Crown Castle International this week lowered its guidance for 2020, reflecting a shift in the timing of tower activity from the second half of 2020 to the first half of 2021.
The tower company reported net income for the third quarter of $163 million compared with $242 million during the third quarter of 2019, impacted by the retirement of $2.4 billion of senior unsecured notes during July 2020, which resulted in a $95 million loss on the retirement of long-term obligations.
Earlier this year, Crown Castle was the target of activist investor Elliott Management, which criticized Crown’s fiber strategy and called for greater diversity on the company’s board. Crown has defended its fiber strategy, which is tied to its future with small cells, and this week announced the appointment of two new board members,
In prepared remarks during Crown’s third-quarter conference call on Thursday, Crown Castle CEO Jay Brown stressed the importance of millimeter wave (mmWave) – the entire new iPhone 12 line-up for the U.S. supports mmWave – and its reliance on small cells as opposed to the type of macro towers that the tower companies traditionally have leased to carriers.
“Millimeter wave spectrum currently accounts for more than 80% of the total spectrum that's available for use in the U.S., and we believe the iPhone 12 will speed up its deployment,” Brown said, according to a Seeking Alpha transcript. “Because of its RF characteristics, millimeter wave spectrum provides significantly more capacity, but over a fraction of the geographic coverage area. As a result, we believe the majority of millimeter wave spectrum will ultimately be deployed using small cells rather than towers.”
Asked about Crown’s pipeline of small cells, Brown said the company continues to have “really encouraging conversations with our customers about their need and our ability to perform for them and both deploy capital and deliver small cell nodes for them.”
The conversations support the longer-term view that small cells are an integral component of wireless networks, and based on what Verizon and AT&T discussed during their earnings calls this week, “you really can’t do wireless without wires, without fiber,” he said. “Fiber is, I think, in terms of the conversation both with our customers and more broadly as people look at this industry, I think more and more you're seeing the blending of both fiber and wireless. And I think you're going to see that trend continue… We're still early stages in terms of what that's going to look like, but the total addressable market, all of the signs point to an increasingly large addressable market.”
He added that Crown historically has chosen to invest its capital in the top U.S. markets that have the potential to produce the highest returns and there are places in the U.S. where it chooses not to pursue request for proposals (RFPs) from the carriers because it’s focused on the top markets.
New Street Research investment analyst Spencer Kurn said Crown’s management lowered guidance for 2020 due to a slower ramp in spending from the newly combined T-Mobile, which was largely expected after American Tower and SBA Communications both factored this into guidance last quarter.
Kurn also noted that the higher spend from the new T-Mobile in 2021 is partly offset by slower spending from other carriers, likely AT&T as the FirstNet build nears completion this year.