Q2 2019 Earnings Call
Matthew Davis.
Could you split your last thing for me.
It'd be.
Yes.
Thank you and your company please.
Era a E R.
Thank you I'm, placing in the call in a listen only mode.
Thank you.
You're welcome.
The event is now being recorded recorded at this time I would like to turn the conference over to Ben Lu Vice President of corporate Finance. Please go ahead Sir.
Great. Thank you Todd and good morning, everyone. Thank you for joining US today as we review our second quarter 2019 results.
With me on the call. This morning are Jay Brown Crown castle's, Chief Executive Officer, and Dan Schlanger Con castles Chief Financial Officer.
Dave the discussion we have posted supplemental materials in the investors section of our website at Crown Castle Dot com that we will refer to throughout the call. This morning.
This conference call will contain forward looking statements, which are subject to certain risks uncertainties and assumptions.
And actual results may vary materially from those expected.
Information about potential factors, which could affect our results is available in the press release and the risk factors sections of the company's SEC filings.
Our statements are made as of today July 18th 2019, and we assume no obligations to update any forward looking statements.
In addition, today's call includes discussions of certain non-GAAP financial measures.
Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the investors section of the company's website at Crown Castle Dotcom.
So with that let me turn the call over to Jay.
Thanks, Ben and thank you everyone for joining us on the call. This morning.
We delivered another quarter of great financial results that exceeded our expectations and reflect the significant demand we are seeing from our shared infrastructure assets.
I believe our strategy and unmatched portfolio of more than 40000 towers and approximately 75000 route miles of fiber concentrated in the top us markets has positioned crown castle to generate growth and cash flows and dividends per share both in the near term and for years to come.
Due in large part to the increasing demand we are seeing across our tower assets. We are increasing our full year 2919 outlook and now expect to grow AFFO per share by approximately 8%, which is at the high end of our longer term target of 7% to 8% annual growth.
Dan will discuss the results for the quarter and the increased outlook in more detail. So I'll focus my comments. This morning on two key points.
First tower current tower leasing activity is our highest in more than a decade, which we expect will carry into next year and second our small cell business is delivering compelling returns at scale.
On the first point, we are seeing a more significant acceleration in tower leasing this year than we previously expected with broad demand from each of our largest customers as they deploy additional cell sites and spectrum in response to the rapid growth in mobile data traffic.
We now expect new leasing activity on towers to be approximately 30% higher when compared to the level of leasing last year.
With activity in the back half of the year exceeding the growth generated year to date.
And I believe the current level of activity will continue as our customers respond to data traffic growth on their fourg networks, while also embarking on the deployment of Fiveg.
According to a recent report from Ericsson data traffic per smartphone in North America is expected to increase from seven gigabytes per month in 2018 to nearly 40 gigabytes per month by 2024.
Representing the highest rate of data consumption in the world and a compound annual growth rate of more than 30%.
Additionally, as Fiveg becomes a reality new use cases will develop that require wireless networks to connect not only people and their phones, but also billions of things.
The expansion of the uses of wireless networks will require ubiquitous low latency high speed connectivity, which we believe will extend demand for our towers for many years to come.
In addition to towers remaining a crucial element of the future.
Networks will need to be significantly more dense than current infrastructure can handle.
Which brings me to my second key point.
As you see on the map on slide four we invested early and at scale to build and acquire fiber in the most densely populated markets, where small cells are being deployed and demand is expected to be the greatest.
Said another way all the great space you see on the map, where we don't have fiber is intentional.
Turning to slide five this strategy is developing is delivering compelling results.
The small cell project summarized on this slide are in the process of being completed.
While the projects included in this data set are not finished some of the nodes within those projects are on air while other nodes are in various stages of construction.
In total this analysis represents approximately 75% of the 65000 nodes, we have on air or under construction.
And our and represents the most recent data points for measuring returns.
When these projects are complete we expect to have invested just over $2 billion of capital both to build new systems for anchor tenants and to co locate new small cells on existing fiber networks.
These projects are expected to generate a recurring yield of approximately 8%.
The blend the first tenant economics in the 6% to 7% range and co location economics of approximately 20%, which is consistent with our disciplined underwriting requirements.
As the data shows similar to the development of the tower business. We are seeing significant demand from multiple customers for the same asset which results in co location economics.
The small cell co location on existing fiber accounts for nearly 30% of the incremental cash flows we expect to generate from these projects.
But only 10% of the incremental capital investment.
This operating and capital leverage is very much like what the tower business has exhibited over time.
And we believe our strategy of investing early in fiber for small cells will pay off in much the same way that our early investment in towers continues to.
And whether we have built or acquired the fiber we are seeing co location economics, as we add small cell customers to the existing fiber.
To that end approximately 75% of the co location activity is coming from the markets, where we have acquired the fiber in recent years.
