Wells Fargo Securities Senior Analyst Jennifer Fritzsche published this Equity Research note recently on fronthaul and centralized radio access networks (C-RAN) and their impact on the wireless carriers, tower companies and fiber providers.
“Simply put – we see this trend as one in the VERY early innings. In terms of implications for specific sectors on our list: 1) Wireless Carriers – positive for network capacity and depth; but it will likely require capital to continue to be spend; 2) Towers – Neutral/Slightly Positive – Less space is required at base of tower, but more equipment and fiber would be placed on the tower. The shift in capital spend could be directed more to C-RAN and less to macros; 3) Fiber Companies – A significant positive, in our view. Fiber is the critical element in this initiative. Carriers need it to carry out C-RAN’s promises and capabilities.
“WHAT IS FRONTHAUL? Fronthaul plays a critical role in C-RAN, an architecture that places a baseband unit at a centralized location, with the ability to serve multiple remote radio units (RRUs) attached to wireless towers. The centralized baseband units and RRUs are typically connected by a fiber-optic line referred to as “fronthaul.”
“WHAT DOES THIS MEAN FOR WIRELESS CARRIERS? C-RAN architecture can provide a host of benefits to wireless carriers seeking to densify their networks, such as savings on capital and operating expenditures and lower power consumption needs. From a capex perspective, fewer baseband units are needed to service multiple remote radio heads. However, the fiber company must be paid. As a result, it is hard to assess the total capital outlay and how it may compare to “traditional” wireless capex spend.
“TOWERS – NEUTRAL EVENT FOR MOST/POSITIVE FOR Crown Castle International (CCI) – The impact to the tower companies from C-RAN deployments is less clear. On one hand, wireless operators will not need as much ground space at the cell site to house baseband units. On the other hand, the tower companies should see more leases for remote radio head attachment as these networks are built out. The best positioned tower company to capitalize on this trend is CCI given its Sunesys acquisition, in our view. This acquisition gave CCI ownership or rights to an additional 10,000 miles of dense metro fiber. This transaction not only allows CCI to control some of the connections to its 14,000 small cell nodes, it also enables CCI to provision dark fiber fronthaul as C-RAN topologies expand. Many believe CCI could be more active in the M&A space, with Sunesys as the first move for the company in the fiber space.
“FIBER COMPANIES MAY HOLD KEYS TO THE KINGDOM – Dense metro fiber networks for fronthaul are a critical component to make C-RAN deployments economical. The fronthaul can take many forms, such as carrier Ethernet, wavelengths or microwave, although dark fiber is the most efficient for large-scale deployments. ZAYO is best positioned to play here, in our opinion, given its large exposure to the wireless space already. Level Three Three (LVLT) – while it typically shied away from fiber-to-the-tower (FTT) builds – certainly has the size, scale and assets to be a serious player here if it wanted.”
— Jennifer Fritzsche