September 24, 2014 — The benefits of small cells are clear: higher data capacity and speeds and better call quality, but why haven’t they deployed at a greater rate? That was tantalizing question that Jennifer Fritzsche tossed out to the audience during her track chair address at the Tower and Small Cell Summit Sept. 9 in Las Vegas.
“The questions investors have about small cells surround economics,” said Fritzsche, managing director of Equity Research, Wells Fargo Securities. “Challenges remain in the feeder industries; in particular, infrastructure companies, building owners, and backhaul providers still face challenges. There are a lot of cooks in the kitchen.”
Along with getting power to the small cell node, one of the biggest challenges is connecting with the fiber backbone, which will require the major fiber companies to get involved.
“Daniel Caruso, president of the fiber company Zayo Group, says that small cells are the third chapter to play out for fiber companies. We are seeing this huge convergence, and fiber companies have to be a part of the conversation,” Fritzsche said.
Gray Beards Consulting Principal Jake MacLeod, who gave the track chair address at the Tower and Small Cell Summit the previous day, emphasized the importance of fiber to current DAS and small cell build outs, as well as future networks. In particular, he pointed out that AT&T’s Project Velocity over IP is spending $14 billion for fiber to the business, fiber to the home and fiber to the node.
“Again, fiber, fiber, fiber,” MacLeod said. “In preparation for 5G, which is all IP, you have to have fiber to the cell site. You cannot have 5G without fiber to the cell site because in 5G, you segment the RAN, the Radio Access Network, the cell sites. You segment them completely, and they are used as an independent radio resource.”
Tower Companies Mixed on DAS/Small Cell Play
Major tower company involvement in DAS has been uneven, as of yet. Possibly some will increase their involvement, purchasing portfolios as smaller companies develop them. Crown Castle has been the most bullish of the three public tower companies concerning the small cell opportunity, according to Fritzsche. At the end of the second quarter, it owned 13,000 small cell nodes, driven by the acquisition of NextG in 2012.
“Plus, it has 3,500 contracts to build, so the pipeline to build is really quite strong,” Fritzsche said. “That said, DAS represents only 6 percent of their leasing revenue.”
Although American Tower is enthused about small cells, it does not expect small cells to amount to more than 5 percent of its consolidated revenue, she said. “American has mostly grown small cells organically, buying only 378 DAS systems to date. SBA Communications owns a significant minority stake of ExteNet, which has not been made public. While SBA prefers the macrocell opportunity, Jeffrey Stoops has signaled a greater interest in DAS.”