Regardless of the number of wireless carriers, tower companies will benefit from the release and development of RF spectrum and from vast increases in network traffic coming with 5G.
Wireless communications carriers are investing at least as much, if not more, in small cells than what they spend to deploy macro sites, according to Jay A. Brown, president and CEO of Crown Castle International. The company rents to carriers the wireless communications infrastructure that it owns, such as telecommunications towers, small cells, distributed antenna system (DAS) networks and routes of fiber-optic cable for connecting antenna sites with the carriers’ networks. All of the company’s assets are in the United States, although it has previously owned infrastructure in the United Kingdom and Australia.
Speaking at a plenary session at Connectivity Expo, conducted by the Wireless Infrastructure Association in Charlotte, North Carolina, Brown said he sees a diminishing opportunity to acquire macro sites while looking hard at the opportunity to acquire other kinds of infrastructure carriers need in the form of dark, dense, urban fiber. Dark fiber refers to installed fiber owned by one party and rented for use by another. He said Crown has dense fiber in 23 of the top 25 U.S. markets.
“We have invested $13 billion in fiber and small cells,” Brown said. “But our view is that there are no more assets of like kind of any substantial size to acquire.” He said increasing Crown’s inventory in fiber would involve building more dark, dense, urban fiber.
As for towers, Brown said the valuations of portfolios that remain with smaller, private owners — that may become what he called tuck-in acquisitions — have been steady for several years. For the past 20 years, he said, those valuations have almost always exceeded the valuations of towers owned by public companies.
“In most industries, the public players are afforded a higher multiple (valuation) because of diversification and other reasons,” Brown said. “In our industry, the private, smaller players have had valuation premiums. That probably argues that public companies are undervalued relative to the value of the assets.”
Referring to Dish Network’s plan to spend $500 million to $1 billion to construct a narrowband wireless network to serve internet of things (IoT) customers, Brown said that any time a company has radio-frequency (RF) spectrum to deploy, it works really well for the wireless infrastructure business. He said previous spectrum deployments had afforded the tower owners a large opportunity. With Crown owning 40,000 towers, Brown said, the company is excited about what the Dish Network IoT construction could mean.
Beyond Dish Network’s system, which initially will use 4G wireless technology, lies the prospect of 5G wireless network construction by Dish and possibly all of the existing wireless carriers. The first phase of 5G construction will overlay new equipment at existing macro sites, according to Brown.
“Macro sites are absolutely critical to 5G in the long term,” Brown said. “We don’t view small cells as a substitution for the macro sites. Carriers will design their next-generation networks around existing sites, which will, in time, become the hub sites as they design cloud-based radio access networks (C-RANs). As network traffic grows, it will exceed macro site capacity, and carriers will have to cell-split their networks and focus spectrum on specific areas. So, they’re using small cells to supplement existing macro networks.”
Crown has seen more bookings for small cells during the first quarter of 2018 than for the entire year of 2016, Brown said. Orders are market-wide and for thousands of small cells at a time, he said. For the next 20 years, he said, the opportunity for small cells and the infrastructure associated with them may be greater than that of towers over the last two decades. In Brown’s view, Crown has been able to obtain a return on the capital deployed for small cells and fiber that has been both attractive and encouraging at the early stages. Brown said that macro sites continue to be an important part of the network, and he expects amendments and new leases for them. Meanwhile, he said, he expects a significant portion of capital will be invested by the carriers for small cells and fiber.
“Crown wants to maximize the dividend per share that it pays, which is the best indication of the long term value of the company,” Brown said. “Our investments in fiber and small cells will have the highest effect for long-term value creation. The incremental lease-up is about twice that of towers. The winning play on fiber and small cells is delivering a solution to wireless carriers to share at a much lower cost than if they deployed them by themselves.”
Crown pays about 75 percent of its cash flow in the form of dividends and still invests more than $1.5 billion in capital expenditures and acquisitions, according to Brown. “We make better decisions when we have limited resources, and by paying out the majority of our cash flow to shareholders, that makes us really disciplined capital allocators,” he said. “Not only do we have the long-term cost of the capital, we have the short-term cost of dilution from paying dividends on shares as we issue them.”
The company makes sure investments it makes include a portion of equity, not only to cover the cost of capital but to be additive to the long-term accretion of the business, Brown said. He said Crown would continue to grow its dividend, which now is growing it at 7 to 8 percent per year. “I like coming back to the market and explaining the value of the investments that we’re making, and then raising the capital as necessary,” he said.
Sprint and T-Mobile US Merger
Two decades ago, Brown said, Crown had 1.2 tenants per tower, and there were eight wireless carriers. Currently, the company has more than 2.5 tenants per tower, and its cash flow has grown. That happened, he said, during a period when the market went from eight to four carriers. With the merger of Sprint and T-Mobile US that is pending, subject to government approval, the market will go from four to three carriers.
Carrier Number Irrelevant
“Two decades from now, we will look back, and it will seem almost irrelevant how many carriers there are, because, ultimately, what drives the need for our infrastructure is consumers, the devices they use and the amount of traffic that they put onto the network,” Brown said. “Our infrastructure model has been driven largely by consumer need. 5G wireless communications’ lower latency and higher speed will open industrial opportunities that will place an enormous amount of traffic on the network. That will result in carriers using more equipment on infrastructure, whether fiber, small cells or macro sites.”
The next Connectivity Expo is set for May 20–23, 2019, in Orlando, Florida.