While our levels of activity initial yield and lease up economics are all very encouraging the significant increase in the volume of small cells being constructed is straining. The response time from municipalities and utilities, who are not complying with the FCC orders, resulting in longer construction timeline than we previously experienced.
As a result, we are seeing construction timelines, averaging 18 to 36 months, which is longer than our prior average of 18 to 24 months.
Due to the elongated construction timelines, we now expect to deploy approximately 10000 small cells in 2019.
Which is at the low end of our prior expected range of 10 to 15000 and this year.
But it's approximately 30% more than what we delivered all of 2018.
In the near term, we expect the delays to reduce our 2019, new leasing activity from small cells by approximately $5 million.
Longer term, we do not expect the extent to the extended timelines to impact our overall growth or our returns.
Taking a step back and reflecting on where we are with our fiber and small cell strategy. It is remarkable to me how much progress we have made in a relatively short time frame.
What began about 10 years ago with measured investments intended to explore the small cell opportunity has accelerated over the past five years as the scale of the opportunity and the business model have come into focus.
As a result, we sit here today as the clear leader in the small cell industry with approximately 75000 route miles of high capacity fibre concentrated in top market.
More than 65000 small cells on air or under construction.
More than 13 billion of invested capital generating a recurring yield of approximately 8% and a robust pipeline of small cell projects that will add to the returns on our current fiber asset base, while increasing the longer term opportunity as we expand with new anchor builds.
As we look ahead, we see tremendous opportunity to increase the returns on our fiber investments over time by adding small cell tenants to existing fiber networks as we are doing today.
Along these lines our experience is that the same fiber necessary to support small cell customers can serve large enterprises and government agencies, who require high bandwidth connectivity.
As such we see a path to further improve our small cell returns by sharing the fiber across these customers.
This is similar to our approach with towers, where the vast majority of the economics are driven by the wireless carriers.
But we also work hard to increase the returns on our towers by sharing the asset with others.
As shown in our 2019 outlook, we now anticipate fiber solutions revenues to grow approximately 3% or approximately $15 million lower than our previous expectation.
As you would expect we prioritize activities related to our long term strategy of adding small cells to our fiber, including integrating recent acquisitions into a single operating structure and platform and consequently, we lost some sales momentum in this business.
Well, we want to generate as much revenues from these sources as possible.
We continue to believe that the growth from small cells will be the primary driver of future return on our fiber investments.
So to wrap up and moving back to the collective outcome 2019 is shaping up to be another great year for Crown Castle with AFFO per share growth now expected to be at the high end of our longer term, 7% to 8% target.
We see the growth in our business, reflecting the positive underlying fundamentals driving demand for our infrastructure, including the continued growth in mobile data on existing Fourg networks and the early stages of our customers developing fiveg networks.
With our unmatched asset base and expertise I believe Crown castle is in a great position to capture these substantial long term return opportunities and consistently return capital to shareholders through a high quality dividend that we expect to grow 7% to 8% annually.
And with that I'll turn the call over to Dan.
Thanks, Jay and good morning, everyone.
As Jay discussed we delivered another quarter of very good growth, reflecting the strong demand for our unmatched portfolio of towers small cells to fiber assets.
Turning to slide six.
You can see we had a great quarter was site rental revenues increasing 6%.
Adjusted EBITDA, increasing 12% and AFFO, increasing 14% when compared to the same period a year ago.
On page seven you can see that at the midpoint, we are increasing our full year outlook for site rental revenues by approximately $3 million.
For adjusted EBITDA by approximately $41 million and for an AFFO by approximately $43 million when compared to our prior outlook.
Our answer FFO guidance for 2019 implies approximately $5 to 94 cents per share representing 8% growth compared to 2018, and an increase from our prior outlook of 7% growth.
The increased to full year 2019 outlook for site rental revenues adjusted EBITDA and AFFO, primarily reflects a higher expected contribution from straight line revenues and an increase in the expected contribution from services, both of which relates to higher expected tower activity in 2019 as compared to the prior full year 2019 outlook.
The increase in full year AFFO also reflects a reduction in expected full year financing costs.
Turning to page eight we now expect between $245 million and $275 million of organic contribution to site rental revenues, reflecting an increase in the expected contribution from towers offset by lower expected contribution from both small cells and fiber solutions.
New leasing activity is expected to contribute between $345 million and $375 million to organic contribution to site rental revenues, which is approximately $5 million lower than our prior outlook.
At the Midpoints, new leasing activity consists of $140 million from towers compared to $125 million in our prior outlook.
$70 million from small cells compared to the prior $75 million and $150 million from fiber solutions compared to the prior $165 million.
Turning to page nine you'll find our 2019 outlook for components of AFFO growth.
The increase in full year outlook for AFFO growth reflects the increase in the expected contribution from services tied to higher tire activity and a reduction in expected full year financing costs, resulting from lower interest rates and recent financing activities.
