Ok, let's talk, and I start to do my research:

Typically, a tower site lease has three types of revenue provisions:


Ground Lease -- A monthly or annual rent of the ground on which the tower and supporting equipment are sited.

You can google cell tower leases and will find a wide variety of lease amounts -- ranging from less than $1,000/mo for unsophisticated, generally rural, landowners to more than $4,000/mo for urban locations more highly desirable to tower developers.  From the DRB hearings on the Verizon tower we permitted back in 2006, it's my recollection that landowner was to receive an initial ground lease rate of $17,000 annually.

Now, my hilltop -- and the town's DPW site VTel wants -- is a far more attractive site than Verizon's tower on Upper Loveland Road, especially with a 199' tower on it.  Ours can reach downtown in a very affluent community and ours is more than twice as tall as the Verizon tower.  But for comparison's sake, let's keep our expected ground lease figure conservative, at just a bit over what Verizon was paying six or seven years ago.

So, if I'm negotiating with VTel on a tower lease, I'm asking for at least $1,500 in monthly ground lease rent = $18,000/year. 


Co-locator/Sublease Revenue Share -- Tower operators sublease space on their towers to other broadcasters, allowing them to "co-locate" their transmitters on the same tower.  Operators charge these co-locators rent and view this rent as a major -- sometimes primary -- source of revenue.  Landlords who lease their land to tower operators generally require those operators to share that sublease/co-locator revenue since without their land there's no tower space to lease.  These co-location or sub-lease rental rates cover a similar range to ground lease rates.

At present, AT&T and T-Mobile transmitters are co-located on the Verizon tower on Upper Loveland Road, paying monthly rent for that privilege.   A tower such as this with three different companies co-located and paying rent can produce a very sizable income.  I don't have access to the specifics of how much they pay in rent on this tower; how much they share with the landowner; or how to find out, so more general data will have to serve.

One tower lease consultant's website includes a 2010 survey summary showing the highest and lowest annual lease income from towers in a number of states.  For Vermont, they report a low-end annual lease revenue of $92,000/year and a high-end of $412,000/year, presumably up in Chittenden County.   Just to be clear, those figures include both ground lease and co-locator rents.  We aren't Chittenden County, but we ain't chopped liver either.

So, I want a share of the co-location revenue VTel receive on the tower they want to build on my property, but how much of a share should I ask for?

If you google "cell tower co-location revenue share" you'll find, among other things, a Bay Area consultant's 2011 report for Juneau, Alaska - the "Kreines Report".   This is an excellent resource as it views the entire lease from the eyes of the municipality.  I'd strongly recommend it to anyone who wants to understand what the Selectboard is actually voting on this Wednesday.

On Page 4 of the Kreines Report, they advise that "50% revenue share is the market standard."  They then proceed to give examples of 50/50 co-location revenue shares from Wyoming, Florida and Tennessee.  They conclude by stating: "A rationale for use of the word "sharing" is that most people think it means 50/50. Any tweaking of the present meaning of share is a distortion of the term "sharing."

In addition to the Kreines Report examples, I've found numerous examples of other municipalities and school districts with towers providing a wide variety of co-location revenue shares ranging from 10% to 70%, but the majority I've found are around 50%.

So, if if I'm negotiating with VTel on a tower lease, I'm asking for a 50% share of the co-location revenue they receive on the tower they want to build on my property.


Rent Escalator Clauses -- There is a cost to tying up a property with a lease over a period of time since you can't do anything else with that property in the meantime, often referred to as the "opportunity cost" of a transaction.  There is also a time value of money, meaning a certain amount of money today -- like a $1,500 monthly lease payment -- has different buying power over time due to inflation and other market variables.  Where a long-term lease is involved, it's customary for the lease to include a "rent escalator" that increases the rent amount over time to compensate the lessor for the opportunity cost and time value of money involved in a multi-year contract of this kind.

Tower operators routinely require rent escalators when they allow co-locators on their towers.  Tower operators often grant landowners similar rent escalators if the landowner knows to ask for it. (Google away)

The Kreines Report states, "it is true, there are some leases that never mention escalation because the lessee never brought it up and the lessor wasn't aware of the issue." The report then summarizes an April 2011 survey of several dozen tower leases rent escalator clauses to conclude: "statistically speaking, there can be little doubt that 3% is the mode (or most common) escalation rate."

So, if if I'm negotiating with VTel on a tower lease, I'm asking for a 3% annual escalation rate on the ground lease and, with my 50% co-location revenue share, I already participate in the escalation rate they receive for co-locators on the tower they want to build on my property.


Lease Term -- Finally, I need to decide on how long I'm willing to lease my hilltop to VTel.

