Ted Miller rings a warning bell for "tomorrow's towercos"

TowerXchange has tracked the innovations pushing the envelope of what towercos do for years, most recently in our Tomorrow's Towerco Report, but diversification's poster child Crown Castle has been in trouble in recent years. Its valuation has declined as analysts and investors have questioned the wisdom of allocating so much capex, opex and management bandwidth to fibre and small cell deployments.

The towerco has already seen an intervention from notorious bbut successful activist investors Elliott Management, and this week had to rebut an approach from Co-Founder Ted Miller.

Miller's letter outlined plans for reform at the American towerco which have been rebuffed by management. Four board nominations from Miller have been rejected, as has his suggestions to offload investments in fibre, and shift attention to digitally-enabled improvements in operational efficiency.

TowerXchange's Matthew Edwards will be speaking at the MWC's Tower & Fibre Forum on February 29 in Barcelona, come join the discussion.

After six months of discussions with shareholders, customers and employees Miller argues that Crown Castle lacks leadership, expertise, vision and urgency. In his letter he outlines an eight-point plan he would put in place as executive chairman of the towerco.

Throughout his letter, Miller criticises Crown Castle's management, and in one instance appears infuriated that he was told he was "too in the weeds" when presenting the plan in his board interview. "It was a poignant remark from a Board that only met four times a year in both 2021 and 2022, the latter of which was a period when the stock lost 35% of its value. American Tower directors met 18 times in that same period," he writes. "Yes, we're in the weeds. It's what shareholders expect and demand of their Board. Board members should be also."

Since leaving Crown Castle, Miller has done little else but get "in the weeds," backing companies dedicated to generating more accurate information and automating tower management. He co-founded Visual Intelligence, a drone inspection company and sits on the board of PowerX, an AI analytics company focused on improving tower efficiency.

Miller notes that he has "real skin in the game," in the form of $100 million of capital from himself and select investors to aid his proposed transformation. "This is a sum greater than the entire 12-person Board's company-granted holdings in Crown Castle, and it is a far greater amount than their personal purchases," he notes.

The plan presented by Miller includes selling Crown Castle’s fibre business. There have been and will be fortunes made in US fibre, but the valuation differential between macro towers and fibre in the US has dragged down the towerco's valuation and share price compared to US towerco rivals American Tower and SBA Communications.

Miller claims he and his three fellow nominees, Chuck Green, Tripp Rice and David Wheeler have spent US$5 million of their own money “dissecting every dimension of the fibre transaction,” which has been under review by Crown Castle themselves. In fact, Miller's team have led a due diligence process with 25 prospective buyers and financing sources to increase the speed and certainty of a transaction.

“We have analysed the status and financing capacity of each potential buyer, the optimal buyer structure, carve-out economics, and go-forward financials for Crown Castle,” Miller wrote, but noted that not one Board member ever asked to see the results of their work despite discussions taking place.

Miller proposes that Crown Castle maintain a minority stake in its fibre and small cell business, but has concluded that the assets “belong in the hands of operators who are most comfortable in that business.” In addition, if a fibre sale happens this year there are up to US$1 billion of tax benefits available.

In more incendiary comments, Miller also suggested that Crown Castle could go all the way to 2050 without earning back its own cost of capital, and claims that Crown Castle could be worth tens of billions more dollars if it had never gone down the fibre path and not sold its international towers.

Concerns that a fibre sale could be delayed by Elliott Management were raised by Miller and his team. The Crown Castle Board has enacted a settlement and cooperation agreement with Elliott that Miller claims presents real concerns. “The cooperation agreement enshrines Elliott as the de facto controller of the Company, with direct influence at the board level and across the committees that control Crown Castle's strategic future,” the letter says.

Miller's letter criticises the transparency of the agreement, and questions whether Elliott Management is sufficiently interested to act with the best interests of all stockholders, stakeholders and employees in mind.

Miller says that there are concerns that Elliott would be willing to finance a fibre carve-out pointing to the research they conducted.

He has suggested placing the cooperation agreement to a shareholder vote, stating that this would make clear that the Board will reflect the will of all stockholders, not just Elliott.

“Doing so is also the best way to forestall litigation, costly distraction, and potential delay of a fibre sale, all of which would prevent the Company from realizing significant value for its stockholders,” the letter says.

In its statement rejecting the nominations Miller made to the board, Crown Castle claims to made significant strides forward toward creating a stronger and more valuable Crown Castle, including initiating a comprehensive strategic and operating review of the fibre business.

In addition, it has formed a fibre review committee and announced the appointment of Paul, Weiss, Morgan Stanley, BofA Securities and leading industry consultants to advise on the fibre review process.

Another key part of Millers' proposal is to run the company much more efficiently.

“In 2013, Crown Castle owned 40,000 towers and employed 1,400. Today it still owns 40,000 towers and employs 2,200 people across that business line, even after a 750-person reduction,” the letter says.

Miller laments that despite the significant advancements in tower management technology, the company has become less efficient, with 18 towers per employee, more than both SBA Communications and American Tower.

“We target taking that number to 23 for each employee by 2026 which is in line with AMT's US tower operations. We believe additional gains can be achieved because Crown Castle operated in 2013 with 29 towers per employee.”

Since leaving Crown Castle, Miller founded Visual Intelligence, a drone inspection company and sits on the board of PowerX, an AI analytics company focused on improving tower efficiency.

“I founded this company and this industry and I have devoted the last two decades of my life to advancing the technology that serves this industry,” he says. “With interest rates having changed so drastically, this financial-engineering chapter of Crown Castle's life is over. It is time to get back to operational basics.”

In our own Tomorrow's Towerco Report TowerXchange highlighted nine diversification areas, ranging from "Smart towers, smart cities and data-as-a-service" to "Satellite backhaul and other non-terrestrial" and "Fibre." Miller's case rests on a contrary opinion, that tomorrow's towerco owns the same assets as today's towerco but with a radically more efficient operational team empowered by digital twins, AI and automation.

Crown Castle noted, along side its comments on its fibre business, that it has appointed three new independent directors, resulting in a total of seven of the twelve directors having been appointed to the Board since 2020.

It has appointed Tony Melone as interim CEO following the retirement of former CEO Jay Brown, and the formation of a CEO search committee, which has hired a leading executive search firm to help identify the next CEO of Crown Castle.

Crown Castle also said members of the board and management team have engaged in multiple discussions with Miller since late last year, including providing him and his director candidates the opportunity to make a presentation to the board.

"While we recognise Mr Miller’s contributions to the formation of Crown Castle more than twenty years ago, (the) nominees do not possess the relevant expertise and experience to successfully oversee Crown Castle’s strategy," it rebutted.

Crown Castle said it would present its formal recommendation regarding the election of directors to the Company’s Board in the definitive proxy statement, which will be filed with the SEC.

This will also be sent to all shareholders eligible to vote at the 2024 Annual Meeting of Stockholders, which has been scheduled for May 22, 2024.

TowerXchange's Matthew Edwards will be speaking at the MWC's Tower & Fibre Forum on February 29 in Barcelona, come join the discussion.