Carrier-neutral provider revenues grow 12% in 2Q16

Matt Walker/Ovum
24 Aug 2016
00:00

Telecom’s small segment of carrier-neutral providers (CNPs) had another good quarter in 2Q16, growing revenues by 12% year over year (YoY) to about $8.5 billion.

While revenues in the sector are split about equally between cell towers and data centers, capex is driven by data center-focused CNPs like DuPont Fabros and CyrusOne.

On average, these providers spend 35% of revenues on capex, versus about 16% for cell tower-focused CNPs such as Crown Castle and Bharti Infratel.

Data center buildouts driving CNP capex

The CNP segment is small but dynamic. Over the last 12 months (3Q15–2Q16), total CNP revenues were roughly $32.7 billion, up 11% YoY. This growth rate is just slightly below the 14% and 12% growth of the prior two years. By comparison, annualized telco (CSP) revenues are still falling, down about 3% YoY in Q2.

Capital intensity for the CNP group was 25.5% in 2Q16 (annualized), down slightly from the previous two years. By segment, data center CNP capex totaled $5.5 billion in the last 12 months, while tower capex was $2.9 billion. To grow their networks, tower companies rely more heavily on M&A – big acquisitions of thousands of towers at a time. American Tower (AT), for instance, reported just under 144K towers under management as of June 2016, up 43% from March; that’s due to AT’s recent acquisition of Viom Networks in India. Data center-focused CNPs are also involved in M&A, for instance Equinix’s recent purchase of Telecity in Europe, but have tended to spend more of their cash internally to develop new properties.

A few capex highlights from 2Q16:

  • CyrusOne: Spent $378 million on capex in 1H16, up from just $91 million in 1H15. It has also raised 2016 capex guidance to $635–655 million, from $380–405 million earlier, pointing to new business from ICPs who struggle to build new data centers fast enough.
  • CoreSite Realty: More than doubled capex YoY to $125 million in 2Q16, building its US national reach across eight strategic markets.
  • Equinix: It closed its acquisition of European CNP Telecity in January 2016, and its spending is now back up to speed. It expects $500–650 million in 2H16 capex, within range of what Equinix and Telecity combined spent in 2H15.
  • Crown Castle: Its 1H16 capex was $393m, down slightly from last year. Directionally, its capex will focus more on fiber and small cells, not just traditional towers. This move is supported by recent acquisitions, of NextG Networks and Sunesys. Other tower providers are also developing small cell propositions.
  • American Tower: After boosting its tower count through the Viom acquisition, it expects to spend $700–800 million in capex in 2016, down from $909 million in 2015. Capex will fund construction of about 3,000 new towers worldwide, and help secure long-term leases or outright ownership of more existing sites.

As we laid out last quarter, the CNP market is currently tracking towards the optimistic scenario of our forecast. While the sector is small, it’s playing a crucial role in network connectivity and the players are growing. They’re also evolving beyond the carrier-neutral model. For instance, Zayo started its life as a dark fiber CNP, but recently bought a Canadian mobile service provider (MTS Allstream). This, at the least, pushes Zayo closer toward the CSP model. More broadly, it suggests the CNP landscape itself will continue to change, possibly with just a few neutral players growing to global scale after further consolidation.

Matt Walker is a principal analyst for intelligent networks at Ovum. For more information, visit www.ovum.com/

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