Crown Castle's fiber and small cell business under fire – again

Elliott Investment Management, an activist investor firm, is taking aim at Crown Castle again, arguing the company needs to overhaul its management and potentially put its fiber business up for sale.

Importantly, Elliott said it now owns roughly $2 billion in Crown Castle stock. That's double what the company owned in 2020 when it embarked on a similar campaign against Crown Castle. Although Elliott managed to enact some changes at Crown Castle during its first campaign roughly three years ago, Crown Castle's CEO Jay Brown is still at the company's helm, and his small cell and fiber strategy remains mostly intact.

"Crown Castle suffers from a profound lack of oversight by the board, which has contributed to its irresponsible stewardship and flawed financial policy," Elliott wrote in a letter Monday announcing its new campaign against Crown Castle. "The company's strategy, led by CEO Jay Brown since 2016, has been a failure, as demonstrated by the breathtaking magnitude of its underperformance. ... During the tenure of the current executive team, Crown Castle has underperformed its direct peers by an average of 85% in total return, which translates into nearly $26 billion of unfulfilled shareholder value."

Crown Castle responded Monday: "We look forward to reviewing Elliott’s materials and are open to commencing a constructive engagement with Elliott. The company’s board of directors remains confident in Crown Castle’s executive leadership as the company continues to act in the best interests of all shareholders." According to The Wall Street Journal, Elliott recently pursued similar campaigns against companies including Salesforce, NRG Energy and Goodyear Tire & Rubber.

A game of M&A

Crown Castle is one of the three big cell tower owners in the US, along with SBA Communications and American Tower. But while SBA and American Tower have pursued other lines of business – including data center acquisitions and international expansions – Crown Castle has focused on building fiber and small cell operations in the US market.

The financial analysts at Wells Fargo noted that Crown Castle's shareholder returns are 72% below those of American Tower, and 98% below those of SBA.

"We agree with Elliott's assertions that the Crown Castle strategy is in need of a refresh," the analysts wrote in a note to investors Monday. "A JV [joint venture] partner or potential sale of parts of its fiber business would free up capital accretively to where the market currently implies its value. We don't believe a high-dividend REIT [real estate investment trust] is the optimal structure for investing in long-duration fiber / small cell infrastructure, particularly with a wave of densification demand potentially coming in the next few years."

For its part, Crown Castle executives have argued that the company's small cell business is starting to accelerate after years of sluggish performance. And they contend the company's fiber holdings help underpin its small cell efforts.

Regardless, there appears to be plenty of demand for the kind of M&A that Elliott is pursuing with Crown Castle. Indeed, both UScellular and Shentel are in the process of attempting to sell their own cell tower assets. Internationally, Cellnex is mulling the sale of its tower assets in Austria and Ireland, while PCCW in Hong Kong is reportedly in talks over the possible sale of a stake worth around $1 billion in its fiber network business.

And some such transactions are closing. Just this week, digital infrastructure company DigitalBridge announced a new $1.1 billion fund "to support the growth of companies across the digital infrastructure sector." Meanwhile, private equity company Siris said it would purchase wireless network installation company BearCom from Bertram Capital.