Crown Castle (NYSE: CCI) sees a long, steady growth ramp in site leasing revenues. The company anticipates that its mobile network operator tenants will continue to expand their network coverage and capacity in major markets with towers, small cells, and fiber for years to come. CCI points out that its MNO customers have invested about $200 billion between acquiring spectrum licenses and investing in 5G network infrastructure over the last four years.
The company expects MNO investment and expansion activity to continue at a high level through 2025, as each MNO builds macrocells on towers, then densifies their networks in urban centers with small cell deployments.
Jay Brown, CCI CEO, points out that the amount of data consumed monthly per user and the ability for U.S. wireless operators to charge for that data consumption, justifies significantly higher network investments. Brown says that investment “illustrates the virtuous circle that has developed in the U.S. wireless market and that we believe is sustainable over the long-term.” CCI believes it is well-positioned to capture a significant share of that growth given its concentration of infrastructure in the top 100 basic trading areas (BTAs) in the U.S.
Its financial results reflect the increased MNO tenant activity. In its 1Q22 earnings call, CCI reported site rental revenues of $1.6 billion, up from $1.4 billion in 1Q21. Tower site rentals accounted for 68 percent of the total while fiber/small cells, the 32 percent balance. On a percentage basis, total site rental revenues grew 15 percent. Of that total, contributions from core leasing that includes tenant additions to established lease agreements, along with price escalators, were nine percent. Organic revenue growth contributions to site rental billings were six percent which the company claims is the highest in the tower business.
Adjusted EBITDA came in at $1.1 billion for the quarter compared to $897 million in the year-ago period. Adjusted funds from operations (AFFO) increased to $812 million from $738 million.
Capital expenditures in 1Q22 were $281 million, down 7 percent from $302 million in 1Q21, reflecting reduced fiber/small cell build out activity that accounted for 70 percent of total capex for the quarter.
CCI’s infrastructure portfolio is formidable. At the end of the quarter, the company owned and operated 40,159 towers. That figure is flat with the tally at the end of December 2021. CCI added 41 towers in the top 100 BTAs while reducing its towers by the same count in markets outside the top 100 BTAs. With the MNO network expansions, CCI’s average number of tenants per tower grew to 2.4 in 1Q22 compared to 2.3 a year ago.
Unlike its towerco competitors that have both domestic and international operations, all of CCI’s towers are in the U.S. and its territories, believing that the U.S. market offers the highest growth opportunities at the lowest risk. Moreover, CCI’s operations are predominantly in the biggest markets with 56 percent of its towers in the top 50 BTAs and 71 percent in the top 100 BTAs.
The company also has 115,000 small cells on air or under contract, with 60,000 in backlog. CCI expects to roll out 5,000 small cells in 2022, then ramp up to 10,000 a year beginning in 2023 to meet MNO network densification demand.
In addition, CCI sees a growing interest in edge data center applications. The company has an investment in Vapor IO which is deploying modular edge data centers in 36 major markets around the country (see, Vapor IO INZONE Delivers High Performance Edge Services). Vapor IO uses CCI fiber to connect its data centers in those markets.
T-Mobile is CCI’s largest tenant accounting for 37 percent of annualized 1Q22 site rental revenues, AT&T and Verizon each accounted for 19 percent while all other MNOs made up the 25 percent balance. CCI has master lease agreements in place at the end of 1Q22 that amounted to remaining contracted tenant receivables of $37 billion with a weighted average remaining tenant contract term of seven years. CCI points out that DISH Network, in building the fourth national wireless network, has committed to locating cell sites on 20,000 of CCI’s towers, primarily in the top markets around the country.
With T-Mobile as its largest customers, CCI expects to take a negative hit in 2022 of around $180 million to its site rental revenues from T-Mobile’s decommissioning of redundant Sprint sites and non-renewals of leases for these sites. The good news is that T-Mobile previously indicated that it was advancing most of that decommissioning into 2022.
CCI’s full-year 2022 midpoint guidance reflects its upbeat outlook: site rental revenues of $6.3 billion, a 10 percent YoY growth, Adjusted EBITDA of $4.3 billion, a 14 percent YoY increase, and AFFO of $3.3 billion, up 6 percent.
By John Celentano, Inside Towers Business Editor