Crown Castle makes $1B bet on small cells with Quanta Fiber purchase

HOLLYWOOD, Fla.--Tower company Crown Castle said it will acquire Quanta Fiber Networks (called Sunesys) for $1 billion in cash. A wholly owned subsidiary of Quanta Services, Sunesys owns or has rights to nearly 10,000 miles of fiber in major metropolitan markets including Los Angeles, Philadelphia, Chicago, Atlanta, Silicon Valley and northern New Jersey; Crown Castle said the purchase would "further strengthen Crown Castle's leading position in small cell networks by more than doubling Crown Castle's fiber footprint available for small cell deployments."

This is Crown Castle's second purchase of fiber; last year the company acquired 24/7 Mid-Atlantic Network for around 800 route miles of fiber across parts of the East Coast.

Crown Castle said it expects its acquisition of Sunesys to close at the end of this year.

Crown Castle's push into fiber for small cells highlights the wireless industry's tightening embrace of small cell technology as a spectrally efficient way to increase the density of wireless networks and thereby improve download speeds to customers. Indeed, according to a recent Wells Fargo investor note based on conversations with Crown Castle, one small cell node can quadruple network capacity in one cell sector.

AT&T Mobility (NYSE: T) has been deploying small cells for several years now and Verizon Wireless (NYSE: VZ) has recently grown into a vocal proponent of the technology. Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) are also expected to undertake small cell rollouts in the coming months. As a result, equipment vendors like Alcatel-Lucent (NYSE: ALU) and Ericson (NASDAQ: ERIC) are expanding their small cell product portfolios, and tower companies like Crown Castle, SBA Communications and others are working to build out small cell sites.

Among tower companies, Crown Castle has staked out an early lead in small cells. The company said last week that its small cell business grew 35 percent year-over-year in the first quarter and now comprises 7 percent of the tower company's site rental revenue. Crown Castle today owns or has rights to approximately 7,000 miles of fiber, and with the purchase of Sunesys that figure will grow to more than 16,000 miles of fiber.

"Based on current small cell activity, including awarded and proposed small cell deployments, we have visibility into more than 3,500 small cell opportunities on or near the Sunesys fiber. Given the seemingly limitless consumer demand for mobile data and the wireless carriers' need to meet such demand, we believe there is a significant opportunity for us to grow small cells well beyond the activity we see today," said Crown Castle CEO Ben Moreland.

"One of our key concerns with the small cell model is our belief the fiber companies would take a large part of the profitability and revenue opportunity. By owning more of this tangible asset, CCI should increase the overall margin profile of each small cell project. CCI is carving out a unique profile for itself in the small cell space, in our view," wrote Wells Fargo analyst Jennifer Fritzsche in a research note.

But Crown Castle isn't the only tower company looking to cash in on the small cell opportunity.

"We are participating today in terms of a number of small cell deployments," said Jeffrey Stoops, president and CEO of tower company SBA Communications, according to a Seeking Alpha transcript of his remarks during the company's quarterly call with investors last week. "We're actually signing up a bunch of small cells on a number of our towers. It's interesting they are generally being placed at the 30 foot mark and we're getting what we think are some very fair and good rents for that. So we continue to watch the area, it looks to be developing positively. And we expect to continue to pay attention there."

However, some smaller tower companies are taking a wait-and-see approach to the small cell opportunity. Here at PCIA's recent Wireless Infrastructure Show, Danny Agresta, president and CEO of APC Towers, said he has no plans to enter the small cell race. APC is a mid-tier tower company with around 100 towers across more than a dozen U.S. states.

Agresta said U.S. wireless carriers continue to build out standard marco cell sites, and he said those sites often are intended to densify the network, much like small cells. He added that the small cell business model remains challenging since wireless carriers often require fiber backhaul for the sites--an expensive proposition--and those sites often contain equipment for just one wireless carrier, thus limiting the revenues tower companies can generate from those sites. Most standard macro towers contain equipment from multiple carriers, thereby creating more revenue streams for the tower owner.

For more:
- see this Crown Castle release
- see this FierceTelecom article

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