Asked by the Juneau city government to offer guidance on their tower operator's request for a 35-year lease term, the Kreines Report states the situation succinctly:  "Technology being what it is - fast moving - a 35-year term is a commitment to the unknown.  Twenty-year and 25-year terms compete for the most commonly used term in cell site leasing."  And if you google the dozens of cell tower lease summaries out there, you'll see the vast, vast majority are really five year leases with the right to renew four or five times up to a total of 20 to 25 years.  In fact, google "60-year cell tower lease" and see what you get.  60 months -- plenty, but 60 years? 

So, if I'm negotiating with VTel on a tower lease, I'm not willing to entertain anything longer than a total 25-year lease on the tower they want to build on my property.

And remember, my goals for this hypothetical VTel lease are not extreme or even aggressive, they are industry standard.

-    -    -    -    -

Now, if you examine the proposed VTel Agreement our Town Manager negotiated and wants approved on Wednesday, you realize just how out of our depth we are in dealing with VTel on this.

- We aren't charging any ground rent.
- The co-locator revenue share formula our TM has negotiated is three cents on the sublease rent dollar.
- We have no escalator clause of any kind for either the ground rent or the revenue share formula for the entire duration of the lease.

AND the lease term is 60 years, renewable solely at VTel's discretion.

This is simply a very, very lopsided deal that, if approved, we will regret for decades to come.

-    -    -    -    -

"But, hold on there," you say.  "This is not a matter of a private landowner leasing a hilltop to VTel for a tower.  This is a town trying to get our emergency communications transmitters up high enough to provide good coverage throughout town.  Don't look a gift horse in the mouth! If VTel's willing to build the tower and let us put our transmitters on top, we shouldn't quibble over rent, co-locator share, or escalators."

Fair enough.  Let's revise our bargaining position with this municipal purpose in mind.

Let's assume our TM decided that it's a fair deal to give VTel the site rent-free in exchange for hanging our antennae on the tower rent free.  But how did he -- and how do we -- figure out whether that's really a fair deal?

Industry standards and the Norwich Verizon tower lease suggest $1,500/mo as a ground lease is within reason.
That's $18,000 a year, assuming no rent escalator at all.
Over a typical five-year lease term, that's $90,000 in rent, again assuming no rent escalator at all. 
Over a typical five 5-year lease extensions -- totaling 25 years -- that's $450,000 in rent we're giving up, again assuming no rent escalator at all.
Over VTel's proposed 60-year lease that's foregone rent in excess of $1 million.  Assuming no rent escalator at all. 

Are we willing to pay over $1 million over the next sixty years for these antennas?  That's exactly what we're doing by giving VTel this lease rent-free.

Add to this the astonishing 3/97 split with VTel on any co-locators.

Let's say a cell company wants to co-locate on VTel's tower and will pay $1,000/mo, this time with rent escalators because VTel is a business and they don't overlook things like rent escalators.  And once you see the compounding effect of rent escalators, you'll understand why:

A co-locator paying $12,000 annual rent in year one would have paid a total of $65,261 over five years; $450,277 over 25 years; and a whopping $2,014,980 over 60 years.

With VTel's proposed revenue share of 3%; our share of this annual rent is $1,957 dollars and 83 cents over five years; $13,508 over 25 years; and an underwhelming $60,449 over the full 60 years.

And that's assuming only one co-locator.  Verizon already has two co-located competitors on their tower only a few years after building it.  And we all know Verizon's tower doesn't reach downtown Norwich very well.   So who knows how many co-locators VTel might have, particularly over 60 years, but even two over half that period would generate hundreds of thousands of dollars each for Norwich and VTel with a more equitable revenue share.

Are we willing to pay several million dollars in foregone rent and potential foregone co-locator revenue share over the next sixty years for these antennas?  That's exactly what we're doing by giving VTel this lease rent-free, no rent escalator, and asking only 3% in co-locator revenue share.

"But, wait," you say, "our Town Manager looked into this and says there aren't any other companies interested in this tower at this time."

Well, VTel is in this business.  VTel makes their money 1) by charging customers for the 4G LTE subscriptions they broadcast from VTel transmitters, and 2) by charging other cell/data broadcasters "co-location" rent to add their transmitters on the same tower.  Their contract with us clearly stipulates their rights to sub-lease to co-locators (VTel Agreement Section 4(b)) and clearly forbids us from doing the same (Section 4(e)).  They clearly felt it was important to limit our revenue share to 3% on those future co-locators.  And the industry standard shows tower developers all over the country are willing to build towers, pay base rent and 50/50 revenue shares to landowners, and they still see an attractive profit margin in the end.  I'm not begrudging them their profit, I'm just questioning why we are willing to be such patsies.

So are these antennas worth potentially several million dollars in foregone rent/rev share income over these next 60 years?

