Crown Castle International (NYSE: CCI) has seen massive growth over the past decade. The infrastructure real estate investment trust (REIT) invested $30 billion over the past 10 years to build and buy communications towers and other related infrastructure to support the rapid expansion of mobile data usage. That investment paid big dividends, as it helped power market-smashing total returns of nearly 372% over the last decade, easily beating the S&P 500's roughly 270% total return.
While the previous decade was a big one for the REIT, it sees plenty more growth ahead over the next 10 years. That visible upside is something long-term investors won't want to miss.
Changing platforms is a massive opportunity
The main driver of Crown Castle's growth in recent years has been acquiring and building macro towers to support the U.S. wireless industry's infrastructure needs. The company currently owns roughly 40,000 of these towers, leased under long-term contracts to major wireless carriers. These agreements will supply it with $25 billion of revenue over the next several years.
The macro towers support the existing wireless network system known as 4G, or fourth generation. However, the wireless industry is currently transitioning to a new system, 5G (fifth generation), which it's slowly rolling out. This network requires additional infrastructure, including densely located smaller cells attached to utility and light poles connected by fiber-optic cables.
Crown Castle has already been making investments to support this rollout. It currently has 70,000 small cells either on-air or under development, and it controls 80,000 miles of fiber. However, that infrastructure is only the beginning of what the industry needs. That led CEO Jay Brown to state in the company's most recent earnings report, "I am excited about what will likely be another decade-long investment cycle for our customers with the deployment of 5G."
A trio of growth drivers that should get better with age
Crown Castle's existing macro tower portfolio still has lots of running room. While 5G requires a network of cell sites much more densely spaced and closer to end users, macro towers will play an essential role in supporting that system. CEO Jay Brown stated on the second-quarter conference call that the company's strategy "still has a long runway of growth as we believe towers remain the most cost-effective way to deploy spectrum, making them critical to next-generation wireless networks."
That's great news for investors because, while mature, this business generates strong investment returns thanks to its scale. It currently earns about 10% on a tower investment, up from 3% when it started investing almost 20 years ago.
Meanwhile, the company's investments in small cells and fiber have a lot more running room, given that the industry is just starting to roll out 5G. For example, the company believes that by 2024, the industry will need more than 1 million small cells on air to support 5G. It will undoubtedly need even more beyond that, with Brown stating on the second-quarter conference call, "We don't think it stops there."
Returns for small cells and fiber currently aren't as high as towers -- the former earns better ones than the latter. Because of that, some investors have questioned the company's investment strategy. For example, hedge fund Elliott Management is putting pressure on the company to consider unloading its fiber business, which it believes is diluting its investment returns. Likewise, analysts at Wells Fargo (NYSE: WFC) have questioned whether the company can improve this business line's investment returns.
However, while investors aren't sure if fiber is worth the investment, Crown Castle believes it can improve the returns of both small cells and fiber as it scales these businesses. That's why it intends to continue investing in these emerging infrastructure assets -- it sees so much growth ahead that it fully believes that they will eventually pay big dividends.
An ultra-long-term investment
Crown Castle invested billions of dollars over the last decade to support wireless carriers' infrastructure needs, which helped power massive market outperformance. It sees similar upside potential over the next 10 years as the industry moves over to 5G. While some of these investments aren't quite as high-returning right now, it believes they will pay off long term. Because of that, it could be a great REIT to buy and hold.