December 22, 2016 —
The idea of a small cell as a standalone structure serving one carrier was replaced in 2016 by large networks of small cells connected by miles and miles of fiber that serve multiple carriers and, therefore, make them economically feasible.
While the tower business was good for Crown Castle International in 2016, the majority of its capex went to its small cell business, which comprised 16,500 miles of fiber. Although small cells accounted for $385 million, or 12 percent, of annualized site rental revenues, it is obvious Crown Castle sees a bright future in them.
“We are as excited as we have ever been by the opportunities in small cells,” Jay Brown, Crown Castle CEO, said during an earnings call. “Our small cell conversations with the carriers have increasingly become more positive with the passage of time and we are seeing the business model of small cells play out very similarly to that of towers.”
Crown Castle illustrated that the economics of small cells depended on collocating multiple carriers on a network of fiber infrastructure threaded through the cities. In Denver, it has 17 miles of fiber connecting 65 tenant nodes on 26 poles. The system it has in Las Vegas consists of 36 miles of fiber supporting 77 tenant nodes on 77 poles.
Small Cells Take Hold Indoors
CommScope showed Sprint how to add coverage to small and medium-size businesses with small cells in May, enabling a turnkey wireless solution for both employees and visitors as part of Sprint’s network densification plan.
The market is ideal for small cells, according to Rod Gatehouse, CommScope vice president, product line management and marketing for small cells. Gatehouse was formerly with Airvana, which CommScope acquired in late 2015.
The commercial deployments showed that it made sense to combine LTE small cells with Wi-Fi antennas. Based upon Qualcomm FSM small cell and Qualcomm VIVE Wi-Fi chipsets, the S1000 supports both 2.5 GHz TD-LTE and 802.11ac dual-band, dual-concurrent Wi-Fi, allowing Sprint to provide managed Wi-Fi hotspot services to enterprises such as retail and restaurant chains.
Nokia, Telfonica Replace DAS with Small Cells in Chile Shopping Center
In May, Nokia and Telefónica Chile completed a small cell development in a six-floor, 551,000-square-foot shopping center in Santiago, Chile, the largest retail development in South America.
Nokia replaced and upgraded the existing DAS with high-capacity, high-coverage Flexi Zone small cells network. Nokia’s Flexi Zone small cell technology provides a cost-effective alternative to DAS, offering faster data speeds and supporting a higher number of subscribers. Ease of deployment and the ability to upgrade 3G small cells to 4G LTE will allow Telefónica Chile to scale capacity as customer demand continues to evolve.
October 27, 2016 —
“Crown completed another great quarter of financial results that exceeded our expectations,” said Jay Brown, Crown Castle’s CEO, during the earnings call. “The leasing environment continues at a healthy pace in both towers and small cells, allowing us to once again increase our full year outlook for 2016.”
The towerco also increased its dividend by 7 percent, reflecting that it expects continued growth into next year. Additionally, site rental revenue of $3.33 billion is projected for 2017, up 3.1 percent year over year.
“We believe the healthy leasing environment will continue into 2017, including $15 million in growth from small cells and similar growth in towers as compared with 2016,” Brown said.
While leasing revenue will see a drag from the amortization of prepaid leasing next year, Crown will continue to see steady progress from wireless carriers on its macro towers and outsized growth from its small cells segment, according to Wells Fargo Senior Analyst Jennifer Fritzsche.
“While we remain on the sidelines for now, we do believe we are approaching a point where headlines could go in CCI’s favor (note: if AT&T comes back it should be most positive for CCI of the three tower companies given its exposure to the AT&T portfolio),” Fritzsche wrote.
Brown highlighted the towerco’s small cell investments, noting that, to date, the company has invested $2.6 billion including $1 billion in NextG Networks and $1 billion in Sunesys.
“These investments have resulted in that business now generating more than $400 million per year of site rental revenues and a recurring yield of 6 percent to 7 percent,” said. According to Wells Fargo statistics, small cells represented 12.6 percent of Q3 rental revenue, or $102 million.
Brown also provided color on how small cells have expanded since 2013 in Chicago when they inhabited only the central business district (300 tenant nodes on 100 miles of fiber) to today where they have expanded to cover the surrounding suburbs (1,150 tenant nodes on 200 miles of fiber).
