September 23, 2014 — Crown Castle’s purchase of 24/7 Mid-Atlantic Network, which owns 900 route miles of fiber in the Baltimore/Washington corridor, may have caught some by surprise, but it’s really just a reminder of the importance of the infrastructure that makes small cells possible: fiber optics.
The transaction is interesting because it is the first time a tower company has directly acquired fiber assets, according to Jennifer Fritzsche, Wells Fargo analyst.
“Given the company’s focus on DAS/small cell infrastructure, we feel like owning the fiber may help alleviate part of the small cell economic issue by providing the necessary backhaul,” Fritzsche wrote.
Is Crown Castle getting into the fiber business? Developing an end-to-end turnkey signal solution? Not that much forward thinking went into the fiber buy, according to Jay Brown, Crown Castle CFO.
“We recently won an RFP from Verizon to cover the Baltimore market with small cells for them,” Brown said. “24/7’s fiber happened to be a perfect overlay. This was a buy-it versus lease-it or build-it proposition.”
Crown Castle needed to be fast to market and the acquisition helped with that. Plus, it was cheaper than building its own fiber network or leasing the existing fiber. In fact, it was just plain cheap. “We spent last week’s cash flow for the fiber, small transaction,” Brown said.
In the future, you may see more tower companies acquire existing fiber if they have a small cell opportunity and find fiber that is a good fit, but don’t expect them to build out speculative fiber networks.
“We will follow the carriers to where they want to go and build it as they desire it to be built. We are focused on being the infrastructure provider to the operators,” Brown said.
Another takeaway from the 24/7 Mid-Atlantic acquisition is that small cells have taken off, moving beyond small-scale deployments. Crown currently has more than 6,000 nodes under contract that it is in the process of building. Brown estimates that during the next five years Crown will spend $2 billion on small cell infrastructure.
“The rate of activity around what the operators are indicating they want from us has risen dramatically over the last 12 to 18 months,” Brown said. “The builds have gone from a very small geography in a part of the city to, for example, covering the whole city of Baltimore. Activity is increasing significantly on a broad scale, and we expect that to be on an elevated level for a long time.”