John Hancock Life Insurance Company is leading a consortium that will acquire 30 percent of ExteNet Systems. The long-term institutional investor will join existing major investors, Digital Colony and Stonepeak Infrastructure Partners.
PJT Partners served as financial advisors to ExteNet and its existing investors. TAP Advisors served as financial advisors to John Hancock. Simpson, Thacher & Bartlett provided legal representation to ExteNet, and Paul, Weiss, Rifkind, Wharton & Garrison represented John Hancock. The transaction is subject to regulatory approval. Financial terms of the transaction were not disclosed.
In addition to joining the company’s board of directors, John Hancock has committed to funding ExteNet to grow as a provider of indoor and outdoor wireless and fiber connectivity as the company scales for 5G network densification and addresses advanced connectivity needs of mobile network operators (MNOs), carriers, property owners and enterprises.
Speaking of the consortium taking an equity position, Jim Hyde, president and CEO at ExteNet, said it gives ExteNet even greater access to high-quality capital that will enable ExteNet to continue to invest and grow its business and deliver great indoor and outdoor networks for its customers. “John Hancock is a great partner in the digital infrastructure space,” he said. “They certainly see their investment in ExteNet as an opportunity to continue to realize a strong return on their capital. It’s a validation of our business model.”
The John Hancock investment is part of the rotation from other traditional asset class investors into infrastructure, Hyde said.
“The fact that a life insurance company has an investment unit that is dedicated to infrastructure assets is a relatively new phenomenon,” he said. “What you are seeing is greater access to capital by infrastructure companies such as ours.”
Hyde said the capital is needed to fulfill the demand for 5G networks, both traditional outdoor small cell business and expanded indoor 5G connectivity, including the edge.
“The facet of our business that is poised for exponential growth is the edge, he said. “Think about the way that our indoor and outdoor DAS and small cell business is architected. Edge becomes increasing important.”
Hyde said ExteNet is well-positioned to help its customers execute their edge strategies. A report by Meticulous Research on global mobile edge computing forecast that the market will grow at a CAGR of 30.1 percent from 2020 to 2027 to reach $2.8 billion by 2027.
“As 5G is built out, the edge becomes an increasingly important part of that long-term, next-generation network architecture,” he said. “All of the 5G applications that you have heard about require IoT – the infrastructure of things. It is the network infrastructure that we deliver, including fiber connectivity, vertical real estate, small cell connectivity and indoor networks – public and private.”
Private networks are also becoming much more important, according to Hyde. “The just completed CBRS auction had some very interesting winners, and we have some very interesting projects underway with private LTE and private 5G networks across the country,” he said.
With the introduction of the Apple 12 5G handset, carriers are “chomping at the bit,” as Hyde put it, to accelerate 5G deployment now that there will widespread availability of 5G devices.
The delays and cancellations of public events caused by COVID-19 have had one silver lining, according to Hyde, allowing the completion of 5G network upgrade inside the Dallas Cowboy’s AT&T Stadium. It was completed in 18 weeks in time for the team’s home opener and included additional cabling and many new nodes required for densification. It is now the largest indoor deployment of 5G in the world.
The focus for 5G indoor deployments will go beyond the iconic venues to include all buildings. It requires more buildings to receive coverage from the inside out as opposed to from the outside in.
“The way 5G is being deployed with mid-band and high-band spectrum drives demand for more indoor venues to have upgraded networks deployed in them,” Hyde said. “You have to bring the signal source inside, because those radio waves will not penetrate buildings. The need to deliver public, commercial-grade 5G service is going require that signal indoors in more buildings.”
Carrier-funding is still the primary driver for indoor wireless deployments, but noncarrier-funded deployments are becoming more prevalent, according to Hyde.
One of the lessons of the COVID-19 pandemic has been that many buildings are not equipped to provide smart building applications, such as keyless entry and health screening, to their tenants.
“Real estate owners and investors understand the importance of wireless to compete in the marketplace, he said. “We are seeing a lot of demand developing around nonmobile network operator-funded networks and applications in buildings.”