These improvements were offset by the reduction in organic contribution to site rental revenues.
And additional expenses, primarily related to incremental incentive compensation tied to our improved outlook.
From a balance sheet perspective in the second quarter, we continued to improve our financial flexibility and liquidity by increasing the commitments under our revolver to $5 billion and extending the maturity date on our credit facility to a new five year term.
As we've previously discussed we intend to finance the business with approximately five turns of leverage longer term consistent with both our commitment to maintaining our aggressive investment grade credit profile in the level at which we finished the second quarter.
So in closing our second quarter results exceeded our expectations, leading us to increase our full year guidance for 2019 across site rental revenues adjusted EBITDA and AFFO.
We continue to believe our ability to offer towers small cells and fiber, which are all integral components of communications networks provides us the best opportunity to generate significant growth, while delivering high returns for our shareholders.
With that Todd I'd like to open the call to questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Yes.
We'll take our first question from David Barden of Bank of America.
Hey, guys. Thanks, so much for taking the question I guess.
I guess a couple of first the services businesses really strong this quarter I was where if you could.
Call out anything that you thought was kind of maybe a a recurring driver or one off driver of of that business.
Activity in the quarter and kind of maybe some thoughts on how it kind of plays out for the year and then the second piece is just on the other side of it you kind of cold out the fiber services.
Peace I think there was you know cogent explanation for a small cells, maybe kind of being tougher because of the utilities and the municipalities being strained to kind of come to terms with the volumes, but the favorite business seems to just kind of keep getting a little weaker.
This time it was bookings and it was one of you can kind of give us some color on what the game plan is for their businesses. It secular forces is it sails problems is it I don't know I see when if you could kind of like elaborate a little bit on on what's going on with that business be great. Thank you.
For Dave on your on your first question run the services business things strong I think that the best reflection of what we're seeing in terms of the tower leasing activity that we talked about.
If you look at the activity, we're talking about for for your 2019 were up about 30% year over year that the direct reflection about what happens inside of the services business. If you look at it you're over a year in the first half of the year I think it's up almost 50% year over year. So the the tower activity is is is indicated by the the results on the services side and.
You know as we said historically, we we think that that that activity will match leasing activity and so if we stay at an elevated level of leasing activity than than the services business. We would expect would continue to do so and and our outlook for the year sort of reflects that.
On your second question around five or solutions, you know I I I made reference to this in my comments, but as we went through the acquisition activities. We initially focused on making sure. We got the assets integrated and purpose ready for our long term strategy of small so I think given that we've gotten that behind this is certainly appropriate for a little more attention to be paid on the sales side around fiber solutions.
But I really don't believe that long term. This is the best indication of value in that in that business. The way that we underwrote the investment in fiber was based on our view around small cells and the need for this kind of fiber to be available for small so fiber solutions revenues support some level of return there.
But the long term returns and the driver of long term returns are going to come from the wireless business and a and b. driven by by small cells and as I look at the environment for that today.
It's it's healthier more robust and better visibility than what we had frankly, when we were making these fiber investments over the last the last several years. So from an underlying thesis around fiber I think we feel like we're in a better place today than we were several years ago. When we made made the investments and certainly have a lot more data points to support that view as we were talking about in the 75% of the 65000.
Thousand nodes that we have on air under construction.
Great. Thanks, guys.
Thank you will take our next question from <unk> Morgan Stanley .
Right. Thanks, very much good morning on the the tower leasing could you give us a little bit more color around.
You know where you're seeing the strength I think you said it was fair to say Santa things from beyond the big four carriers How's the mix between colon amendment activity.
And then the sort of ours.
Suburb of.
<unk>, it's a very broad based.
Any color around walked up the big seems driving than your activity is thanks.
Sure I'm in the morning on the the drivers there were were seen that across the board from from the wireless operators and.
Their activity is a is a mix of dense to find the network improving their network and deploying additional spectrum.
Given the nature of our assets, which are more focused in the metro markets than rural we're seeing that activity happened in the in the metro market that may be just by virtue of the the nature of our assets and our bias towards being in the metro markets in terms of the location of the current asset base. We've seen the increase in activity come from both first time to install.
As well as the amendment.
Both of those boats are rising with the tide. So the mix has stayed relatively similar to what we've seen over the last couple of years.
Worried about 40% first time installs than about 60% or 60% of the activity being driven by amendment and that's pretty similar to what it's been over the last the last several years.
To your question around outside of the wireless carriers, yes, we are seeing some increase their but the majority of the driver here is is continued to be the the wireless operators and we're benefitting from a little bit of activity outside of those wireless operators makes up about 15% of our overall activity.
85% coming from the wireless carriers.
Greg <unk> so you're.
<unk> will be a had at the first stops are you like sphere.
Yeah kind of accelerating from all your number.
That's correct.
Yeah, great. Thank you.