“Chicago is representative of what we are seeing throughout major U.S. metro markets, which is why we remain so bullish on the opportunities we see in small cells,” he said.
September 29, 2016 —
Crown Castle International is one of four companies that joined the White House’s National Science Foundation-led Advanced Wireless Research Initiative, this week, collectively committing more than $8 million in in-kind contributions to help support the design, deployment, and operation of four city-scale advanced wireless testing platforms.
Crown Castle will support the testing platforms by providing network deployment and tower siting advice and space on wireless towers. Anritsu will contribute microwave components, spectrum analysis tools and equipment to support testing. Ericsson will provide researchers, systems and technology expertise, software-defined networking and radio network engineering support. FiberTower will contribute mmWave spectrum services.
The Advanced Wireless Research Initiative is part of White House Smart Cities Initiative, which kicked off Smart Cities Week, Sept. 27-29 in Washington, DC, with more than $80 million in new federal investments. The initiative also doubled the number of participating cities and communities, exceeding 70 in total.
“If we can reconceive of our government so that the interactions and the interplay between private sector, nonprofits, and government are opened up, and we use technology, data, social media in order to join forces around problems, then there’s no problem that we face in this country that is not solvable,” President Barack Obama said in a prepared release.
In September 2015, the White House launched the Smart Cities Initiative to make it easier for cities, federal agencies, universities, and the private sector to work together to research, develop and deploy new technologies that can improve cities.
Technology is being harnessed to tackle issues in climate, transportation, public safety and city services for the homeless. In particular, $15 million will go to energy challenges, such as data analytics for reducing buildings’ energy footprint. Researchers in Chattanooga will receive $15 million to test how connected and autonomous vehicles can cooperate to improve travel efficiency. More than $10 million will go to public safety, resilience and disaster response, including sensors in flood-prone areas in Texas. Additionally, three counties surrounding Seattle will use predictive analytics to identify precisely when city services succeed in helping homeless individuals transition into permanent housing.
September 27, 2016 —
EDITORS’ NOTE — This is the third of three articles revealing the different approaches to small cells of the major tower companies. Crown Castle International, InSite Wireless Group and Digital Bridge Holdings share an appetite for small cells.
For Crown Castle, small cells represent assets placed on a collocatable asset, which is the fiber-optic network that delivers traffic from a mobile wireless network at a local point. “Whether that’s a distributed antenna system (DAS) node, a small cell, a femtocell or a picocell doesn’t necessarily matter to us, as long as there’s a fiber on which we can collocate,” said Dan Schlager, senior vice president of corporate finance at Crown Castle.
Schlager said Crown Castle wants to make the fiber-optic network profitable. To do so, the company seeks to participate in the densification of the radio-frequency (RF) spectrum the mobile networks deploy and, in doing so, become a partner to its wireless carrier customers. “We firmly believe that fiber is the asset that we’re going to collocate on, and what we really try to push on,” he said.
In a view expressed by Jay A. Brown, Crown Castle’s president and CEO, because small cells are deployed closer to the end user and in a denser array, such as on traffic lights or telephone poles, they represent the natural progression of network densification required to provide continuous consistent high-capacity and low-latency connectivity. With small cells, the company’s initial investment relates primarily to the build out of the fiber-optic cable network. “We believe our fiber footprint of 17,000 miles in top mature markets combined with the capabilities that we have acquired and developed over time give us time to market and economic advantages that should allow us to capture a significant share of this large opportunity,” Brown said.
For 2016, Crown Castle is expecting $170 million in organic revenue growth, with $115 million from towers and $55 million from small cells. Brown said the company sees its investment in small cells as representing an opportunity to grow the dividend it pays shareholders.
“Looking beyond 2016, we believe we are in a multiple-year cycle of network upgrades and enhancements, as carriers focused on meeting significantly increasing demand for wireless connectivity, which we believe will benefit both our tower and small cell businesses,” Brown said.
InSite Wireless started in the DAS business 16 years ago. The company built a system in the Moscone Center in San Francisco that has since undergone nearly six generations of upgrades for densification. InSite Wireless focuses on indoor DAS, always providing fiber access to the sites.
