Crown Castle's 'horizontal towers' of fiber bode well: Wells Fargo

fiber wire
Fiber will play a crucial role in the deployment of 5G technologies and services.

If orange is the new black, maybe fiber is the new tower. And that would bode very well for Crown Castle and others with significant fiber holdings.

The venerable tower company made headlines late last week when it confirmed it had inked an agreement to acquire Lightower for $7.1 billion. Lightower owns or has rights to roughly 32,000 route miles of fiber primarily in metro markets in the Northeast, including Boston, New York and Philadelphia, and the deal will give Crown Castle access to approximately 60,000 route miles of fiber with a presence in 23 of the top 25 metro markets.

The acquisition will make Crown Castle one of the larger fiber network operators in the United States. And that infrastructure will be crucial as carriers begin to deploy 5G offerings in the next few years, according to Wells Fargo Securities.

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“For Crown Castle, the bear thesis is that they are not a tower company anymore given that Crown Castle pro-forma is to have 30% of its revenues from fiber/small cells and 57% related to macro towers,” Jennifer Fritzsche of Wells Fargo wrote in a note to investors. “The other argument is that the sum-of-the-parts valuation gets less attractive for Crown Castle considering fiber multiples are lower than tower multiples. I guess we take the more glass half-full approach and accept the possibility that fiber could indeed be a ‘tower on its side.’”

Only half of commercial buildings are connected with fiber, Fritzsche continued, and Verizon and other carriers are moving aggressively to deploy small cells in urban areas, many of which will require fixed-line connectivity. Meanwhile, wireless network operators are increasingly eager to work with “companies that check multiple infrastructure boxes” as fiber becomes a crucial component of mobile networks.

And that’s good news for Crown Castle, Zayo and others that have significant fixed-line networks in major markets.

“We don’t think it’s a debatable fact more fiber is going to be needed for 5G and in the enterprise space,” Fritzsche wrote. “Recall at a competitor conference in May, AT&T’s Chief Strategy Officer John Donovan noted that Crown Castle gave it a ‘structure that I think worked for us’ in reference to its master lease agreement on the macro side. And if this is the case, then maybe the sky isn’t falling on Crown Castle after all and Zayo is indeed sitting on some pretty attractive horizontal towers!”

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