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 protected].
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: [email protected].
States opting in for the First Responders Broadband Network (FirstNet) surged past the halfway point earlier this month, with the addition of Pennsylvania, Oklahoma and Utah. Even with the momentum FirstNet is gaining, the tower industry is still uncertain of when or where the buildout will occur.
For now, 29 states and two territories have signed on. States that haven’t already opted in have until Dec. 28 to make their decisions.
With an opt-in decision, first responders can begin signing up for service, and thousands of connections on the network. First responder subscribers will have priority access to interoperable voice and data across the existing nationwide AT&T LTE network.
Both AT&T and FirstNet have committed resources to improve public safety communications. With each opt-in decision, FirstNet and AT&T bear the financial risk associated with the network build in that state or territory. FirstNet will also drive public-safety-focused infrastructure build out first on existing towers through modifications and then through collocations. And eventually through new builds.
“We expect to hit the ground running and issue work orders in January after the opt-in period closes. We’ve already committed more than $200 million in capital to the project in preparation for its start,” John J. Stephens, AT&T CFO.
“The needs of public safety demand more than what commercial offerings provide today. FirstNet will be a force for good, forever changing the way first responders think about and use communications,” said Chris Sambar, senior vice president, AT&T – FirstNet.
The 31 states and territories that have opted in, including Alabama, Montana, Alaska, Nebraska, Arizona, Nevada, Arkansas, New Jersey, Hawaii, New Mexico, Idaho, Oklahoma, Indiana, Pennsylvania, Iowa, Puerto Rico, Kansas, South Carolina, Kentucky, Tennessee, Louisiana, Texas, Maine, U.S. Virgin Islands, Maryland, Virginia, Michigan, West Virginia, Minnesota, Utah and Wyoming.
“We’ve had a tremendous response [to the FirstNet opt-in process] so far. Already, 31 states and territories have opted in, and we are just a month into the 90-day opt-in window,” Stephens said.
AT&T must meet a timeline of 20 percent geographic coverage annually starting in April 2018, until it is finished.
“So we do think this is going to be constructive to the tower industry next year and for many years to come,” James Taiclet Jr., American Tower president, CEO and chairman, said in a Q3 2017 earnings call. Daniel Schlanger, American Tower CFO, also expressed his optimism about the potential for growth associated with FirstNet.
Smaller Tower Companies Less Optimistic
During the AGL Local Summit in Fort Worth last month, Ron Bizick, CEO of Tarpon Towers, said that FirstNet is currently the biggest catalyst for growth on the horizon for towers but the speed of the process has not been without some frustration. The large public tower companies stand to benefit the most, he added.
“It is slow coming. We all expected more activity sooner, but it is coming,” Bizick said. “From a revenue standpoint, Crown Castle International will benefit the most, because they have the AT&T portfolio, followed by the rest of the public tower companies. You can kill the most birds with one stone by going to the [bigger tower companies], if you can get a good deal done.”
Bizick has seen applications for tri-band antennas that would utilize the AWS, WCS as well as FirstNet frequencies. “What that suggests is that AT&T, true to its mission, is going to deploy one time, one truck roll,” he said. “It looks like they will have equipment deployed in the field ready to be turned on when a state opts in.”
AT&T plans to roll out FirstNet service to around a total of 45,000 towers, with 15,000 seeing new equipment in the first five year. There will be plenty of room for negotiation between AT&T and the public safety agencies concerning where that buildout occurs, according to Bizick.
“The public safety agencies will want coverage where they current don’t have it, and AT&T wants to deploy coverage where they don’t have to build towers,” he said. “I think the mixture should include coverage where there it currently is not available to public safety.”
Bernard Borghei, co-founder of Vertical Bridge, sees FirstNet as the last, best hope of getting broadband wireless deployed in rural areas. Collocating on existing towers will be essential for AT&T to achieve a return on its invest on its investment.
“A lot of us have rural towers and there is the possibility for a partnership there. We have a healthy relationship with AT&T. It is a timing issue. How aggressive they will be; how fast they will deploy; I don’t know,” Borghei said.
Collocating FirstNet Antennas May Not be That Simple
Not surprisingly, the FirstNet antennas covering multiple spectrum bands are bigger than the LTE ones.
“They are trying to go with one antenna per sector. Under Rev. H [of ANSI/TIA 222), the new tower engineering standard, a lot of the mounts are going to be stressed with the FirstNet antennas,” Borghei said.
Tony Peduto, CTI Towers CEO, said AT&T is looking for additional height beyond the standard 10 feet in the FirstNet rad centers, which may lead to reconfiguring the tower. He was not confident, however, that the Dec. 28 deadline for states to opt-in would hold.
“You have Oregon and Washington with a joint RFP out there which is due in mid-November. With the holidays, I think you are going to see an extension of time granted for states to opt-in as they try to figure it out,” he said. “It’s a tailwind. Just a matter of when.”
States opting out could lead to a FirstNet network with multiple providers, Peduto said
“A network will be built, but it may mean multiple players. Verizon has gone to states and lobbied them to build their network. Ultimately you are still going to need interoperability across the country, even if has Verizon in Washington state and AT&T in Oregon. I am not sure what it will look like in the end.”
Crown Castle International had “great financial results” in the third quarter that “exceeded expectations.” The company expects continued strong leasing activity in the fourth quarter and into 2018. “The Q3 results and 2018 outlook demonstrate how strong our business is performing today and our expectation that those positive trends will continue into 2018,” said Jay Brown, Crown Castle’s CEO.
