Towercos to deploy a million small cells and DAS by 2019

In urban environments, the majority of new telecom sites are added through the construction of microsites, or by leveraging existing street furniture, often to deploy small cells rather than macro cells. While some towercos retain a focus on the green field macro network (and there’s nothing wrong with that – margins are proven), an increasing proportion of towercos are diversifying into alternate site typologies and adding new product lines to enable future heterogeneous networks. TowerXchange forecast tower companies deploying their first million of small cells and DAS between by 2019, but which tower companies have been the first movers?

This article sets out to survey, and use anecdotal examples to illustrate, the adoption of small cells, DAS and other alternate site typologies in the heterogeneous network layer by tower companies worldwide.

We include a wide variety of solutions in our definition of small cells; just about any low powered (10-1,000W) radio access nodes, including those that operate in licensed spectrum and unlicensed, carrier-grade Wi-Fi bands. Small cells typically have a range from ten metres to two kilometers and include, in increase order of size (and in increasing order of interest to towercos), femtocells, picocells and microcells. Definitions are blurring with the virtualisation of small cells, which can start to resemble DAS – indeed we intend to include DAS and BTS hotels within the scope of this article – essentially we’re concerned with towercos’ interest in any underlying heterogeneous network components.

The use cases in this category are various: from the residential / SOHO (small office, home office) market, which itself may be too granular for towercos, to more attractive use cases in transport, hospitality, retail, academic and large scale urban public environments – which brings us into the territory of Smart Cities. An increasing proportion of the world’s towercos see themselves as enablers of Smart Cities, and are bidding on Smart City RFPs.

“After the mobile transformation wave and the data and video services transformation wave, the creation of the Smart City data pipeline will be the third biggest transformation wave for Communication Service Providers (CSPs) and in this transformational journey toward Smart Cities, towercos have even larger role to play supporting CSPs’ exponential network growth requirements by providing passive network infrastructure at the RIGHT place, in the RIGHT time and at the RIGHT cost,” said Meenu Sharma, GM Technology at Indus Towers.

“When you go into a dense urban area, it’s an opportunity for small cells or micro cells. The radius for a small cell is typically around 250 metres so when you look at the example of London you might need as many as 500,000 small cells,” said Nicholas Ott, Arqiva’s Managing Director, Telecoms. Towercos see small cells as a solution to provide vertical space in dense urban environments where there might be little or no land available: small cells take 70-80% less space than macro cells, and do not need to be mounted at as high an elevation.  “A vision could be that every lamppost in urban areas will have a small cell and be connected to fibre in five to seven years if this rolls out as we expect,” concluded Arqiva’s Ott.

Appetite

“Towercos are divided in their approach to small cells,” said Caroline Gabriel, Co-founder and Research Director of Rethink Technology Research in a recent TowerXchange article. “Some are deterred by the very different investment cycles, site valuations, and the dilemma of whether to venture into active equipment and provide neutral host cells, not just backhaul and sites. In the U.S., for instance, SBA remains unconvinced but Crown Castle is bullish, with CEO Jay Brown saying: ‘We are seeing the business model of small cells play out very similarly to that of towers.’”

69% of the world’s 4.1mn macro sites – ground based towers and rooftops – are now owned and operated by towercos. That 69% market penetration has been achieved from a starting start in just twenty years. How fast could the independent infrastructure ownership model penetrate into the heterogeneous layers of the network?

MNOs are increasingly comfortable planning and participating in shared networks, with infrastructure owned by independent third parties. “The goal of an MNO would be to have up and running in their service a layer of small cells. There is no specific preference to self-deploy or to buy from a towerco, “ said Nikolaos Antoniou, Principal Category Manager, Property Management Services at Vodafone Procurement Company in a recent TowerXchange interview. “An MNO will do what makes business sense in terms of both cost and speed to market. The initial tendency for MNOs to self-deploy in the past was there because towercos were not ready to provide this service… Business-wise, there is no strict rule as to why MNOs should pursue self-deployment. In my opinion, the business case for towercos to support MNOs in deploying small cells is extremely strong.”

