Crown Castle CFO confident on small cell outlook, despite short-term delays

Crown Castle executives see major opportunity for the tower company’s small cell business, despite short-term delays related to siting considerations and challenges posed by local authorities.

Current increasing LTE bandwidth demands coupled with carrier’s 5G network builds needed to handle next-generation services has created a strong business environment and is why Crown Castle is investing in small cells, according to company CFO Dan Schlanger.

“It’s because we know that this demand cannot only be met with towers,” Schlanger said Tuesday speaking at Cowen Communications Infrastructure Summit.

He acknowledged that macro sites will continue to be vital to networks going forward, but said that needed extra capacity will really come from small cells, with densification posing a major opportunity for Crown Castle.

RELATED: Crown Castle tower activity ramps up in Q2, municipality backlogs bog down small cell construction

5G using millimeter wave spectrum, which has massive bandwidth but signals can’t travel far, will require significantly more densification, Schlanger said, but carriers will still need to densify for low- and mid-band flavors of 5G – meaning more small cells.

“There’s only so many (macro) towers you can put into place and it’s really hard to build new ones,” said Schlanger. “So the way we believe this is going to evolve over time is to continue down the path of more and more small cells. And we think we’re uniquely positioned to take advantage of that opportunity.”

Municipal challenges

Expectations of more small cells is not new. Last year a study commissioned by industry group CTIA projected more than 800,000 small cells on air by 2026, up from 13,000 in 2017.

However, the process of getting small cells up and running can be slow moving, in part due to review delays and fees at the local level.

“What I think we’re all struggling with is that municipalities and utilities are making it more difficult to deploy small cells,” said Schlanger, noting the company’s experience with the process and developed skills means the tower company is doing “better than most.”

RELATED: Operators face local opposition to 5G small cell deployments

Crown Castle expects to deploy about 10,000 small cells this year, which is the bottom end of the company’s earlier guidance of 10,000 to 15,000 small cells.

Crown Castle did not see any material small cell bookings in the second quarter, though noted there was much prebooking activity. Schlanger said it wasn’t surprising and indicated it represents how the cycle of small cell deployment happens, given the process that must be worked through both with municipalities and with customers.

He said small cell bookings are hard to predict in the short-term, but noted long-term outlook is much clearer in that small cells are key and will be deployed. Crown Castle’s small cell business has evolved from securing smaller wins to getting awarded many small cells in multiple markets simultaneously.

“Instead of ordering 50 at a time we’re now at thousands, and therefore it’s just going to be more lumpy,” noted Schlanger. “You’re not going to get as many thousands awards as you are 50s.”

Speaking on the company’s second-quarter earnings call last month, CEO Jay Brown said the significant increase in small cell deployments were straining response times from municipalities and utilities, pushing out construction timelines.

RELATED: States contest FCC’s small cell rule, prompting Senate bill

“These pressures are most acute in several top markets where we are seeing the highest volume of activity,” Brown said.

Crown Castle isn’t the only company facing challenges and the FCC last September adopted rules to limit the amount of fees local authorities could charge wireless providers for 5G infrastructure deployments and speed up application review processes.

Some parties pushed back against the Commission’s order and the U.S. Court of Appeals for the Ninth Circuit has taken up certain states’ appeal questioning the FCC’s authority in the matter.

Just last week, the FCC was dealt a partial blow in a separate case a in a separate case when a U.S. court vacated part of a March 2018 FCC infrastructure order that exempted small cell installations from federal environmental and historic preservation review.  

Verizon, which has been vocal about building out small cells itself and investing and laying fiber, also has run into issues. On Aug. 8 the carrier filed a lawsuit against the city of Rochester, New York alleging the city charged unreasonably high small cell-related fees that violate the FCC’s September small cell order.

RELATED: Court rejects FCC exemption of 5G small cell site reviews

Backlogged municipalities themselves are dealing with territory when it comes to small cells.

Schlanger said that while municipalities and utilities are familiar with laying fiber, it becomes difficult when a company wants to use a vertical pole with a hanging antenna on it and connect it to power.

“That’s a totally new thing for most municipalities to deal with,” he said, adding “it’s a completely different negotiation” than putting up a tower.

Crown Castle has estimated historically that it’s securing 50% of small cell activity, and Schlanger noted most of the other half is from carriers opting to handle small cells themselves. While Verizon has been more public about its small cell and fiber build, Crown Castle doesn’t expect a long-term impact.  

“In the long-term, the economics of sharing infrastructure still work,” Schlanger said. “We believe that over time the ability to deploy more small cells for the same dollars by using a shared infrastructure will prove to be a very attractive option.”