Small cells will be 'pursued in earnest' in 2018, says Wells Fargo

The U.S. small cells market will finally gain serious momentum next year, according to Wells Fargo Securities. And Crown Castle is positioned to benefit in a big way.

All four major wireless carriers in the U.S. are looking to small cells to improve coverage and increase capacity in advance of 5G buildouts. The antennas, which can be as small as a lunchbox, can be placed on “street furniture” such as lampposts or traffic lights as well as on the sides of buildings or other objects. They sometimes require the installation of new poles that can be 120 feet or taller, and typically use fiber for backhaul connectivity.

But zoning and permitting headaches—among other factors—have slowed the small cell market. Some municipalities are fighting small cell deployments based on concerns over aesthetics, noise, rights-of-way issues and other concerns.

Deployments will ramp up in a big way next year, though, Jennifer Fritzsche of Wells Fargo predicted this morning in a research note.

“While we saw some early carrier interest and activity building small cells to densify their networks ahead of 5G services, we believe 2018 to really be (the) year where small cells are pursued in earnest,” Fritzsche wrote. “Recall, Crown Castle made a series of fiber acquisitions (FiberNet, Wilcon, Lightower) to pursue the small-cell builds from a different angle than its tower competitors. In our view, Crown Castle stands ready to benefit from densification builds—as this fiber piece is THE critical ingredient in a small-cell process. With a full management team in place managing Crown Castle’s macros, small cells, and fiber assets, we believe 2018 will be the year that Crown Castle’s differentiated approach to small cells will gain traction.”

Crown Castle also stands to benefit from AT&T’s buildout of the FirstNet network for first responders, Fritzsche noted. The carrier will spend roughly $40 billion over the life of the 25-year contract to deploy and maintain the network, according to the Department of Commerce, integrating its network assets with FirstNet. And the venerable tower company will get an additional lift from Sprint’s increased investment on its network over the next few years.

“Crown Castle is our favorite tower company as we like the multiple ‘infrastructure boxes’ (i.e. macro, small cell, fiber, etc.) checks for carriers,” Fritzsche wrote. “As carriers’ network needs become more complex in a 5G world, we believe they will be more inclined to work with vendors who can service these many different needs…. We expect AT&T’s FirstNet build and Sprint’s increase in network activity to benefit Crown Castle the most in the short term given its domestic focus.”