Crown Castle - Goldman Sachs 2024 Communacopia & Technology Conference 2024
Executive Summary
Crown Castle's CFO, Dan Schlinger, discussed the company's strategic review of its fiber and small cell business. The review aims to determine if these assets should be kept together or separated, focusing on maximizing returns. The company has reduced capital intensity by focusing on near-net opportunities and reducing its workforce. Schlinger highlighted the tower business's steady growth, expected to be mid-single digits through 2027, despite the impact of the T-Mobile Sprint merger. He emphasized the importance of spectrum and densification, noting that limited spectrum will drive more small cell deployments. The company remains open to expanding its US tower footprint but is cautious due to current market valuations.
Overview
Determine the optimal ownership structure for Crown Castle's fiber, small cell, and tower businesses.
Provide an update on the strategic review once a decision has been made.
Evaluate the growth prospects and return potential of the tower business going forward.
Assess the feasibility of separating the operational aspects of the fiber and small cell businesses.
Explore opportunities to expand Crown Castle's tower footprint in the U.S., if the returns justify the acquisition prices.
Crown Castle's Strategic Review and Business Model
The meeting commenced with a welcome to Crown Castle and its CFO, Dan Schlinger. Schlinger discussed a strategic review of Crown Castle's fiber and small cell business, emphasizing the importance of network and digital infrastructure in the U.S. He explained the rationale for the company's investments in small cells and fiber solutions, highlighting the need for densification in densely populated markets. The review aims to assess whether it is more beneficial for Crown Castle to own all assets together or separately, with a focus on maximizing returns.
Operating Review and Cost Optimization
Schlinger provided details on the operating review of the small cell and fiber business, highlighting changes to underwriting requirements and capital intensity. Crown Castle initially aimed to build fiber optic cabling in the top 30 markets for small cells but has now shifted its focus to on-net or near-net opportunities to lower capital expenditure. To align with the new capital plan, the company reduced its workforce while maintaining guidance and enhancing returns. The operating review led to a strategy targeting 3% revenue growth for fiber solutions and over 10% growth for small cells, all while reducing capital spending.
Balancing Short-Term and Long-Term Value
A discussion was held regarding the factors influencing the decision to retain or sell certain business segments, with an emphasis on maximizing present value and preserving growth options. Schlinger acknowledged the challenge of balancing short-term results with long-term value creation, emphasizing the board's commitment to generating optimal shareholder value. The board takes investor opinions and market sentiment into account, recognizing the difficulties in predicting long-term cash flows and growth prospects. Schlinger also stressed the importance of maintaining flexibility and keeping all options open until a clear decision is reached.
Tower Business and Growth Prospects
The potential impact of selling the entire business and the growth rate of the remaining segments was discussed. Schlinger expressed a strong appreciation for the tower business, highlighting its stability and growth potential amid generational network upgrades. The tower business is anticipated to grow at a mid-single-digit rate through 2027, driven by increasing data demand and competitive pressure on network quality. Schlinger emphasized the operational leverage and low incremental costs associated with the tower business, positioning it as a resilient growth engine.
Challenges and Opportunities in the US Tower Market
The strategy for expanding Crown Castle's U.S. tower footprint and the impact of public versus private valuations was discussed. Schlinger noted that the company has refrained from pursuing U.S. tower acquisitions due to high prices and challenges in justifying returns. However, Crown Castle remains open to opportunities where it can create specific value and achieve better returns. The company prefers to focus on maximizing activity through its existing towers rather than expanding its footprint through new acquisitions.
Impact of T-Mobile Sprint Merger
The impact of the T-Mobile Sprint merger on Crown Castle's business and future growth prospects was discussed. Schlinger addressed the churn associated with the merger, including the adjustments in the small cell business and a negotiated settlement with T-Mobile. Crown Castle anticipates a revenue loss of $200 million at the start of 2025 due to the merger, with long-term churn projected at 1-2% of revenue annually. Despite this, the tower business is expected to grow at a mid-single-digit rate, driven by built-in escalators and increased activity.
Spectrum and Network Densification
The impact of limited spectrum auctions on network investment and densification plans was addressed. Schlinger explained that constrained spectrum availability encourages greater densification, as customers utilize existing sites and add more equipment. This lack of new spectrum pushes customers to enhance their networks by increasing the number of sites and small cells, which is advantageous for Crown Castle. The company expects low double-digit growth in its small cell business, offering differentiated growth opportunities in the U.S. market.
Conclusion and Future Outlook
Schlinger reiterates the importance of the tower business and the strategic review process, emphasizing the company's strong position and growth prospects.
You can listen to the full presentation on Crown Castles Website Here>
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