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Crown Castle said it won't build 7,000 small cells due to troubles in recouping its investment into the mini cell towers. The company is also still trying to sell its fiber business – potentially at a major loss.
Crown Castle has given up on building roughly 7,000 small cells. The company's management argued that the mini cell sites were too expensive to build and that the permitting process was taking too long, and as a result the company and its network operator partners opted to just give up and walk away.
Crown Castle did not provide details on its move, including which operators might have used the planned small cells or where they were located geographically.
To be clear, though, Crown Castle remains supportive of the small cell business in general. Company officials said Crown Castle remains on track to build another 40,000 small cells over the next few years, in addition to the 70,000 small cell nodes it currently operates. That makes Crown Castle one of the biggest small cell operators in the country.
"These [7,000 canceled] nodes were largely greenfield builds in locations that had countless zoning and permitting delays or in high-cost markets that did not meet our investment parameters and required higher-than-normal capital investment from our customers," explained Crown Castle CEO Steven Moskowitz during his company's quarterly conference call, according to Seeking Alpha. "By removing these low-yielding anchor nodes from our backlog, we expect to save about $800 million in future capital spend."
This isn't the first time Crown Castle has backtracked from its small cell ambitions. Earlier this year, the company cut between 3,000 and 5,000 small cell nodes out of its 2024 construction plans.
Some financial analysts cheered the move as an unfortunate but necessary cost-cutting measure for a company that has been working to reverse a downswing in its fortunes.
"We view this encouragingly as this should help reduce the capex intensity of the small cell business over the near to medium term," wrote the financial analysts at TD Cowen in a note to investors following the release of Crown Castle's quarterly results.
"This seems like an entirely appropriate action to have taken and illustrates management's seriousness about avoiding capital projects with substandard return profiles," agreed the financial analysts at MoffettNathanson in their own note to investors.
Questions on fiber
Crown Castle's small cells sit inside its fiber business, which the company put up for sale at the end of last year. According to a recent Reuters report, fiber network operator Zayo Group and buyout firm TPG are competing to acquire Crown Castle's fiber business. According to the report, a $10 billion deal would be split between Crown Castle's fiber business (for $5 billion) and small cell business (for $5 billion).
According to the MoffettNathanson analysts, that price tag would represent a massive loss for Crown Castle.
"According to Crown Castle's just-published Q3 2024 earnings supplement, the company's cumulative net investment in those assets is $17.3 billion, or $7-9 billion shy of the value cited by Reuters. And that's before applying any sort of return threshold to the investment," they wrote. "Ouch."
Possibly as a result, there are some indications that Crown Castle's management might hold onto one or both units instead of selling them.
"We think there's tremendous opportunity for us from the AI workloads that are coming," said Crown Castle CFO Daniel Schlanger during the company's earnings call. Indeed, a wide variety of fiber operators have hinted at a potential upswing in traffic due to AI.
Due to that anticipated rise in demand, Crown Castle is deciding "whether we believe we are the right owners of this [fiber] business or whether we think we come to the conclusion that we are moving on and somebody else is a better owner," Schlanger explained.
The MoffettNathanson analysts remarked: "Perhaps we're reading too closely between the lines, but it suggests that a 'keep the assets' outcome to the strategic review may have higher odds than commonly believed."
Bouncing off the bottom
Finally, Crown Castle officials also offered some oblique comments on the company's core cell tower business, arguing that demand remains steady. The US cell tower market in general has been languishing as operators including AT&T, T-Mobile and Verizon reduce spending on their networks.
But there have been indications the spending freeze may be thawing.
Moskowitz, Crown Castle's CEO, said that so far the company hasn't seen any major changes in demand for its towers. But he argued operator spending on 5G networks will continue in the coming years.
"We believe that since most of the carriers still have lots of work to do to complete their 5G overlay cycle with their C-band spectrum ... it only means more pressure being put on the networks, which gives us continued confidence about the ongoing need for carriers to invest on wireless infrastructure and types of assets that we have to offer," Moskowitz said.
"We're not necessarily expecting a big uptick ... but it seems like the broader backdrop may be improving, which would be a welcome development," wrote the MoffettNathanson analysts.
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