American Tower Corporation (AMT) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to our next fireside chat. And for those of you newly dialed in, welcome to annual RBC Global Tower and Mobile Infrastructure Investor Summit. I'm pleased to host a fireside chat with American Tower and with us today is Olivier Puech, Executive Vice President and President of Latin America and EMEA. Welcome. You've been to our event at numerous times in the past, this time it's virtual. We appreciate your participation.

Yes, good morning, Jonathan and good to see you even virtual.

So I'd like to start -- I mean, the reason for this is COVID, the reason for the format. And as somebody with responsibility for so many geographies, I love to just get a perspective on how, at an executive level, things are different for you and your team as you manage these different regions and countries? And then on the operational side, empathetically how COVID has had an impact?

Sure. Thanks, Jonathan. And again, welcome, everyone, and good morning. Good to see you. Well, as you say, a big, big change, of course, due to the new environment wherein we're in 20 markets globally. 18 of those markets are in Africa, Europe and Latin America. So just quite an adjustment for everyone, for me and for the team, of course, the customers to have to deal with this virtual environment. Surprisingly, I would say, maybe because our sector somehow has not been that affected, and the activity level has been very high, both on the M&A standpoint and the operational standpoint, we haven't seen any major disruption. Technology has helped. IT, in particular, for the way to communicate, whether it's video call, calls or other type of means to communicate, it's been fairly easy to continue operating well in the markets where we are. And then on the COVID front, I would say, of course, we had a couple of employees affected, no fatality, fortunately, across the company, not only all of international. So far, it has affected less than 1% of our population. So kind of online is what we see globally everywhere. Some markets, more affected than others, South Africa, Brazil, Mexico, India, of course, some [ countries ] like France and Germany, where we have no cases at all in our offices. So, so far, so good.

Thank you for that. So maybe just to level set, if you could remind us high level how you evaluate international investment opportunities as well as kind of your hurdle rates by geographies?

Sure. So we have a kind of 3 gating items we look at in every time we look at new opportunities in new markets. First of all, kind of the macro environment of the country where we're considering an investment. So the rule of law, property right, land rights, regulatory environment, size and age of the population is a matter as well when you look at kind of future growth. The second piece is more related to the telecommunication [Technical Difficulty], is it a competitive landscape in terms of number of MNOs and market share for all of those MNOs. How many tower cos are in the market. From a technology standpoint, what's kind of the current state in each of the market? Is it 3G, 4G? Are we moving faster towards 5G? And then the third piece, of course, is the opportunity itself. So the portfolio, the assets we're looking at in terms of potential for growth, quality of the assets, potential return on investment. So we look at those 3 factors, every one parameters. And then we take this assumption into 10-year DCF model, where we apply a rate of return, which is adjusted to the local cost of capital, depending on the risk level of the country. So Europe would be kind of mid-single digit, very similar to what we have in the U.S., LatAm would be low double-digit in average. Some markets are below 10%, some markets are above that. Then Africa, it's more closer to high-teens, if you want, some markets are even above 20%.

Great. And I guess as you evaluate the international portfolio, how do you think about maintaining a target mix of developed versus developing markets for region -- one region versus another?

We don't have really kind of this pre-established parameter. We need to do more develop versus more developing. Again, it's back to the growth rates and kind of potential for return on investment there. So if you look last year, for instance, 2 of the biggest acquisition we did was Eaton in Africa and the Entel portfolio in Chile and Peru. In both cases, they are in developing markets, not developed markets. Because we saw through the acquisition of all those assets or the entry into some of the markets in Africa, the best opportunities for us to get our return on investment. So we are not forcing, if you want a specific percentage or balance between developed and developing market.

So I want to let the audience know, as with prior panels and firesides, if you have any questions, you can type the questions into the portal and time permitting, I will have an opportunity to read them and have Olivier respond. Maybe turning to growth opportunities by region, how do you see that on a relative basis?

Yes. So back to your kind of COVID question. We've seen a lot of activities this year overall. It's been very busy, including on the M&A front, by the way. So again, because of the nature, for the industry we're in, I think there's been a lot of needs actually from the consumer markets, the governments, the operators for more traffic, more bandwidths. So we've seen a lot of activities. Level of maturity is different per region, obviously. So if you look at Latin America, it's a market which is mainly around 4G, starting to getting prepared to transition to 5G. Africa, it's underserved and underdeveloped still. We have 55 markets, 1.3 billion people. There's still a lot to do in terms of new build, in particular. It's mainly a 3G market, starting to move in some of the countries toward 4G. And then Europe, it's really preparing for 5G, more densification, more innovation in some of the markets where we operate. But in all cases, we've seen significant opportunities for additional growth.

