Crown Castle operates 40.1k towers, 80k route miles of fiber supporting more than 70k small cells. The company’s infrastructure is entirely based in the United States.
Based on the continued increase in demand for wireless information, there will be a need for additional spectrum to be deployed in the United States. Use cases such as Fixed Wireless Access (FWA) to the home, autonomous vehicles, the Internet of Things, smart cities or augmented reality & virtual reality will drive this trend. Thus, a significant investment will be required in spectrum and then to increase the number of tower cell sites in the United States. In order to deploy spectrum, a tall physical structure, such as a tower, connected, ultimately, to powering fiber is required. Crown Castle provides the digital infrastructure needed to deploy spectrum. This infrastructure is at height, being on a tower, and connected to power and fiber.
Furthermore, the digital infrastructure needed to support 5G will dramatically increase the demand for not only towers but fiber and small cells, as well. Crown Castle is at the center of the 5G mega-trend with its portfolio shared infrastructure. Crown Castle owns 40k towers, 80k miles of high-capacity metro fiber and 70k small cells in the United States.
As networks transition from 4G to 5G, Crown Castle expects the opportunity set for towers, fiber and small cells to be far greater than what is occurring currently.
Towers – Crown Castle Perspective
During the infancy of towers, 20 years ago, when the assets were built, some level of lease-up demand was projected to be associated with the assets. In retrospect, 20 years later, the lease-up demand for towers ended up being far in excess of anything that was underwritten when those initial investments were made.
With every generational shift in wireless technology, towers have found a way to keep growing in unexpected ways. First, the vast majority of the United States acquired cell phones. Second, data really started to take-off with the introduction of the iPhone. Third, as 4G became prominent, mobile video usage surged. In terms of 5G, there are use cases which have not been invented yet, that consumers and enterprises will ultimately use significant data for. With this insatiable appetite for data, the amount of spectrum being deployed will grow. Thus, towers will continue on a path in-line with their long history of growth.
Forms of Carrier Upgrades on Towers
Carriers will pursue upgrading their networks, in a similar way as they have done in past migrations of wireless technologies. Carriers will start at tower sites where they already have existing equipment. These carriers will upgrade the equipment to the new generation of technology. For Crown Castle, this is known as amendment activity. Amendments occur at sites where the carriers will deploy additional antennas and fiber to amend and upgrade their existing equipment from 4G/LTE to 5G. By deploying additional antennas and fiber, carriers are densifying their networks. Importantly, carriers are densifying to ensure that their infrastructure can support 5G technology.
In certain instances, carriers will have additional spectrum that they have acquired. Thus, carriers will make new installations on tower sites, in order to deploy the necessary equipment to use this spectrum. Deployment of new spectrum, whether that is by existing operators or new entrants into the market (e.g., DISH Network), creates another runway of growth for Crown Castle. Additionally, some operators like DISH own spectrum, which has been laying fallow and they have not deployed it yet. As that fallow spectrum is deployed for the purposes of 5G, it creates another avenue of growth for Crown Castle.
Fiber – Crown Castle Perspective
5G’s requirement for network density will benefit fiber. Fiber comprises 80% of the cost in building-out small cells. As a result, Crown Castle’s 80k route miles of fiber is primarily supporting its more than 70k small cells. As small cells are deployed, the company builds small laterals of fiber (a few feet) to go up the pole or onto the next pole, where the small cells are located.
Small cells push out data transmissions wirelessly from the small cell node to the user’s handset. However, from the small cell node back into the network, meaning to transmit data back to the data center, a fiber connection is required. Fiber is necessary because it allows data to travel at the speed of light. Higher data transmission speeds over fiber enable the low-latency communications that 5G has to offer.
Small Cells – Crown Castle Perspective
Crown Castle defines small cells as an all-encompassing term that effectively means smaller towers. Generally, towers are built between 50 to 250 feet high, and placed reasonably far away from each other. Typically, from a 1/4-mile to 1-mile, sometimes 2-miles, away from each other. However, because of the amount of data being demanded has increased drastically over the last 5 to 10 years, the ability to use only towers has gone away. This is because towers cannot be located close enough together. First, for regulatory reasons. Second, as they get close together, their signals cancel each other out due to interference.
Therefore, in order to bring more capacity to both users and the network, carriers have had to spend money to build “small towers”. These are commonly referred to as small cells, and are generally 25 feet tall or less. Small cells are placed on utility poles, streetlights, and traffic lights and blend-in well with the cityscape. Given proximity to users, small cells can utilize the spectrum that carriers have more efficiently. Carriers are able to add more sites, which provide more capacity to their network.
