Four years ago SOLiD started the MIDDLEPRISE discussion. Three years ago, the wireless industry joined the conversation and today the MIDDLEPRISE is talking MIDDLEPRISE. However, is it the same MIDDLEPRISE as three years ago? Well, yes and no.
The industry has learned a lot in three years. The market definition has matured, everyone I talk to is questioning the early TAM estimates, 5G, CBRS, and CRE Property Technology are impacting the conversation and the elephant-in-the-room is that the entire market opportunity hinges on a few powerful entities. Yet, despite the slow adoption pace and seemingly impossible barriers, the MIDDLEPRISE is not going away, but it is different than the wireless industry’s early analysis. I think it’s time to absorb the lessons learned and start thinking MIDDLEPRISE 2.0.
IT’S STILL BIG, BUT I ALSO FOUND THAT SIZE AND OPPORTUNITY ARE IMPACTED BY THE CRE MARKET.
The MIDDLEPRISE started off with a simple definition: commercial properties between 100,000 to 500,000 sqft along with the premise that property owners can and are willing to invest in wireless technology. This was an easy way to show the market potential, specifically cellular DAS, and differentiate it from larger, legacy venues like stadiums and convention centers and subways … However, it’s a bit too simple and fails to address the realities of the complex CRE industry, specifically occupancy rates, lease cycles and a broader scope of in-building wireless. So how big is the MIDDLEPRISE? Some of the market estimates are based on a total CRE sqft inventory. Some take-into-account the size and or use of the building. And still others look to specific verticals to generate a TAM. It’s still BIG, but I also found that size and opportunity are impacted by the CRE market.
MIDDLEPRISE thinking must consider that low vacancy rates and the staggered nature of current lease terms not only shrinks the SAM but also changes the IBW conversation. Conversations with a building owner can’t start with “your tenants be won’t be happy if their cellphone don’t work in their space”. Why? Because they are already tenants and will be for at least 3-5 years on average. For most building owners and their tenants, that conversation is just not relevant during a lease cycle. For example, if a building owner has a tenant that occupies 80% of a 250K sqft building and are in the first year of a 10 year lease, you better have something else to justify the installation of an in-building wireless network. Yes, it’s an extreme example, but considering today’s low vacancy rates and an average lease term of 4+ years, you can see that the SAM, at any given time, is less than anticipated. Without going into the numbers, you must agree that the billion(s) dollar MIDDLEPRISE TAM has a significantly lower SAM as a result or dramatically scales back the TAM.
Additionally, the MIDDLEPRISE is impacted by the availability of leasable inventory. Today that rate is trending lower according to a Q4-2018 report from the National Association of Realtors. Office space vacancy rate have trended downward from a 2010 vacancy rate of 21% to a national average of roughly 13%. The National Association of Realtors also report that “The shortage of available commercial inventory remained ranked as the top concern for realtors”. How does this impact the in-building wireless MIDDLEPRISE? Cellular connectivity, as part of an enhanced tenant experience technology push, is less of a value-add to a market with low vacancy. At a minimum, it forces the MIDDLEPRISE players to change their strategy and demonstrate, to the CRE market, that In-building wireless is going to play a role in the future of their buildings regardless of today’s low vacancies rates.
“MIDDLEPRISE 2.0 will undoubtably include new wireless technology, however, until 5G is ubiquitous, most buildings will still have a cellular coverage and capacity issue.”
New construction projects and enterprise direct opportunities are also part of the MIDDLEPIRSE. They are uniquely different than existing, occupied buildings and, in my mind, should be targeted separately. New construction with energy efficient building materials and a smart building technology focus are being designed with infrastructure to support wireless technology, as well as property tech solutions. Likewise, enterprise owned, and occupied buildings are attractive as they often have fewer financial barriers and a corporate level, B2B relationship with a mobile network operator. New construction that is LEEDs certified, Smart building focused and deliver an adaptable enhanced tenant experience will almost certainly require in-building wireless infrastructure. In contrast to the upside, according to Dodge Data Analytics, new construction starts have decelerated since 2015 from double digit grow to a 3% growth rate in 2018. Really bad timing for the MIDDLEPRISE IBW industry, yet I still consider this to be the low hanging fruit for the wireless industry. One last data point on market size from the U.S. Energy Information Administration. They report that buildings over 100K sqft represent only 2% of the total building count and they represent only 35% of the U. S. total sqft inventory. The MIDDLEPRISE market size or TAM is not as large as anticipated.
5G AND OTHER DISTRACTIONS
In 2016, 5G was in full pre-hype mode right alongside of the MIDDLEPRISE conversations. Fast forward to 2019 and 5G is now part of the MIDDLEPRISE. The 5G stage is also shared with Citizens Broadband Radio Service or CBRS, an unlicensed spectrum being developed for in-building applications and is positioned to solve the MIDDLEPRISE signal source problem much like cellular over WiFi today. Of course, your mobile devise will also need to be CBRS compatible and I don’t see this being an issue of if but rather when it does it happen. Millimeter wave is also in the conversation as part of the 5G performance vision. It no doubt provides the performance needed but it is going to take time and acceptance from the general public. Wrap all of this together and the CRE industry is almost guaranteed to be confused. MIDDLEPRISE 2.0 will undoubtably include new wireless technology, however, until 5G is ubiquitous, most buildings will still have a cellular coverage and capacity issue. So, what does this mean? 2. 0 thinking must include a path to 5G, CBRS, mmWave, Fiber-to-the edge infrastructure and open source RAN. So far these discussions have been a bit of a barrier-to-market where, ironically, the problem today is still largely 4G coverage and capacity.
THE ELEPHANT(S) IN THE ROOM
There is an elephant in the MIDDLEPRISE, in fact, maybe two. We seldom talk about them, but everyone knows they are there. The mobile network operators, a necessary component of any in-building cellular network, have ultimate say in a MIDDLEPRISE deployment. After all it is their spectrum – their customers – their business, which means it’s their choice to invest in the network. They have historically picked who, when and where they want to provide access to their signal. But unlike the T1 business of decades ago, in-building cellular is just not part of their business, and at times appears to be only a marketing tool for the MNO. I believe this signal source model, unfortunately, eliminates as much as 50% of the MIDDLEPRISE opportunity, that is until there is a new model.
Elephant two, are the base station transceiver (BTS) OEMs. Signal source technology has seen little movement to deliver solutions that change the way signal is provided to a building as well as the ownership model, and cost, somewhere around 50K per site, per MNO. There is a glimmer of optimism on the horizon, a few of the OEM pachyderms are members of the oRAN alliance and seem somewhat interested in working to develop a standards-based solution that both elephants and the market will embrace. Till then, it’s going to be business as usual, MIDDLEPRISE 1.0.
IS THIS GOING TO HAPPEN?
A final thought, nobody I’ve spoken with believes that the MIDDLEPRISE won’t happen. Yes, the market size has been reduced, technology is being refined and the market today is very competitive. Even the elephant in the room has not completely trampled the MIDDLEPRISE. MIDDLEPRISE 2.0 thinking must present the building owner or enterprise with a direct value proposition and today this is about smart building initiatives and property technology that enhances the tenant experience. In-building wireless networks, that support these initiatives will get attention and will steer both the CRE and wireless industries to a successful future. Ultimately, the wireless industry will land on a signal source solution that checks all of the boxes and wireless access that opens the door to significant MIDDLEPRISE growth and new in-building opportunities.