Crown Castle Sees Big Upside in Small Cells

Crown Castle (NYSE: CCI) expects to deploy about 5,000 small cells by the end of 2022. The company has an inventory of around 115,000 small cells that consists of 55,000 currently operating, or what CCI refers to as “on-air,” and the remaining 60,000 units on the books to be built over the next five years. These small cells are installed as nodes on CCI’s extensive fiber optic network that spans over 85,000 route miles and is concentrated in major U.S. markets.

In its 2Q22 earnings call, the company said it will double to 10,000 the number of new small cell installations in 2023. As its mobile network operator tenants complete the lion’s share of their network upgrades to 5G and new mid-band spectrum deployments on macro towers, they will shift their focus to densifying their networks using small cells primarily in the top 30-50 urban markets around the U.S., where CCI is particularly well positioned.

CCI reported total site rental revenues for the quarter at $1.6 billion, up 10 percent year-over-year from $1.4 billion in 1Q21. With organic growth and escalators, tower revenues increased 13 percent YoY to $1.0 billion. At the end of the quarter, CCI owned and operated 40,128 towers all in the U.S. and its territories with an average occupancy of 2.4 tenants per tower. 

T-Mobile is CCI’s biggest tenant and accounted for 37 percent of the latest quarter annualized site rental revenues at the end of 2Q22. AT&T and Verizon each accounted for 19 percent, while all other tenants including DISH Network made up the remaining 25 percent. In November 2020, DISH signed a multi-year leasing agreement with CCI involving locating its 5G cell sites on 20,000 of CCI towers, as Inside Towers reported.

CCI’s fiber leasing revenues grew three percent YoY to $489 million, comprising fiber solutions and small cells. The small cell segments accounted for nearly one-third of the fiber segment, but at 8 percent YoY, it is the fastest growing portion. CCI’s services revenues were up 6 percent as the company works closely with its tenants to upgrade existing sites for new 5G installations.

On the strength of its performance there the first half of the year, CCI updated its full-year 2022 outlook with midpoint revenues expected at $6.26 billion, Adjusted EBITDA at $4.35 billion and AFFO at $3.2 billion.

Capital expenditures for the quarter were $303 million, down 2 percent from $308 million in 1Q21. The company expects to invest $1.1-1.2 billion for full-year 2022, with around 80 percent of that capex going into its fiber and small cell segment. CCI expects that investment to increase in 2023 proportionally to the elevated small cell activity. The company is confident in the numbers because of the long lead times involved for MNOs to secure small cell locations and the requisite coordination with the municipalities and local utilities for site permits and approvals.

While acknowledging the effects that inflation and high interest rates are having on the overall economy, CCI CEO Jay Brown points out, “As you saw from our second quarter results and updated full year outlook, the strength of the U.S. [wireless] market continues to stand out. We are seeing the benefits of a strong leasing environment as we support our customers’ growth initiatives with their deployment of 5G.” 

He goes on to say, “This activity drove 6 percent organic revenue growth in our tower business in the first half of the year, which we believe will meaningfully continue through the remainder of the year. And as a result, it’s resulting in higher operating performance relative to our expectations at the beginning of the year. In addition, we expect to double the rate of small cell deployments next year compared to the 5,000 nodes, we expect to put on air this year, to meet the growing demand from our customers as 5G networks require small cells at scale.”

By John Celentano, Inside Towers Business Editor

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