Midband 5G reaches the halfway point in US, Crown Castle CEO says

Midband 5G radios have been installed on half of the roughly 40,000 cell towers that Crown Castle owns, company officials said Thursday during a quarterly conference call.

"To date, only about half of our sites across our top three customers [Verizon, AT&T and T-Mobile] have been upgraded with midband spectrum, providing a significant opportunity for additional revenue growth as additional sites are upgraded over time before their focus will likely shift to more infill with new co-locations," said Crown Castle CEO Jay Brown, according to a Seeking Alpha transcript.

He added: "As we have seen in our industry throughout its history, generational upgrades to the wireless network occur in phases with an initial push to provide nationwide coverage followed by periods of continued network augmentation and densification that has led to long periods of sustained growth. We believe we are in the initial phase of the 5G buildout with many phases to follow over the coming years."

Brown's comments are noteworthy considering Crown Castle's tower holdings are located exclusively in the US, unlike its main cell tower rivals SBA Communications and American Tower, which also have international operations. Moreover, financial analysts point out that Crown Castle's tower holdings are mostly located in urban and suburban areas rather than rural areas of the US.

"We are still in the early innings with 5G as the industry is only a couple of years into what we expect will be a decade-long growth opportunity," Brown added.

5G in the midband

Midband spectrum like the C-band, the 2.5GHz band or the 3.45GHz band is considered ideal for 5G because it can cover wide geographic areas while also supporting speedy connections. Indeed, network-monitoring companies like Ookla have shown dramatic rises in mobile network speeds thanks to the implementation of 5G over midband spectrum.

As a result, operators like AT&T, T-Mobile and Verizon raced throughout 2021 and 2022 to install midband radios atop the cell towers they lease from owners like Crown Castle. And they've made progress.

For example, T-Mobile covers around 260 million people with its midband 5G network and expects to increase that to 300 million by the end of 2023. Verizon, meanwhile, covers 200 million people with its midband 5G network and expects to cover 250 million by the end of 2024.

But those big network operators have indicated that they hope to slow their spending on midband 5G in the months and years to come. Officials from both AT&T and Verizon have said their capital expenses (capex) will decrease in 2024 after they finish their initial midband 5G buildout projects. Equipment vendors like Ericsson and Nokia have also reported commensurate slowdowns in the sale of their midband 5G radios as operators stock up on supplies to finish their initial buildouts.

So why is Crown Castle's CEO so upbeat? Part of the reason is that large numbers of Americans live in dense, downtown areas that can easily be covered by a few cell towers. Upgrading towers in those locations helps wireless network operators quickly cover large numbers of customers.

According to T-Mobile's network chief, Neville Ray, expanding a midband 5G network beyond such dense urban areas can become difficult and expensive. That's because operators need more towers to cover fewer people in suburban and rural areas.

"It's hard to do," Ray said in 2021. He explained that covering 300 million people with midband 5G would require covering five times the land mass it takes the operator to cover the first 200 million people.

A question of densification

During Crown Castle's earnings call, Brown said his company is also preparing to ramp up its small cell business. Unlike big macro cell towers that often stand 100 to 200 feet tall, small cells can be as small as a pizza box and often sit atop rooftops or light poles.

"With approximately 60,000 [small cell] nodes on air and another 60,000 contracted in our backlog, I believe 2023 will represent the first year in a sustained acceleration of growth for our small cell business," he said. Crown Castle previously reported that it would build 10,000 small cells during 2023, up from 5,000 in 2022.

Brown argued that, as operators finish their initial midband 5G network buildouts using macro cell towers, they'll then turn to less expensive "densification" efforts intended to plug coverage gaps and fortify network operations. That's what happened during 4G, he said.

Moreover, Brown said that kind of network densification should rely heavily on small cells.

"The nature of wireless networks requires that cell site densification will continue as the density of data demand grows and we expect 5G densification to require both towers and small cells at scale to fill in the network," he said.

"We believe small cell bookings may not accelerate until at least 2024, while questions will remain around economics (segment yields currently in the ~7% range) and capital intensity (net capex of nearly ~40% for fiber solutions in 2023)," wrote the financial analysts at Wells Fargo in a note to investors about Crown Castle's earnings.

Wireless trade group CTIA recently reported that there are nearly 419,000 cell sites – both big and small – across the US. However, the association in 2018 predicted there would be over 800,000 small cells in the US by 2026, a figure that today looks overly optimistic.

"In small cells, we continue to believe a ramp in activity is coming, and is a question of 'when' not 'if' as carriers will need to densify 5G networks," wrote the financial analysts at Raymond James in a note to investors regarding Crown Castle's earnings.

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