There has been a lot of talk about the effect of the pandemic in terms of office building usage. “No one knows what the new normal will look like post-COVID,” Hyde said. “We do know that next generation indoor wireless infrastructure is going to be required to deliver high speeds and low latency, whether it is an office building or multitenant housing.”
COVID has also affected the geography of the densification, which usually begins in the urban core and then moves outward. “COVID has accelerated broadband demand in the secondary and tertiary markets, and we are now a couple of years ahead of our original plan in terms of working with the carriers to begin deployment in these markets,” Hyde said.
Small cell upgrades are also benefiting from the availability of multiple-input multiple-output (MIMO) antennas, which were previously giant panels for macro towers. “The new MIMO for small cell technology would blow you away,” Hyde said. “We are beginning to deploy it in one carrier’s 5G small cell densification. The expectation is high.”
When the dust settles on 2020, ExteNet will have deployed a record number of outdoor small cells. The company also set a record in 2019. And there is plenty of small cell business in the pipeline for future years.
“Now that we will have 5G handsets in the hands of millions of users in the next year, the race really begins,” Hyde said. “Before, it was marketing race, but now, the rubber hits the road. We will finish 2020 in great shape and with great momentum going into 2021.”
Mobilitie has partnered with Bal Harbour Shops to provide the South Florida luxury shopping center with 5G wireless connectivity. Bal Harbour Shops, internationally renowned for its high-end shopping and dining experiences, frequently sits atop the list for highly-ranked U.S. shopping centers based on sales per square foot and boasts an impressive lineup of luxury stores that include Chanel, Gucci, Neiman Marcus and Saks Fifth Avenue.
“Partnering with Mobilitie as our preferred wireless infrastructure provider was the best choice for us given their vast experience, and we are eager to establish Bal Harbour Shops as the premier 5G-enabled luxury retail destination,” said Nik Massey, developer general for Bal Harbour Shops.
With 5G, customers and guests of Bal Harbour Shops will enjoy strong cellular service and optimized speeds for more reliable voice and data to support faster uploads and social media shares. Shoppers will travel freely throughout the unique location with uninterrupted wireless coverage, ensuring they’re always connected to their family and friends.
“The new era of retail depends heavily on next-generation wireless technologies. A 5G network within this premier shopping destination will enable new intelligent services and help create stronger relationships and enhanced experiences between customers and the luxury lifestyle retailers,” said Michael Curry, VP of wireless solutions of Mobilitie.
Elliott Management sent a letter this week to the board of Crown Castle International proposing an immediate operational and strategic review of the company’s fiber business.
Elliott sees Crown Castle’s responses to the issues identified in the company’s fiber business to be inadequate to the scale of the required change. To remedy the situation, and in response to demonstrated interest in the fiber business from fiber executives and credible financial buyers, the letter called on Crown Castle to begin an immediate operational and strategic review of the business and outline the best path to maximize value and position Crown Castle to fulfill its potential.
Letter to the board
We are writing to you again on behalf of Elliott Associates and Elliott International regarding our investment in Crown Castle International. On July 6th, Elliott published a letter and presentation in which we demonstrated with facts and analysis that the Company’s fiber strategy was detracting from shareholder returns and would continue to do so unless significant changes were made. We subsequently published a follow-up letter calling on the Company to present a multi-year plan and critical performance metrics to allow investors to judge for themselves whether the current fiber and small cell strategy is value-accretive to shareholders.
Since then, Crown Castle has made a number of public statements and announced changes purporting to respond to our findings and analysis:
A July 6th press release attempting to justify its long-term underperformance by comparing itself to anything except its direct peers, American Tower and SBA. Noticeably absent was any analysis-driven response to the issues we highlighted with the Company’s fiber and small cell strategy.
A series of corporate governance changes, including the implementation of a mandatory retirement age, the transition of five directors (the Chairman included) off the Board and a review of the executive compensation policy. While these changes seemed to acknowledge the accuracy of many shareholders’ concerns, these reactive steps were immediately and correctly identified by a well-known REIT investor as a “classic entrenchment maneuver.” The move strengthened our conviction that Crown Castle’s lax oversight has enabled the pronounced capital allocation issues we see today.
