Crown Castle: Need for more network capex, tower space is not going away

Mobile operators are not going to suddenly stop investing in their networks once they've fully deployed LTE, said Jay Brown, CFO of tower company Crown Castle International.

"I would not be inclined to suggest to you that any one of the big four operators is nearing completion of any projects that they're working on," said Brown, noting that once a carrier wraps up a particular deployment it will then simply move onto the next project.

"We take a much longer-term view of how the carriers are spending capital," Brown said at the Bank of America Merrill Lynch Media, Communications & Entertainment Conference.

"There's a balanced conversation that they have around allocating capital to all of the various options that they have, everything from dividends to deploying sites to upgrading sites. Our experience has been over a long period of time in this business is that the carriers tend to spend capital on a relatively steady basis and deploy sites along that line," he added.

Crown Castle announced on Monday that it is reorganizing to qualify as a Real Estate Investment Trust (REIT) for tax purposes as of Jan. 1, 2014. The company owns, operates and manages over 30,000 and approximately 1,700 wireless communication sites in the United States and Australia, respectively.

According to Brown, investors should look at carrier capex "as a long runway," particularly given the impending impacts of future spectrum deployments.

He explained that U.S. mobile carriers have deployed 300 MHz of spectrum that is being used to deliver consumer services. That has driven about three tenants per tower. However, there is another 200 MHz of spectrum in the hands of carriers—including companies such as Dish Network (NASDAQ: DISH)—that is laying fallow, and that spectrum will ultimately be deployed by someone, whether by the current spectrum license holder or a subsequent holder. Further, the FCC is trying to find ways to release 500 MHz more spectrum for mobile broadband services.

Putting all of that spectrum to use will eventually require heavy investments and lots of tower space, Brown said.

Investors need only look for where the consumers are to determine where operators will spend their capital, he said. For example, the need to serve dense pockets of consumers is leading mobile operators to invest in DAS and small cells.

On that note, Crown Castle's investments in DAS companies NextG Networks and NewPath Networks are paying off. "Both of those acquisitions have done very well and provided us with an opportunity to go out and deploy a significant amount of capital in a space that's growing," Brown noted.

Brown was asked about the rule of thumb that says small cell site leases generally cost a third of the amount needed to lease a macro cell site, but in order to get coverage equivalent to a macro site a carrier would need to deploy 15-30 small cells. He acknowledged that small cells are "incredibly expensive to do" and said operators will only turn to small cells in locations where macro sites cannot fulfill their needs.

"If there was an alternative, I'm sure they'd be using it," Brown added.

For more:
- see this Crown Castle release

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