Crown Castle Positioned for Carrier Network Expansion

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Crown Castle (NYSE: CCI) believes it is well-positioned to meet mobile network operators’ escalating mobile data demand with its mix of tower, fiber, and small cell infrastructure assets. 

The company identified three factors driving that demand: MNO’s large millimeter wave spectrum holdings, deploying that spectrum by densifying their networks with small cells that locate mmW radios closer to customers, and mobile user apps and use cases enabled by availability of the new Apple iPhone 12 smartphones that support mmW frequencies.

To that end, CCI has an extensive infrastructure portfolio. At the end of 3Q20, CCI had in service over 40,100 macro towers, over 80,000 fiber route-miles and more than 40,000 small cells. The company expects to finish 2020 with just under 50,000 small cells on air and to add another 10,000 small cells in 2021. Tower occupancy averages 2.1 tenants per tower.

Note that all these assets are in the U.S. CCI believes the U.S. is the fastest growing market with the lowest risk that offers the highest return on invested capital. The company garners the bulk of its business on the top 100 markets around the country, focusing on the top 25-30 heavily populated markets with the highest investment return potential.

CCI’s customer base is top heavy. The big three MNOs, T-Mobile, AT&T and Verizon, together account for 75 percent of CCI’s site rental revenues. 

The company’s master lease agreements with these MNOs have a 5-year weighted average remaining contract term totaling $24 billion in contracted customer receivables. These MLAs give CCI an assured revenue stream for the next five years.

Through nine months ending September 30, 2020, CCI recorded almost $4.0 billion in site rental revenues, up 5 percent from $3.8 billion in the same period in 2019. Towers are still the company’s main business, accounting for two-thirds of its site rental revenue. 

Fiber networks add another 24 percent while small cells generate the remaining 10 percent. On a year-to-year basis, tower and fiber site rentals grew at just over 3 percent. Though the minor contributor, small cell site rental revenues grew 17 percent on a year-to-year basis.

Adjusted EBITDA grew 2 percent to $2.5 billion which adjusted funds from operations (AFFO) increased 4 percent to nearly $1.9 billion.

The company is guiding steady growth for 2021. Overall site rental revenue is projected to increase 4 percent to $5.6 billion, while adjusted EBITDA is expected to be up 5 percent to $3.6 billion with AFFO growing 12 percent to $2.9 billion.

Capital expenditures in 3Q20 were $377 million, down 30 percent from $577 million in 3Q19. The biggest drop occurred in discretionary capex for new builds and expansions. Tower activity expected from T-Mobile in the aftermath of its Sprint merger did not materialize in 2020 as expected. CCI indicated that tower activity is picking up through year-end 2020 and will increase in 2021. 

CCI scaled back on new fiber capex that accounts for 70 percent of total expenditures. Going forward, the company will lead new construction with small cells that in turn will pull through associated fiber builds.

The company’s 2021 capex guidance of $1.5 billion comprises nearly 90 percent for discretionary infrastructure builds with land lease purchases and sustaining network investments making up the balance.

CCI noted its projections exclude DISH Networks’ 5G build out activity that is not expected until 2H21. It also pointed out that its current backlog of small cell builds is on a 10,000 sites per year run rate. Escalation of mmW small cell deployments are to be determined.

The company also pointed out that tower or fiber related construction is not tied to specific spectrum such as mid-band 3.5 GHz CBRS or C-band. Rather, the company is responding to its customers’ requirements on a market basis incorporating infrastructure elements as needed to meet that market demand.

By John Celentano, Inside Towers Business Editor

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