The Rise of Wireless Infrastructure Companies

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How can wireless service providers continue to make massive capital expenditures in network infrastructure when their service revenues are flat or declining? The short answer is: they can’t!

U.S. wireless carriers collectively invest nearly $30 billion a year to expand and maintain their networks just to keep up with mobile data demand, even as cumulative service revenues have flatlined around $178 billion for the past three years.

 That computes to a capital efficiency of around 17 percent which suggests network expansion. But with expected 5G deployments involving hundreds of thousands of large and small cell sites alike (see, ‘Counting Cell Sites’), carrier balance sheets and income statements are not beefy enough to keep up the pace.

Time for Another Bell Break-up?

One answer: separate the services business from the network.

In the Bell System monopoly, vertical-integration of services and network made sense. Remember AT&T’s slogan: “The System is the Solution.” Anti-monopoly challenges eventually forced the first Bell System break-up. Now economic and competitive forces are at play. Even the biggest carriers are struggling to balance requisite capital investments to stay competitive while keeping shareholders happy.

Today, customers want advanced wireless services but “does anybody really care what G it is?” (paraphrasing the hit song from the band Chicago). Wireless comprises myriad frequencies and applications where no one solution fits all. (see, ‘We’re Going to Need A Bigger (Wireless) Boat!’).

Service providers should consider sharing network assets (spectrum, towers, cables, radios, core) to everyone’s mutual benefit and forego pronouncements like, “my network is bigger than yours!” This means divesting or spinning off their network assets into a company, call it InfraCo, that is separate from their services side, say ServiceCo. Here, ServiceCo leases capacity and functionality from InfraCo but does not own any infrastructure.

Infrastructure Companies Arising

There already are infrastructure companies fulfilling such roles. Tower companies for starters. Wireless carriers used to build their own towers but soon realized they could eliminate that capex and opex by leasing space on somebody else’s towers. American Tower and ExteNet operate as neutral hosts for in-building wireless coverage with distributed antenna systems (DAS) that carriers can access. Boingo is a WiFi specialist in public venues. Private network operators are leveraging LTE and CBRS. Many other operators use low-, mid- and high-band frequencies, licensed and unlicensed, outdoors and in.

The prototypical infrastructure company is Crown Castle (CCI) that owns and operates 40,000+ towers, 65,000 route-miles of fiber cable and 65,000 on-air or under-contract small cell nodes. CCI leases capacity on these facilities to carriers expanding their services offering.

Expect more of the same going forward as tower companies, neutral hosts, fiber networks and private network operators expand or combine their facilities portfolio. Tower companies can build-to-suit (BTS) for particular customers. Why not BTS models for complete networks?

It’s the UX, stupid!

Successful service providers will take advantage of wireless and wireline facilities available from third-party infrastructure companies, creating unique combinations of features and functions to deliver exceptional user experience (UX). This means that distributed functionality will be highly dependent upon all types of wireless infrastructure but none that must be owned.

by John Celentano, an Inside Towers contributing analyst. He can be reached at: [email protected].

January 31, 2019

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