Focus on Fiber Cuts Our Moat Rating for Crown Castle

Matthew Dolgin: In March, we cut our moat rating to none from narrow for Crown Castle. Our move was prompted by the firm's greater emphasis on fiber, which was accentuated by the acquisition of Lightower at the end of last year. We expect fiber, which accounted for only about 20% of companywide revenue in 2017, to comprise about 30% in 2018 and to continue trending higher.

Whereas we generally think towers--which make up the other part of Crown's business--benefit from an efficient scale and switching costs, we don't currently see similar competitive advantages in fiber, which is already in high supply, or in the emerging small-cell infrastructure that Crown sets up on the fiber.

We expect small cells to be attractive for wireless service providers looking to densify their networks, but we expect them to continually require significant investment, to the point where we no longer feel it's likely that the firm will generate excess returns on invested capital over the next 10 years. At current levels, we see the stock as overvalued and would advise investors to wait on this name.