You bet.
Thank you will take our next question from Brett Feldman of Goldman Sachs.
[noise] I think shaking the question. This statistic he'd been given as 65000 small cells that are on air or in the backlog. It's been a pretty stable number now for the last two quarters, which implies there has not been a lot of new booking activity.
Through the first half the year off of what had been fairly active in 2018. So I was hoping maybe you can help us to understand what the demand environment is like what the the small so opportunity funnel. It looks like as you go into the second half and should we expect that there will be a pick up in bookings as we moved through the remainder of the year. Thank you.
Yep right. Good morning, as you've seen in the past the activity of new bookings is very lumpy. They they come in very large scale projects with a number of nodes that take as a as I was talking about in my earlier comments long period of time to construct.
So as I look across the horizon, there are a ton of opportunities that that that we see for for continuing to add add booking but the amount of work that goes into even preparing and designing to get to the point, where we have bookings is a is a pretty significant a period of time.
And and that that activity is is as robust as we've ever ever seen that we're seeing activity from all of the carriers in the in as they look at deploying small cells and I think I think we will at some point to see that that overall number continue to increase.
Is there any changing the environment in terms of your customers particular, your largest one decided to do more of this in house or is it really just eat at the timeline factor that you outlined.
It's just the timeline factor that we've outlined we haven't seen any movement towards greater self perform a than what we've seen historically, we continue to believe that look broadly at the market, we're capturing about 50% of the total activity.
And of the total small cell activity and the and the balance of it would be done mostly in self perform and then some component of a third party providers.
Great. Thank you.
But.
[noise], we'll take our next question from Richard Prince of Raymond James.
Thanks for you guys.
<unk>.
A couple of <unk> questions as well can you update us as far as roughly how many of the nodes you have.
On air versus how many are in the backlog.
We're a little under 40000 nodes on the air and then the balance would be in in backlog right.
Makes sense and then with the slip out from 18 to 24 to be 18 to 36, how should we think about the bulk of that backlog.
Pasting it into beyond 19 into 20 and 21.
Yeah, I think based on what we're seeing at the moment the best guidance I can give you is to expect that we'll put about 10000 nodes on Arab annually or 2500 roughly per quarter.
Which which suggests that the backlog that we have now carries us through 2020 and 21.
And and so it gives us really good visibility around revenue growth in small cells over those those couple of year period of time.
And the work that we're doing around attracting new books and this would be related to revenue growth in 2022 and beyond.
And then also noticed this quarter I think there was a sequential drop quarter to quarter on the fiber small so operating costs.
So usually there or is it something to do with the week or sales bookings in the fibers I just trying to think as we look at the gross margin site on fiber small so.
No I I think.
There's not a lot to be gained from from trying to compare those two directly Rick.
There.
As you pointed out yeah, there's going to be some lower cost with lower bookings, but that's not going to be a huge driver of the business I think what what I would say is there's always gonna be timing for when costs come in and when revenue comes in that we'll move margins around a little bit, but I think overall, what we think is the the margins that we're we're providing in that market and the in that business right. Now are ones that we think will continue over time with small fluctuations here and there, but I don't think you can take anything from the from the the sequential movement to give a a sense for <unk> to be extrapolated into a long period.
The final one for me I think J., you mentioned, a straight line adjusts or it might have been Dan mentioning the straight line adjustment did modify the quarter was that really just the new leasing activity. So I'm just trying to think as we look out into.
19, and 20, what we should be thinking about straight line.
We're looking at streamlined flipping colors at some point.
Yeah, it's actually the combination of the new leasing activity and extensions on on currently says that we have so it's a combination of things we've talked about in the past as well wreck discontinuing and because the activity continues to accelerate we're continuing to see an acceleration that straight line revenue.
Okay. Thanks, guys.
But.
Thank you will take our next question from <unk> counting company.
Great. This is John on for Colby, Thanks for taking the questions within a small small business you noted longer construction time claims, especially in a top markets are you starting to see demand to be on those very top markets and then within a fiber solutions business are you seeing any notable change in the demand environment. There are from competition. Thank you.
Yeah down on your first question.
What I would say is the vast majority of the activity.
And conversations are continuing to happen in the top 30 markets in the U.S., It's it's where we've invested thus far the vast majority of the Capitol frankly could probably the narrow it down to the top 10 markets. The vast majority of the capital would be invested in the top 10 markets and it continues to be the biggest focus around the need to identify the networks and bring small cell phone on here. So the focus continues to be there if we expand out beyond the the top 10 top 30 markets. There is some limited amounts of activity in those markets, but not meaningful in terms of margin opportunities or investment of cutbacks.
I think longer term as I listened to what the carriers are talking about their networks.
Depending on which carrier is talking about their networks. They they they talk about top 100 and in some cases, all the way up to the top 250 markets in the U.S.
