In the second quarter, Crown Castle International saw site rental revenue growth of 35 percent, or $300 million, year over year, but only $49 million of that was organic. Site rental revenues were increased by acquisitions, which totaled $231 million and $20 million came from straight-lined revenues, according to press release distributed after the market closed on Wednesday.
The Organic site rental revenues represent 5.6 percent growth, comprised of 8 percent growth from new leasing activity and contracted tenant escalations, minus 2.5 percent churn.
“No business model is entirely predictable, but tower leasing comes as close to being ‘locked in’ as one could realistically hope. Tower investors wake up each morning, brush their teeth, shower, and collect 1/365th of (domestic) annual gross growth of 6 percent to 8 percent,” wrote Nick Del Deo, MoffettNathanson senior analyst. “There’s obviously more to it than that – churn, guidance changes, sister businesses like international towers or fiber, carrier consolidation risk, and so on – but that’s a fair way to describe the business.”
Matthew Niknam with Deutsche Bank Research noted that Crown Castles site rental revenue and adjusted EBITDA were 1 percent ahead of estimates by his firm and Wall Street, as well as Crown Castle’s guidance, possibly due to AT&T lease extensions.
“Relative to expectations, upside in both stemmed from $9 million in additional straight-line revenues, tied to “term extensions associated with leasing activity,” Niknam wrote. “While the drivers of this are unclear, we note that the weighted average current term remaining for leases with AT&T increased to 6 years, from 5 years last quarter.”
Capital expenditures during the quarter were $393 million, comprised of $10 million of land purchases, $26 million of sustaining capital expenditures, $356 million of revenue generating capital expenditures and $1 million of integration capital expenditures.
The Q2 earnings call will take place tomorrow, providing more details.
Tension between the carriers and the tower companies seems to be easing a bit. At least in the case of AT&T and Crown Castle International. The two have signed a new agreement simplifying and expanding their long-term leasing deal for wireless network infrastructure.
Under the new agreement, leasing management and operations are streamlined to improve the efficiency and flexibility under which AT&T can deploy new technologies and increase network capacity. These changes will enable AT&T to speed up the deployment of 5G technologies and the execution of our FirstNet build.
“This agreement marks a significant milestone in our relationship with Crown Castle,” said Susan Johnson, executive vice president – global connections and supply chain, AT&T. “It establishes a market-based framework and simplifies the lease management and administration process. This will allow us to streamline network projects to better serve our customers.”
The agreement aligns with AT&T’s commitment to provide customers with better speed, reliability and overall performance. In addition to macro sites, the new agreement covers small cell deployments. Small cells are necessary to improve wireless networks, keep up with increasing mobile data usage and lay the foundation for 5G.
“We are pleased to expand our longstanding strategic relationship with AT&T,” said Mike Kavanagh, chief commercial officer, Crown Castle. “We look forward to continuing to support AT&T’s growth by providing our infrastructure assets to meet their network needs for years to come.”
Panelists at the Wireless West Conference last week agreed that the wireless industry is shifting its small cell deployment into high gear, discussing both the reasons behind that growth and the issues that might hinder it.
Several factors are driving the deployment of hundreds of thousands of small cells annually, according to Jeff Lewis, president and founder, Verticom, who moderated “Small Cells, Big Market,” from general economic momentum to positive telecom industry trends. Specifically, he also cited the growing number of 5G use cases plus clarity surrounding timelines for 5G NR standards and deployment. Additionally, mobile edge computing is a key component of scalable 5G architecture.
“In addition to FirstNet, you have the TV repack and relocation initiative. You have incremental industry spend of $2 billion. Throw in regulatory and tax reform and you have another $2 billion of free cash flow,” Lewis said. “With the successful 5G trials going on nationwide, ROI models have begun to factor in less risk, which increases the project approval rate. Any time you have less risk and a more predictable deployment model, capex increases.”
One carrier, T-Mobile, has a “robust small cell program,” planning on deploying 25,000 small cells in the 18 to 24 months, according to Hollie Maldonado, site development manager, T-Mobile. She contrasted that number to the 20 years it took for the carrier to build out its current lineup of 60,000 macrosites.
Crown Castle, which as 50,000 small cell sites, is in the process of 5,000 more sites in the western market. “We are seeing enormous growth in small cells,” said Dan Schweizer, Crown Castle International government relations. “We are trying to build as many of them as we can.”
Kishore Raja, Boingo Wireless VP engineering, said there is an additional catalyst for small cell growth, noting they can now be deployed in two different ways on unlicensed spectrum as well as licensed, bringing with it new business models. “Now, there is a third avenue: the 150 megahertz at 3.5 GHz of spectrum in the Citizens Broadband Radio Service,” Raja said. “This opens up small cells to neutral host operators sharing spectrum with the incumbents.”