“Finding the best locations for small cells is a time-consuming business and something that the MNOs may consider to not fall in their core activities – towercos are much better positioned to provide this service,” said David Bernal, Head of Business Development at Cellnex.

Continuing to learn from Europe’s most acquisitive towerco, Cellnex CEO Tobias Martinez told TowerXchange: “The implications of 5G will require a more dense network in urban areas. Traditional macro towers are here to stay but more cells, particularly small cells, will be needed to implement new technologies.”

“Small cells, which are an important network component in the 4G environment, will play a crucial role in the 5G framework in order to handle the very high frequencies that will be used and to deliver the low latency required in some use cases,” concurred Oscar Cicchetti, CEO of Cellnex’s competitor in Italy, INWIT. “All the network architects currently think that the amount of small cells required in a fully deployed 5G architecture will be ten times the number of the traditional macro cells. In the Italian market this translates into a demand of roughly 600,000 tenants.”

INWIT’s Cicchetti continued: “The growth of these small cells is just taking off now and creates a very concrete business opportunity for the towercos. Each MNO will deploy and use its own small cells but we do believe that a relevant portion will be shared among operators and managed by neutral hosts. In order to capture both needs, we offer a turnkey solution for exclusive LTE small cells and Distributed Antenna Systems to be shared between operators.”

“Frankly, the most economical path for multi-carrier support is a neutral-host model,” said Ross W. Manire, CEO of ExteNet Systems, in which towerco Digital Bridge recently invested a majority stake. “Proof in point are our distributed networks which are designed to support multiple carriers from the onset. Quicker time-to-market, carrier-class network service guarantee, 24/7 network monitoring via our NOC, ongoing network maintenance and single point of contact are just some of the benefits that we deliver to our carrier and property owner customers.”

Alan Law, Chairman of the Small Cell Forum suggested “(At www.scf.io) there’s a document which might be interesting to the TowerXchange community called ‘Market drivers for multi-operator small cells’. Within the report it takes a look what the market might look like, both with and without multi-operator neutral host small cells. It estimates that for the enterprise vertical the multi-operator market is 91% bigger than without and in public spaces it is double the market with multi-operator than without.”

Within the report Law recommended, there’s an interesting quote: “Looking for a neutral host solution, we believe this is the biggest challenge for small cells today,’ said Fakri Sadeh, director of engineering at American Tower. ‘That’s why DAS continues to be the dominant solution for in-building needs.’"

“When there is a multi operator solution available, small cells will overtake DAS,” another leading towerco told TowerXchange. “DAS allows multi-operator, multi band solution and is very efficient, but it would be more efficient if you could have this in small cells.”

There were around 75,000 neutral host nodes in the U.S. market when TowerXchange last studied the market in early 2016. Two thirds of those were owned by towercos. Even where projects were carrier-led, an increasing proportion of outdoor Distributed Antenna Systems (oDAS) and in-building solutions were neutral host.

The indoor Distributed Antenna System (iDAS) market is bigger than the outdoor market in the U.S., with some stakeholders reporting iDAS being leased up at three times the rate of outdoor DAS.

American Tower leads the iDAS market, while Crown Castle has relatively few iDAS but approximately two thirds of the outdoor market. Crown Castle has acquired over 26,500 miles of fibre in major metropolitan U.S. markets, with a further 1,900 miles to be added through the recently announced acquisition of Wilcon. Crown Castle has leveraged this fibre to deploy over 17,000 small cell nodes, a figure they anticipate doubling in the next two years. Small cell revenue is up 41% year on year and, in Q117, represented 15% of Crown Castle’s US$1bn total sales. Crown Castle is increasingly focusing their capex on small cells rather macro sites, as demand for macro sites is slowing in the U.S.

