Crown Castle's 5G success means more investments in fiber

Crown Castle is beginning to get the return it expected to gain from its $7.1 billion acquisition of Lightower late last year, defying the skepticism of many analysts. In fact, the company’s strategy of amassing fiber infrastructure is succeeding so well that Crown Castle is now talking about expanding its fiber network.

The company’s fiber strategy is largely predicated on two trends: One is the rise in data consumption in general. Here, Crown Castle caters largely to the enterprise market.

The second key trend is the impending rollout of 5G. Wireless carriers need to connect their 5G base stations—small cells—to high-speed, high-bandwidth wireline networks.

Crown Castle bought Lightower to provide connectivity for small cells, with the expectation that its wireless customers (which include AT&T, Sprint, T-Mobile and Verizon) would find it cheaper and easier to share fiber access from Crown Castle than to use their own fiber connections for this purpose or to lease access from competitors, notably the cable companies.

In the fourth quarter, Crown Castle said it was already seeing signs that its assumption was correct. With another quarter under its belt, CEO Jay Brown said, “Both the volume of activity and the returns we are generating on our fiber investments further validate our strategic pursuit of this expanding opportunity,” according to a transcript of the call provided by Seeking Alpha.

The comment came during Crown Castle’s call with analysts to discuss the results of its first fiscal quarter. 

The company bought Lightower specifically to serve the 5G segment but serving the enterprise market is a double bonus. It expands the company's target markets and enables the company to get an immediate return on investment in fiber assets while the 5G business gradually ramps up.

The four major U.S. carriers will need to eventually install millions of small cells, but the pace of the 5G market is attenuated in a way the enterprise market is not. It can take anywhere from 18 to 24 months to build a node (small cell). The majority of that time is spent getting permits, and the variation in time is based largely on how lengthy the permit process ends up being. 

At the moment, Crown Castle’s fiber business is split 75-25, enterprise to small cell, according to the company’s chief financial officer Dan Schlanger. As the 5G rollout progresses, that 75-25 split is apt to change, with the small cell business representing a larger share.

That leads right into Crown Castle's need to continually invest in new fiber moving forward.

Brown explained that the company has been averaging 2.5 nodes per mile of fiber. He said the company has put 5,000 nodes “on air” in the last year, and that it has 30,000 more yet to connect in the pipeline.

Roughly half the nodes built in the first quarter were added on existing fiber. “And then for the other half, that’s an expansion of the fiber footprint,” Brown said.

“And to extend that out to the whole pipeline of 30,000, we have a mix in there of new markets that we’re building, as I was speaking to earlier, as well as co-location …[T]he fiber need is dependent upon whether we’re expanding in new market or co-locating on existing,” Brown added.

Co-location is shorthand for leasing shared access to an existing node to a second (or third or fourth) customer.

“What we’re seeing in the fiber movie is basically a sequel of what happened in towers,” Brown said. “In the early days, you have a carrier who needs to cover a given geography, and over a relatively short period of time, other carriers need to cover that same geography. So we’re in the process of working with carriers and understanding their deployment plans and then assessing whether or not we believe the areas that they want to deploy small cells in have the opportunity for co-location.”