A Q2 earnings call in which the Company declined to commit to the kind of transparency in the fiber business that we and many other shareholders and analysts had been calling for, offering only the excuse that a multi-year plan is “obviously very difficult to make happen in a public context.” Not only is this mistaken assertion at odds with most leading public companies, but also, more troublingly, when asked directly about what “success” would look like for the fiber business, Crown Castle was unable to define it.
An attempt yet again to provide self-selected market data and anecdotal evidence that the fiber strategy is on track, including by highlighting Orlando as a “key market” case study for the success of its strategy and the model going forward. Highlighting a market where less than 1% of fiber capital has been spent is not a credible demonstration that the strategy as a whole is on track, and the Company’s reliance on such snapshots is further evidence that Crown Castle either does not have comprehensive data or does not like its conclusion.
The announced departure of the COO of the fiber segment, the executive who led the Company’s acquisition integration efforts despite having no prior experience in the fiber industry. This departure seems to confirm that Crown Castle shares our belief that its fiber strategy is in urgent need of new leadership with fiber expertise.
Taken together, these actions paint a picture of a Company that seems to know there is a problem, but refuses to acknowledge it. The Company’s hope appears to be that this series of incremental steps and rear-guard actions will be enough to avoid the kind of real discipline, transparency and accountability in the fiber business and capital allocation broadly that investors are demanding.
The problem is that real change must begin by acknowledging that there is a need for it. Today — six weeks since the publication of our first letter and three months since we first began to engage with the Company privately — Crown Castle still has not put forward a credible plan to improve performance in its fiber business. After spending $11 billion on fiber acquisitions, losing all key executive talent from those businesses, repeatedly missing publicly stated fiber targets and now parting ways with the COO of the fiber segment, when will Crown Castle admit there is a problem and begin to engage constructively with shareholders on a path forward that will lead to success?
As we have stated numerous times to you, we are bullish on the fiber industry. We have seen how well-run fiber businesses can compound long-term value if operated with prudence and capital discipline — attributes that are sorely needed at Crown Castle. Our “Reclaiming The Crown” plan attempted to reshape the Company’s existing strategy into one that can actually create long-term equity value in fiber and provide the necessary Board oversight to ensure performance. However, it is becoming clear that this management team does not understand what they bought (and spent $16 billion building) and does not understand how to run the business better. Comparisons to the tower industry — such as the one made by the CFO last week in yet another attempt to justify subpar returns in the fiber business — underscore this conclusion.
The most common question we have received from investors has been the following: “Why did Elliott not advocate for a sale or spin of the fiber business?” Our answer is that, unless Crown Castle can demonstrate that it is the best owner of these assets and can run the segment with greater prudence in capital spending and with ROIs that are value accretive, Crown Castle should also consider alternative paths. In fact, we have received numerous inbounds from highly accomplished fiber executives and credible financial buyers who are confident that they can run the fiber business better than Crown Castle. We believe the Company and its advisors have received this interest as well.
As we have consistently stated, our preference is for constructive engagement on a clear and credible path forward for the fiber business that can gain widespread shareholder support. We stand ready to continue that engagement. However, in the absence of any such plan — or even an acknowledgement from Crown Castle that one is needed — we believe that Crown Castle needs to consider the idea that partnering with a capable investor and top-tier fiber operators to manage its fiber assets might be the value-maximizing course of action.
As a large shareholder focused on long-term value at the Company, we believe it is imperative that Crown Castle begin an immediate operational and strategic review of the business and subsequently outline the best path to maximize value and position Crown Castle to finally fulfill its significant potential. We look forward to continued engagement with the Company.
Boingo Wireless saw its second quarter revenue decrease more than 14 percent year over year and 2 percent compared to the first quarter of 2020. However, net cash provided by operating activities increased 45.3 percent compared to the first quarter of 2020 and increased nearly 200 percent year over year. Additionally, adjusted EBITDA increased by double digits.
“The sequential decline in our revenue was largely related to our legacy businesses, specifically advertising and retail, which were impacted by the historic downturn in passenger travel due to the COVID-19 pandemic,” said Mike Finley, Boingo CEO. “Importantly, our team has done an excellent job managing expenses, which led to a 13.7 percent increase in adjusted EBITDA over the first quarter of 2020 to $21.3 million.”