Opening up New Markets
The panelists discussed new markets that small cells bring to their companies. T-Mobile is currently deploying small cells to offload 4G LTE capacity from its macrosites, but the same sites will bring 5G services as close as possible to users. Crown Castle will use hyperdensification for offload of fiber data traffic and carrying mission critical Internet of Things data in an aesthetically pleasing manner. Small cells give Boingo Wireless an additional tool to solve issues in its current venues and also allow it to serve additional venues that before did not make economic sense. ExteNet uses small cells to densify the networks of carriers.
The challenge, according to Raja, is creating the user experience. “Whether the deployment is New Radio, millimeter wave, 4G, 4G advanced, Wi-Fi or any others, the goal is a clean, seamless user experience as they move from network to network,” he said. “Virtualization will be very key to managing these networks, both in terms of capex and opex.”
Opposition from Municipalities May Be a Drag on Small Cell Deployment
While the panelists agreed on the need for small cells to the future of the wireless industry, they also agreed that without streamlining of the municipal zoning processes the idea of deploying 100s of thousands of them seems impossible.
“We know one of the keys to achieving that goal is working with local governments. We have our work cut out for us,” Maldonado said. “We have launched a hefty site advocacy campaign in several markets to ensure that groundwork has been laid to execute quickly.”
Extenet is trying to drive down costs and streamline processes in the rights of way at a local level with the municipalities, according Greg Spraetz, SVP & GM enterprise solutions, ExteNet Systems.
Schweizer noted the work done by states and the FCC facilitating small cells. “Texas, Utah, Arizona, Colorado and New Mexico have all passed streamlining bills. Hawaii and California are pending,” he said. “I don’t believe we should have put small cells through zoning. There should be an agreed-upon form factor with the city, the industry has to do its part to build attractive sites that are compatible with existing residential areas and we should be able to pull a permit like any other right-of-way user.”
Recent rules adopted by the FCC, which exempted small cells from NEPA and SHPO regulations, will save the industry a lot of money and deployment time, according to Raja.
Schweizer cautioned streamlining regulations and legislation do not replace good relationships with municipalities. “There is no silver bullet,” he said. “Good state regulation does not obviate the need for government relations and being a trusted partner.”
J. Sharpe Smith
J. Sharpe Smith joined AGL in 2007 as contributing editor to the magazine and as editor of eDigest email newsletter. He has 27 years of experience writing about industrial communications, paging, cellular, small cells, DAS and towers. Previously, he worked for the Enterprise Wireless Alliance as editor of the Enterprise Wireless Magazine. Before that, he edited the Wireless Journal for CTIA and he began his wireless journalism career with Phillips Publishing, now Access Intelligence.
Activity this year in surrounding towers, small cells and fiber will be greater than 2017, Crown Castle International officials said during last Thursday’s fourth quarter earnings call.
Guidance on new leasing activity for 2018 was $110 million at towers, $55 million at small cells and $45 million at fiber solutions. The company also expects churn of about 1 percent to 2 percent at both towers and small cells, according to Daniel Schlanger, Crown Castle chief financial officer.
“So, we still see really good activity across the board, and I think that it’s going to continue to translate into new leasing activity, as we did in our prior outlook,” he said.
Crown Castle is the best positioned tower company to benefit from the accelerating carrier spending on infrastructure, according to Matthew Niknam, analyst, Deutsche Bank Research.
“Crown Castle’s ‘asset trifecta’ … makes it a key thematic idea benefiting from multiple network investment catalysts in 2018 and beyond,” Niknam wrote. “Put another way, we think CCI’s unique asset mix could serve as a ‘swiss army knife’ of sorts for carrier infrastructure needs; these include LTE coverage enhancements, densification, and early 5G builds.”
Additionally, Crown Castle increased its outlook for site rental revenues and adjusted EBITDA, partially because of the two long-term customer agreements it signed during the quarter.
“These agreements included contracted new leasing activity and term extensions on existing leases,” Jay Brown, Crown Castle president, said. “We continue to see increasing levels of investment activity from our major customers that is resulting in an expected increase in 2018 new leasing activity across towers, small cells and fiber solutions as compared to the new leasing activity we saw in 2017.”
Quotes courtesy www.seekingalpha.com
J. Sharpe Smith
J. Sharpe Smith joined AGL in 2007 as contributing editor to the magazine and as editor of eDigest email newsletter. He has 27 years of experience writing about industrial communications, paging, cellular, small cells, DAS and towers. Previously, he worked for the Enterprise Wireless Alliance as editor of the Enterprise Wireless Magazine. Before that, he edited the Wireless Journal for CTIA and he began his wireless journalism career with Phillips Publishing, now Access Intelligence. Sharpe Smith may be contacted at: email@example.com.
