Crown Castle now gets 7% of its revenue from small cells, sees strong growth ahead

Crown Castle is seeing a strong uptick in its business from deploying small cells. Indeed, the company said small cells now make up 7 percent of the tower company's site rental revenue.

The company's executives discussed small cells quite a bit during Crown Castle's first-quarter earnings call. Crown Castle's small cell business grew 35 percent year-over-year in the first quarter, while Crown's total site rental revenue grew just 3 percent year-over-year from $747 million to $768 million in the first quarter of 2015. Small cells made up $53.76 million of the $768 million, the company said.

In December 2011, Crown Castle paid $1 billion to acquire distributed antennas systems (DAS) and small cell provider NextG Networks, which gave it a boost in those markets.

Crown Castle CFO Jay Brown said on the call that the company has more than 14,000 small cell nodes on air or under construction and 7,000 miles of fiber. "We are winning new opportunities and driving yields up on our existing investments in small cell networks," he said, according to a Seeking Alpha transcript of his remarks.

U.S. wireless carriers are turning to small cells to densify their networks and add more capacity this year. Verizon Wireless (NYSE: VZ) has publicly said it plans to spend heavily on small cells to increase its network density. AT&T Mobility (NYSE: T), meanwhile, is continuing to deploy small cells despite pulling back on its pledge to add 40,000 small cells to its network by the end of 2015. Sprint (NYSE: S) is also expected to invest significantly in small cell technology.

Crown Castle expects small cells to comprise $50 to 60 million of revenue growth in 2015, with the tower activity comprising around $100 million.

"Similar to towers built in the late 1990s and early 2000s, we are focused on building small cell networks in the most attractive locations in the U.S., in places like Manhattan, Washington, D.C., Southern California and Chicago," Brown said. "As mobile data demand grows, the necessity of small cells increase as evidenced by our growing pipeline of over 2,500 anchor builds and colocations on existing systems, which have been awarded to us, but are not yet in construction."

However, Brown said very few if any of those 2,500 small cell deployments will generate revenue for the company in 2015. "Typically once we start construction of small cells, we're in a 15 month to 18 month cycle in most cases," he said. "So, those would likely represent activity that will come online in 2016. We have a very healthy backlog of nodes that are currently in construction."

SBA Communications, one of Crown's key rivals, indicated on its earnings call today that it "has signed up a handful of small cell contracts on its towers and received some fair rents for these deployments," according to a research note from Wells Fargo analyst Jennifer Fritzsche. She wrote that SBA "believes the small cell opportunity is developing positively, and management continues to pay close attention."

For more:
- see this Seeking Alpha transcript

Related Articles:
Verizon's appetite for small cells could spell bounty for regional telcos
AT&T drops goal of deploying 40,000 small cells by end of 2015, citing benefits of Leap deal
Analyst: Sprint to spend around $500M per year on small cells
North American small cell shipments reach 1M in 2014, forum says
Crown Castle sees small cell opportunity as big as cell towers in early 2000s

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