Valuation of Telecommunications Infrastructure Sharing Arrangements
This article was authored by Daniel J. Korczyk, CPA, ABV, ASA
National Managing Director - Telecommunications and Technology
Service providers routinely enter into agreements with each other to share networks and other assets. These arrangements facilitate interconnection of networks; satisfy mandated asset sharing required by law or regulatory authority in order to promote competition; and help carriers maximize their use of assets, manage risk and build business cases with improved returns on investment.
Colocation Agreements (also spelled as ‘Collocation’) define an arrangement for carriers to share some type of physical space with other, often competing carriers. The most common form of colocation is an ILEC that leases a portion of their facility (i.e., a colocation cage) to a CLEC with the intent of opening their markets to competition as required under the Telecom Act of 1996.
Indefeasible Rights of Use (IRUs) colocation agreements are written to give a carrier (lessee) the right to use specific fibers or capacity from another carrier (lessor) under a highly secure contract. Many contractual terms are important to the valuation of these assets.
Pole Attachment Agreements are another form of colocation agreements, whereby the owners of telephone or utility poles/structures share these assets under a lease arrangement with other carriers. Lessee carriers are not necessarily competing with the owner or the poles/structures (e.g., cable operators may lease poles from local telecommunications companies).
Interconnection Agreements are between carriers and define a business arrangement that allows their respective subscribers to dial each other. Interconnection charges are paid monthly by one local exchange carrier to another for use of certain network elements.