Edge computing is becoming part of the network conversation as more companies go public with their solutions for wireless communications. Placing data center infrastructure, i.e. content, at the edge of the network will give immediate access to the internet to billions of mobile devices, such as smartphones, medical devices, industrial controls and IoT sensors.
But that vision of the future goes out a few years.
What carriers need right now is a way to cut their backhaul costs which have risen because of the increased traffic caused by unlimited data plans, Greg Pettine, founder and EVP of business development, said in a phone interview with AGL eDigest.
“The [carriers] know that if they can get some of the content out beyond their core data centers out to the wireless edge, they can significantly maintain their operating expenses regarding fiber to the tower. That’s big,” Pettine said.
Also important to today’s carrier operations is the performance of the network, which can be negatively affected by traffic congestion. “The [carriers] have admitted to throttling back users of certain applications, such as YouTube, Facebook, Netflix and Amazon,” Pettine said. “This results in churn, which they don’t want to happen.”
EdgeMicro’s answer to the traffic congestion problem is to locate the data from these websites in a micro datacenter positioned at the cell site or a central office or a mobile telephone switching office. Then, when a data request comes into the tower, the system redirects it to the micro datacenter to get the data, instead of backhauling it to the regional data center.
The organizations may take advantage of storing data in a micro datacenter because they are the ones driving the most content across the internet. Those companies including Facebook with Facebook Live; Instagram; Google with YouTube, Akamai Technologies, which is used by the ad networks; Amazon and Netflix.
Data traffic in EdgeMicro’s network-neutral micro data centers is managed by a technology known as Tower Traffic Xchange (TTX), which is a Local IPAccess (LIPA) solution that combines all the necessary LTE network components into a single, low-power, collocated appliance.
EdgeMicro gave a preview of its TTX and micro data center at the Competitive Carriers Association’s (CCA) Annual Convention earlier this year in Fort Worth.
The company’s medium-term plan is to deploy at 500 tower sites in the next five years. First, 30 micro datacenters will be deployed at busy multi-tenant towers that serve 100,000 people in the next 18 months in tier-two cities, which don’t have a lot of backhaul, content or ISP peering.
“That will provide us with the data to proliferate our micro datacenters,” Pettine said. “EdgeMicro’s prefabricated micro data centers will be deployed at ultimately thousands of cell towers globally.”
EdgeMicro’s collocation model is based on an 8-foot by 20-foot container with six racks. A quarter rack would be sold to each content provider, which works out to 24 customers in each container.
“We are in various stages with the [carriers], introducing it into their labs for testing. Ultimately, they need to start field test the acquisition of data,” Pettine said.
Micro Datacenters: Good for Towers?
What is in it for tower companies? Providing micro datacenters will make towers stickier, reducing carrier churn. Tower companies would make good strategic partners and could fund the effort as an alternative cash flow.
“Tower companies get increased rent and have the potentially to be strategically aligned in bringing in innovative cash flow,” Pettine said, “But they don’t know anything about data centers and that is where we come in. We understand the collocation model from a datacenter perspective: the cost-to-build and opex.”
Tower companies have already shown an interest in micro datacenters. For example, Crown Castle International is a minor investor in Vapor IO, whose Project Volutus enables cloud providers, wireless carriers and web-scale companies to deliver cloud-based edge computing applications via a network of micro data centers deployed at the base of cell tower sites.
“The cloud of the future will extend past today’s large, centralized data centers. The next generation cloud will follow your car. It will follow your phone. It will follow your sensors. It will be distributed and data driven and everywhere,” Alan Bock, vice president of corporate development & strategy, Crown Castle.
Vertical Bridge announced in late September that it has partnered with its sister company DataBank to host edge computing at the base of cell towers. Additionally, AT&T has announced it also has micro datacenter plans.
One pundit has claimed that the Cloud is “dead.” While that may be an overstatement, the global market for micro data centers is certainly alive and projected to be $8.47 billion by 2022, according to a report on MarketstoMarkets Research.
J. Sharpe Smith and the senior editor of the AGL eDigest. He joined AGL in 2007 as contributing editor to the magazine and as editor of eDigest email newsletter. He has 27 years of experience writing about industrial communications, paging, cellular, small cells, DAS and towers. Previously, he worked for the Enterprise Wireless Alliance as editor of the Enterprise Wireless Magazine. Before that, he edited the Wireless Journal for CTIA and he began his wireless journalism career with Phillips Publishing, now Access Intelligence. Sharpe Smith may be contacted at: firstname.lastname@example.org.