Dan Schlanger, Crown Castle chief financial officer and executive vice president, says his company has invested heavily in fiberoptic cable and small cells, but that Crown Castle and his carrier customers will continue to focus on towers as the best and most economic and efficient way to deploy communications to large populations in large geographic areas.
Speaking at the Crown Castle International’s (CCI) Management Presents at Nareit’s REITweek 2021 Virtual Investor Conference, held June 9th, Schlanger, also talked about 5G, generational changes and the differentiated nature of the U.S. wireless infrastructure industry
“Right now,” Schlanger said, “all of our customers are very much focused on deploying 5G at scale — and therefore adding more antennas to more towers, which is driving a higher level of activity and leasing for our business then what we’ve seen historically and even in recent history.”
Schlanger believes that as the density of demand continues to increase, the density of the network needs to continue increase. “We believe that 5G will be a catalyst for small cells,” he said, citing the increasing demand in densely populated cities. “We’ve concentrated our investment in the top 30 markets in the U.S. for precisely that reason and believe there is a tremendous amount of upside in small cells going forward.”
Schlanger says his customers have said that they want to focus on that macro tower portion of the network upfront, but that Crown Castle absolutely believes that over time, small cells will become a more and more important part of network architecture. He explained that building more cell towers in many municipalities has become next to impossible because of building regulations and because the towers start to physically interfere with each other — the radio waves actually start to cancel each other out — if they are too close together.
“We’ve concentrated our investment in the top 30 markets in the U.S. for precisely that reason and believe there is a tremendous amount of upside in small cells going forward, he said. “So, you go to small cells, and we think that that is absolutely something that is going to be a huge part of the network going forward.”
Headquartered in Houston, Crown Castle’s network now includes more than 40,000 cell towers and nearly 80,000 route miles of fiber supporting small cells and fiber solutions. The company is considered the second largest tower company, after American Tower, but the two companies have vied, often neck and neck, as the two dominant wireless infrastructure companies during the past 20 years.
Schlanger predicts Crown Castle will grow at about 6 percent per year. In the long term, Schlanger said the company is targeting 7 percent to 8 percent dividend-per-share growth. “If all those things, all the revenue drivers go well, then we might grow faster than that.”
“The core of the business model for tower companies like Crown Castle is much like any other shared infrastructure that we invest in, own and operate — high-capital-intense assets that then are utilized over a long period of time by multiple customers,” Schlanger said. “And by sharing them among those multiple customers, we’re able to reduce the overall cost of operations in investment for each of the customers.”
Schlanger says his company’s carrier customers have spent a lot of money on mid-band spectrum. “It would be what Sprint brought to T-Mobile and what Verizon and AT&T bought in a recent spectrum auction of C-Band — what’s called C-Band. But it’s in the 2.5 gigahertz to 4 gigahertz spectrum band. With that, there’s a necessity to cover a large part of the U.S. and the characteristics of those, they do need to be somewhat close together.”
Schlanger describes the U.S. wireless infrastructure ownership market as “differentiated” – primarily because the industry developed early on into an ownership by third parties because the carriers saw the economic benefits of that third-party ownership. “The wireless carriers in the U.S. have done very well as in generating returns for their shareholders as well, and providing a very good service for their customers. We believe the U.S. has a differentiated market because although U.S. has about 5 percent of the population of the world, about 20 percent of the investment in wireless infrastructure happens in the U.S. — meaning there’s an outsize proportion happening in the U.S. which is creating outsize growth of the wireless networks and generating outsize growth of demand for wireless data in the U.S.”
Further, Schlanger believes each of these generational upgrades has happened and generated really positive impacts to the overall economy and to individual lives. “That’s why we keep demanding more and more data because we all like it. We use it to run – we use our phones to run our lives now. And that’s been enabled by the investment that the carriers have made in a 4G network that we enabled by having towers and other infrastructure at a lower cost.”
Moving into 5G, Schlanger sees the same thing happening. “It’ll be a generational move to where not only will speeds get much faster and coverage get much more ubiquitous, which will drive new use cases, we believe there will also be use cases that will be beyond consumers and in industrial use cases where enterprises will use 5G networks to inform their decision-making much quicker and therefore lower costs. And we believe that will generate incremental demand on the networks. And with all of that, we think there’s going to be an incremental demand, a significant incremental demand for wireless infrastructure in the U.S. both in terms of towers and in terms of small cells.”
Mike Harrington is a contributing editor