With all four major U.S. carriers making major network upgrades, tower companies continue to be the beneficiaries in increased leasing activity. Crown Castle saw revenue from additional tenants double in the second quarter, reflecting the shift in activity to in-fill sites collocation on small cells as well as macrocells, Ben Moreland, Crown Castle president and CEO, told the second quarter earnings call.
“This densification activity is the expected second wave of the LTE network deployment and provides us with a longer runway of expected future growth as carriers strive to improve network quality and to add capacity through cell splitting in the face of continued growth in mobile technology demand, he said.
The cellular industry is seeing a faster adoption of smart phones, compared with the initial uptake of 3G phones, which Moreland said the tower company uses to gauge where the industry is in the technology cycle, as well as the long term growth trends.
“To gain a framework for LTE build-outs, it is useful to compare how the 4G subscriptions is trending compared with 3G subscriptions historically,” he said. “From 4Q 2010 to the 3Q 2012, the first eight quarters of LTE, we have seen subscriptions significantly outpace the initial eight quarters of 3G, which began 1Q 2003.” LTE user growth could top 180 million by the end of 2013 and 260 million by 2017, he added.
Site rental gross margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted funds from operations (AFFO) for the second quarter all exceeded Crown’s expectations, according to Jay Brown, Crown Castle’s chief financial officer.
“As a result of our strong results in the second quarter and the significant increase in new leasing activity, we have increased our full year 2013 outlook, which now suggests annual site rental revenue and AFFO per share growth of 17 percent and 35 percent, respectively,” Brown said. “In addition, we continued to invest in activities we believe will maximize long-term AFFO per share, including purchases of our common shares and the construction of small cell networks.”
During the second quarter of 2013, Crown Castle invested $101 million in revenue-generating capital expenditures, including $66 million on existing sites and $35 million on the construction of new sites, primarily small cell networks. Additionally, acquisitions accounted for $14.5 million in capital expenditures.
“CCI’s report is significant in our view in that it should set the tone for the other tower companies’ (AMT and SBAC) reports to follow. As we have written, we continue to believe the overall tone of these reports will reflect a bullish outlook regarding domestic wireless spending,” Jennifer Fritzsche, senior analyst, Wells Fargo, wrote in an equity research note.