What do you view as kind of a long-term growth rate that would be achievable on a blended basis?

Well, in general, we set in the company a target of trying to have internationally, including India, to be around 200 basis points above the U.S. in terms of organic growth rate. In some markets, we're above that. In Africa, we'll be close to 10% in terms of TBG and organic growth this year. We're around 7% in Latin America as a blend. We're a little bit below in Europe, which is more similar to the U.S. market with low inflation rates, in particular. But that's the target that we have. So to be between, I would say, 5% and 10% in general in the markets where we operate internationally.

And as we think about kind of the -- your bonus, let's say, as an executive across all these different regions, what are the sorts of KPIs that you're measured against that are kind of unique to your international responsibilities versus other ATC employees?

Well, in general, the executive team, we are incentivated mainly on return on investment and the growth rates are in the market where we operate. So it's really about -- that's why you have the discipline before making an investment on the profile of the portfolio we're looking at on the growth potential, not only about scale, market share, entering new market. Developed versus developing is really about the profitability of this portfolio over time. And that's -- those are the main metrics in which we are incentivating, myself, the CEO and the rest of the executive team.

Maybe drilling down into a part of LatAm. You've been in Chile and Peru since at least 2012. Last year, you agreed to acquire 3,200 sites in Chile and Peru from Entel. You roughly doubled your tower count in both countries. Are there changes going on in those markets that you could highlight that would make those more attractive investments today?

No. Look, I think we know where are those markets. We've been there for, as you say, around 10 years. So we've operated in both Chile and Peru for quite a long time. Scale was important for us. As you pointed out, with this acquisition, it's a significant leap forward in terms of the size of the portfolio. I think the profile of the anchor was also critical for us. Entel is an incumbent operator, in particular, in Chile, and a fast mover, disruptor in Peru. So the profile of this portfolio, for different reason in Chile and Peru, was very attractive to us, and it was natural for us to take a bet on those portfolio.

So maybe pivoting a little bit to fiber. You own fiber in a handful of international markets, primarily in LatAm, but also elsewhere. You've got the partnership with Telefônica in Brazil for fiber deployments, which they've indicated is for fiber to the home. Can you maybe talk a little bit about your fiber investment strategy and specifically the goals of your -- that you hope to achieve with your Telefônica partnership?

Sure. So this is part of a broader kind of innovation agenda that we have in the company. And I think we pointed out in earnings call and some of previous presentation, we are a tower co company, but there are potential opportunities to look at in the telecom infrastructure world beyond towers. So data center, fiber, IoT, densifications, and all things that we have to look at because it's just the future of our industry. So on fiber, and just to maybe to focus more on Latin America in particular, because this is a peculiar environment, we see 2 things. The first reason for our investment is, I would say, defensive. What we see is an evolution of the network into 4G, 5G, more densification, potentially small cells and so on. And the need for the MNO to fiberize those networks and to get them ready for the next-generation of networks. We have a lot of towers in Latin America, and a lot of those towers didn't have fiber. We have 30,000 towers between Brazil and Mexico alone, for instance. So fiber to the tower or fiber backhaul is a need that we see now for some of the operators in some of those markets, and having fiber ourselves to deploy this fiber to the tower was natural. That's the first, I would say, reason why we did that. The second is more opportunistic. What we see is an evolution of the ecosystem of the MNOs in Latin America with fewer bigger operators. We've seen consolidation in market like Brazil, Mexico and other markets, and COVID will probably exacerbate this trend. And those operators realize that to compete and to be relevant with the consumers moving forward, they have to move from being only a wireless player into a more converged operator, providing triple play and quadruple play services. That means that from the investments that used to be on the wireless network, they looked at fixed networks and, in particular, bringing broadband Internet to the consumers in their respective market. LatAm is way behind Europe and the U.S. in this area. So there is a need from the MNOs to do FTTH deployment. And the question, which, by the way, is not answered yet, but that we believe is worth having a look at is, is there a way for potential neutral host type of providers like ATC, play a role like in the tower co to provide the fiber capacity to multiple MNOs in some of those markets for them to compete for the consumers and for the services to the home. So that's where the partnership with Vivo in Brazil lies, in particular, is the need for Vivo in these cases, in the state of Minas Gerais where we acquired fiber assets to accelerate their competitiveness in fiber to the home to the consumers and to compete with the ISPs and the other operators for those consumer services. Will it grow into kind of a bigger network, whether it's in Brazil, Mexico, in other markets in Latin America? Due result, I think we need to prove the model. We, as an industry, not only ATC. But clearly, there is a shift and the need from the MNOs towards more fiber to the home type of services using GPON network in general to compete with better services.