Crown Castle is widely regarded as the market leader in the construction of small cells in the US. And on Wednesday the company announced its biggest-ever small cell deal.

Not only that, the deal was with Verizon, the biggest wireless network operator in the US.

Perhaps not surprisingly, Crown Castle executives used the development to pat themselves on the back a bit: "The Verizon agreement is real affirmation in our small cell strategy. They believe there is real value in a third party providing infrastructure to them and I think we're in a great position to do that," said Crown Castle CEO Jay Brown, speaking on the company's fourth-quarter earnings call Thursday, according to FierceWireless.

Brown certainly has reason to feel validated. Crown Castle is the only major, publicly traded cell tower operator in the US to overtly chase the small cell market. The company's two main rivals, American Tower and SBA Communications, have argued that small cells aren't profitable enough for them to invest in.

Further, activist hedge-fund Elliot Management attacked Crown Castle last year in part over its small cell strategy, which stems from the billions of dollars it has invested in the purchase of fiber networks across the US.

No wonder Brown sounded effervescent Thursday: "It's the beginning of what we think is a big start towards 5G and I think we'll see more of this as time passes as we work to build out these 5G networks," he said.

Financial analysts were generally positive on the news too.

"They were due for a big contract, and this one breathes life into their small cell strategy," wrote the financial analysts at New Street Research. Small cells, after all, are designed to sit atop light poles, rooftops and other so-called "street furniture" to cover select geographic areas, a strategy that can add extra capacity to a wireless network.

C-band calculations

Under the terms of the companies' new agreement, Verizon will deploy 15,000 Crown Castle small cells over the next four years in locations that have yet to be specified. Overall, Verizon said it currently operates around 14,000 small cell sites – mainly ones it has built itself – and expects to grow that number to around 30,000 by the end of 2021. Verizon mainly uses small cells to broadcast 5G signals in its highband, millimeter wave (mmWave) spectrum.

Now here's where things get interesting: Both Verizon and AT&T are expected to spend billions of dollars on midband C-band spectrum licenses this year. And Verizon's CTO Kyle Malady recently said the company plans to use both small cells and standard macro cell towers to build a network in midband spectrum like the C-band.

Meanwhile, both Verizon and AT&T have said they expect to lower their network capital expenses in 2021 compared with 2020.

This potentially paves the way for both AT&T and Verizon to expand their use of small cells by third parties like Crown Castle in the coming years to reduce their own expenses and to build out their new spectrum holdings. Whether the bulk of that spending happens in 2021, 2022 or 2023 remains to be seen, but it's likely that Verizon and AT&T will want to lean into small cells as they chase the 5G market.

"We believe Verizon will prove to be the top bidder in the on-going C-band spectrum auction, and outsourcing small cell work to Crown Castle (and maybe others) can help balance spectrum costs and capital expenditures at macro towers against dividend payments and leverage levels," argued the financial analysts at Raymond James in a note to investors Wednesday.

T-Mobile's small cell softening

An open question,though, is whether T-Mobile will join the small cell action anytime soon. Already, the company has taken several major steps away from the gadgets.

For example, T-Mobile's top networking executive said last year that the operator's interest in adding small cells to its network has "certainly softened" following the close of its merger with Sprint. Overall, T-Mobile's Neville Ray said he eventually expects to raise the number of T-Mobile's small cells from around 26,000 to a total of around 40,000 to 50,000.

Further, on the same day that Crown Castle announced its deal with Verizon, it also announced that T-Mobile canceled an order for small cells that Sprint made prior to T-Mobile's acquisition of the company. T-Mobile said it will no longer use the 5,700 small cells (which mostly had not yet been built), and would pay Crown Castle around $362 million to break the contract.

This makes some sense, considering T-Mobile's network buildout strategy is much different from Sprint's. Nonetheless, T-Mobile's apparent aversion to small cells could create a drag on Crown Castle's overall small cell ambitions.

Regardless, most financial analysts appeared to side with Crown Castle on the topic. "The new Verizon deal ... helps affirm its fiber/small cell strategy, which in our view remains highly debated amongst investors," wrote the financial analysts at Cowen in a note to investors Wednesday.

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