The point is, nothing like this level of analysis was ever done to justify granting VTel this ground lease rent-free.

Nor have any of us been provided any substantiation for the 3% co-location rev share rates VTel is being given.  When I challenged that figure last August at a selectboard meeting, our Town Manager simply stated he had the impression this figure was not negotiable in VTel's eyes.

Of course our Town Manager is also recommending a 60-year lease.  Unilaterally renewable by VTel.  So whatever failure to perform basic due diligence on these lease terms today, this town lives with for another sixty years.

Unless there were documents circulated which were not shared in public, no effort was ever made to compare this proposed contract with industry standards.  No effort was made to quantify the potential revenue we are giving up in return for having the top of a tower they own and operate.  No effort was made to review what VTel's initial offer had been or what our TM's goals were in whatever counter offer -- if any -- he proposed.

Whatever you want to say about Michel Guite and VTel, give the guy credit as a shrewd business man.

He's mastered the broadband spigot in Montpelier and he's run circles around us.

As his coup de grace, the original Letter of Intent stated as an objective, "The parties are entering into this agreement in hopes of establishing a model whereby wireless companies and public safety entities can work together towards a common goal of improved communications."

In other words, this agreement is meant to serve as a model lease VTel can take to other towns throughout the state as VTel rolls out their LTE broadband service.  Vermont towns lacking the resources we have at our disposal will expect we got our money's worth when we negotiated our agreement with VTel.  And they will be sadly, sadly mistaken.

The proposed VTel Agreement is simply a bad deal for Norwich, compounded by a ludicrous 60-year term.  It is simply irresponsible to move forward on this Agreement given the complete lack of public due diligence on what is the largest infrastructure project this town has undertaken in decades.

This is not the way to negotiate a business deal.
This is not the way to run a town.
This is not the way to build a tower.

We're now in our fourth month of an emergency communications gray-out; with a rotten 60-year tower deal on the table and the only realistic alternative -- a bond vote to fund the tower ourselves -- publicly opposed by our Town Manager.  It's time to discuss alternatives with an open mind because, however you look at it, we've been painted into a corner and the door is on the other side of the room.

Due Diligence? (Letter to Valley News 9-25-12)

To the Editor:

Your Sunday editorial "Due Diligence - Norwich and the Cell Tower" oversimplifies what "irks" some residents about the "Fulton Tower" controversy in Norwich.

Since Norwich opted for a Town Manager more than a decade ago, we've struggled to make this administrative arrangement work.  To some degree, our first three town managers all succumbed to a Selectboard and political culture still rooted in the pre-town manager allocation of responsibilities.  To their credit, our current Selectboard has consciously set out to more clearly delineate the duties and authority delegated, by statute, to a town manager and last year hired a very promising new Town Manager in Neil Fulton.  This most recent kerfuffle over Fulton Tower is all the more surprising given the positive steps taken these past 18 months in finding a more mature relationship between Selectboard and Town Manager.

Again, to Neil Fulton's credit, since taking office he has moved quickly and decisively to prepare our public safety departments for the FCC "narrowbanding" deadline at the end of this year which prior regimes had either ignored or misunderstood.    Fulton is highly adept at the grant game and has already justified his salary increase many times over in securing hundreds of thousands of dollars in grants for police, fire and public works communications equipment this past year.  In the event, very few townspeople have seriously questioned the need for significant investment in emergency communications infrastructure.  Nevertheless, a major public safety infrastructure project which should have garnered broad public support has become a significant controversy.  Why?

If you ask me, it's a fairly straightforward -- cautionary -- tale of initial, understandable, oversights compounded by obstinance and a lack of public due diligence.

The controversy was there at the outset.  Fulton Tower is to be built in a valley along New Boston Road.  Due to the low base elevation in a hilly town, the structure needs to be very high to broadcast effectively.  The proposed height of 198 feet is a concession to avoid FAA regulations requiring a flashing red light on towers 200 feet or higher.   198 feet is the height of a 19 story building and about 140 feet above the surrounding tree line. 

This site and design were felt to be the most cost-effective solution to an acknowledged need.  But our Town Plan and zoning regulations don't rubber stamp towers -- even town-owned towers -- on the basis of cost-effectiveness.  Instead, they were drafted to steer developers towards siting towers where they can achieve their coverage objectives, if possible, no more than 20 feet above the surrounding tree line.  Adept tower developers -- like Verizon before they built their tower in Norwich back in 2006 -- research a number of possible sites to locate some with the topographical charcteristics that allow them to achieve their coverage objectives consistent with our height restrictions. 

Repeated public requests for an engineering study to look for sites that achieve our coverage needs in compliance with our own zoning regulations have been ignored.  Instead, we've been given a 2010 draft feasibility study which considers only this one site, suggesting no professional effort was ever made to look beyond this predetermined solution. 