5G is bringing the need for a significant increase in network density which in-turn creates the need for more small cells to be deployed in order to meet the demand. In-line with these trends, the number of small cells deployed in the United States is expected to increase nearly ten-fold. From 85k currently to 800k by 2026. The key hurdle to this growth is regulatory. Specifically, lengthy approval processes make the timeline to deploy small cells range from 18 to 24 months.
Spectrum Deployed on Small Cells by Crown Castle
Contrary to common belief, millimeter wave spectrum bands are not the only type of spectrum deployed on small cells. Carriers are using small cells to deploy spectrum across all of the bands that they own. These include low-band and mid-band spectrum as well. In a given geography, a carrier will oftentimes start their initial deployment with one spectrum band, build-out small cells for that band and then come back and add additional nodes across that same run of fiber for additional spectrum bands.
The majority, of the 70k small cell nodes that Crown Castle has built, support mid-band spectrum for 4G/LTE or 5G services. Crown Castle has not deployed a significant number of millimeter wave spectrum band small cells thus far. However, small cell deployment on millimeter wave spectrum will be a growing part of future 5G deployments. This is because sufficient capacity exists on that high-band spectrum to meet certain anticipated 5G use cases. As 5G deployments occur using millimeter wave spectrum, significantly more densification will simultaneously occur for low- and mid-band spectrum deployments. This is a direct result of millimeter wave’s propagation characteristics.
Over time, the 5G network will become capacity constrained, particularly in dense urban environments. Thus, carriers will move beyond just upgrading their existing equipment. Crown Castle’s view is that carriers will use small cells to offload some of their traffic from towers. In turn, small cells will improve the cost efficiency and effectiveness of the carrier’s towers. By efficiently managing this increase in data traffic, carriers can deliver a more ubiquitous experience to the consumer.
Small Cells Deployed for Carriers by Crown Castle
In terms of small cell deployment density for carriers, Crown Castle averages slightly over 2 small cell nodes per mile. In dense urban markets, the node count can reach between 6 and 10 small cell nodes per mile. Medium-term, Crown Castle’s overall small cell density will grow beyond its average density of 2 small cell nodes per mile. Rather it will grow, to average, slightly over 4 small cell nodes per mile.
Depending on the density that is ultimately necessary for 5G, Crown Castle will increase the density at which it deploys small cells for carriers. For example, 5G millimeter wave spectrum only travels 1,000 feet. This means that in order to cover a one-mile radius, 5 small cell nodes, per mile, per operator are required. The proliferation of 5G millimeter wave spectrum, is an example of a reason why a significant increase in density of small cell deployments could occur.
Towers and Small Cells Colocation on Crown Castle Infrastructure
Densification of digital infrastructure is in-part dependent on the tenant equivalency ratio of the particular asset. For example, in towers, a 3-tenant or 4-tenant tower is very high. Logically, this is the case because only three nationwide carriers currently exist in the United States.
Small cells, in contrast, measure a specific deployment for a specific customer as one tenant equivalent. That same customer can return to the same small cell and be the second tenant even though it is the same customer. The rationale for a carrier doing this could be that they want densification within their same footprint. Additionally, other customers can use that same small cell to colocate on those existing systems. Therefore, over the long-term, the likelihood of achieving a 3-tenant or 4-tenant small cell is higher than in towers.
The trajectory to 3-tenant or 4-tenant infrastructure is different between towers and small cells, over the long-term. However, the take-up of small cells can exceed that of towers. Assuming 5G drives significant densification within the United States, Crown Castle expects significantly higher tenant equivalency ratios in its small cell business. Ultimately, higher tenancy brings higher margins on capital deployed and thus will generate stronger investment yields for Crown Castle.
Market Share of Smalls Cells in the United States
In terms of small cell “pipeline” market share, Crown Castle represents 50% of all ongoing deployments of small cells in the United States. The remaining 50% of small cells are largely being accomplished through self-perform by the carriers (i.e., AT&T, Verizon, and T-Mobile). Crown Castle views that, eventually, carriers will share their fiber and small cell infrastructure amongst each other. This concept is similar to the network sharing agreements which are prevalent in Europe. Carriers participate in network sharing agreements in order to achieve cost savings from economies of scale.