DAS revenue of $22.2 million modestly increased compared to the first quarter of 2020 and decreased 19.6 percent compared to $27.6 million in the second quarter of 2019. Buildout project revenue totaled $14.0 million and access fee revenue and $8.2 million.
“As the pandemic has demonstrated, wireless connectivity continues to play an increasingly critical role in our daily lives,” Finley said. “This need for connectivity demonstrates Boingo’s resilience as an essential business as well as the durability of our business model. Despite the challenges presented by COVID-19, we see velocity in our business continue with new wins in all key verticals including: three new DAS venues, 11 carrier contracts, a Wi-Fi offload trial with Google, four multifamily venues, and bulk-services and macro cell towers on military bases.”
Q2 contract wins
As of June 30, 2020, Boingo had a total of 73 DAS venues live comprised of 40,500 DAS nodes and an additional 11,100 nodes in backlog. This compares to 69 venues live comprised of 35,200 nodes as of June 30, 2019.
Navigating the complicated business environment caused by COVID-19 is not easy for neutral-host DAS and communications infrastructure providers. But thanks to the pent-up demand, expertise and some fancy footwork, ExteNet has still announced a number of recent wins this spring, keeping its crews busy.
In May and June, it extended its neutral host in-building DAS networks at the recently opened Reach building within the campus of the John F. Kennedy Center for Performing Arts in Washington, D.C. where it already has a multi-carrier network and at two office buildings in Philadelphia-One Penn Center and 1515 Market St. Additionally, Citizen Broadband Radio Service (CBRS) networks were deployed for RTO Wireless, which provides mobile voice and data, broadband, backhaul, and IoT for rural markets in the North-East states, and Cal.net which focuses on enabling connectivity and bridging the digital divide in rural California.
We spoke with Tormod Larsen, chief technology officer, and Greg Spraetz, SVP of real estate solutions, to get an update on ExteNet’s progress and how it is weathering the pandemic. Tormod has been with ExteNet since 2004 and oversees product strategy, network architecture and strategic solution development while Greg oversees all in-building sales activities.
How have the municipalities dealt with the pandemic and what was the effect on your business?
Larsen: I would say that the environment was different and somewhat unique in each city. Although some of the municipalities were impacted more than others, we were able to achieve a lot because wireless infrastructure was deemed essential in jurisdictions. We are glad to see things beginning to stabilize now and businesses opening up once again.
On the deployment side of things, both indoor and outdoor, we have found that the pandemic and all the restrictions that came into play meant that our deployments just needed closer management. With construction crews being prioritized owing to its “essential services” categorization, we were able to remain on site to a large extent. On the indoor side, access to some buildings were closed during the peak of the pandemic but we gained access relatively soon. There are several in-building deployments for mobility and fiber solutions we can point to where we had short term closure but resumed activities soon after, while there are many situations where network construction continued without much disruption.
How has ExteNet reacted to the pandemic?
Larsen: We prioritized the health and safety of our employees and contractors and ensured our staff had access to PPE [personal protective equipment], followed newly established safety protocols, and took extra precaution in everything affecting our communities. We became more efficient in many ways, often learning to do more with less. Optimizing our processes and building efficiencies were majorly emphasized. Our crews are working collaboratively with others, achieving more in single visits to the sites and inherently avoiding risks and exposure.
What about deploying DAS in venues where the seasons had been canceled or postponed?
Spraetz: It was easier working on systems in some sports and entertainment venues where the season and internal operations had come to a virtual halt. Some of those venues were transformed to makeshift hospitals and testing centers, so we had to convert the existing wireless system to a different use case to assist the frontline workers. But we have also had to work through situations where some venues were temporarily shut down. Overall though, we are back on track now and upgrading the networks including transitioning to 5G in many venues.
Are there vertical markets where you are forecasting growth coming out of the COVID pandemic?