Meanwhile, ExteNet Systems, recently divested by SBA Communications and acquired by Digital Bridge and Stonepeak Investment Partners, has a mid-teens market share in the neutral host oDAS market and a low double digit share of the iDAS market.

When the company was founded in 2002, ExteNet Systems thought the addressable U.S. DAS market was around 20,000 to 30,000 nodes nationwide… “yet we now have more than 20,000 nodes,” CEO Ross W. Manire told TowerXchange. “Now we are talking about an addressable market approaching 500,000 node sites indoors and outdoors in the United States alone and we have the buy-in of the carriers who recognise their densification needs and know that the only way they can achieve their quality of service (QoS) goals is through distributed networks… We own and operate over 300 multi-carrier, also referred to as neutral-host, distributed networks throughout the United States today,” concluded Manire.

ExteNet Systems deployed 200 small cells in Manhattan for Sprint, which announced plans to deploy up to 70,000 outdoor small cells in 2015, followed up more recently with the launch of the Magic Box cell edge play. Sprint also uses Mobilitie as one if its primary vendors. Privately-owned and in equal parts secretive and innovative, Mobilitie has been one of the leading proponents of small cell deployment in the U.S. Mobilitie’s current small cell count is not in the public domain, and we’ve seen suggestions that they may have a contract for as many as 20,000 Sprint small cells, while Wireless Estimator claimed the total deployed could have been as low as 100-200 in September 2016. Mobilitie and Sprint hope to accelerate deployment by securing utility-equivalent rights of way in 50 States. In the meantime, we have learned that Mobilitie currently has over 75 in building solutions, including DAS, in sports arenas, concert venues and commercial office buildings. Another independent developer, InSite Wireless, also has an impressive portfolio of iDAS.

The margins of the neutral host DAS model compare favorably with the macro tower business model. While tenants pay significantly less than for a macro site (perhaps US$500pcm for a prime urban DAS compared to around US$1,800pcm for a tenancy on a macro tower), the lease cost of lamp posts or other street furniture on which to hang oDAS is an order of magnitude less than the cost of leasing a plot of land big enough to build a 40m tower. Lease up rates are also comparable: American Tower has achieved a tenancy ratio of 2.5 in stadiums, shopping malls, hotels, convention centers and casinos in the U.S.

Kagan Research estimate there will be over 450,000 small cells, three times the number of traditional ground based towers, in the U.S. by 2020. TowerXchange would anticipate more than half those small cells being deployed by towercos rather than MNOs.

The UK’s Wireless Infrastructure Group launched their first venue-DAS in early 2013, and now has 40 deployed DAS. “One thing I would say about entering this market is that DAS and small cell delivery requires very long lead times. When building new networks you have to first of all secure the relationship with the venue owner and then with the anchor MNO,” said Wireless Infrastructure Group CEO Scott Coates. “We launch all of our venue-DAS with a single anchor MNO which is part of the value proposition that our independent network infrastructure has brought to the market. We allocate capacity on the network to our anchor MNO and they only pay for what they use, which significantly lowers lifecycle costs compared to an MNO deploying their own network. We take the risk that other MNOs will use the network over time, which we are highly incentivised to pursue as we don’t make a return until we’ve got the network populated.”

Wireless Infrastructure Group are not alone in targeting DAS in Europe: Cellnex acquired a number of DAS when they bought CommsCon, and those DAS are believed to have a tenancy ratio in excess of three.

The towerco business model is essentially a means of aggregating demand for cellular points of service across shared, consolidating infrastructure. And the biggest towercos have historically been as comfortable buying as building such infrastructure. The same applies to small cells: large towercos will feature on the prospective acquirer list of every entrepreneur toiling to craft a distributed network operation or private network of any significant scale.

