American Tower and Crown Castle executives each took the opportunity to talk about the edge at investor conferences this week, but the tower company peers are taking somewhat different approaches.
Crown Castle sees opportunity in the edge but at this point is more interested in leveraging its existing tower, small cell and fiber businesses than acquiring metro data center assets, according to the company’s finance chief.
Crown Castle invested in micro edge data startup Vapor IO for a minority stake in 2017. Asked about the edge during a Barclays investor conference this week, CFO Dan Schlanger said that the Vapor investment allowed the tower company to learn about the edge compute ecosystem, how it works, what customers might want and use them for and ultimately where Crown fits in to the revenue equation. But it’s still figuring out what it means for the tower company.
Through the partnership it’s deployed edge data centers that help it understand traffic and the customer base, he noted. While it hasn’t put as much emphasis on the edge as peer American Tower, Crown Castle has been trialing since at least 2018 and similarly sees potential for its distributed communications tower infrastructure and other assets to serve edge computing needs to support future use cases that need low latency and processing closer to end users.
“We think that there is a potential large opportunity with edge computing going forward,” Schlanger said Wednesday. “As we think through what is driving the investment in 5G is a new network architecture that allows for significantly higher speeds and significantly lower latencies, so the new use cases can be adopted.”
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He acknowledged that at this point it still isn’t clear what those 5G use cases will be, and sees a significant rollout of small cells to densify networks as a necessary step before the edge compute model is more defined. Schlanger did call out edge compute as becoming necessary for things like AR/VR, autonomous driving and IoT.
One area Crown Castle isn’t pursuing right now is ownership of metro data centers. After starting analysis five years ago, it determined they wouldn’t help get edge data centers on tower sites to ultimately drive incremental revenue, according to the finance chief.
“We came to the conclusion that no, they wouldn’t, because none of that metro data center drives traffic to a specific place,” Schlanger said. “You may need to connect to that metro data center, which we think we can do it via partnership as opposed to ownership.”
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He said partnerships would provide more flexibility and choice, both for Crown Castle and for customers as to which data centers they want to connect to. Instead, Schlanger thinks Crown’s other business segments including fiber and small cells set the company as a one stop shop and make it “significantly better positioned than any other company” to capitalize on and get edge data centers on sites.
“As long as we own the really important pieces of network, fiber, small cell hubs, tower sites where we can put these edge data centers, we believe we are best positioned for that,” he continued. “And we don't see the need for those metro data centers to augment our offering.”
It’s a different approach than tower company peer American Tower, which ramped up edge ambitions with a recent $10.1 billion deal to buy CoreSite. CoreSite’s portfolio adds 25 data centers, 21 cloud on-ramps and over 32,000 interconnections in eight major U.S. markets – significantly building on American Tower’s existing three metro and six edge data centers.
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Analysts at the time questioned if American Tower ownership would help or hinder its edge efforts. Part of the criticism then, mirrors Schlanger’s recent comments on partnerships and choice for customers. MoffettNathanson’s Nick Del Deo last month suggested combining neutral host data center and tower assets under one umbrella could potentially be less appealing to some customers who might want to pick and choose where compute workloads are placed, rather than go to an end-to-end provider.
Speaking at the UBS Global TMT virtual conference on Monday, American Tower CFO Rod Smith said the CoreSite purchase isn’t about jumping into the data center space. He called out the amount of access with 21 cloud on-ramps and number of interconnect points with all major cloud players as critical, saying it’s what attracted the tower company to CoreSite.
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It expects the mobile edge opportunity playing out with multiple players including cloud companies, tower companies, mobile operators and network companies. And he indicated ownership puts American Tower in a stronger negotiator partner position in that scenario.
“These edge compute facilities do not just stand on their own, they need to be connected into the cloud and into the networks. And that’s what CoreSite brings to us,” Smith commented. “If we didn’t own that capability, we would have no choice but to turn that over to someone else.”
Smith cited the need for much more distributed access to the cloud, as well as wireless carrier needs to support low latency applications for handsets and mobile devices. And with compute power connected to base station radios with carrier pretense and cloud access located at tower sites, he believes its portfolio of 40,000 towers is in good position to address both.
“We think that by us having a really robust, high quality tower portfolio distributed throughout the U.S., that portfolio is perfectly positioned for the cloud providers to push their cloud access out to those sites,” Smith said, adding the same goes for wireless carriers to do computing at the site, keeping base stations and connecting to cloud-on ramps at the site.
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He sees CoreSite as a way to boost growth rates on tower sites and extend that trend down the line as networks transition from 4G to 5G.
“We think there’s an opportunity to have a whole another revenue stream created at the tower site,” he continued. “And we think the reality of that happening for us is enhanced by having direct control over these 21 critical cloud-on ramps as well as these 32,000 interconnection facilities across eight key markets in the U.S.”
While acknowledging it’s still early days, American Tower has previously estimated that by 2026 the total addressable market for mobile edge will be around $1 billion while the metro edge will be approximately $2 billion – and expects meaningful expansion over time.