“[CCI’s] increase in 2018 U.S. new leasing activity, we believe, bodes well for the other towercos,” said Jennifer Fritzsche, senior analyst, Wells Fargo. “CCI’s 2018 guide does not include any contribution from FirstNet build, which we believe offers upside as states finalize and begin deployments.”
Those trends include growth across the board in towers, small cells and fiber optics. In the third quarter, CCI saw $41 million in organic contribution to site rental revenues from 8 percent growth from new leasing activity and contracted tenant escalations, less 3 percent from tenant non-renewals.
“We are seeing each of the carriers work on increasing both the capacity of the network and speed of the networks,” Brown said. “So we are seeing a combination of collocations where the network densified through cell splitting as well as amendments of existing installations to provide additional spectrum bands and/or additional capacity. So it’s similar to what we seen in the past just frankly more of it.”
There was some bad news. Site rental revenues were offset by higher repair and maintenance expenses associated with hurricanes Harvey, Irma and Maria, driven by having tower crews on hand, preparation for the storms, inspections, debris removal and responding to customers following the storms.
But there was even good news about the storm’s impact on the towers, which did not suffer “significant damage.”
“I would like to thank all of our employees who worked tirelessly to help get our customers assets back online. During some very stressful times, they went above and beyond the call of duty,” said Dan Schlanger, Crown Castle CFO.
Tower, Small Cell, Fiber Optic Leasing Activity to be Up Next Year
The forecast for 2018 and beyond is for more growth. CCI’s guidance includes new leasing activity of $205 million, compared with $172 million in 2017. That breaks down to $110 million for towers, which is up from $105 million in 2017; $55 million for small cells, up from $40 million in 2017; and $45 million for fiber solutions, up from $25 million in 2017. Annual escalator revenue of $85 million will be offset by $85 million in churn.
“CCI’s strategy of offering communication infrastructure solutions across macro towers, small cells, and fiber assets is beginning to take hold,” Fritzsche said. “We look for growth to ramp – particularly in small cells and fiber segments – once CCI closes on its Lightower acquisition.”
Fiber, Small Cells, Towers All Work Together
Serving the fiber optic needs of the large enterprises, health care providers, educational institutions and carriers enhances the breadth of CCI’s small cells. Brown described 70 percent of small cell builds as anchored builds where new fiber had to be laid down to backhaul the small cell, leaving 30 percent to be classified as collocations.
“We have built upon our expertise in wireless, including small cells and fiber, in 23 of the top 25 markets, pro forma for the pending Lightower Fiber Networks acquisition,” Brown said. “Our win rates for small cells continue to be half of the total activities in the market, which is consistent to the last few quarters at least maybe the last year or so.”
Brown described CCI’s interest in Vapor IO, a microdata center company, which it purchased in June, as a “trial small investment.” CCI is on a learning curve when it comes to mobile edge computing and is not ready to make a commitment, he added.
“I would describe mobile edge computing as one of the areas that we believe has the potential to provide upsides to our revenue cash flow growth as well as returns and extends the runway of growth from the infrastructure over a long period of time,” he said. “We are keeping our eye on it and positioning ourselves to benefit from it.”
Quotes in this article courtesy www.seekingalpha.com
The most recent movements in the mergers and acquisition market don’t have anything to do with tower purchases but with fiber optics.
Yesterday, we learned that ExteNet Systems plans to acquire MetroFiber d/b/a Axiom Fiber Networks, which is a telecommunications infrastructure services provider operating in the greater New York City metropolitan region. Before the acquisition, the company had 250 route miles in New York. It will be closing in on 2,000 small cell nodes in the area by the end of the year.
Crown Castle International, which has 50,000 small cells on the air or under development, intends to acquire LighTower (LTS Group Holdings) from Berkshire Partners, Pamlico Capital, for, which owns or has rights to approximately 32,000 route miles of fiber located primarily in top metro markets in the Northeast. The company will cost Crown $7.1 billion in cash, which it will finance, in part, by selling $1.73 billion in senior notes.
“With a fiber footprint after the transaction that will cover 23 of the top 25 most populous U.S. markets, Crown Castle is well-positioned to capitalize on the growing demand for mobile connectivity as network architecture continues to evolve and bandwidth demands continue to increase,” according to Crown Castle.
The transaction will double Crown Castle’s metro fiber footprint, resulting in it owning or having rights to 60,000 route miles of fiber, making it one of the largest owners of metro fiber in the United States.
The purchase of LighTower “significantly increases opportunities for small cell network deployments in top metro markets in the Northeast including Boston, New York, and Philadelphia,” according to Crown Castle.
CommScope to Acquire Cable Exchange
An example of the OEM market gearing up for the fiber-optic future in general and data centers in particular, CommScope plans to acquire Cable Exchange, a privately held quick-turn supplier of fiber optic and copper assemblies for data, voice and video communications.
Cable Exchange, headquartered in Santa Ana, California, manufactures a variety of fiber optic and copper cables, trunks and related products used in high-capacity data centers and other business enterprise applications.
“This highly complementary acquisition will deepen CommScope’s capabilities in supporting the growing market for high-capacity, multi-tenant data centers and hyperscale data centers operated by the world’s largest technology and retail companies,” CommScope said. “As more user-driven information and commerce flows through networks, operators are quickly deploying larger and more complex data centers to support growth in traffic and transactions.”
Remember, during the second-quarter of this year, Verizon announced fiber purchases from Corning and Prysmian Group in order to deliver new fiber services, including 5G, and supporting small-cell deployment.