Crown Castle sees strong potential in small cells -- American Tower and SBA, less so

Crown Castle sees significant potential in continued small cell deployments, while American Tower is more focused on Distributed Antenna Systems and SBA Communications doesn't see small cells fitting much into its portfolio. Those were some of the key takeaways from public appearances last week by the three tower companies' CEOs.

All three spoke at the Goldman Sachs Communacopia conference about the growth they expected to see from U.S. wireless carriers and how network activity and installations would proceed for the rest of 2015 and into 2016. Yet small cells were a key focus of the conversation for all of the tower executives.  

Crown Castle CEO Ben Moreland noted that as of the end of the second quarter, year-over-year, site rental revenues from small cells grew in excess of 30 percent and small cells made up around 8 percent of its site rental revenue. The company's small cells consist of around 7,000 miles of fiber supporting approximately 15,000 nodes on-air or under construction with another roughly 2,300-node opportunities awarded but not yet under construction.

In April, Crown spent $1 billion to buy Quanta Fiber Networks (called Sunesys), which Moreland noted gave Crown "very well located metro fiber, about 10,000 miles of fiber in Philadelphia, Southern California, Chicago, New Jersey, Atlanta, those kind of markets where we already have small-cell demand."

Small cell demand and deployments are being driven in dense, urban and suburban markets where "macro sites are unable to cover all of the capacity challenges that we as consumers are putting on these networks." When small cells are deployed, that takes demand off macro sites and lets carriers use spectrum more efficiently.

However, Moreland said that small cell deployments are not leading to a slowdown in leases on macro tower sites. "I believe and I think our experience would show this is a complementary and additive technology that is dealing with this area of capacity challenges and reusing that spectrum over and over in a very efficient way where a macro site honestly just cannot. You can't reuse it at the street block level with a macro site," he said.

Moreland said Crown Castle thinks there are going to be "hundreds of thousands of small cells over time" and will be "the next iteration of the shared wireless infrastructure business, like the tower business. It's somewhat of a land grab right now, kind of like the tower business was."

Crown Castle competes in small cells with ExteNet, which in July got a $1 billion recapitalization via Digital Bridge Holdings and Stonepeak Infrastructure Partners. However, there could also be new small cell players in the form of fiber providers, Moreland said.

"I think we certainly are seeing some fiber providers that are working on building the capability to add small cells and that revenue opportunity to their fiber in metro markets where it makes sense," he added. "It's not easily done. It's a lot easier to pull fiber than it is to actually deal with the property rights and the zoning and permitting that is required to pull, to actually install antennas on poles. It's something that others can certainly gain that expertise."

Yet he said that "as much as we're having fun talking about our new small cell business, and it's exciting, the macro tower site is still the most efficient way, both cost and spectrum efficient, to get capacity into a network."

American Tower CEO Jim Taiclet said that the company is "trialing some small cells" with carriers in New York City and other markets. He noted that American Tower has more than 300 DAS deployments in the U.S. and around 150 or so outside the U.S.  "We're going to be in every space that makes sense for us to be in," he said.

Taiclet said that on indoor DAS systems American Tower has an average of 2.5 tenants per deployments. However, he said that outdoor DAS deployments are not yet as "robust" for American Tower because "an indoor DAS system behaves on a commercial basis a lot like a tower, because either you've a single in the mall or the casino or the stadium."

Taiclet added that "when you go into outdoor DAS systems -- and frankly small cell systems -- your existing macro network and proprietary small cells that you might have in the area are going to affect what you need."

SBA CEO Jeffrey Stoops noted that SBA had invested in ExteNet for five years and chose not to increase its investment and bet big on small cells. He said the goal of the company is to focus on
"long-term maximizing capital appreciation."

"We just frankly don't want to be a fiber company," he said.  

For more:
- see this Seeking Alpha transcript for Crown Castle
- see this Seeking Alpha transcript for American Tower
- see this SBA webcast (reg. req.)

Related articles:
Analysts: AT&T, Sprint not expected to ramp up network spending during rest of 2015
AT&T begins deploying 2.3 GHz WCS spectrum for LTE
Sprint's Saw: Our network densification won't be 'a traditional slow and expensive build'
Verizon, T-Mobile lead Q2 network spending, but AT&T and Sprint poised to boost investment
Verizon, Sprint, others turn to carrier aggregation, small cells for remainder of 2015 capex
Analyst: Tower companies will benefit from wireless operator drive to densify networks