MoffettNathanson: 30,000 small cells deployed in U.S., but they're likely no threat to tower companies

Investors have expressed concerns about the tower market in recent months as U.S. carriers increasingly look to small cells to densify their networks and increase capacity. But analysts at MoffettNathanson said the smaller transmitters aren’t likely to pose much of a threat to players in the macrocell segment.

Small cells will continue to be deployed in densely populated urban areas where coverage can be difficult and where they can benefit as many users as possible at relatively low cost. And while deployments will rise to meet ever-increasing demand for mobile data, carriers won’t use small cells to address the needs of the majority of their customers.

“To the extent they are deployed outside of dense urban centers, they are largely found in affluent areas (though likely because of factors correlated to income, like difficulties in siting traditional infrastructure, rather than income itself,)” MoffettNathanson wrote in a note to clients. “We would anticipate that these explanatory factors will continue to hold as carriers deploy more small cells, whether for 4G, fixed 5G, or mobile 5G applications. We fully expect small cell networks to become more commonplace. However, contrary to some narratives, we believe they will only be commonplace in a relatively small number of geographies, and will serve a small portion of the country’s population.”

Roughly 30,000 small cell nodes are in operation in the U.S., MoffettNathanson estimated, and Crown Castle is the country’s largest operator of them. Crown Castle had 12,000 live nodes at the end of 2015, and an additional 5,000 under construction. American Tower, meanwhile, has targeted niche markets such as high-end neighborhoods, ski resorts and university campuses with small cells, claiming a significantly smaller market share.

Small cells continue to attract plenty of attention from analysts and investors. The worldwide segment will grow from $1.06 billion in 2015 to $3.9 billion by 2020, according to a forecast from MarketsandMarkets, enjoying a compound annual growth rate of nearly 30 percent. In the U.S., however, small cells “will only be commonplace in a relatively small number of geographies,” MoffettNathanson analysts wrote, serving a small fraction of the country’s mobile users.

“For traditional tower operators, this provides additional evidence to suggest small cells are not a competitive threat,” according to MoffettNathanson. “Towers tend not to be located in dense cities (think of Manhattan or Boston or San Francisco; macrosites are located on rooftops or other alternate structures), and when small cells are being constructed outside of these locations it is generally because towers cannot…. For wireless carriers, it suggests that the promises (and perils) of significant architectural changes to their networks are likely to be somewhat constrained.”

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