Crown Castle acquires FiberNet for $1.5B, gains 11.5K route fiber miles

Crown Castle is enhancing its fiber diet by reaching a deal to acquire FPL FiberNet from NextEra Energy for about $1.5 billion in cash, deepening its fiber holdings to address more dark and lit small cell wireless backhaul opportunities.

RELATED: Crown Castle’s fiber investments could buoy ‘bleh’ outlook

By acquiring FiberNet, Crown Castle will get access to about 11,500 route miles of fiber installed and under construction in Florida and Texas, including approximately 6,000 route miles of fiber in top metro markets. 

Upon closing this deal, Crown Castle will own or have indefeasible rights of use (IRU) to approximately 28,500 route miles of fiber.

Jay Brown, CEO of Crown Castle, said in a release that given the “long runway of expected growth ahead for small cells, we believe our investment in FiberNet further strengthens our leading position in small cells and will enhance our long-term dividend growth.”

Crown Castle said it expects the acquisition to close in the first half of 2017 and to be immediately accretive to Adjusted Funds from Operations (“AFFO”) per share upon closing.

During the first year of owning FPL FiberNet, Crown Castle expects the purchase to contribute between $105 to $110 million to gross margin and approximately $15 to $20 million of general and administrative expenses. Additionally, the transaction includes approximately $5 million in annual cash flows associated with a customer lease that will be accounted for as a financing lease and therefore will not contribute to the expected gross margin. 

New Street Research said that while the FPL FiberNet could provide some potential revenue benefits, there’s a concern that the return on small cell backhaul investments aren’t as large as tower and they will face pressure from a host of competitors like Lightower, CS&L’s Uniti Fiber and Zayo – three fiber providers that have been making inroads in selling dark and lit fiber services to operators rolling out small cells.

“The small cell investments have been optically positive for the company: Organic growth accelerates (because CCI doesn’t delineate organic from inorganic growth on small cells) and the deals have been accretive to AFFO,” New Street Research said in a research note. “Despite these benefits, we have been skeptical of tower companies investing in outdoor small cells because we believe they generate returns that are lower than towers.”

This is just of one of three fiber deals that Crown Castle has made in recent years to advance its fiber network standing to better respond to the burgeoning small cell backhaul trend.

In April 2015, Crown Castle purchased Sunesys. By purchasing Sunesys, the tower provider got access to 10,000 miles of fiber in major metro markets across the United States, including Los Angeles, Philadelphia, Chicago, Atlanta, Silicon Valley and northern New Jersey. About 60 percent of Sunesys' fiber miles are located in the top 10 basic trading areas (BTAs).

Earlier in September 2014, it purchased 24/7 Mid-Atlantic, a deal that gave it 800 route miles of fiber infrastructure across the Maryland, Delaware and northern Virginia region. 

The acquisitions of fiber-based assets come at a time when there’s been rapid consolidation of the fiber market and players winning large deals to extend dark fiber to small cell sites.

Zayo, for instance, recently won a contract to deploy dark fiber-based connectivity for a Tier 1 wireless operator, signaling its growing presence in the C-RAN fronthaul market segment. Earlier, it secured a contract to expand and upgrade an unnamed wireless operator customer’s fiber to the tower (FTTT) network of 1,800 cell sites in 26 markets.

Likewise, Uniti Fiber won a large dark fiber deal serving a large wireless operator, prompting it to expand its reach in three markets in Southeast Iowa and the Central and Northern Illinois regions.