Crown Castle, a prominent telecom tower company, announced a 10 percent increase in site rental revenues, reaching $1,728 million during the second quarter ended June 30, 2023. The company’s net income for the same quarter also showed a positive trend, amounting to $455 million, compared to $421 million in the second quarter of 2022.
Despite the impressive Q2 results, Crown Castle foresees a decline in tower activity for the rest of the year, which is anticipated to lead to lower contribution from services and consequently impact the full-year 2023 outlook. Jay Brown, Crown Castle’s Chief Executive Officer, acknowledged the carrier’s reduced network spending as the primary reason behind the expected decrease in tower activity.
Nevertheless, Crown Castle remains optimistic about its prospects and maintains its 2023 target for site rental revenues between $6.488 billion and $6.533 billion. The company’s Chief Financial Officer, Dan Schlanger, in its earnings report emphasized that outlook for site rental revenues remains unchanged, despite the projected slower tower activity in the latter half of the year.
One area where Crown Castle sees substantial potential for growth is its small cell business. The company anticipates double-digit annual revenue growth in this segment over the next few years, largely driven by the execution of an existing small cell backlog, which currently stands at an impressive 60,000 nodes.
Crown Castle provided a breakdown of its expected growth in site rental revenues from 2022 to 2023. The projected growth, amounting to $215 million to $260 million, includes various components. The Organic Contributions to Site Rental Revenues are expected to contribute $340 million to $380 million (7 percent growth), which remains unchanged from the previous outlook.
The projected consolidated growth of 4 percent, adjusted for the expected impact from Sprint Cancellations, includes 5 percent from towers, 8 percent from small cells, and flat fiber solutions revenue. The company highlighted that the 2023 outlook for core leasing activity has decreased by $10 million from the previous projection, mainly due to the expected decline in tower activity during the latter part of 2023.
Despite this reduction in core leasing activity, Crown Castle expects non-renewals and cancellations to decrease by $10 million as well, offsetting the impact. The total core leasing activity is expected to contribute $275 million to $305 million, with towers accounting for $125 million to $135 million (compared to the previous outlook of $135 million to $145 million).
As the U.S. wireless carriers invested more than $100 billion to acquire spectrum from 2020 to 2022, Crown Castle witnessed an acceleration in small cell deployment toward the end of the 4G era. This trend was driven by the need to support the rising mobile traffic, as towers alone could not meet the demand. Now, with the initial surge in 5G tower activity subsiding, the focus has shifted to identifying and selecting new small cell locations to densify networks in high-traffic areas.
However, this shift in activity has resulted in a decline of more than 50 percent in tower activity, leading to a $90 million reduction in the outlook for services gross margin, as noted by Crown Castle.
Despite the challenges posed by the changing market dynamics, Crown Castle remains committed to capitalizing on growth opportunities in the small cell business and other segments, ensuring its position as a key player in the evolving telecommunications landscape.