Spraetz: A key vertical where we are seeing new opportunities is healthcare. The carriers and others are prioritizing mobile and fiber connectivity in these facilities. The pandemic highlighted the need for mobility infrastructure and underlying fiber connectivity to serve caregivers, first responders, staff, patients and their families. The commercial real estate market will also need to adapt to social distancing measures inside the building while upgrading their facilities to touch-less access with mobile connectivity being a key enabler. Building owners need to increase their occupancy and connectivity will become an increasingly important amenity. We also see uptick networks being deployed in suburban and second-tier markets as people and businesses increasingly adapt toremote work. Rural networks will be prioritized as bridging the digital divide by providing high-speed and affordable connectivity for the underserved will be an ongoing focus.
How has the pandemic changed use of the communications infrastructure?
Larsen: The wireless industry has stabilized at about 25 percent increase in capacity. Both mobility and fiber requirements will continue to increase as the bandwidth used and speed requirements will continue to grow exponentially with video, collaboration tools, augmented reality (AR) and virtual reality (VR) becoming mainstream in many verticals. There is also a change in traffic origination expected with an increasing number of people working remote, being educated at home, and the location of use moving from the urban centers to the suburbs. This changing traffic pattern is resulting in an increasing load on data centers requiring high-bandwidth and low-latency fiber connectivity. Applications are now residing more in the cloud with some research indicating that by next year roughly 90 percent+ of all enterprise workload will transition to the cloud, leading to an even higher need for fiber connectivity with purpose-built networks.
How are enterprises evolving in their data infrastructure?
Spraetz: While reports show vacancy rates in some office buildings increasing to 20 percent owing to the pandemic and some companies embracing remote working for some staff members in the longer term, we are still early in the assessing full impact on the commercial real estate market. As enterprises gauge and assess their on-premise staffing requirements for the short and longer term, they are definitely transitioning their applications to the cloud or to an offsite data center to improve their network operations and drive efficiencies. We firmly believe that while the network architectures will evolve, the underlying demand for advanced mobile and fiber connectivity will continue to rise as the enterprise data and video usage will continue to grow exponentially.
You recently completed a neutral-host DAS network at 1515 Market Street in Philadelphia, a 20-story, Class A, 500,000 square foot building. You also deployed a DAS at Philadelphia’s One Penn Center, a 670,000-square-foot Class A commercial office art deco building. What are the trends for DAS in the enterprise?
Spraetz: We are seeing an uptick in deployments in the middleprise building market. The carriers are looking at this from the network perspective and where they need to offload traffic. This can also be part of the preparation for 5G deployment, which will demand that in-building coverage is shored up with seamless connectivity for 4G.
Both of these buildings were undergoing major renovations, and building owners were investing millions into the building. At the same time, they were interested in improving mobile connectivity. The awareness of the need for mobile connectivity and fiber is increasing as I have mentioned before.
Historically carriers deployed only in buildings that were more than 1 million square feet, then it dropped to 750,000 square feet and now we are seeing 500,000 square foot buildings become important to carriers depending on their capital allocation and on the size of the market. In these deployments, you see the flavors of the different sizes that we can cater to in different verticals. Today, we target any building of 250,000 square feet and above with a mix of carrier and building owner participation in the funding. However, the need for a neutral-host network is no longer a question as it lends effectively to a multi-carrier setting.
What do you think of in-building wireless systems that use general access authorizations in the Citizens Broadband Radio Service?
Larsen: There are some companies that say CBRS will take care of all the communications needs in buildings. We adopt a more neutral approach and believe in co-existence. Wi-Fi has its role; the public networks have their role and private LTE will have its role in these buildings.
For example, CBRS will have a different role in commercial real estate than it does in a manufacturing plant or a hospital. In manufacturing, private LTE will provide a level of service that Wi-Fi cannot, and it will provide low latency levels that the commercial network may not be able to deliver. CBRS can enable smart building applications and flex-space solutions in commercial real estate.
Wi-Fi may meet tenants’ needs given it’s lower cost but Wi-Fi is quite rudimentary with no service guarantees, mobility and/or voice coverage. However, it’s important to know that private LTE is not as simple as enabling Wi-Fi. With private LTE, you essentially become your own carrier.
The real question with private LTE for an enterprise is whether their IT department is ready to take on a a carrier’s responsibilities as effectively the network owner becomes the carrier. That’s another example of how ExteNet becomes extremely important for the network owner by deliver a carrier-class experience for the private networks, both LTE and 5G.