Crown Castle International (NYSE: CCI) management is taking in stride the shifts in its business mix in 2021. CCI previously indicated that it would deploy small cells, mainly for its mobile network operator customers, at roughly a 10,000-a-year pace.
The company reports that with revised customer network deployment plans, it now expects to deploy 5,000 small cells in 2021, and the same number in 2022. With a committed backlog of around 30,000 sites, CCI expects the balance of 20,000 small cells to be installed beyond 2022.
So far, this shift is not reflected in its financial performance. For 2Q21, the company reported site leasing revenues of $1.4 billion, up 8 percent from $1.3 billion in 2Q21. Adjusted funds from operations (AFFO), a key metric in the tower business, were $741 million in the quarter, up 22 percent from $609 million in 2Q20.
Towers are still CCI’s main infrastructure assets and leasing revenue generator. At the end of 2Q21, the company reported 40,130 towers in the continental U.S., Hawaii, and Puerto Rico. In addition, the company operates around 80,000 fiber route miles and has 50,000 small cells on air with another 30,000 in the backlog.
Of its 40,000+ towers, 71 percent are in top 100 markets in the U.S. Moreover, the bulk of CCI’s site leasing revenues are derived from the big three mobile network operators – AT&T, T-Mobile, and Verizon – that together accounted for 74 percent of CCI’s total 2Q21 site rental revenues.
CCI says that it is not surprised by its MNO customer focus on macro cell sites and away from small cells although it acknowledges that change came quickly.
In the big picture, management considers such a move to be more of a timing issue and that these installations will take place but at a later time. Furthermore, the company believes that its mix of tower, fiber and small cell infrastructure assets give the flexibility it needs to adjust to changing customer priorities.
Small cell installation deferrals mainly are due to: near-term customer prioritization on macro cells; small cell zoning, permitting and build cycle times that are typically 24-36 months; and Sprint cancellations expected in 2022 and beyond.
CCI points out each new technology rollout exhibits a similar pattern that was evident with 3G and 4G and is now emerging with 5G.
Here’s how CCI characterizes the current state of its customers’ network plans.
The Big 3 MNOs along with DISH Network are concentrating on building out their 5G networks initially covering as much of the population as possible using their respective spectrum holdings across multiple frequency bands.
Though each company has its own deployment plans with different timelines, as a general pattern, these MNOs are deploying 5G, in the first wave, on those CCI and other towerco towers where they already have equipment installed and master lease agreements in place.
Secondly, where they need to extend geographic coverage, they will seek new towers (read, non CCI towers) on which to install their RAN equipment.
The third wave will be network densification that involves deploying thousands of small cells in heavily populated urban and suburban areas to support high-speed, low latency use cases. To meet this demand, CCI installs small cells as a node on a fiber route. That’s how its fiber and small cell businesses work together.
It is important to note that while carriers represent nearly 40 percent of its fiber business, CCI also sells its fiber facilities and services to non-telecom vertical markets such as education, health, and financial services.
It is in CCI’s capital expenditures that this shift to towers and away from small cells is most pronounced. Overall, discretionary capex (land purchases, tower improvements/modifications, acquisitions) and sustaining capex (tower maintenance) for the first six months of 2021 tallied $609 million, down 29 percent compared to the same period a year ago.
Fiber including small cells is CCI’s largest capex allocation, making up 78 percent of the total. For 1H21, fiber capex was $472 million, down 26 percent from $638 million in 1H20.
Tower capex accounts for 18 percent of the total but declined 42 percent YoY to $114 million. CCI points out that tower capex is down since most of its towers already have adequate capacity to accommodate its MNO customers’ new RAN installations. In many cases, only incremental capex is required to ready the site for customer installations.
For full-year 2020, CCI reported capex of $1.6 billion. The company previously provided capex guidance of $1.5 billion for full year 2021 and with the small cells reduction has since revised that figure down to $1.3 billion.
By John Celentano, Inside Towers Business Editor