Crown Castle is Bullish on Small Cells


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crown castleCrown Castle International CEO Jay Brown believes the healthy leasing environment across towers and small cells will continue into 2017. Speaking to shareholders and analysts on the company’s third-quarter earnings call on Friday, Brown said: “The company’s 2017 outlook assumes higher growth of about $15 million from small cells and similar growth from towers as compared to 2016.”

“The growth we see in our business is fundamentally driven by the strong growth in demand for mobile data, which we believe will continue given the continued adoption of data intensive applications such as video streaming, the increasing number of devices that are being connected with the growing importance of the Internet of Things, and the potential for new applications to be deployed in the years ahead,” Brown said according to a Seeking Alpha transcript.  

Crown Castle has about 40,000 towers, according to Brown. As carriers have looked to small cells to add network capacity, Crown, too, has begun to invest more significantly in this sector, he said.

Small cells share three fundamental characteristics with towers, he believes. “First, the shared economic model of small cells drives down our carrier’s cost of deployment. Second, our margins and returns increase over time as the carriers lease more tenant nodes across our fiber. And third, the total addressable market is very sizable,” he said, according to the transcript.

As an example, he cited the company’s experience with small cell siting in Chicago. In 2013, CCI had about 300 tenant nodes on-air on some 100 miles of fiber or about three tenant nodes-per-mile of fiber. Ninety percent of the nodes are focused on the downtown area.

Today, CCI has some 1,100 nodes on-air and under construction on 250 miles of fiber with a density of about five tenant nodes-per-mile. “This results in a yield on our investment in Chicago of about 10 percent,” said Brown.

More than half of these nodes are outside of the central business district; that expansion is why CCI believes the addressable market for small cells will be significant. Chicago is representative of what the company is seeing in major U.S. markets.        

Getting to the numbers for the quarter, site rental revenues ($812 million) grew approximately six percent, or $47 million, compared to the same period a year ago, the company announced. Net income ($98 million) was negatively impacted by some $10 million in losses on retirement of long-term obligations related to refinancing.

Adjusted EBITDA was $564 million, $35 million higher than the same quarter a year ago. CapEx were about $221 million during the quarter, including approximately $17 million of land purchases. CCI issued $700 million in senior secured notes; proceeds were used to refinance existing debt.

Wells Fargo Senior Analyst Jennifer Fritzsche characterized the Q3 results in a client report as “solid … that beat our estimates across the board. The company also offered 2017 guide, which at first glance looked lighter than expected,” Fritzche said “but after digging deeper, is negatively impacted by accounting treatment of prepaid rent and reflects a fairly healthy leasing environment.”

October 24, 2016


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