The upside of Crown Castle International’s investments in fiber and small cells dwarfs the possible downside, Daniel Schlanger, executive vice president & chief financial officer of Crown Castle International, said in an interview with Dave Barden, managing director, Bank of America Securities yesterday during the BofA Merrill Lynch 2020 Media, Communications & Entertainment Conference.
Schlanger was responding to a question about whether Crown Castle could have invested money in ways that would have given a higher return and if he regretted investing in fiber and small cells.
“It’s clear that the investments that we made over the last five years are not the highest return investments,” Schlanger said. “We could have bought stock in Tesla and made seven times our money, but our business is not to speculate in stocks. When you factor in the probability of an upside, the upside way outweighs the downside.
“Do I think we made a mistake? Absolutely not. We are trying to create a model that worked so well with towers. We have shared infrastructure that lowers our customers’ costs and generates a return over and above our costs of capital for our investors,” he added.
The question was tied to arguments made by Elliott Management, which has a $1 billion interest in Crown Castle, that the company’s stock has underperformed compared with other public towers because of its fiber strategy, which has yielded “disappointing returns despite the $16 billion of investment.”
Crown’s interest in fiber and therefore small cells stretches back to 2014 when it purchased 24/7 Mid-Atlantic Network, which owned 900 route miles of fiber in the Baltimore/Washington corridor. At the time, Crown had more than 6,000 nodes under contract that it was in the process of building, and it needed fiber to build out small cells for Verizon in the Baltimore market. Since then, it has purchased numerous other fiber companies, including Quanta Fiber Networks (Sunesys) in 2015, FPL FiberNet Holdings in 2016 and Wilcon Holdings in 2017. Today, it is the long-term owner of more than 80,000 route miles of fiber.
Crown has been installing small cells for indoor, outdoor and mixed-use areas since 2003, and today it has 70,000 small cells on air or under contract.
Schlanger said it is too soon to judge whether the investment into fiber and small cells will pay off, and he said he is confident that the data needs spurred by 5G technology will bring exponential demand for more small cells. On Crown’s web site, it projects that 800,000 new small cells will be needed by 2026.
“We are not to the point where these investments (under any underwriting scenario) would have generated returns over and above our cost of capital,” he said. “It is not a sufficient time to determine whether they were the right decisions or not. As we look out into the future, we feel very strongly that small cells will be an important part of the network architecture going forward.”
Schlanger said the economics of collocation on small cells are good enough push up the initial anchor tenant yield, which is 6 percent to 7 percent, up to 10 percent to 12 percent.
“The assumption is we are adding a single additional tenant per small cell or an additional two to three nodes per mile of our fiber that we already own,” Schlanger said. “That is a relatively low bar to make a return. The potential is there that we could add significantly more small cells if we see the potential upside of millions of small cells in the United States and we have fiber in the top 30 U.S. cities, which is where the majority of those small cells will go. We could see seven or eight nodes per mile. The upside in that is huge.”
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LTE is the fastest-growing mobile network technology worldwide, 2013 will be the peak year for deployments, TDD LTE is on the rise and Huawei and Ericson dominate infrastructure contract awards, according to several recent industry reports.
More than 184 LTE networks were in service as of the end of July, with another 159 planned or in deployment. Successful LTE deployments have been achieved by various by operators including Verizon Wireless, SK Telecom, NTT DoCoMo, Everything Everywhere and Vodafone D2 (Germany), according to a report from Informa Telecoms & Media.
Huawei and Ericsson are dominating the market in terms of the allocation of infrastructure contracts. According to Informa’s calculations and data provided and validated by vendors, Huawei accounts for 40 percent of network contract awards, Ericsson has 34 percent and NSN follows with 17 percent. The other 9 percent is divided among Alcatel-Lucent, ZTE, Samsung and NEC.
“The top three vendors have illustrated significant technological expertise and support to mobile operators, with Huawei and Ericsson having attracted the largest share of contracts,” said Dimitris Mavrakis, co-author of the Informa report.
Unlike in the U.S. market, network sharing is popular in foreign countries to reduce opex and consolidate infrastructure platforms.
