Crown Castle’s Brown: We generate returns from co-locating customers on fiber assets

Crown Castle is finding that its fiber network can attract new customers and be served by its existing fiber network facilities.

Jay Brown, CEO of Crown Castle, told investors during its second quarter 2023 earnings that this method helped ease the pain related to the T-Mobile and Sprint network consolidation effort. This included a $100 million net contribution, which consisted of $97 million to small cells and $3 million to fiber solutions.

“We continue to generate solid returns from the benefits of co-locating additional customers on our existing fiber assets, offsetting the churn related to the legacy Sprint rationalization. Phoenix, which was not impacted by Sprint churn, is a good illustration of what we can achieve with our fiber strategy as we add nodes to existing fiber,” Brown said. “There, we have seen our yield expand from 9% a year ago to over 11% today as we roughly doubled our nodes on air from 1,400 to 2,800 nodes.”

He added that “Los Angeles and Philadelphia also illustrate the benefit of our shared infrastructure model.”

Fiber rebound ahead

While Crown Castle gained some growth in its fiber business during the second quarter following a challenging first quarter, Crown Castle expects to see more progress in the sector in the second half of the year.

“By the time we exit 2023, we think we'll be back at that 3% growth on a year-over-year basis as we go into 2024,” Brown said. “And what we're seeing in the market in terms of activity backlog, the conversations we're having with customers, etc., would suggest that's the pace we're on.”

On average, the leasing terms of its fiber customers are around five years. The company sees fiber churn being 9 to 10%.

Dan Schlanger, CFO of Crown Castle, said that while it has “fiber contracts that roll off over time, there's no difference in the fiber churn overall, which we still think is in the high single-digits range.”

The growing demand for data makes Crown Castle confident that it can advance fiber revenues. “Data increase at the consumer level has continued to grow exponentially during this period, and the pain points of that significant growth by the consumer and consumption of data usage are the places that drive the need for small cells,” Brown said. “As I think about what we've seen at kind of the market level, you can see that reflected in those -- in our results as we've co-located nodes across fiber that we built for other carriers at previous periods.”

He added that “as data growth increases, they need to densify the network in those same areas, and so they come back and lay additional small cells across that fiber asset that we own.”

Small cell opportunities are rising

As wireless operators further build their wireless networks, they increase their small cell rollouts. According to Grand View Research, the global small cell 5G network market size is expected to grow at a compound annual growth rate (CAGR) of 72.5% from 2023 to 2030.

Crown Castle expects 25% consolidated growth from small cells.

The company said it has several small-cell agreements in place. Portfolio of towers with fiber and small cells, making us uniquely positioned to capitalize on the long-term growth in data demand regardless of how carriers deploy spectrum and densify their networks.

“We saw an acceleration in small cells toward the back half of the 4G era as the vast majority of the 60,000 nodes we have on the air today are 4G nodes that were deployed because towers alone could not support the continued rise in mobile traffic,” Brown said. “Now, as we've passed the initial 5G surge in tower activity, we are seeing our customers accelerate the selection and identification of new small cell locations to densify portions of their networks that have experienced the most traffic.”

Crown Castle reported that the second quarter net income was $455 million compared to $421 million for the second quarter of 2022.

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