Tag Archives: Crown Castle

The Big Carrier Chess Board

There was big news in the long-haul fiber business recently when Zayo announced it will be acquiring the fiber assets of Crown Castle and adding 90,000 miles of fiber to its network. The acquisition will also Zayo’s access to major buildings to 70,000. Zayo says the acquisition will position it as a major player in providing transport for AI. Zayo has been actively building new fiber routes across the country in the last few years.

Crown Castle is also selling its small cell business to EQT, a major investor in Zayo. The announced cost of the fiber acquisition is reported at $4.25 billion. My back-of-the-envelope math says that is paying $47,000 dollars per route mile for long-haul fiber. That seems like a huge bargain. Here is the map of the Crown Castle network. The map doesn’t show the many local routes within metropolitan areas.

There have been rumors that Crown Castle hasn’t been doing well, with its slowdown based on the decision of cellular carriers to expand via small cell sites. Crown Castle made a major bet that small cell sites was going to be a thriving business. That didn’t sound like a bad bet based on the rhetoric of the big cellular carriers a few years ago – but the expansion to small cell sites ceased abruptly.

This will cause a big shift in the large carrier market. Vertical Systems Group tracks the large carrier market. For 2024 they rank the leasers in that market as 1-Luman, 2-Zayo, 3-Verizon, 4-AT&T, and 5-Crown Castle. Each of these business has at least a 4% market share in selling fiber  wavelengths. We’ll have to see if the acquisition bumps Zayo to number one.

Zayo was ranked seventh in connections to lit buildings, with Crown Castle listed at eighth. One has to thin this might move Zayo ahead of number six Cox, or number five Lumen.

Lumen is also in the news. It’s widely reported in the press that AT&T is going to make a $5.5 billion bid for Lumen’s retail fiber business. This deal is far from over, and AT&T hasn’t even made a formal offer yet. There are already rumors that T-Mobile, Verizon, and BCE (the Canadian company that recently purchased Ziply Fiber) might make counteroffers.

Interestingly, analysts are saying that an AT&T bid for Lumen’s fiber customers is as much about reducing cell phone churn as it is in acquiring fiber customers. However, if AT&T is successful in buying Lumen, they would grow to 55 million fiber passings, compared to 35 million for Verizon and 12 million for T-Mobile.

Verizon will be growing it’s footprint and is expected to close the acquisition of Frontier sometime this year. T-Mobile has also been active in fiber acquisitions and purchased a share of Lumos and Metronet last year and is partnering with two ISPs in Louisiana that are pursuing BEAD grants.

There are lots of other rumors in the industry, with the biggest being that T-Mobile is interested in buying Charter, which has over 30 million broadband customers.

It’s clearly going to be an interesting year watching the big companies move pieced around the chess board.

A Slowdown in Cellular Expansion?

Mike Dano had a series of articles recently in LightReading talking about how the big cellular carriers plan to significantly cut back on 5G spending in 2023. Dano cited one analyst, Tom Nolle of CIMI that said that the cellular carriers are having a hard time making the business case for expanding 5G. The cellular companies are not seeing an uptick in new incremental revenues as a result of 5G investments. He says the cellular companies are clueless and don’t see a path to increase revenues next year.

This feeling of falling 5G expectations was bolstered by a somber outlook from Crown Castle. The biggest owner of cell sites said that it doesn’t see the big cellular carriers spending heavily in 2023 for cell towers or small cell sites.

As might be expected in complicated economic times, not all analysts agree. Dano cites analysts from Raymond James that say that 2023 will mark the year when the cellular companies start spending at a slow steady pace over multiple years to put in the promised 5G expansions.

As with most topics, I ask what this might mean for rural broadband. T-Mobile and Verizon have made a big recent splash in the industry with the rollout of the FWA fixed cellular broadband product. In the second quarter of 2022, Verizon and T-Mobile added 816,000 FWA customers. For the quarter, the largest seven cable companies collectively lost 60,000 customers. The six largest telephone companies lost 88,000 customers. Before the first quarter of 2022, we heard almost nothing about FWA.

I have to wonder what the news of a cell site expansion means for rural broadband. For customers lucky enough to be able to buy it, the FWA product has been a huge improvement over other kinds of rural broadband. I talked to one farmer who lived adjacent to a cell site and was seeing speeds of 200 Mbps. For this farmer, the faster FWA speeds meant being able to finally utilize his smart farming applications. But his neighbors, only two miles away, weren’t seeing speeds over 50 Mbps.

I’ve always wondered why a cellular company would make the FWA upgrade or even the 5G upgrade at a rural cell site. For a cell site located in a farming area there probably aren’t more than a handful of potential customers within a few miles of a tower. It doesn’t seem like an investment that is ever going to see a return. Voice is a little different because a voice signal can carry many more miles from an upgraded cell site – but most upgrades are leaving voice traffic on 4G.