So I think you're going to see the need for small cells well beyond the top top 30 markets in the U.S. and ultimately whether we decide to play in that in that market will will be determined based on the returns and what we believe the co location opportunities are around fiber and markets beyond the top the top 30.
At this point and as we talked about the pipeline. We've got several years worth of visibility, where we know the activity is going to be coming in the top top 30 market. So I think at this point that the majority of the focus but to the extent that there was a future opportunity beyond those top 30 markets and we thought the returns we're gonna be similar to what we've seen thus far.
It will certainly be something we would be willing to look at and study and see if it makes sense for incremental investment.
On your second question.
I really don't think the the demand for the service has changed at all I think it's it's much more an issue of our own our own focusing and attention towards making sure. We had the asset right for for for Longterm intended use and what we think is the primary value driver.
Okay. Thank you.
Thank you won't take our next question from Nick.
Moffettnathanson.
Hi, actually my question you know first J. got on fiber solutions.
We would you argue that the prior 5% longterm target for growth you've laid out is still appropriate. If we look beyond this year. I mean, you know you've kind of said that you know you don't think current performance is indicative of its potential in demand hasn't changed but you also gotta downplayed the growth outlook for non wireless solution. So just wasn't clear to me how that all shook out.
Sure Nick I think what I would tell you is it may come back to a level of five per cent at some point in the future, but we're not willing to predict that as the outcome. Our focus in the business around small cells is the long term driver of the business and we think that's that's the most appropriate place for us to spend spend our time talking about the long term prospects of the business. The as much revenue as we can get from fiber solutions that obviously makes sense to do so because it had to the returns around around the fibre <unk>, we're trying to be really clear about what we think the long term driver of the returns are and why we made the investments that we did as I as I look at where the business is performing relative to our underwriting assumptions are underwriting assumptions were tracking right on where underwriting assumptions around these assets were so I think publicly we had indicated that we thought we were going to be a little bit higher than even what our internal underwriting assumptions were.
But in terms of in terms of the focus on what we think the opportunity is we're I I would suggest that investors look at the business as we guided this morning to growth of about three per cent in the business and if we're able to improve it from there will certainly let you know once we've done it and I don't think it should should impact how you think about the long term returns around five or.
Okay got it and then on the small cell front.
Other reasons to think that means <unk> and power companies are going to spend the money to staff up so they can work through small side requested it pays consistent with demand.
And to the extent that your overhead costs might not be aligned with the lower installation right. You're forecasting are there any opportunity to trim those costs.
Well one of the great benefits of the F.C.C. order is that it requires the municipalities and the utilities timely respond and deal with with with these with both the permit and the process of application of applications for installing in the right of way so and the the mechanism around the fees that we pay for that reimbursed the the municipalities in the you utilities for the reasonable costs associated with with managing that activity, regardless of the level of volume and so I think you folks should read my comments as a and they're intended to say the municipalities that are complying with the F.C.C. order have done a great job and doing that and a number of market that has helped the process, but there are still some some municipalities and utilities out there that have been resistant to complying with the F.C.C. border and and I I think we're in the process of of both working through that with the local minister.
Holidays, as well as well as working closely with the regulators to make sure that.
That it's handled to handle it appropriately I wouldn't look beyond beyond that towards kind of G.N.A. staffing or anything else is as causes are reasons for it I think the long term outcome. We're hopeful will be that this is a this is somewhat temporary and then ultimately you'll see municipalities and utilities fall in line with what the F.C.C. order is and that will come back to a more normalized timeline around these activities and if that happens we'll come back and update you on it but based on what we're seeing currently I think the 24 to 30. So the 18 months to 36 months is probably the right time line.
Nick I think I think one of your questions lives around our our our own overhead and whether the reduction going down to 210000 node per year range will change that.
Just call your attention to what we had before was a 10 to 15000 range. So we're on the low end of the range.
But still within the range of what we thought was appropriate for the cost structure. We have of course to the extent that we can reduce our cost structure because there is lower activity or their places we can get more efficient we will be we will be looking to do so as aggressive as we possibly can but I wouldn't expect that in the base case, because this is within the range of outcomes that we were expecting for the year.
Alright, I understand thanks, guys.
Thank you will take our next question from Michael Rawlins of city.
Hi, good morning.
First you just get a little bit more context on changing straight line <unk> 19 Guy.
And second can you give us an update on your outlook for discretionary capital spending with the changing outlook on small cell deployments fibrwrap and you grow thanks.
Sure.
So Mike as as I mentioned before the change in straight line really is a combination of new leasing activity, which causes new straight line in any extension of current I have currently says which also causes an extension of the term and therefore, the an increase in a straight line revenue.
Both of those are related to increased tower activity.
And as we've seen in the in the first couple or in the first quarter in the in the last quarter of 2018.
That those extensions in that it those amendments.
