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Leading US Telecom Tower company Crown Castle has entered into an agreement to acquire Wilcon, a fiber infrastructure services provider for $600M. The acquisition provides Crown Castle with fiber assets to help it deliver fiber-fed Small Cell Infrastructure. (Link)
Crown Castle is one of the ‘Big 3’ in the US Telecom Tower industry. Others include American Telecom Corporation (ATC), and SBA Communications Corporation, and they jointly own 80% of the country’s mobile towers. Over the past five years, these companies have seen an opportunity to expand in the Small Cell Infrastructure market to help Telecom Operators serve denser areas. This market is also served by National fiber providers such as Zayo and Lumos, and Telecom Operators directly. Highlights:
Small Cell Infrastructure is a high growth market
- Small Cell Infrastructure market is expected to expand at 28.8% CAGR to reach $2.08B by 2019 (note by MarketsandMarkets)
- Globally, 90% mobile operators have already started deploying Small Cells while remaining are expected to deploy by 2017 end (note by IHS Markit)
- Market growth is driven by Small Cell Infrastructure’s capability to better handle increasing wireless data demand in denser markets (note by Gregory Miller, Analyst at Canaccord Genuity)
Small Cell will be a major revenue driver for Crown Castle in the long run
- Crown Castle’s management expects Small Cell business to generate $3B in revenues (~50% of total) in the long term (quote by Jay Brown, CEO of Crown Castle)
- Small Cell currently contributes $400M (~10% of total revenues)
Crown Castle has invested more than $3B in this market since 2015
- Acquired FiberNet, fiber service provider, with 11,500 route miles of fiber in Florida and Texas, for $1.5B, in 2016
- Acquired Sunesys, fiber service provider, with 10,000 route miles of fiber in major US metropolitan markets, for $1B, in 2015
Crown Castle is paying a premium for Wilcon’s complementary fiber assets in Los Angeles and San Diego
- Valued at $315K per route mile of fiber, compared to $100K for Sunesys and $130K for FiberNet
- High quality set of assets with a low utilization rate in high density areas of South California (note by Company Management)
- Adding 1,900 route miles of fiber assets in Los Angeles and San Diego. Crown Castle will own rights to more than 28,000 route miles in the area after this acquisition.
Other two major players in the US Telecom Tower industry are staying away from this market
- ATC views Small Cell Infrastructure as a complementary business to be used in special cases (note by Vertix Consulting)
- SBA Communications has strategically moved away from the business by selling its stake in ExteNet Systems in 2015
- Small Cell Infrastructure business has lower margins than the Towers business due to operational complexities (note by New Street Research)