The Global Mobile Suppliers Association counts 200 LTE networks, a slightly higher number of commercially launched systems than Informa, including 182 networks deployed in FDD mode, nine TDD networks and nine FDD/TDD networks. In the longer term, several operators have expressed interest in converging TDD and FDD to increase network capacity, especially when existing unpaired spectrum holdings are available.
More than 50 mobile carriers worldwide have committed to TDD LTE technology, according to a report by Research and Markets, and more than 30 OEMs have commercially launched TD-LTE-compatible devices, the majority of which support both FDD and TDD.
“In October 2012, the TD-LTE ecosystem received a major boost when China’s Ministry of Industry and Information Technology announced that the entire 190 MHz of spectrum in the 2.5/2.6 GHz band will be allocated for TD-LTE deployments in China, which harmonizes its TDD spectrum with Japan and the U.S., two major LTE markets,” according to Research and Markets. “These developments could allow the TD-LTE ecosystem to reach significant economies of scale, boosting further infrastructure and device investments in TD-LTE technology.”
Although the market is going to move toward LTE-A, which includes several different updates on the existing LTE standard, most operators are just at the LTE stage, according to Darryl Schoolar, principal analyst, wireless infrastructure, Ovum.
“Some of these LTE-A announcements could be considered premature as they only are using one LTE-A feature, mainly carrier aggregation,” he said.
On Aug. 20, Ericsson announced that it has supported South Korea’s SK Telecom in expanding LTE-Advanced commercial service network to the downtown areas of 84 cities nationwide, including the entire Seoul metropolitan area and six other major cities.
On June 26, SK Telecom launched LTE-Advanced service with up to 150 Mbps speeds in the Seoul area, the downtowns of 42 cities and 103 campus towns, with a plan to deploy 32,000 LTE-Advanced base stations by the end of the year, including 300 college campuses.
Regional Mobile Backhaul Leader Reaches Another FTTT Milestone
SEPTEMBER 23, 2013 —
CHARLOTTE, NC — (Marketwired) — 09/23/13 — DukeNet Communications, a leading regional fiber provider of high-bandwidth connectivity solutions for enterprise, data center and carrier businesses in the Southeast, proudly announces today that its Fiber-To-The-Tower (FTTT) initiative has reached another key milestone with more than 3,500 cell sites now connected with DukeNet-provided high bandwidth facilities. DukeNet operates more than 9,000 route miles of fiber optic capacity in the Southeast, and offers a wide range of solutions to meet carrier, wholesale and enterprise customers’ bandwidth needs.
“This milestone demonstrates DukeNet’s commitment to providing carrier grade network solutions that mobile operators expect to successfully deliver 4G and other enhanced services to their customers,” said Tony Cockerham, COO for DukeNet Communications. “We will continue to expand our next generation network to meet growing demands, and we’re already contracting to provide fiber connectivity to additional towers throughout 2013 and 2014.”
DukeNet currently provides FTTT services to all of the major wireless providers, most prominently in North and South Carolina but also including Tennessee, Georgia and Alabama.
“Our goal will always be to ensure our customers’ overall experience with DukeNet on Fiber-To-The Tower projects is excellent,” adds Cockerham. “DukeNet prides itself on providing reliable service while delivering sites efficiently. When it comes to mobile backhaul, we have a reputation for delivering positive results for customers with very high expectations. We seek innovative solutions for these demanding customer needs, and work around the clock to get the job done for them.”
According to Telecom Ramblings, DukeNet Communications is one of the top 10 FTTT providers in the United States and the largest in the southeast, based on number of towers in service.
About DukeNet Communications
Headquartered in Charlotte, N.C., DukeNet is a leading regional fiber network provider offering advanced data and high-capacity bandwidth services to enterprise, data center, government and carrier customers. Primarily serving the southeastern United States, DukeNet controls a 9,000 route mile fiber-optic network capable of delivering 100 Gbps services, enabling cloud computing and high-bandwidth applications for enterprise business. More information about DukeNet is available at www.dukenet.com. Follow us on Twitter @DukeNetComm.