That that that new leasing activity has caused us to continue to increase the straight line revenue because the activity levels are increasing more than what we had anticipated.
And so we are excited about that because I think it's just like J. said about services as an indication of what's going on with the tower leasing overall.
On the discretionary cat backs, we think it will remain consistent with what we said before about $2 billion a cap action 2019, it's our expectation and continues to be on a net basis around a billion and a half dollars and the reason for that is most of the capital that we spend comes well before we are putting in a node portion of the small cell builds and so we're continuing to have to do that and and continuing to to do that work now even though some of the the timeframe has been a long added a lot of that has been on the back end. So we anticipate making progress on the projects at the pace that we were anticipating expecting from a capital perspective.
For 2019, as we were in our prior outlook.
Thanks very much.
Sure.
We'll take our next question from T.I. Levis.
Okay. Thank you on the five we solution side can you provide a rough split tolls to 150 million Incrementals avenues, you expect to share in terms of wireless driven versus enterprise driven and second question on the guidance can you remind us what it includes if I spent activity this year.
Yeah on the first point of of 150, it's that part is on the fiber business itself.
And so all of that hundred and 50 is related to our fiber solutions business not wireless customers.
<unk> right in terms of the cyber bad calls for wireless nodes as opposed to pure enterprise business.
If you if you yeah played it that way.
Yeah, we we don't split it that way and and largely because a lot of that business is is a similar business, although I would say that within that fiber business that the majority of it is enterprise the vast majority of his enterprise and not in a in a wireless backhaul.
What we said in the past is about to to to to give you a little bit more color is about 50% of that business is generally with enterprise customers and 50% is with carriers as we would call it or larger or larger customers that have more backbone type of of needs than the what I think that you're trying to get to his enterprise versus that backbone. It's about 50 50.
Right. Okay. Thank you.
That's it on your second question around the sprint, we we don't comment on specific customers for their their activities. So we'll let them speak for themselves in terms of what they're expected to do with their network.
Okay. Thank you.
<unk>.
Thank you will take our next question from Phillip accused of J.P. Morgan.
Hi.
Beating this this fiber bookings a little more recognizing the fibers still hitting your under under writing goals are there regions are verticals that aren't really holding up on the booking side or I wonder if you become more wary of the sort of contract or or revenue.
Mix in fibre.
Well I think.
I think Phil what I would say is there's there's opportunity there we haven't really seen the market change, which I was trying to make a point to point to just a minute ago.
We went into this process of of making these fiber acquisitions over the last several years.
The way, we underwrote the investment and thought about the opportunity was driven from our macro view of the need for small cells and what's that would work.
Tend over time.
Obviously given the.
The way fiber has historically been utilized it was built originally solely for the use of of in many cases, yeah. The enterprise and fiber solutions revenue that you're you're asking about so that's that's a relatively new business business to us, but it wasn't the driver for which we underwrote. So if I were to go back and look at kind of our underwriting assumptions and try to match those to your questions around which components are doing better or worse than what we initially expected.
That's probably a level of granularity and focus that frankly, we just we <unk>. We didn't we we didn't aimed towards when we were going through the process. We were <unk> focus much more on a range of outcomes around what we thought was going to happen in the wireless business.
And that's I referenced a in my comments earlier the environment for that today is is more robust and healthier than the environment in which we underwrote the the <unk> the fiber investments initially for with regards to small cell. So I'm not trying to sidestep. Your question other than to honestly tell you that that's really frankly, not where we spent a lot of time trying to analyze and so trying to make the comparison I don't I don't know that there's much of a comparison to be made there.
I think so and the reason that more.
I was just going to say that I think the reason we're spending so much time on it is not because again that the.
Fiber into small cell opportunity as it is not a good one.
But.
But I think a lot of us have been.
Maybe concerned that that as you bought a lot of fiber revenue that was existing set you may over time, not not that size that as much and that.
That the gross there may end up dragging you more then.
That's sort of the mid single digits that at at originally banning. So I think this is some of US are concerned that this is the first step of a circle.
De emphasizing that revenue growth that make drag the top line for a while.
Well I think it's fair to ask the question and and to Wonder about what the long term prospect is is going to be and as I said in the same way that we would think about on towers, obviously want to drive revenues outside of just the big for wireless operators, if all of the activity, which makes up about 15% from non wireless act from the non wireless carriers on towers was to dry up that would impact our growth rate on towers and the same thing is true around around fiber solution. So I don't need to I don't mean to dismiss the question as irrelevant. It's just not the primary focus of the investments that we made and therefore it has a a lesser focus in terms of the way, we think about operating the asset well at the same time, believing that every dollar that we get there is beneficial to ultimately the returns around fiber and therefore, it does warrant the appropriate level of attention and focus to make sure we're maximizing the opportunity there.
Understood if I if I can one more quick one given the restrictions are coming from the sort of approval side is 10000 small cells a year.
