Crown Castle’s recent $7 billion purchase of Lightower shows that service providers that want to take advantage of the burgeoning small cell market are willing to pay a premium for fiber assets.
Crown Castle, which has primarily served as a supplier of towers to the wireless industry has in less than two years transformed itself into a major fiber provider, purchasing three fiber operators: FiberNet, Sunesys and 24/7 Mid-Atlantic.
“Crown's aggressive acquisitions come as little surprise considering the company's whole-hearted focus on small cells,” said John Fletcher, principal analyst for Kagan, a media research group within S&P Global Market Intelligence, in a blog post.
Kagan estimates that Crown Castle’s purchase of Lightower is the second most expensive per fiber-mile at $221,875 per fiber mile. Interestingly, Crown Castle’s recently completed acquisition of Southern California-based Wilcon was $315,789 a mile.
But what’s even more telling is the overall growing pricing of fiber assets. According to Kagan, the average U.S. value per fiber optic mile passed has grown at a 31% CAGR since 2015 from $131,818 per mile in 2015 to an average of $227,139 per mile for the two deals so far in 2017.
Crown Castle’s bet on small cell deployments is well grounded as the majority of the largest U.S. wireless operators are taking a fiber-based approach to wireless backhaul. One has to look no further than Verizon’s recent purchase orders for fiber with Corning and Prysmian.
A key point of the acquisition is increasing fiber density. Crown Castle had 27,000 miles of fiber at the end of the first quarter of 2017 and the Lightower deal more than doubles that figure.
Lightower owns or has rights to approximately 32,000 route miles of fiber located primarily in metro markets in the Northeast, including Boston, New York and Philadelphia. After the deal is completed, Crown Castle will own or have rights to approximately 60,000 route miles of fiber, with a presence in all of the top 10 and 23 of the top 25 metro markets.
Fiber consolidation ramps
Crown Castle’s deal for Lightower may be the latest, but it certainly won’t be the last. After being hatched by Rob Shanahan following the sale of Conversent Communications, Lightower was an aggressive fiber consolidator, buying up 7 companies since 2008.
Some industry watchers speculated that Zayo, which has aggressively purchased a number of fiber providers over its 10-year history including most recently Electric Lightwave, could be a potential target.
Wells Fargo postulated that Zayo could be attractive to a number of operator segments—including wireless operators, cable and tower providers—all for different reasons.
“A tower operator could gain a growing footprint in the small cell space if it acquired ZAYO’s 126K fiber route miles,” Wells Fargo analysts wrote in a research note. “Cable operators could find ZAYO’s large enterprise customer base an effective means to move up the stack in the enterprise market. Finally, wireless carriers could seek to accelerate 5G network builds by acquiring a valuable portfolio of metro fiber assets (given that fiber is a key ‘ingredient’ in 5G architecture).”
Given the density of Zayo’s domestic and international network holdings, the service provider could immediately be a good fit for any of the company types Wells Fargo mentioned.
Fiber consolidation continues to be a reality of the telecom industry. Other notable pending and completed deals in the market include CenturyLink’s bid for Level 3, while Uniti is establishing its foothold by bolting on Hunt and Southern Light—two deals that give it further power in the eRate and wireless backhaul segments.
Having built its Uniti Fiber unit from its acquisition of the former PEG Bandwidth and Tower Cloud, its likely Uniti will make more deals to bolster its fiber holdings.
Meanwhile, small cell vendors like ExteNet Systems signed a deal to acquire Axiom Fiber Networks. ExteNet has been a bit cagey about its plans, but it appears to have a plan to serve the large-scale New York City market that’s expanding its small cell efforts. Sprint, for one, already uses ExteNet as one of its New York City small cell vendors.
Smaller providers get aggressive
Outside of the larger deals, smaller providers that reside in Tier 2 markets should not be overlooked.
These providers not only fill a gap with fiber assets for wireless operators that need to expand outside of the NFL cities, but also enhance consumer and business broadband services.
Take LS Networks. Just this week, the Northwest provider announced it built fiber to over 500 towers in Washington and Oregon with plans to expand into California. By making these builds, LS Networks positioned itself to become a backhaul option for large wireless operators.
No less compelling is FirstLight Fiber, a company that’s established itself as a regional consolidator. Over the past two years, FirstLight and its parent have acquired multiple fiber providers, including Sovernet, Oxford, 186 Communications and a pending deal for Finger Lakes.
Moody's Investors Service has assigned a first-time B3 corporate family rating (CFR) and a B3-PD probability of default rating (PDR).
“FirstLight's strategy of operating in second- and third-tier markets where competition is less intense has worked well, enabling the company to steadily grow its customer penetration of on-net buildings as evidenced by its track record in mature markets such as Albany,” Moodys said in a research note. “With FirstLight's expanded network size and scope, the company is well positioned to gain additional share across its sizable addressable market.”
Multi-purpose fiber
Similar to earlier deals it made for Quanta and Wilcon, Crown Castle’s Lightower purchase will diversify its customer base, including businesses, government and education. However, the service provider has not revealed its plans for those segments yet.
This customer base, which has installed facilities already at their locations could also be leveraged for small cells in buildings.
Network density is only one element. Prior to the acquisition, Lightower offered turnkey installation services to its wireless customers beginning in 2013. The provider has also been a vocal advocate to drive streamlined permitting for small cell permitting at the FCC.
“We don't think it is a debatable fact more fiber is going to be needed for 5G and in the enterprise space. Consider that only about 50% of commercial buildings are connected with fiber, and that VZ itself has discussed adding 8K+ small cells in many metro areas, all of which require fiber connectivity,” said Jennifer Fritzsche, senior analyst with Wells Fargo, in a research note. “Couple this with the fact that wireless carriers seem to be showing more willingness to work with companies that check multiple infrastructure boxes, and AT&T (a company which has been loudest in the tirade against the towers) actually showed some love toward CCI.”
Being able to multitask the fiber is an idea already being seen by other providers like UPN and Zayo.
Zayo has been able to leverage existing fiber to the tower investments in Texas to serve large school districts. Zayo has leveraged the fiber it deployed for FTTT to win a large school district deal with the Texas Education Service Center Region 11, for example. The 1,178-mile platform consists of 440 miles of fiber for a previously planned FTTT build, 443 miles of existing network and 295 miles of new construction.
On the flip side, Unite Private Networks (UPN) told FierceTelecom it has also seen the opposite effect where wireless operators will approach the company about installing small cells in buildings it equipped with fiber for business services.
A wireless operator approached the provider about installing a small cell in one of Nebraska Furniture Mart’s locations in Dallas. UPN had already been serving the furniture chain with fiber-based services so the carrier could leverage the installed infrastructure to enhance wireless coverage.
Regardless of the provider size, it is clear wireline operators and even tower providers are willing to pay a premium penny for fiber as they look to diversify their revenue streams. As the demand for wireless and high-speed consumers and business broadband ramps, this trend will continue to ramp in the coming years. — Sean @FierceTelecom