Activist hedge-fund Elliot Management – the same company that pressured AT&T to make changes last year – has set its sights on cell tower and fiber operator Crown Castle.

Elliott Management argues that Crown Castle invested too heavily in fiber at the expense of macro cell towers, and that it's not making enough of a return on its fiber investment. The argument hits at the heart of Crown Castle's small cell strategy, which stems from the billions of dollars it has invested in the purchase of fiber networks across the US.

"We believe that the company's expansion away from its core and into fiber infrastructure has detracted from shareholder returns and will continue to detract from shareholder returns unless significant changes are made," the investors at Elliott wrote in a public letter to Crown Castle Monday, noting that the activist firm owns roughly $1 billion in Crown shares. "Fiber infrastructure businesses can be attractive investments, but it is our considered view that Crown Castle's fiber strategy has not been successful and that the return on these investments has significantly underperformed."

For its part, Crown Castle has purchased a number of major fiber providers around the US, including most notably Lightower for $7.1 billion in 2017. The company has said that one of the primary goals of its fiber strategy is to own the backhaul networks for small cells, which are essentially mini cell towers that sit atop light poles, rooftops and other structures.

Trade group CTIA has predicted US operators could eventually deploy hundreds of thousands of small cells for 5G networks, but such efforts have been hampered by operator apathy and local permitting challenges.

As a result, the Elliott investors argued for several changes at Crown, including a "refocus" on fiber to raise its rate of return to 40%, as well as overhauling Crown's "extraordinarily long-tenured board." The demands could force Crown Castle to exit the small cell business.

In a response Monday, Crown argued that it has generated significant returns for its investors. But the company left the door open to continued negotiations with the investors at Elliott: "While we firmly believe our strategy best positions Crown Castle to deliver near- and long-term value creation, we remain open to having continuing dialogue with Elliott, as we do with all shareholders."

Some Wall Street analysts argued against Elliott's plans for Crown Castle.

"We believe Elliot's proposal could support a higher stock price for Crown Castle in the near-term, but it would come at the expense of long-term growth," wrote the analysts at New Street Research in a note to investors Monday. "There may be room for Crown Castle to shift strategy to improve fiber segment returns, but given the outlook for small cells growth and the sunk costs of the fiber Crown has already acquired, we don't believe Crown should abandon their small cells business."

And the Wall Street analysts at Wells Fargo acknowledged Elliott's suggestions but argued, "we continue to see the value of Crown Castle's fiber strategy."

"We believe Crown Castle is well equipped to leverage both macro [towers] and small cells as important tools in the 5G ecosystem toolbox," they added in a note to investors Monday.

Elliott's attack on Crown Castle – complete with a "reclaiming the crown" website – comes just months after the firm agitated for major change at AT&T after acquiring a 1% stake in the operator. In response, AT&T late last year laid out a three-year financial and strategic plan that included an agreement to sell some non-core assets and to add two new board members.

— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano