Tower companies appear to be outspending carriers
U.S. carriers have been selling their tower portfolios to raise cash for spectrum purchases and deployment, and the move away from infrastructure ownership may extend to small cells and distributed antenna systems as well. Two of the three largest tower companies are investing heavily in DAS and small cells, apparently outspending the wireless carriers.
“The tower company side is trending upward more quickly and the carrier side is flat to somewhat declining,” said Jim Estes, chairman of FDH Velocitel. As a major wireless infrastructure service provider, FDH Velocitel completes DAS and small cell installations for both carriers and tower companies. Estes sees the tower companies as the most important customers for these services going forward.
“The tower companies, I think, are really going to be driving the bus going forward,” said Estes. “It fits their legacy model of shared infrastructure.”
American Tower and Crown Castle are the two biggest tower players in the DAS and small cell space. SBA Communications recently decided to turn away from the market in favor of a focus on traditional cell towers.
Crown Castle CFO Jay Brown said during the company’s second-quarter earnings call that small cells and DAS represent roughly 8% of the company’s site rental revenue.
“Our small cells consist of approximately 7,000 miles of fiber supporting approximately 15,000 nodes on-air or under construction with another approximately 2,300-node opportunities awarded but not yet under construction,” said Brown. Crown Castle traditionally uses the term “small cells” to refer to outdoor DAS installations as well as stand-alone small cells.
Crown Castle CEO Ben Moreland added that his company’s recent acquisition of Sunesys has doubled the fiber footprint available to support Crown Castle’s small cell deployments. He said the company now has 16,000 miles of metro fiber at its disposal. Fiber can be the most critical element of a DAS or small cell deployment because without it backhaul can be an insurmountable challenge.
Indoor vs. outdoor
American Tower said during its Q2 earnings call that indoor DAS is currently performing much better than outdoor DAS.
“Indoor DAS, for us, is meeting our investment criteria,” said American Tower CEO Jim Taiclet. “Just like towers, you’d expect them, if you’ve been running them for five or more years, to have over two customers per tower, say, in the U.S. And that’s our experience with indoor DAS. Outdoor DAS is younger, it isn’t there yet, but we’re finding the lease-up rate, frankly, to be slower. There’s not 100% overlap between all the carriers on an initial design, so you don’t have 100% of the lease-up opportunity. And, the ODAS systems tend to be much more expensive to put in and they’re, therefore, more expensive to the carrier from a rental perspective and it’s a harder decision for them.”
Taiclet said American Tower is seeing gross margins of up to 75% for indoor DAS systems, and return on invested capital “in the same ballpark as towers, 16%.”
Taiclet added that American Tower’s international indoor DAS portfolio is already yielding returns that are comparable to those of the company’s domestic indoor DAS portfolio. He said the international opportunity for indoor DAS may be even greater than the U.S. opportunity.
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