“The leasing on DAS is phenomenal,” said Lance Cawley, CFO of InSite Wireless. He said the company built a DAS that covers the Massachusetts Bay Transportation Authority (MBTA) subway in Boston that serves AT&T Mobility, Verizon Wireless, T-Mobile USA and Sprint. In addition, Comcast provides Wi-Fi service. InSite Wireless has started some underground wireless service for Verizon in the Los Angeles County Metropolitan Transportation Authority (Metro).
“DAS is a wonderful, yet difficult, business,” Cawley said. “Unlike towers, which are just a simple real estate leasing business involving many forms and a documented information flow handled by run of the mill staff, in DAS, it requires somebody at all levels of legal, engineering, RF and finance. These are $20 million, $30 million and $40 million build outs that take many years to complete. It involves a lobbyist and attorneys. It’s complicated, but we have phenomenal results in our DAS business. I think of the small cell business as an extension of the DAS business. A small cell has a base transceiver station (BTS) built in, whereas DAS has a centralized BTS pack.”
Cawley said InSite Wireless is indifferent to which solution it provides. “We provide whatever is cost-effective for the carrier to meet its capacity demands,” he said. “We love the macro tower business. It’s the majority of our business. We believe you should be in all these lines of business to meet the carriers’ growth and capacity requirements.”
At Digital Bridge Holdings, CEO Marc Ganzi said mature small cell networks experience lease amendment activity much like the tower business does. And business is good. “In the small cell business, we’re drinking through a fire hose,” Ganzi said. “We have 2,000 nodes in construction. We’ve got a leasing backlog that’s worth close to $60 million in annual recurring rent. There’s more than we know what to do with. It’s that size of an opportunity. That’s good, because as some of the macro tower business has slowed, we’ve seen the small cell business accelerate dramatically.”
Dan Schlager, Lance Cawley and Marc Ganzi spoke at the Wireless Investors Conference, part of the Wireless Infrastructure Show, in May. The next Wireless Infrastructure Show is scheduled for May 22–25, 2017, in Orlando, Florida. Jay A. Brown spoke during an earnings call in July.
August 30, 2016 — RBC Capital Markets remained overweight on the public tower companies, including American Tower and SBA Communications, with a “slightly greater weighting” toward Crown Castle International in the firm’s Mobile Infrastructure Recap for the second quarter.
“Towers are our only coverage sector with identifiable catalysts for (modest) revenue acceleration driven by various network activities at AT&T and T-Mobile, though slowing activity at Verizon could mute this trend somewhat,” wrote Jonathan Atkin, RBC analyst.
RBC’s preference for CCI is driven in part by the towerco’s involvement in U.S. outdoor small-cells and prospects for increasing tenancies from AT&T and T-Mobile. The firm also believes CCI’s dividend will increase the shareholder base.
Additionally, S&P, Dow Jones and the MSCI U.S. REIT Index have made rules changes concerning REITs, which will have a favorable impact both American Tower and CCI.
“We believe the REIT GICS creation later this week will act as a structural catalyst favoring the tower REITs,” Adelstein wrote. “AMT and CCI, each of which are top-five REITs by market capitalization, have up to now not been included in the two most heavily benchmarked REIT indices (FTSE/NAREIT and RMZ), yet will be included in the new REIT GICS category, which we believe could drive index-related buying.”
Site Leasing and Organic Growth
RBC predicted a small increase in tower leasing in 2016 compared with 2015. While macro-site deployment will be down, activity will increase in macro-overlays, small cells and carrier aggregation.
“Verizon and T-Mobile should remain active, with each contributing slightly fewer macro-site additions vs. 2014, offset by greater macro-overlay activity and increased small cell efforts,” Atkins wrote. “AT&T should remain inactive on macro-site deployments but noticeably more active on site overlays. Sprint remains mostly dormant on macro site additions, focusing on carrier aggregation and BTS small-cell deployments.”
RBC predicted increased overall activity at T-Mobile in 2017 and possibly AT&T, with Verizon posting less macro-site and more small-cell activity.