The worlds of wireless and fixed-line telecom are colliding as U.S. operators look to fiber to provide backhaul and other connections to small cells in advance of commercial 5G rollouts. But those efforts don’t pose much of a threat to traditional tower companies, according to MoffettNathanson Research.
Verizon underscored carriers’ focus on small cells last week when CEO Lowell McAdam told attendees at an analysts' meeting that the company plans to deploy 1,700 strands of fiber in each cable it will use to support its combined wireline and wireless network in Boston. McAdam also suggested in an interview with CNBC that Verizon plans to use four to six strands of fiber to attach a small cell on a typical street lamp to the network, MoffettNathanson said.
“If there’s one thing that’s clear from Verizon’s actions and pronouncements, it’s that the company is serious about deploying lots of small cells, and it plans on doing much of the work in-house,” Nick Del Deo and Craig Moffett wrote. “The network architecture it is discussing is a significant departure from the sorts of network architectures with which we’ve all become familiar.”
All four major U.S. operators have increasingly focused on small cells as they look to densify their networks, of course, and Sprint has dramatically reduced its capex over the last 18 months as it expands beyond traditional macrocells to smaller transmitters. Rather than being viewed as a competing strategy, though, small cells are mostly a complementary way for operators to expand coverage and ramp up capacity alongside traditional towers, MoffettNathanson said. That should assuage fears that investors may have about the tower segment.
“We don’t believe Verizon will be able to undertake all of the work it is describing itself, nor will the gargantuan fiber counts being deployed in Boston be representative of the baseline standard for all of its markets,” the MoffettNathanson analysts wrote. “The company will have no choice but to use an all-of-the-above approach given the very real financial, engineering, and time-to-market constraints it will face, a reality that will also apply to Verizon’s wireless peers.
“This doesn’t mean that third-party small cell vendors will be left completely unscathed—a desire on the part of the largest wireless to perform some work in-house to save money and/or differentiate its network with unique assets has to be interpreted as a negative to some degree. The tower-leasing industry, however, shouldn’t see much impact from an increased emphasis on small cells and initial iterations of 5G—towers don’t really compete with small cells, after all.”