Once independent distributed network and private operators achieve a scale of 1,000 or so nodes, sale to a towerco becomes a potential exit strategy. In these transactions, valuations per small cell node are in the vicinity of one tenth of macro tower valuations – and like towers, portfolios of small cells and DAS will trade at valuations significantly above replacement value.

For example, Cellnex acquired much of their small cell footprint and capability by buying more than 1,000 nodes (DAS and small cells) for €18.6mn, through the acquisition of the aforementioned CommsCon.

Similarly Digital Bridge acquired a majority stake in ExteNet Systems, and is now leveraging their strategic and product knowledge to deploy small cells in North and South America.

As an investible asset, “fibre is very similar to a tower,” said Jay Brown, CEO of Crown Castle. “So the analogy when we look at small cell business: fibre is the tower, and in the tower business we would typically describe a RAD center, that’s a level on the tower where the tenant would install their equipment. In small cells, an installation of a small cell node is like a RAD center on the tower. So we are leveraging the assets, the fibre, and then adding small cell nodes across that fibre to drive the return. And to the extent that the fibre is acquired or it is previously built for another application, then we are adding additional tenants to that fibre and generating incremental returns. If we’re building it from scratch we are in the neighborhood of an initial investment of about 6% to 7%, which is about where we acquired Sunesys and FiberNet. And then we are adding to that additional tenants, which moves the return with one tenant into the low double-digits on a yield basis and then the 3rd and 4th tenant take the returns well beyond that.”

“In the US market you find that the DAS and small cells market is more of a fibre business as operators tend to deploy their own equipment at the end of the fibre,” said Scott Coates, CEO of Wireless Infrastructure Group. “This model typically results in single operator nodes whereas in the UK and Europe, operators are much more cost conscious and willing to share infrastructure and this creates opportunities for independent infrastructure providers such as ourselves to help facilitate this demand.”

Indonesia’s thriving towercos have also invested substantially in fibre. Protelindo acquired iForte and their 450 micro cell towers, seven Hotel BTS and 700km of fibre. STP has acquired BIT Teknologi Nusantara and PT Platinum Teknologi, contributing to their 534 microcell poles and 2,604km of fibre, and has secured a long term agreement with local authorities in Jakarta which will enable future small cell deployments. “We see small cells as the future of network deployment, hence our investment in fibre,” said one of the Indonesian towercos at a recent TowerXchange Meetup.

In Russia, particularly Moscow and Saint Petersburg, independent towercos are putting up microsites (“city poles”) at a phenomenal speed. Between them Russian Towers, Vertical, Service Telecom and a fourth towerco we’re not at liberty to name, are deploying around 200 new city poles per month. Nicolay Berdin, CEO of Service-telecom told TowerXchange: “As a company, our focus is mainly on small cells. We are putting in street poles 20-30m high which can share two to three small cell tenants.”

“We built around 800 sites in total in the last year. Almost 90% of them are City Poles, the rest are regular towers,” said Alexander Chub, President of Russian Towers. “Getting access to the standard city infrastructure is critical to success. We noticed this driver in advance and have become fully prepared to meet the 4G penetration rush, providing MNOs with a variety of options (light poles, electric grid poles, city transport et cetera) to serve their needs. The extended level of mutual trust we have engendered enabled Russian Towers to participate in the network planning process and save time at this stage too.”

Microsites are being built by towercos all over the world, from Brazil to Indonesia. While in India the number of towers are expected to grow from 450,000 to 600,000 by 2020, tens of thousands of of them will be micro cell sites. While the majority of microsites will be deployed by towercos, there is always an exception: Reliance Jio has elected to largely self-deploy their infill microsites for 4G, but don’t bet against Jio carving out a towerco at some point in the future when they feel their network has ceased to be a source of competitive advantage!

There are two ways to deploy urban infill sites, in the words of Meenu Sharma, GM Technology at Indus Towers: “either to utilise existing street furniture for deploying these sites or create new street furniture with integrated micro sites. Both the models drastically differ in terms of capex and opex modelling, with utilisation of existing street furniture definitely bringing in better cost economics than creating altogether new street furniture.”

