Lightower is evaluating a takeover offer in excess of $7 billion from Crown Castle, according to a report by Reuters that has yet to be commented upon by either company.
Crown Castle runs one of the largest networks of wireless infrastructure in the United States, with about 40,000 towers and 29,000 route miles of fiber. Lightower is a major owner of fiber throughout the country; Crown Castle has been purchasing fiber providers in an effort to increase its fiber holdings, with the goal of providing fiber backhaul to wireless towers and small cells.
The wireless industry’s evolution from 4G to 5G is likely to put a premium on tower holdings, and is also likely to create much more demand for backhaul.
Crown Castle's reported bid for Lightower is just the latest in a series of major transactions involving fiber providers. CenturyLink bought Level 3 last year. Uniti, a smaller rival of Crown Castle, recently bought Southern Light, and before that Hunt Telecom, giving it more reach across the South, parts of the Mid-Atlantic States stretching toward the Northeast, and in Illinois.
Indeed, Reuters reported that Uniti was also interested in Lightower.
Crown Castle began establishing a position in small cells in 2012, and has made five acquisitions since then, according to New Street Research. In the two most recent, Crown Castle bought Wilcon and FiberNet.
If Crown Castle does end up with Lightower, it will grow its fiber network by nearly 80% and its tower count by nearly 20%. Lightower runs over 33,000 route miles across 17 states in the Northeast, Mid-Atlantic, and Midwest, and operates 7,000 towers and small cells.
Though wireless carriers are going to need small cells, Wall Street analyst firm New Street Research is not bowled over by the prospects of that business.
“We don’t think outdoor small cells offer similar returns as macro towers for two reasons,” the analyst firm wrote in a research note today. “First, outdoor small cells don’t appear to have the same lease-up economics as macro towers because additional tenants often require additional investment. ... Second, we are concerned that outdoor small cells may face pressure from players with existing fiber in CCI’s territories, such as Cable companies, becoming more active in the market over the next several years,” New Street said.
All of that might be so, but it also might be beside the point. Jennifer Fritzsche of Wells Fargo Securities wrote that “fiber is the largest part of the small cell expense structure. For CCI, Lightower checks many boxes, which include: 1) high fiber thread count, 2) presence in dense urban cores (Lightower has major presence in NYC and Boston, among other cities), 3) and strong relations with wireless carriers. We believe VZ and T are top customers for Lightower.”
If a deal is struck, it could come as early as the end of this month, Reuters reported.