Crown Castle International Corp. CCI is likely to witness high demand for its towers amid an increase in mobile data usage, spectrum availability and high network investments by wireless carriers. Given the company’s ability to offer a holistic network solution with towers, fiber and small cells and ample liquidity, it is well poised to bank on these trends.

The deployment of 5G networks is driving significant network investments by carriers aiming to improve and densify their cell sites. Investment in the fiber and small-cell business on the back of acquisitions, constructions and new deployments complements Crown Castle’stower business and offers upside potential to its 5G growth strategy. The company ended 2020 with around 50,000 small cells on air and expects to add another 10,000 this year. Also, the acquisition of a number of fiber operators over the past few years have helped the company gain significant scale and expand portfolio.

The wireless data consumption is likely to increase considerably over the next several years. These are driving the need for denser networks of small cells that will enable wireless carriers to deploy additional coverage and capacity on their networks.

Hence, to capitalize on this opportunity, tower REITs like Crown Castle and American Tower Corp. AMT are increasingly investing in new small cell and fiber assets to enhance the network density required for its customers’ wireless networks.

However, tenant concentration is very high for Crown Castle. In fact, the top three among its customers, Verizon VZ, AT&T T and T-Mobile, accounted for majority of the company’s total revenues. Hence, loss of any of these customers or consolidation among them will significantly hamper the company’s top line. Further, its performance is dependent on carrier spending, and hence, any pullback or rationalization in network spending by tenants might adversely impact Crown Castle’s performance.

Moreover, Crown Castle has a highly-leveraged balance sheet and significant amount of debt relative to its cash flows. Also, the company’s debt-to-equity ratio is significantly high. This limits its strength to withstand any credit crisis and unexpected negative externalities in the future.

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