Crown Castle Adds More Fiber to Diet

After Crown Castle’s announcement that they would be acquiring Sunesys, and the company’s 10,000 miles of fiber, analysts were curious whether this is solely for their small cell undertaking or something else. Colby Synesael of Cowen and Company noted, “At $1 billion we can’t simply argue they are getting underutilized fiber assets that they can use for their small-cell strategy. We still like Crown as our favorite tower idea and think what they are doing makes sense, but we do think the deal means they’ve gone down a path that wasn’t previously considered.” During the quarterly conference call, it was made clear that this is the company’s fifth fiber acquisitions, including two other transactions discussed on the call, Access Fiber Group and another company. While both deals are much smaller than the Sunesys deal, they are crucial to the business plan. “At $1 billion (and 15x last twelve months EBITDA) we can’t simply argue they are getting underutilized fiber assets that they can use for their small-cell strategy,” Synesael explained. “Rather, with Sunesys generating an expected $105-110MM of revenue in 2015, of which a very small portion if any is from directly providing small-cells, there has to be some acknowledgment that Crown has gotten into the fiber business. To this point, we learned yesterday that ~90% of Sunesys revenue comes from providing dark fiber whereas ~10% is actually from providing lit services which it only began selling about two years ago. So this means beyond small-cells Crown will be generating real revenue from providing fiber services to customers like Google which we don’t necessarily think is bad but it is different. The reality is the lit aspect of Sunesys’ business is so small (especially compared to Crown’s total revenue) that it will get swept in and never heard from again, but it will be interesting to see if Crown continues to offer these non-small-cell dark fiber services and if they categorize all their fiber revenue as small-cell in their breakouts.”