December 14, 2020
Small cells continue to be a big deal in the US. Indeed, some players in the market expect the US to eventually support up to 1 million small cells, which would be a dramatic increase from the roughly 400,000 cell sites (of all sizes) that are up and running today.
However, growth in the small cell sector continues to trickle out in fits and starts, and an explosion in deployments has never really materialized. At least, not yet.
"The Big Three carriers [Verizon, AT&T and T-Mobile] being focusing on other projects or deployment models has weighed on small cell bookings, and will likely continue to weigh on bookings," wrote the financial analysts at MoffettNathanson in a recent note to investors. "Bookings" refer to the number of orders for small cells that operators have placed.
T-Mobile – which is in the midst of a massive five-year, $60 billion network upgrade project – has taken a decidedly frosty approach to small cells. The operator plans to eventually deploy just 40,000 or 50,000.
AT&T appears to be easing off its own small cell buildout efforts.
And Verizon – regarded as the most aggressive small cell proponent in the US market – is widely expected to dominate the ongoing C-band spectrum auction, and as a result could potentially shift its focus away from small cells and toward macro cell towers as it begins constructing a 5G network in C-band spectrum as early as the end of 2021. That's because transmissions in C-band spectrum are expected to travel much farther than transmissions in the millimeter wave (mmWave) spectrum bands Verizon has been focused on to date for 5G.
Thus, it's no surprise that other analysts are offering a similarly tepid outlook on small cells in the near term.
"While we think the widespread deployment of small cells are a question of when, not if, we believe a major acceleration in nodes on air is more likely to happen later than 2021 or 2022," wrote the financial analysts at Raymond James in a recent note to investors.
The Crown Castle bellwether
Much of the focus on small cells in the US market centers on Crown Castle, one of the nation's three large, public cell tower companies and the only one that has invested heavily in small cells. The company recently said it expects to activate around 10,000 new small cells in 2021 – exactly the same number it expects to activate in 2020. (However, it's important to note that small cell activations are in part governed by the physical and logistical limitations in obtaining permits for small cells and technicians who can install them.)
During a recent investor event, Crown Castle CFO Daniel Schlanger addressed the question of small cell growth in the US market. "It's really hard for us to predict ... because our customers have so many different priorities with regard to their capital," he said, according to a Seeking Alpha transcript of his comments. "And it is a matter of how they prioritize what uses of capital are going to win out in any given period. And then whether ... that's going to be towers or small cells. And for us to try to pinpoint that has always been difficult."
Crown Castle also counts around 40,000 standard, macro cell towers.
"I think that business is going to be marked forever by a lumpy and chunky awarding of small cells," added Crown Castle CEO Jay Brown during the company's recent quarterly earnings call, according to a company transcript. "It's very different than the tower business in terms of the way the customers award small cells."
In their report, the analysts at MoffettNathanson fretted over the fact that Crown Castle hasn't yet recorded a significant jump in small cell bookings, "which puts the company's fastest growing business unit in a bit of an awkward position," they wrote.
"In particular, if Crown Castle doesn't nail down some sizable deals in the coming quarters, its [small cell] backlog by the end of 2021 would only support another year or year and a half of installations at the current ~10,000 annual rate before running dry," they added.
Dispelling doom and gloom
But in his comments, Crown Castle's Schlanger sought to add a bright side to the issue. "What I can say is that ... it is clear that we are going to have a tremendous amount more small cells in the future."
Schlanger is not alone in that outlook.
"We expect the North American small cell market to continue to advance, doubling in size between 2019 and 2024, reflecting not only the assumption that it will take some time to realize the full benefits with the C-band in the US market but also that operators increasingly view small cells as strategically important," wrote Stefan Pongratz, an analyst with market-research firm Dell'Oro Group, in response to questions from Light Reading.
Globally, Dell'Oro predicts operators and enterprises will make a cumulative investment of $25 billion into small cells over the next five years – a figure backed by expectations of far more growth in small cells than in standard, macro cell towers.
Pongratz also countered concerns that US operators will shift away from small cells following the close of the C-band auction.
"The gap between macro and small cells is typically much smaller with the C-band relative to sub-2GHz LTE deployments," he wrote, arguing that increasingly important 5G indoor network installations will continue to rely heavily on small cells.
ExteNet Systems operates around half the number of small cells that Crown Castle counts: 32,000 in total compared with Crown Castle's 70,000. However, without providing firm figures, the company said it expects double-digit, year-over-year growth in the number of small cells it expects to build in 2021 compared with 2020.
"We've been seeing demand that is really picking up on 5G," Tormod Larsen, ExteNet's CTO, told Light Reading.
Larsen argued that C-band spectrum deployments will still rely on small cell infrastructure. He added that small cells will still be important for any operator that is facing rising user traffic alongside dwindling spectrum resources. After all, a key benefit of small cells is that they can help divide up a coverage area traditionally served by a macro tower into smaller sections, thus supporting more users with the same amount of spectrum.
"This is a longer cycle than we've seen in the past," Larsen said of 5G, stressing that small cells and edge computing will change traditional network deployment models. "These networks are becoming a little bit more like networks in networks."
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