Crown Castle’s Big Small Cell Play

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Crown Castle International (NYSE: CCI) has just completed what CCI’s President and CEO Jay Brown referred to in the company’s 4Q21 earnings call as a “tremendous year … as our customers began upgrading their existing cell sites as part of the first phase of the 5G buildout in the U.S.”

He adds, “We expect elevated levels of tower leasing to continue this year and believe we will once again lead the industry with the highest U.S. tower revenue growth in 2022. In addition, we secured commitments for more than 50,000 new small cell nodes during the last twelve months, which equates to approximately 70 percent of the total small cells we booked in our history prior to 2021. As a result, we now have approximately 55,000 small cell nodes on air and more than 60,000 committed or under construction in our backlog.” Continue Reading

Brown characterized 2022 as an important transition year for CCI’s small cell and fiber business. The company is preparing to accelerate its small cell deployments from approximately 5,000 in 2022, to more than 10,000 per year starting in 2023. At that point, CCI likely will be the leading small cell operator in the U.S., Brown said

For full-year 2021, CCI reported $5.7 billion in consolidated site rental revenues, up 8 percent on a year-over-year basis. Tower site rental revenues of $3.8 billion accounted for two-thirds of the total while Fiber segment site rentals made the $1.9 billion balance. Of the Fiber segment, fiber solutions, mainly B2B contracted services, were $1.3 billion and small cell site rental revenues were almost $600 million.

Site service revenues grew 19 percent to $621 million reflecting the increased support activities that CCI provides to its tenants as they install new 5G equipment at CCI sites. Adjusted EBITDA was $3.8 billion compared to $3.4 billion in full-year 2020. Adjusted funds from Operations (AFFO) came in at $3.0 billion in full-year 2021, representing 16 percent YoY growth.

CCI reported capital expenditures totaling $1.2 billion for network construction and maintenance. Fiber accounted for roughly three-quarters of the total. The company expects to increase its Fiber segment capex as small cell deployments ramp up.

With a new 12-year master lease agreement recently signed with T-Mobile, as Inside Towers reported, along with existing MLAs with Verizon, AT&T and DISH, CCI expects overall tower site rental revenues to grow 8 percent in 2022. The Big 3 MNOs are projected to account for 74 percent of CCI’s 2022 site rental revenues.

It is in the Fiber segment that CCI sees the biggest upside. The MNOs’ current focus is deploying 5G on macro cells in the low- and mid-band spectrum to achieve wide area coverage. As that coverage is achieved, that focus will shift to densifying the network with small cells, particularly in the top 25-30 urban centers where most of CCI’s fiber infrastructure is situated.

CCI’s small cell business model is to install small cell nodes on existing fiber routes. The company invests its own capital to install the small cells, then leases those sites to multiple MNO tenants on a shared infrastructure basis, like the tower model. It claims this is economically efficient for a MNO to establish its small cell infrastructure. 

This approach is lucrative for CCI. The company points out that the first tenant generally produces a return on invested capital (ROIC) of 6-7 percent. Adding a second tenant increases ROIC to over 10 percent. With a third tenant, the ROIC can grow to mid-teens percentages. 

Brown emphasizes that CCI’s MNO tenants are already planning for the next phase of the 5G build out that will require small cells at scale. He says, “This inflection in our small cells business reflects how well-positioned we are to support their wireless network needs for years to come with our more than 80,000 route miles of fiber concentrated in the top U.S. markets.”

He concludes, “We believe our ability to offer towers, small cells and fiber solutions, which are all integral components of communications networks and are shared among multiple tenants, provides us the best opportunity to generate significant growth while delivering high returns for our shareholders. Our comprehensive offering positions us to benefit from what we expect will be a decade-long investment cycle as our customers develop next-generation wireless networks.”

By John Celentano, Inside Towers Business Editor

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