In meetings with investment analysts, executives from tower company Crown Castle reiterated their belief that top wireless carriers will continue to densify and expand their nationwide wireless networks through a combination of new spectrum, small cells and standard macro cell buildouts.
"Given the combination of rising data traffic growth, the need to densify networks, and ongoing expectations for spectrum deployment, management expects the demand environment to be sustainable for the foreseeable future," said the analysts at Barclays after a recent meeting with Crown Castle executives.
Analysts at Macquarie reached similar conclusions after their own meeting with top Crown Castle executives. "CCI remains one of our favorite ideas as we expect CCI to meaningfully exceed the stated 6-7% target AFFO [Adjusted Funds From Operations] growth over the next few years," they said in a note to investors.
Further, the Macquarie and Barclays analysts said that Crown Castle remains poised to take advantage of the trend toward small cells and distributed antenna system (DAS) buildouts as carriers look to densify their networks. Crown Castle has been on the bleeding edge of small cell sales among major tower companies in the United States. Indeed, during the company's recent third quarter earnings call with investors, Crown Castle said its small cell site rental revenue has grown by around 30 percent. And analysts from Wells Fargo said Crown expects small cells to make up $55 million of the total $170 million in site leasing revenue growth in 2016.
"We continue to believe that small cells and DAS deployments represent the real growth story for TowerCos in the US, and CCI is poised to benefit from additional carrier participation supporting network densification efforts," said the Macquarie analysts. "The vast majority of deployments to-date coming almost entirely from one carrier (Verizon), which leaves plenty of room to improve CCI's current blended tenancy ratio of 1.5 tenants per node."
The analysts at Barclays noted that small cell deployments continue to pose challenges, including finding suitable backhaul and adding additional carrier tenants to specific locations. But they noted Crown Castle is taking a "selective deployment" strategy in small cells by targeting only those locations that make financial sense. The Barclays analysts also pointed to Crown Castle's strategy of adding fiber assets to its small cell product lineup; Crown Castle earlier this year said it would acquire Quanta Fiber (called Sunesys) for about $1 billion in a deal that bolstered the wireless tower company's dark fiber capabilities.
Based on recent third-quarter commentary from other tower company executives and financial analysts, Verizon (NYSE: VZ) and T-Mobile (NYSE:TMUS) led the way in terms of capital expenditures for wireless network gear in the third quarter, with AT&T (NYSE: T) and Sprint (NYSE: S) hanging back in terms of major capex spending. However, Sprint is just beginning its network densification efforts and some tower companies do expect AT&T to begin ramping up spending next year.
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