Question of the week: Is Crown Castle (NYSE: CCI) a tower company with a fiber optic network, or a fiber cable company that just happens to own a lot of towers? You be the judge.
If you go by site rental revenues, you might conclude that CCI is a tower company in the traditional sense. The company owns and operates over 40,000 towers in the U.S. Tower site rental revenues in 1Q20 were $867 million, up 5 percent on a year-to-year basis (YtY) compared to 1Q19 and accounted for 66 percent of total site rental revenues for the quarter.
The Fiber (OK, it’s really Fiber & Small Cells) segment came in at $443 million but grew at a faster 7 percent YtY pace, accounting for the one-third balance. Total site rental revenues for 1Q20 registered at $1.3 billion, up 5 percent over $1.2 billion in the prior year. CCI emphasized that with the leases already in place, mainly with the Tier 1 wireless carriers and large Enterprise customers, that it expects site rental revenues to grow at about the 5 percent a year rate over the next five years. CCI held to its site rental revenue mid-point guidance of $5.36 billion. Furthermore, the company anticipates that revenue growth will be augmented as new and modified leases are added through 2020 and beyond.
Now when you consider CCI’s capital expenditures (capex) in each segment, you might decide that maybe it really is, or at least is becoming, more of a fiber company than originally thought. Total capex for 1Q20 was $447 million down 7 percent YtY from $480 million in 1Q19. CCI’s capital investment, like its peers, experienced the same general decline from 4Q19 as T-Mobile and Sprint scaled back their respective network upgrade and expansion activities while awaiting approval of their proposed merger. That slowdown carried into 1Q20.
Of the total capex, Fiber accounted for $391 million or 71 percent with $81 million or 19 percent going to Towers. Both amounts were down from comparative levels in 1Q19 reflecting the overall spending slowdown. The Fiber segment has accounted for the lion’s share of CCI’s capex for several years. To date, the company has built its fiber network out to over 80,000 miles in the top 100 cities around the country. This fiber network supports a base of over 45,000 small cells deployed to date. CCI says it has another 25,000 small cell orders in the pipeline and expects to deploy over 10,000 sites in 2020. The company pointed out the fiber optic cable portion of a small cell deployment accounts for about 80 percent of the associated capex. Once the fiber cable has been engineered, installed and commissioned, capex for the small cell radios, antennas and ancillary gear is incremental to the overall deployment cost.
With the T-Mobile merger finalized, all the carriers have bolstered their 4G LTE networks, especially through the pandemic, and are in the early stages of their 5G rollout that is expected to run for the next three to four years. In this regard, CCI sees itself as very well positioned to serve its large carrier customers with a full portfolio of towers, small cells and an extensive fiber network where and when carriers need to provide advanced wireless services. The company expects that capital investment by its carrier customers will continue to ramp with the bulk of budgeted capex to be spent in 2H20. CCI previously had guided that its own capital investment for 2020 will be around the $2 billion range and has not changed its outlook.
CCI also pointed out that, like its peers, it is testing and evaluating new technologies, namely edge computing, to help its customers reduce congestion and latency at the edge of their networks where CCI can leverage access to cell sites over its fiber network. The company says that it already has four markets active with edge computing with more to follow. While it concedes that edge computing’s revenue contribution is not material today, it is an indication of CCI’s long term strategy to create unique and “exciting” service offerings for its customers.
So there you have it. CCI is more than a towerco and a fiberco. Calling it a wireless infrastructure company seems more apt.
By John Celentano, Inside Towers Business Editor