A good guide going forward or do you see any shifted sent municipalities be able to prove these more quickly in the future.
I I think it's a good guide in terms of how you think about our our model over the next couple of years with the booking that we have in backlog currently so I I would guide you towards the 10000 number in the in the short term.
Longer term the reason why the F.C.C. order was put in place was to facilitate the deployment of five g. in the United States and our belief in terms of the macro opportunities around small cells is far greater than what's happening currently and I think you're going to see the the overall pie associated or market sizing of of the need for small cells to grow pretty significantly over the coming years as networks transition from four g. to five g. and so municipalities in utilities are going to have to figure out a way to use the benefit of the F.C.C. order, which provides for the costs associated with scaling this up they're going to have to get into the place where they <unk> that in order for the U.S. market say competitive and for the deployment of five G. and I suspect. They will obviously the F.C.C. has been responsive and has been really thoughtful in terms of the way they've drafted the order and in the places I I should at least tip my hat to the places that have complied with the F.C.C. order it has.
Really helped helped in terms of the deployment of small cells.
And you can see in our own activity deploying 10000 small cells thereabouts in 2019, that's about 30% higher than what we were able to do last year. Some of that as a direct result of some of these municipalities and utilities that are are are complying with the F.C.C. order, which we find to be really encouraging. So I suspect over time, we'll see broader embrace of that and compliance with it and I think that will be helpful.
Thanks <unk>.
Thank you will take our next question from Tim Iran of Oppenheimer.
I think that she is there any thinking or for talks with the municipalities to have more shared fiber infrastructure, because I mean, taking up these roads.
Kills the structural integrity and.
You know getting power is very difficult and you know putting salt sites on the on the street lamps and everything else out there. Yeah are you having any of those kind of conversations because one of the reasons rises also building out really aggressively and.
You know just stop taking off these roads time at the time again, just doesn't make any sense.
Sure. That's certainly one of the areas that we look look for is is their existing conduit that that can be used to pull fiber through or other opportunities are ways to do it with minimal and as as minimal an impact as possible inside of the inside of these municipalities and ultimately the municipalities and the and the utilities, we were working hard to be good partners with them and figure out ways to reduce the amount of impact in the community as you look at small cells across the country and go market by market. The types of polls that we deploy them on the type of structure that we deploy where we put where we put the cabinets. The sizing of the cabinet sizing of the antennas and other things is often tailored to the aesthetic desires of the local municipalities and so a component of it as a static that we're working with them on a another component or some of the things that you're referring to or are there ways for us to deploy this kind of infrastructure and minimize the amount of impact in the community.
We're we're intending to do that because it lowers our costs. One that's available so to the extent that there are ways to do that we're certainly looking for ways to be smarter and faster about how we're spending the time and investing capital.
And the other thing 10 that I would point out is the quarter our business is shared infrastructure.
And we believe we are in the best position to put that infrastructure and one's in shared across his money clustering those customers as we can.
I was pointing out with the with the focus on small cells, we can reach multiple of the wireless customers.
But also with a focus on providing fiber solutions, we can add customers that same fiber infrastructure.
And we think we're in the best position of any company to do that.
And if if the municipalities really are focused on trying to limit the times that a street is dug up then and allowing a third party provider, who can share that asset as many times as possible to be the provider of that asset is likely the best outcome for everybody involved.
No you're preaching to the choir on that I guess the question is are the city's really recognized any cities implemented a policy like that all done in like New York City would Empire City subway.
I don't know that I would I would put it in the adopted a policy, but do we work with municipalities to do that absolutely and there are occasions, where we found ways to do that.
Well I I get slapped me in this regard I mean, <unk> says, they're pulling out aggressively they want owners economics, it's key to their flock g. strategy.
Do you try to coordinate with them and not building the areas that they're going to or vice versa.
Yeah, any any thoughts on that would be great.
Well, that's I mentioned earlier in my comments about half of the overall activity that's happening in the market. We think we're we're accomplishing and the other half a is largely being accomplished through self through through self performed by the wireless operators.
Similar to the to the tower tower business, we we don't see people over build assets. So once an asset is there the the the fastest and lowest cost means by which to deploy infrastructure like small cells is to use the existing assets and that's the way we're seeing the business develop I think would continue to to to to see it go that way I certainly don't expect that we're going to build the all of the miles of fiber that are going to be required in the U.S. for the deployment of five g. and small cells, there's going to be a number of players into space and including the including the wireless carriers, who are going to build significant amounts of fibre and and probably share that among themselves at some point.
I I guess, what I was asking about 50% is that hopefully occurring in locations, where you're not building, it's like where you're building you're getting like 100% of the of the small salts.
