Cell Towers Blog

Insights on the US cell tower market

Month: October 2015

What is it about small cells…?

Small cell on a lamppost

Over the last few years we have got used to the many predictions according to which small cells, also known as heterogeneous networks, would take over the wireless telecommunications market away from macro-cells. Has it happened yet? No. Is it happening? Maybe…

Why small cells in the first place?
It is pretty clear that the current macro-cell set-up is going to creak in urban locations under the overwhelming growth of mobile data traffic. For a while MNOs have been keen to offload part of their traffic onto WiFi networks though this solution is not a smooth experience for users due to the need to switch network. Small cells offer the advantage to keep users on the same network  while providing them with the broadband capacity that they need through the local presence of multiple nodes all connected to Ethernet cabling. Only DAS systems can rival small cells in urban settings though the prevailing view in the market is that they are more expensive and difficult to install.

Increasingly relevant in the years to come
Small cells businesses have been growing fast and are expected to continue to do so. For example Sunesys expects to see its revenue grow at 15% per annum in the next 3 years. This growth is driven by a couple of factors: 1) urbanization trends and 2) network densification requirements. 81% of the US population live in cities today; this number is expected to rise to 87% by 2050 according to the United Nations. Given the challenges to obtain permissions to build new macro-cells in cities, small cells provide an obvious and more suitable alternative, especially given the large number of sites that would need to be added to meet the demand for bandwidth: small cells are discrete, whether positioned on lampposts or walls, and provide that extra capacity.

Is this a business opportunity for tower operators?
It is today: Crown Castle, following its acquisition of Sunesys, has 8% of its revenues already coming from small cells. Some investors don’t like it because they see tower operators as real estate investment conduits and because they think the small cell business is too capital intensive. It is also a fact that managing active telecom infrastructure requires new skills… but can tower operators really sit back and let the opportunity pass by? SBA Communications clearly decided that it was not core to their business when in July they sold their 20% stake in ExteNet, another small cell business, along with the other shareholders to Digital Bridge. Clearly Crown Castle took a different view and American Tower continues to invest in DAS systems.

Why small cells matter at the end of the day
As suggested above small cells are likely to be the preferred urban wireless infrastructure platform in 2 to 3 years: indeed roll-outs have been focused on the top 20 cities to date but they will spread to 2nd tier cities very soon. Small cells will become the natural network technology to host the forthcoming C-RAN, 3.5 GHz and 5GHz deployments given their dense coverage requirements. Given how important these initiatives will be in revenue terms to the likes of Verizon, it’s easy to understand that their infrastructure partners would want to offer the full suite of services in rural as well as urban areas. So what was SBA thinking…?

2016 prospects: some preliminary views

Crystal ball

The news from 2015

The carriers have invested a massive $33.1 bn in tower-related investments in 2015! I know that some might think that it is only a third of the $107 bn of profit that the the top 4 carriers are expected to make this year. Still… These investments have been significant and served to address both the coverage and the capacity requirements as part of their LTE network roll-out. As AT&T and Verizon appear to have achieved their coverage target, the question is: is 2016 going to see a potential drop in tower investments…?

Positive sentiment for 2016

The preliminary views of analysts covering tower stocks is that the carriers will actually marginally increase their investments in 2016 to $34.7 bn, that’s a more than  respectable increase of 4.8%. What’s a bit surprising is that AT&T will actually be a significant contributor to that growth: after a pause in tower-related investments in 2015, they intend to add c.3,000 macro sites in 2016, mostly with a view to increasing network capacity. The other contributor to growth is expected to be Sprint, who is expected to add between 3,000 to 5,000 macro sites to their network. Sprint’s network coverage is complete for 1.9 GHz but they need to build out the network for 800 MHz and 2.5 GHz as they seek to have each site effectively tri-banded.

What impact on Towercos?

This is all good news, taking also into account the revenues that are expected to come from public safety services as of 2018. Still towercos‘ revenue growth is quite differentiated: while American Tower is expected to grow by 8% in 2016, the comparable figure for Crown Castle is likely to be only +2%. Part of the difference comes from American Tower’s international exposure (30% of its revenues), mostly emerging markets. The issue is that emerging markets are not in the best shape at the moment, in particular Brazil to which both American Tower and SBA Communications are exposed to for around 10% of their revenues. There’s a clear foreign exchange risk that may weigh negatively on their growth prospects whereas Crown Castle, being 100% domestic-focused, does not have that issue.

 

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