Again we see towercos at the forefront of negotiations with City and State authorities to secure rights to use existing street furniture. In Aberdeen, Scotland, Wireless Infrastructure Group beat off competition from fixed line incumbent BT to secure the rights to the city’s lampposts. A new towerco in Myanmar recently secured an exclusive contract to deploy monopoles and use street furniture in Mandalay. In Jakarta, Indonesia, Balitower has rolled out around 2,000 new light towers and poles as part of a deal with the local government to install CCTV on its towers and poles in exchange for access to land.

“In Spain, we have an agreement with the City of Barcelona which gives us the rights to use the city’s public infrastructure to install small cells for MNOs and we are currently doing a project with an MNO to deploy small cells in different areas of the city,” said Cellnex’s David Bernal. “We are acting as a real estate provider. We have the rights to the city’s infrastructure – the different mobile operators then install their own small cells and pay a lease rate.”

Both Cellnex and Tillman Global Holdings, towerco and tower investment vehicle of the Sanjiv Ahuja – Founder of Eaton Towers and Chairman of Apollo Towers Myanmar – have partnered with advertising giant JCDecaux to leverage bus stops and billboards as prospective small cell sites.

Sachit Ahuja, VP Business Development at Tillman, told TowerXchange “We wanted to find the right partner with the most amount of real estate, so we approached the leading outdoor advertising company in the world – JCDecaux has over a million sites – and formed a joint venture to promote those real estate assets and structures to MNOs. JCDecaux’s huge footprint allows us to become the only global player with a scalable business model, and access to hundreds of cities. JCDecaux Link already has an MSA with Vodafone – and we have a great relationship, able to give them access to around 50 cities in Europe. We also have an MSA with Verizon, and have several sites already up in the USA.”

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While 45% of edotco’s portfolio is ground based towers, and 45% rooftops, the mainstays of most towerco businesses, 10% of edotco’s portfolio already consists of in-building solutions and other shared products such as BTS hotels.

Of particular note is edotco’s Cyberjaya project, in which the towerco has invested approximately RM5mn (US$1.2mn), which consists of twenty-two sites. Linked with a fibre network and common antennae and towers, the common infrastructure allows smooth and quick integration with the network, and enhanced capacity and coverage, with the BTS Hotel solution aggregating fixed and wireless traffic.

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Prospective inhibitors to small cell rollout: permitting and regulation

“The permitting process is definitely an inhibitor to scaling a distributed network business,” said Ross Manire, CEO of ExteNet Systems. “We have to engage municipalities one at a time. It’s by far the most difficult thing we have to do and for this purpose, we have a team of external relations people who engage with municipalities to educate and show the benefits of our solutions. We are a registered utility, which gives us access to public rights of way to attach our systems to utility or municipality infrastructure, but this doesn’t obviate the need to secure permits.”

David Bernal, Business Development Manager at Cellnex shared a similar view: “In order to deploy small cells there is a need for a high number of permits with the government and also the private sector which are not always easy to get.  We can call upon our experience in the macro site sector in this, with most towers being on third party owned land and sometimes in close proximity to public places we are well versed in dealing with such parties.”

“The ecosystem is complex, creating a need for strong for strategic integration of local municipal bodies, street furniture owners, and towercos,” said Indus Towers’ Meenu Sharma. “To get the permission to build these sites, towercos are largely dependent on municipalities, which typically have a longer gestation period to arrive at a decision on site allocations. However, the a moment decision is taken there are strong possibilities of getting bulk site allocations due to the larger land holdings of the public authorities.”

Wireless Infrastructure Group CEO Scott Coates concurred: “Part of a partnership that you need to form with a city or municipality (which is where a lot of the hard work goes in) is in assessing and setting up the processes for deployment. What assets do they have? What is the physical capability of their lampposts and traffic light systems and can they handle our infrastructure on top of them? Is everyone happy to sign off on that? How do you connect up power and transmission to these?”