Right I mean, what I would what I would point to his again back to kind of the Tower example, as as infrastructure is is in the market and and there is opportunity there existing infrastructure is preferred over trying to build new infrastructure on top of existing infrastructure. This is very early days of what's going to need to be built for small cells across the country and so I think you can see the flow of capital to areas that are not currently covered and and and and therefore the investment to to build new fiber build areas that that don't have any existing fiber whether that fiber that we built or somebody else though.
Thank you.
You bet.
I think it will take our last question from Spencer turn of New Street research.
Hey, guys. Thanks for taking the question.
So maybe just to ask a question on the tower side.
Did you should play a little bit more color around your [noise] upgrade updated guide for new these activity on towers, you're targeting 140 140 million at the mid point today can you shed some color on how that paces throughout the year.
I'm just trying to understand if guidance implies similar levels of grows to that's the second quarter or if you're expecting I'm a further acceleration in the back half the year.
Yeah Spencer on the revenue guide, we are expecting more activity in the second half than what we saw in the first half. So there is an acceleration in the back half of the year I got somewhat similar to what historically, we've seen where where in our business the back half euro tends to be more loaded than the than the front. The front half. So we are expecting an acceleration relative to the first half of the year in the second half.
[noise], saying and then just one follow up on a comment you made in your prepared remarks, you talked about.
For G. activity and five G. activity driving strong tower Grove, a trust strong grass on towers.
Over the next couple of years could you just elaborate on how you see five g. playing out on towers versus small cells.
Let's get your thoughts on that thank you.
Sure I think.
I think what we'll see is a combination of two things running parallel.
First is the curious go about upgrading their networks. They will tend to if they have done and and passed migrations of technologies to go to the places where they already have exist.
Allergy to upgrade equipment to the new technology. So I would suspect we'll see significant amendment activity at site, where they they go out and deploy additional antennas and lines and the men their existing equipment to make it five g. ready.
I think we'll also see in places where the carriers have additional spectrum that they have they have acquired where they will put will feel like to us as new installations in order to deploy that equipment.
In addition to that I think you're going to see some places are running parallel with that in the initial stages in Phil because of capacity, constrain, which will which will flow towards investments in smallville.
So the areas that we've already put fiber in the ground have fiber in in dense urban areas, where there's a high amount of traffic I think is the five g. network start to begin to to be loaded I think you're going to see the carriers invest not only in upgrading their existing equipment, but also off loading some of that traffic on the small cells in those dense urban environment, just like we saw unfortunately.
Where as a macro sites reads reached capacity they off loaded some of that traffic onto a small cells in order to improve the cost efficiency and effectiveness of the macro side I think you're going to see a similar play out on the five five g. side, so it'll be a combination of investment around both both the macro sites as well as as well as small so.
Great. Thanks, so much.
You bet.
Thank you at this time.
One more question.
Mm.
Take one more question from John .
R.B.C.
Thanks, very much so I don't know, if I necessarily or not but I just wanted to kind of make sure I get to kind of the broad <unk>. It sounds like for school, so gross that you're expecting going forward.
Might be a little bit less capital intensive I don't know, if that's a a set or read or not.
And then secondly on the Yemeni sound like in terms of hockey in fiber acquisitions can you maybe describe the landscape and what what looks interesting or not interesting to you. Thanks.
Sure Good morning, John less capital intensive.
Is that's certainly true with regards to the co location activity I think over the long term, we would expect that once there's a a certain base of fiber that's been built anchor built fibre as we get to the point, where the slips from being <unk> news sites in essence being built we'll move towards a greater percentage of co location in there and then there for the the capital intensity comes down associated with that activity I think based on our macro view, though John that that may be several years away from from the environment that we're in today as the as I made my comments earlier around how the carriers are thinking about the deployment of small cells I I think there's a lot of work still be still to be done and even in the top 10 top 30 markets in the U.S. and then we'll just have to see how it develops beyond their but as we get towards the point, where co location becomes the vast majority of the business similar for drawing analogies to the tower.
Business.
You go back and look at the 1999 to 2003 timeframe. There was a significant amount of capital that had to be poured into to build an acquired towers and now we're at a place in the tower business where were virtually all the capital is related to co location, it's very low capital intensity required to do that so I think the same thing will happen in small so I I think we may may still be several years away, where we get to that point, where the vast majority of the activity is just totally colocations.
On your second point around him in a I've made this point now for probably a year and a half or so but we just don't see any opportunities for large scale acquisitions of the kind of fiber that we we believe fits our strategic goal.
We need dense high capacity urban fibre in order for it to really fit a small so opportunities that we believe lie ahead and from what we've seen in the market. There may be from time to time, some talk in acquisitions in certain markets to cover a portion of that market, but we really just don't see a lot of opportunity to make acquisitions. So I would suspect that to the extent that you see allocating dollars towards investing in five or were more likely to do so on a build basis than we are to do it from the acquisitions.
Thanks very much.
You bet.
Thanks, everyone for joining us this morning, I appreciate it before to catching up with your next quarter.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.