Despite a slowdown in new macrocell installations as the carriers complete 4G LTE site builds and frequency band refarming, the tower companies are doing more to help the carriers densify their networks with macrocell upgrades, along with outdoor and indoor small cell and distributed antenna system (DAS) installations and operations. This is particularly true for Crown Castle and its work in deploying thousands of small cells for Verizon Wireless.
With current guidance, towerco aggregate capital expenditures (capex) will come in at $1.6 billion in 2016e, down 5 percent from $1.7 billion a year earlier, reflecting reduced carrier capital spending for the year.
The outlook for the next several years is positive, nonetheless, with capex expected to approach $2 billion by 2018e. Towerco capital intensity averaged 15 percent or above in each quarter for the past three years, indicating a network expansion mode.
Tier 1 carrier concerns about high tower lease fees aside, tower business growth is being driven by several key factors:
· Cellular carriers are purchasing and will build out low-band 600 MHz spectrum for future services. To do so, new antennas must be added at every site. Right now, 698 MHz is the low-end cutoff frequency for 700 MHz band operation. 600 MHz operation involves downloads in the 617-652 MHz range and uploads in the 633-698 MHz range. Moving into 600 MHz for cellular service means adding new, dedicated 600 MHz antennas, or replacing existing antennas with new multiband units (600/700/PCS/AWS) at sites on towers, rooftops and other structures. This translates into incremental lease revenues at these sites.
· Outdoor small cell deployments will continue to ramp up for 4G LTE densification among all the carriers, and to prepare for the much- anticipated wave of 5G roll-outs.
· Towercos are embracing a greater role as neutral host operators for in-building wireless (IBW) installations using both DAS and indoor small cells. Outdoor and indoor network densification activity means new revenue streams for the towercos.
Crown Castle is the big spender in 2016e, accounting for more than half of the $1.6 billion total. The company owns and operates 40,000 towers in the U.S. At the same time, Crown Castle has a very active small cell program underway for Verizon Wireless. Small cells accounted for 51 percent of Crown Castle’s capex in 3Q16. Consequently, the company is well ahead of its peers in overall infrastructure investments.
American Tower is augmenting and supporting its large base of towers in the United States, which account for 40,000 of the nearly 145,000 towers that it owns or operates worldwide. The company is ramping up its neutral-host DAS business and will undertake greater numbers of small cell deployments over the next several years.
SBA Communications’ capex supports its nearly 16,000 U.S. towers. The company is focused on towers, and has not indicated a move into small cells yet.
The other tower companies that operate roughly 25,000 towers account for 14 percent of the total 2016e tower infrastructure investment. These smaller tower companies may receive more interest from the Tier 1 carriers in future in places where these towercos have assets in key markets.
How are the Big 3 tower companies allocating their capex?
Nearly 60 percent of the Big 3’s $337 million 3Q16 total was applied to new tower and small cell construction, with towers still maintaining an edge over small cell investments.
Site upgrades, also called redevelopment, include capital spending to increase capacity of tower sites, including height extension, foundation strengthening and extension of ground space, which results in new incremental tenant revenue. Site maintenance involves capex to maintain the tower site including the lighting system, fence repair, and ground upkeep. Corporate capital spending is primarily for IT infrastructure that supports the tower business.
Clearly, there are lots of moving parts in the tower business, all driving growth.
John Celentano is a tech marketing consultant and a wireless infrastructure expert. He can be reached at firstname.lastname@example.org.