Crown Castle’s Big Small Cell Play

Crown Castle (NYSE: CCI) has long touted the benefits of its diversified shared infrastructure strategy with fiber and small cells complementing its towers, all in the U.S. Jay Brown, CCI CEO, pointed out in the company’s 3Q23 earnings call that with the slowdown of 5G builds on towers, its MNO customers are increasingly focusing on 5G network densification with small cells and fiber to handle escalating mobile data traffic.

CCI expects the total demand for its mixed asset portfolio to increase, saying it will boost small cell node deployments from 10,000 in 2023, to 14,000 in 2024. At the end of 3Q23, the company reported approximately 115,000 small cells, either on air or under contract, down from 120,000 at year-end 2022 due to 5,000 Sprint-related cancellations in mid-2023. Here’s the question: Is 115,000 the full extent of CCI’s small cell activity, or can it add to its order backlog? 

With the current guidance, we assume CCI completes 10,000 small cell deployments in 2023, ramps to 14,000 in 2024 and maintains that 14,000 run rate for several years but does not add to its order book. That means the activity could tail off markedly in 2027.

On the other hand, CCI has sizable upside potential. The national MNOs are its biggest customers with T-Mobile (NASDAQ: TMUS) accounting for 35 percent of annualized revenues in the quarter, followed by Verizon (NYSE: VZ) at 20 percent, and AT&T (NYSE: T) at another 19 percent. All other wireless carriers made up the 26 percent balance. 

All MNOs are promoting high-speed 5G connectivity and continue to expand their network capacity and reach with wide channel bandwidths in mid-band and millimeter wave frequencies. Small cells fill an important coverage gap for the MNOs particularly in dense urban and suburban markets. 

With that escalating demand, we estimate that CCI could add another 10-15 percent to its current 115,000 node tally and see steadily increasing annual deployment rates over the next several years.

According to Inside Towers Intelligence, CCI’s small cell infrastructure model involves installing nodes on poles with either omnidirectional or three-sector antennas, a pole-mounted cabinet for multiple MNO small cell radios, and a fiber and power connection. MNOs furnish their radios and terminal equipment, and pay for their own electricity. 

CCI’s colocation model involves both housing multiple MNOs in a single node and multiple MNO nodes along its fiber route. Its 85,000 fiber route-miles include high strand counts in heavily populated areas where the density demand is the highest.

From a business perspective, CCI says it realizes increasing ROI with a second and third colocated tenant on its fiber routes, similar to the tower model. Moreover, the company claims that it “has developed expertise in navigating the permitting processes with multiple municipal organizations, regulatory agencies, and utility companies across hundreds of disparate local markets, each with a unique set of regulations and stakeholders.” This expertise allows CCI to navigate the difficult process of building small cells that could take 18-24 months in many markets across the country.

CCI plans to capitalize on these small cell opportunities, allocating approximately $1.2 billion in discretionary 2024 capital expenditures net of customer contributions, with $1.1 billion in its fiber segment to support the planned acceleration of 10,000 nodes in 2023, and 14,000 nodes in 2024. 

The company notes that it is achieving a 40 percent increase in new node installations with only a 20 percent increase in capital, and expects more than 50 percent of the new sites to be colocation nodes.

By John Celentano, Inside Towers Business Editor

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