Due diligence?   The initial oversight -- forgetting to consider our zoning regulations in designing a proposed tower -- is perhaps understandable, even for a Town Manager lauded for his engineering expertise.  I find it harder to grasp why our Selectboard felt no need to request siting options, especially once the zoning, height, and coverage concerns were raised last Spring. 

Unfortunately, the initial zoning compliance oversight has knock-on effects. 

Perhaps recognizing the zoning issue, the Town withdrew the original zoning application filed with our Development Review Board ("DRB") last July and decided, instead, to seek fast track review that would avoid local zoning and Act 250.  The Vermont Legislature created the fast-track option for tower developers through the Public Service Board under 30 VSA 248A several years ago in an effort to "juice" broadband infrastructure construction.  For those applicants wishing to avoid local and Act 250 review, 248A offers a cursory threshold to approval which includes a statement from either the town's Selectboard or Planning Commission that the proposed tower is consistent with the Town Plan. 

In our case, this means our Selectboard and Planning Commission will soon be asked to go on record that 198-foot towers are consistent with our Town Plan.  Inconveniently, more than a decade ago Norwich enacted detailed zoning regulations governing tower height consistent with our Town Plan.  In 2006, both our Development Review Board and the Act 250 District Commission, reviewing our Town Plan and zoning regulations, enforced these regulations to restrict Verizon's Norwich tower height to twenty feet above the surrounding tree line. 

Due diligence?  A decision by the Selectboard or Planning Commission to certify Fulton Tower's 198-foot height at the Public Service Board spurns these facts -- rejecting all the work done by townspeople in town plan discussion, Planning Commission review, and DRB adjudication of regulations we all naively thought reflected the conscious democratic will of the Town -- and creates a precedent that will be difficult to reverse. 

What basis will the town have to limit height for any future tower if we wink at this one? 

The only reason we now face this regrettable policy choice is because the original design for Fulton Tower never took into account our zoning regulations so never thought through how this tower would receive DRB and act 250 approval.  Every effort to flag these issues for the Town Manager and Selectboard have been met with dismissiveness and dissembling.

Then there's VTel. 

Whatever individuals may think of VTel's owner or the company itself, the proposed VTel contract is a questionable business deal for Norwich residents.  The idea behind this contract is, again. cost-effectiveness.  In exchange for building us a tower on town property to locate our emergency services transmitters, VTel will effectively own the tower for up to sixty years on this site rent-free. 

Due diligence?  At no time prior to approving the VTel Letter of Intent was the Selectboard or the public provided any information about typical lease rates, similar revenue share agreements, or co-location rates to help us judge the wisdom of this deal.  VTel will be using taxpayer grants to build a tower on town land it leases rent-free.  It will broadcast for-profit broadband signal to Norwich subscribers without paying any co-location rent or sharing any revenue from that service.  And it will keep 97 cents on every dollar any other broadcaster pays them in co-location rent potentially for the next sixty years.  When asked at a Selectboard meeting whether the 97/3 revenue share on colocation seemed reasonable, our Town Manager stated that he felt VTel saw this rate as non-negotiable.  I don't question our Town Manager's motives in trying to get a tower built cheap.  I question his business judgment in thinking a sixty year lease on these terms is cheap. 

As your editorial states, it is certainly within the authority of our Selectboard and Town Manager to act as they have.  However, the failure to do our homework up front has us, as a town, backpedaling into a series of really questionable business, regulatory, and policy decisions that are only being brought to light through the alarmed efforts of townspeople.  It may be "the cogs of local democracy are well-oiled in Norwich," but the administrative judgment of our town government -- and public due diligence made upon it -- is looking increasingly suspect. 

Land Swap Ideas

As a follow-up to the land swap post on teh listserv from earlier today, Alison May succinctly summarizes some of the practical obstacles developing the fire/police property would face:

"Unfortunately, even if fire/police could move to Agway (probable total cost would be c.$2.5 million vs c$2 million to stay where they are), the land on which they are now situated, and which the town owns, is only 1.33 acres. Septic capacity in that area is dicey at best - there are pretty wet portions of the land. Whether they qualify as true wetlands I don't know. There have been real problems with septic in the swale that goes over to Carpenter Street. So I rather doubt, even though it would be wonderful, if more than a couple of units could be built."

Alison is probably right about the limited development potential of the fire/police 1.33 acres alone. As discussed on a broad email list in October 2005 when this idea was first really bandied about, the potential to co-develop these 1.33 acres with the Norwich Senior Housing and possibly adjoining parcel currently for sale could create a significant combined parcel capable of much higher density development. All of these questions would need to be resolved through in-depth investigation, but should not themselves dissuade us, as a town, from considering relocating emergency services to the Agway parcel.