In many countries, towercos are licensed only to manage passive infrastructure: “we can share only antennae and fibre, not the actual BTS,” said one towerco. Spectrum sharing is also permitted only in certain countries.

“Small cells are already shareable between multiple-operators,” said Kieron Osmotherly, CEO of TowerXchange. “Towercos must be licensed and permitted to deploy these solutions as they can accelerate the creation of a high quality network. We urge regulators to futureproof towerco licensing and infrastructure sharing policies, otherwise they will only find themselves having to redraft within one to two years!”

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“Rather than focus heavily on small cells we’ve recently acquired a company, Nettrotter, with an eye towards IoT,” said Carlo Ramella, COO of Italian towerco EI Towers. “Nettrotter is building a Sigfox-based wireless broadband network spanning 24 countries and covering more than a billion people. Almost 1,000 base stations are operational, essentially providing nationwide coverage in Italy, enabling EI Towers to monetise a broad range of off-the-shelf IoT solutions for companies in the utilities, infrastructure and consumer markets, including its water metering, smart lighting, asset management and pet tracking services.”

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Use cases

Towercos often diversify their product lines incrementally – they are more interested opportunities of scale, more interested in sites they can add value to by selling capacity to multiple operators. As we’ve shown, most towercos will already dabble in DAS: oDAS often feels a more natural fit with their traditional business model, but anecdotal evidence suggests towercos have more tenants on their iDAS. Most towercos will look at connectivity solutions in airports, shopping malls and other large buildings over 200,000 sq ft. But the challenge is getting them more comfortable with IBS for properties in the 50-200,000 sqft range. But don’t expect towercos to be significant stakeholders in residential and SME Enterprise small cells – towercos aren’t retailers and have no direct subscriber relationships.

So the use cases where towercos will diversify into HetNet solutions earliest are:

- Retail

- Transport

- Large hospitality and education campuses

- Public connectivity

When will we see the volume of small cells deployed by towercos reach critical mass?

“We feel the small cell business is at an inflection point where all operators are going to need to add thousands of small cells to their networks,” continued Tillman’s Ahuja. “The timing is now – in the next few years you’ll see a lot more small cells rolled out, particularly in urban areas. We may have been a bit early when we launched JCDecaux Link in 2014, but if you launched today you’d already be late to market. We were ahead of operator needs, but we were right on in terms of the business model: rolling out hundreds of thousands of small cells is going to need access to a lot of real estate.”

“Small cells and backhaul, that will be the main source of the growth in a medium/long term perspective,” said Oscar Cicchetti, CEO of INWIT. “(In June 2016) we decided to… accelerate the small cells plan (from 1,000 to 4,000 remote units) and to enter into the backhauling market, which will be an additional revenue stream for us.” INWIT is investing small cell technology and services, also with a view to gaining a first-mover advantage in the nascent IoT market. As of September 2016, INWIT claimed to be hosting around 200 IoT tenants on its network and is looking to be in a position to host 4,000 remote small cells by the end of 2018. Small cells represent 25% of its current order book for investment projects.

Tobias Martinez, CEO of Cellnex, INWIT’s principle competitor in Italy, added: “We don’t expect a dramatic change in our P&L in 2017 based upon these new generation networks and infrastructures, but we do expect it to be more visible from 2018 onwards.”

Asked about the current state of small cells within edotco’s portfolio, their representative told participants at a recent TowerXchange working group “expect small cells and DAS in our catalogue in Malaysia from late 2017. Demand is building in other markets, such as Sri Lanka, but there have been no deployments yet.”

To date edotco has utilised various pieces of ‘street furniture’ to deploy sites, connecting billboards and phone booths with fibre, but has yet to deploy anything strictly defined as a small cell. “Small cells will come later when customers demand 200-250MB per second, driving further cell site densification.”