Both T-Mobile and Verizon said that they were seeing many of the new FWA customers in cities and suburbs and not from rural areas. This makes sense. First, a lot more people are candidates for the product in more densely populated areas. The FWA product is also priced attractively, and I’ve been thinking of it more as a DSL replacement than a direct competitor to cable broadband. The FWA speeds are not as fast as cable broadband, and the signal strength will vary as it does with any wireless product.  Just look at how the cellular bars vary at your house and ask if you want that kind of variance in a home broadband connection. If your only existing choice is lousy rural broadband, you’ll gladly take it as an upgrade. But it seems like a harder sell to folks who have faster alternatives.

I can’t do any more than speculate because even the analysts don’t agree on the trajectory of the cellular industry, although the poor outlook from Crown Castle seems fairly persuasive. We are now sitting at an odd economic time where inflation and interest rates affect everybody, including the big companies. I suspect we’re going to get mixed signals about the near-term future from others, and not just the cellular companies. 2023 is going to be an interesting year to follow the big ISPs.

Selling Transport to Small Cell Sites

A lot of my clients make money by selling transport to the big traditional cell sites. Except for a few of them that operate middle-mile networks, the extra money from cell site transport adds a relatively high-margin product into the last-mile network.

Companies are now wondering how hard they should pursue small cell sites. They keep reading about the real-estate grab in the major cities where a number of companies are competing to build small cell enclosures, hoping to attract multiple carriers. They want to understand the size of the potential market for small cells outside of the major metropolitan areas. It’s not an easy question to answer.

The cellular carriers are building small cell sites in larger markets because they have exhausted the capabilities of the traditional large cell sites. The cellular companies have pushed bigger data plans and convinced customers that it’s okay to watch video on cellphones, and now they find that they are running out of bandwidth capacity. The only two immediate fixes are to build additional cell sites (thus, the small cells) or else add more spectrum. They eventually will layer on full 5G capability that will stretch spectrum a lot farther.

There are varying estimates for the eventual market for small cell sites. For example, the CTIA, the lobbying group for the wireless industry, estimates that small cells will grow from 86,000 in 2018 to 800,000 by 2026. The Wall Street analyst firm Cowan estimates 275,000 small cells by the end of 2023.

The big companies that are in the cellular backhaul business are asking the same questions as my clients. Crown Castle is embracing the small cell opportunity and sees it as a big area of future growth. Its competitor American Tower is more cautious and only chases small cell opportunities that have high margins. They caution that the profit opportunity for small cells is a lot less than at big towers. Other companies like Zayo and CenturyLink are pursuing small cells where it makes sense, but neither has yet made this a major part of their growth strategy – they are instead hoping to monetize the opportunity by adding small cells where they already own fiber.

The question that most of my clients want to understand is if the small cell building craze that has hit major metropolitan areas will ever make it out to smaller cities. In general, the big cellular carriers report that the amount of data used on their cell sites is doubling every two years. That’s a huge growth rate that can’t be sustained for very long on any network. But it’s likely that this rate of growth is not the same everywhere, and there are likely many smaller markets where cell sites are still underutilized.

Metropolitan cell sites were already using a lot of broadband even before customers started using more data. We know this because the cellular carriers have been buying and using robust data backhaul to urban sites of a gigabit or more in capacity. One good way to judge the potential for small cell sites is to look at the broadband used on existing tall tower sites. If a big tower site is using only a few hundred Mbps of bandwidth, then the cell site is not overloaded and still has room to accommodate broadband growth.

Everybody also wants to understand the revenue potential. The analyst firm Cowan estimates that the revenue opportunity per small cell site will average between $500 and $1,000 per site per month. That seems like a high price outside of metropolitan areas, where fiber is really expensive. I’ve already been seeing the big cellular carriers pushing for much lower transport rates for the big cell sites and in smaller markets carriers want to pay less than $1,000 per big tower. It probably takes 5 – 7 small cells to fully replace a large tower and it’s hard to envision the cellular carriers greatly expanding their backhaul bill unless they have no option.

It’s also becoming clear that both Verizon and AT&T have a strategy of building their own fiber anyplace where the backhaul costs are too high. We’ve already seen each carrier build some fiber in smaller markets in the last few years to avoid high transport cost situations. If both companies continue to be willing to overbuild to avoid transport costs, they have great leverage for negotiating reasonable, and lower transport costs.

As usual, I always put pen to paper. If the CTIA is right and there will be 800,000 small cell sites within six years that would mean a new annual backhaul cost of almost $5 billion annually for the cellular companies at a cost of $500 per site. While this is a profitable industry, the carriers are not going to absorb that kind of cost increase unless they have no option. If the 800,000 figure is a good estimate, I predict that within that same 6-year period that the cellular carriers will build fiber to a significant percentage of the new sites.

Perhaps the most important factor about the small cell business is that it’s local. I have one client in a town of 7,000 that recently saw several small cell sites added. I have clients in much larger communities where the carriers are not currently looking at small cell sites.

The bottom line for me is that anybody that owns fiber ought to probably provide backhaul for small cells on existing fiber routes. I’d be a lot more cautious about building new fiber for small cell sites. If that new fiber doesn’t drive other good revenue opportunities then it’s probably a much riskier investment than building fiber for the big tower cell sites. It’s also worth understanding the kind of small cell site being constructed. Many small cells sites will continue to be strictly used for cellular service while others might also support 5G local loops. Every last mile fiber provider should be leery about providing access to a broadband competitor.