Carrier-Neutral Network Operators: 3Q18 Market Review

  • ID: 4750836
  • Report
  • MTN Consulting, LLC
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CNNOS Now Operate 593 Data Centers, 2.3 Million Cell Towers, and Over 450K Route Miles of Fiber

FEATURED COMPANIES

  • American Tower
  • China Tower
  • CyrusOne
  • GTL Infrastructure
  • Level 3
  • SBA Communications
  • MORE
Carrier-neutral providers of network infrastructure are playing a crucial role in the development of the telecom sector. From US$17.6 Billion ($B) in revenues in 2011, CNNOs recorded $53.7B in 2017, reflecting a CAGR of 21%. In that same time, the sector doubled its data centers under management, almost tripled fiber route miles, and increased its cell tower count by over 10x.

Much of the CNNO sector’s growth has been acquisition-induced. In fact from 2011-17, acquisitions have burned more cash than capex in the sector. CNNO capex in the 2011-17 period totaled $73.5.0B, versus $95.3B for M&A. However, M&A spending slowed to a trickle in 2018, and CNNO revenue growth for the first three quarters of 2018 has been relatively flat: 12 month revenues through September were $54B, up just 4%. Growth in the data center segment remains strong, but the tower & bandwidth segments have slowed; the latter is affected in part by CenturyLink's acquisition of Level 3.

Other findings from the 3Q18 analysis include:
  • Capital spending among CNNOs remains high as a % of revenues. In 3Q18, CNNO capex of $5.4B was 40% of revenues. Most CNNO capex is for the purchase of property and related construction costs, with telecom equipment & software taking up a small percentage. Some CNNOs are deploying more intelligence in their networks and evolving business models, though, such as Crown Castle and Zayo.
  • CNNOs have low employee costs (or high revenues per employee), but high capital costs. Most CNNOs reap benefits from REIT classification, but they still have huge debt loads. As of September 2018, CNNOs had a total of $137.7B in debt, and just $8.5B in cash & investments. Gauging their ability to manage this debt & raise new funds for expansion is essential to tracking the sector.
  • The number of data centers operated by CNNOs globally is now 593. Few would be classified as “hyperscale” or “Webscale” data centers, but this asset base is still significant. The CNNO data center segment has been driven by the growth of cloud & mobile computing, IoT, and increased telco & Webscale reliance on carrier-neutral players to complement their networks.
  • CNNOs' tower count as of September 2018 was roughly 2.3 million, including China Tower. Many telcos have spun off tower assets over the years, leaving most towers now in independent hands.
  • In the bandwidth segment, CNNOs now operate over 461K route miles of fiber, used mainly for wholesale or similar services. This segment is the least stable of the three. There is a strong incentive for telcos to retain ownership and control of their fiber resources. The acquisition of leading CNNO bandwidth provider Level 3 by a telco, CenturyLink, illustrates this urge.
The author expects that CNNOs with a proven track record of acquisitions to continue looking for multi-billion dollar asset deals for the next several years. That assumes a favorable financing & tax climate. We also expect CNNOs to function as market consolidators when the next market downturn hits. The larger CNNOs will push the envelope on their business model as they grow, adding services on top of their infrastructure and building further to the edge of the network. Top-line growth will tick up again with M&A deals, and the continued growth of new build CNNO networks such as NBN Australia.

This market review provides a comprehensive assessment of the carrier-neutral network operator (CNNO) market segment based on financial results through September 2018 (3Q18). The report tracks over 25 financial KPIs for 32 individual CNNOs, across the cell tower, data center, and bandwidth/fiber segments. It also provides an outlook for the sector.
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FEATURED COMPANIES

  • American Tower
  • China Tower
  • CyrusOne
  • GTL Infrastructure
  • Level 3
  • SBA Communications
  • MORE
1. Abstract
2. Analysis
3. Key stats through 3Q18
4. Segment Drilldowns
5. Company Drilldowns
6. KPIs by company
7. Exchange rates
8. About

List of Exhibits
  • Revenues by type of CNNO (US$M)
  • Revenues by CNNO type, last two annualized periods (US$M)
  • Capex by type of CNNO (US$M)
  • Capital intensity by type of CNNO
  • Capex & acquisition spending, CNNO total
  • Net PP&E by type of CNNO (US$M)
  • CNNO towers & average tenancy ratio, global ex-China
  • Growth of data centers & rentable space since 2011
  • NRSF per data center (K)
  • Revenues by company, 2017: CNNO market segment (US$M)
  • Net PP&E by company, 2017: CNNO market segment (US$M)
  • Data center CNNOs: Net rentable square feet, YE17 (million)
  • Data center CNNOs: # of data centers, year-end 2017
  • Tower CNNOs: # of towers by company, YE2017
  • Tower CNNOs: employees, YE2017
  • Profitability & cash flow (%), 2011-17
  • Free cash flow & cash on hand ($M), 2011-17
  • Revenue & capital intensity, 2011-17
  • Opex and capex spend ($ M), 2011-17
  • Debt and equity ($ M), 2011-17
  • ROE & ROA (%), 2011-17
  • 2011-17 Net PP&E: CNNO market segment (US$M)
  • Net PP&E: Annual growth (%), 2012-17
  • Net PP&E by company in 2017, Tower segment (US$M)
  • Net PP&E by company in 2017, Data center segment (US$M)
  • Net profit margin by type of CNNO
  • Net Profit by type of CNNO (US$M)
  • Free cash flow/revenues by type of CNNO (US$M)
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  • American Tower
  • Arqiva
  • Balitower
  • Bharti Infratel
  • Cellnex
  • China Tower
  • Crown Castle
  • EI Towers
  • GTL Infrastructure
  • Inti Bangun Sejahtera
  • Inwit
  • Sarana Menara Nusantara
  • SBA Communications
  • Solusi Tunas Pratama
  • Telxius
  • Tower Bersama Infrastructure
  • CoreSite Realty
  • CyrusOne
  • Digital Realty
  • DuPont Fabros
  • Equinix
  • Interxion
  • QTS Realty
  • Chorus Limited
  • Cogent
  • Internap
  • Level 3
  • Lumos
  • NBN Australia
  • Superloop
  • Uniti Group
  • Zayo
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