Crown Castle said it will only construct half of the small cells it had previously planned to build in 2021 and 2022. The company blamed the delay on a variety of factors, including the fact that the nation's biggest wireless network operators are shifting their attention toward midband 5G networks operating on macro cell towers.

"We think it's just timing," Crown Castle CEO Jay Brown said in explaining the delay. He said he continues to believe US wireless network operators will eventually need hundreds of thousands of small cells around the country – just not in the next few years.

"This delay has not impacted our view of long-term attractiveness of small cells," Brown said during Crown Castle's quarterly conference call Thursday. "We believe small cells will be an even more important tool going forward."

But in the near term, Crown Castle said it plans to construct just 5,000 small cells during 2021 and another 5,000 during 2022. That's half what it had previously planned to do.

Far below expectations

Brown said Crown Castle currently operates 50,000 small cells around the country. According to Altman Solon analysis, that figure represents half of all small cells in the US. Crown Castle has an additional 30,000 small cells that have been ordered by unnamed wireless network operators that it still needs to build. However, Brown said Crown Castle will delay the construction of those additional small cells due to several factors.

In its release, Crown Castle's official reasoning for the delay involves "a combination of a change in customer priorities – primarily as a result of their focus on utilizing towers in the first phase of their 5G deployments, zoning and permitting challenges, and the previously disclosed Sprint cancellation that included approximately 1,000 Sprint small cells initially scheduled for deployment during 2021."

T-Mobile – which purchased Sprint last year – said earlier this year that it no longer wanted the 5,700 small cells that Sprint ordered from Crown Castle. T-Mobile agreed to pay Crown Castle around $362 million to break that purchase order.

A number of financial analysts registered concern over Crown Castle's withdrawal from the small cell space.

"The slower small cells growth is modestly disappointing," wrote the financial analysts at New Street Research. "The pause in near-term growth probably won't drive that great a difference in the returns that Crown Castle will capture for small cells over a decade-long investment cycle; however, it does support our relative preference for owning [shares of] American Tower and SBA Communications."

The financial analysts at MoffettNathanson offered a more pessimistic view.

"The reality of small cell deployments simply isn't living up to the expectations laid out in years past, even relative to our more conservative outlook. Perhaps this is simply a timing issue, as the company claims, or perhaps it isn't," they wrote.

Crown Castle executives have said in the past that they expect the US market to eventually support up to 1 million small cells at some point in the future. Crown Castle isn't the only small cell vendor in the US that's making noise. ExteNet Systems recently appointed a new CEO and Canada's BAI Communications said it will acquire Mobilitie.

A shift to macro towers

While Crown Castle's small cell business flounders, its macro cell tower business is blowing up. "We are seeing the highest level of tower activity in our history as our customers are focusing on utilizing towers in the first phase of deploying their 5G networks nationwide," Brown said.

And a number of financial analysts cheered that news.

"We recommend owning the towers [stocks] on the view that organic growth is poised to accelerate over the next several years driven by T-Mobile bolstering its network following the Sprint merger, carriers deploying C-band spectrum, and Dish Network entering the market as the fourth national carrier," argued the financial analysts at New Street Research. "The sharp increase in services contribution that we saw at Crown Castle this quarter supports [that] view, as it should be a leading indicator of accelerating tower leasing activity over the next several years."

Overall, Crown Castle reported an 8% increase in its cell tower site rental revenues in the second quarter of 2021, compared with the second quarter of last year. And the company's income jumped 67% during that same period.

Partly as a result, Crown Castle raised its financial expectations for the full year 2021, adding $5 million to its expected site rental revenues and fully $30 million to its income expectations.

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