Indus Towers’ Meenu Sharma shared her view of the timeline for rollout in India in a TowerXchange interview. “With government’s upcoming drive for Smart Cities and the advent of 4G, the requirement of micro cell sites will surge drastically in next three years to come. It’s estimated that there would be essential need to create around 10-15,000 micro street sites by 2018 and 30,000 by 2020 in order to support expected exponential growth in data traffic.”

Towercos, like MNOs, will deploy small cells in greater volumes when the economics make more sense. While today the cost of a deployed small cell could be one third that of a macro cell, the target is to reduce TCO by 90%: “Network densification will require a tenfold increase or more in the number of sites. Taking into account that operators can afford to spend as much or even less money on a communication network, a site’s TCO must decrease ten times,” said Russian Towers President Alexander Chub.

Alan Law, Chair of the Small Cell Forum, told TowerXchange last year: “There have been 13.3mn small cells shipped to date making it a substantive market in terms of where it stands. In the sense of understanding how the market has developed to get to that, during course of 2015, enterprise shipments doubled, urban shipments grew 280%, rural and remote grew 70% and residential (the most established market) grew 20% – there was significant growth in each sector which is encouraging.”

“Another important milestone during the course of the year was that we crossed US$1bn of small cell equipment revenue, that was just for equipment and so doesn’t include any of the extra market opportunity around installation and site acquisition,” continued Law. “But in the sense of where the numbers are going in the shorter term we’re looking at 270% growth for enterprise during the course 2016, another 150% growth in the urban sector and if we cast eye further ahead we’re anticipating that small cell equipment revenue will be around US$6.7bn by 2020 – growing from the billion of last year.”

“Our Crossing the Chasm report contains research from Rethink Research who estimate that by 2020 only 20% of small cells will be fully deployed and managed by MNOs; what that means is that for 80% of these future small cells there will be some other party involved in the deployment and management of those assets. There’s a good chance that towercos that are building this infrastructure can have a role in that. A significant new potential opportunity is up for grabs and it’s a massive growth area.”

“The models are very comparable in terms of their final goals,” said ExteNet’s Ross Manire. “We will build a network for one carrier to begin with, whereas a towerco will build a tower with an anchor tenant. And like towercos we’re betting on our ability to secure a second, third and fourth carrier. Neither us nor towercos need to replicate the capital expenditure to build the infrastructure so yes, I’d say that the economics are both highly compelling. In fact, once the fibre and infrastructure are in place and we start leasing up to additional carriers, we’ll be operating with healthy gross margins north of 75%. We’ll have more SG&A than a towerco but the returns are still very good. “

In his Q416 analyst call, Jay Brown, CEO of Crown Castle said: “today we are building small cell systems with initial yields of 6% to 7% that increased to low double digits with the second tenant and higher yields with the third and fourth tenants. Given the growth in small cells, as our carrier customers densified in network and deployed spectrum closer to their customers, the lease up of our fiber assets is occurring faster than we experienced on our towers at a similar stage of maturity. With faster lease up and higher initial yields in towers, we have good reason to be optimistic about the future of our small cell investments.”

I’d like to conclude with two simple messages. To towercos: engage with small cells or other elements of the heterogeneous network, or don’t, but don’t dabble. I personally don’t have a problem with towercos that prefer to focus on the proven business model of macro towers, but some towercos are generating almost as much growth from small cells as they are from towers, so if you’re going to try to compete with those guys, tool up and do it properly.

My second message goes out to the small cell industry: you’re missing a trick if you think MNOs are your sole target customer. The tower industry doesn’t want hundreds of small cells, they don’t want thousands, not even tens of thousands – TowerXchange estimate towercos will have deployed in excess of 250,000 small cells by this time next year, and one million by 2019.

2017 is the time to lay the groundwork in terms of partnerships between small cell developers and towercos, because the order book will swell from 2018.