Crown Castle boosted its yearly guidance after experiencing more tower leasing activity than expected in the second quarter, but delays at burdened municipalities slowed down the company’s small cell construction timelines.
Crown Castle now expects new leasing activity from towers to generate $135 million to $145 million in site rental revenue in 2019, up $15 million from earlier guidance.
“Our current tower leasing activity is our highest in more than a decade and we believe this level of activity will carry into next year,” said Crown Castle CEO Jay Brown in a statement.
However, the tower company expects to deploy about 10,000 small cells this year, the bottom end of its earlier 10,000 to 15,000 guidance. The company decreased its small cell leasing revenue guidance for the year by $5 million to between $65 million an $70 million.
Still, Brown indicated the number of small cells Crown Castle expects to deploy this year is about 30% more than what the company delivered last year.
Lack of demand for small cells is not the issue, as carriers continue to invest and densify their networks as they start to deploy 5G.
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Brown cited the significant increase in small cell deployments as a strain on response times from municipalities and utilities that must approve or power the small cells, pushing out construction timelines longer than Crown Castle anticipated.
“These pressures are most acute in several top markets where we are seeing the highest volume of activity,” Brown said.
MoffettNathanson senior analyst Nick Del Deo said in a Wednesday research note that it’s likely reasonable to think current issues with municipalities and utilities that are not taking steps to expedite small cell approval and installation will persist in 2020.
“We’re not aware of any reason to think this situation will change in a material way, and it’s not clear to us that these parties have strong incentives to spend the money required to staff up or invest in systems that make life easier for Crown Castle and the wireless carriers,” wrote Del Deo.
Speaking on the company’s quarterly earnings call Thursday, executives pointed to an FCC ruling adopted in September 2018, which in part imposed a shot clock on state and local governments to respond to small cell authorizations and installations.
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“One of the great benefits of the FCC order is it requires municipalities and utilities to timely respond and deal with these permits and process of applications,” Brown said on the call, noting the rule provides for reimbursement to the local authorities for associated costs.
He praised municipalities that are complying with the FCC order, saying a number of markets have helped the small cell siting process, but that there are still some that have resisted implementing the new rules.
As of early June, 25 states, including New York and California had not adopted the FCC’s small cell equipment rule.
On the call Brown said Crown Castle is in the process of working through the issues with local municipalities and regulators, and is hopeful small cell construction timelines will not be delayed long-term.
“I think the long-term outcome, we’re hopeful would be that this is somewhat temporary, and you’ll see municipalities and utilities fall in line with what the FCC order is, and that will come back to a more normalized timeline around these [small cell] activities,” Brown said.
Crown Castle also believes the macro-opportunity for small cells is “far greater than what’s happening currently,” and expects to see the overall need for small cells to grow significantly over the coming years as networks transition from 4G to 5G.
Here are some highlights from Crown Castle’s second-quarter earnings:
Site rental revenues grew about 6% year over year to $1.2 billion, with tower segment site rental revenue of $816 million. Crown Castle reported service revenue of $240 million. Net income for the quarter was $246 million, versus $180 million a year ago.
Adjusted EBITDA was $857 million and adjusted funds from operations per share was $1.48