On April 23, Crown Castle hosted its Q1 2015 earning calls and analysts had a chance to listen and interact with Ben Moreland, CEO, Jay Brown, CFO and Son Nguyen, VP, Corporate Finance of the company. TowerXchange reports on key insights from the call.
During Q1, site rental revenue increased 3% YOY from US$747mn to US$768mn while organic site rental revenue recorded +5% YOY. This growth combined 3% from cash escalations and 6% from new leasing activities, as discussed by Jay Brown.
In terms of investments, Brown reported capex of US$205mn of which US$24mn were spent in over 500 land transactions. CCI has a target of over 2,000 completed land transactions by the end of 2015 and Brown stressed on this point that “Our proactive approach to achieving long-term control of the ground beneath our sites is core to our business and as we look to control our largest operating expense and produce stable and growing cash flow over time. Today, approximately one-third of our site rental gross margin is generated from towers on land we own and approximately 70% on land we own or lease for more than 20 years.”
The company’s CFO went on to comment on the small cells business which to date, represents 7% of CCI’s site rental revenue and site rental gross margin. According to Brown, small cells provide a similar model to towers in terms of their shareability while offering a viable solution where towers aren’t an option. CCI’s small cells business is currently generating margins around 60-70%. Margins can go as high as 80-90% thanks to the co-location of a second tenant on the initial fibre investment hence, Jay Brown continued, the small cell business is yet another factor enhancing CCI’s core competency “as the leading provider of U.S. wireless infrastructure, leveraging our existing relationships with the wireless carriers.” He concluded that thanks to the long-term contracts usually implemented for small cells - 10 to 15 years just like towers - CCI is confident that these are only the beginnings of the capillary expansion of the small cell industry in the United States.
When commenting on the status of the U.S. mobile market, CCI’s CEO Ben Moreland stated that the “relatively high ARPU is supported by the staggering amount of mobile data consumption by U.S. subscribers.” In fact, data demand keeps growing and, according to Moreland, Cisco’s latest report projected that the U.S. mobile data traffic will increase seven-fold between 2014 and 2019.
Moreland continued by stating that CCI’s strategy to keep focusing on expanding its U.S. footprint is driven by these growth projections and quoted the recent acquisition of 17,000 towers from AT&T and consistent investments in small cells as solid proofs of CCI’s commitment to its domestic market. In his conclusion, he noted how towers are still the key focus on the company due to their efficiency and cost-effectiveness. A strategy in line with other majors’ approach such as AMT and SBA.
During the Q&A session, Moreland addressed the issue of the cost structure and margin opportunity of CCI’s small cell business and stated that “[…] across our entire cumulative investment, we’re at 7% today, which is pretty staggering, given that US$1bn of that came at 4%, three years ago, as we remember with NextG. So obviously that incremental US$700mn had to do pretty well. And obviously we’ve grown NextG appropriately as we would have forecasted.”
He added that the main challenge in terms of small cells is actually in their deployment. In fact, to date, CCI has a backlog of projects in spite of having added people to that portion of the business, which is yet another proof that the demand is there.
In conclusion, Moreland mentioned the potential sale of CCI’s Australian business but reiterated that there are no announcements related to it. He added that there are a number of “very highly qualified folks” in conversation with CCI and, as TowerXchange reports on a separate piece of news, potential buyers could include Providence Equity Partners, Macquarie Infrastructure and Real Assets, Brookfield Infrastructure and Morrison & Co.
If CCI proceeds with the Australia sale, Moreland added “we would first approach it from a leverage neutral proposition […]. So in and around $500 million of proportional debt reduction is sort of required for that. But that would still leave a significant amount of proceeds available that then we would have for investment opportunity.”
TowerXchange will keep reporting on CCI’s moves both in the U.S. and internationally.
