American Tower Corporation (AMT) Earnings Call Transcript & Summary

All right, countdown counted down. Good morning, everyone.

Well done.

We're Zoom efficient [indiscernible] today, appreciate everyone's time this morning. Ric Prentiss, Raymond James, head of telecom services research. And obviously, the towers are a large part of that research. We're very happy to be hosting Tom Bartlett, CEO of American Tower, today. Tom, welcome.

Hey. Thanks, Ric. It's great to be here. Hopefully, we'll be live next -- at the next NAREIT event.

Exactly. So another virtual NAREIT right now. It does feel like the November 1 in Vegas might be live. I hope -- we'll knock on wood for that. It feels like we're coming out of the tunnel soon here in the U.S. I hope you, Tom; and your family; and everyone at American Tower is doing well; and everyone on the call today.

Absolutely, Ric. Our prayers go out to everyone.

I'm going to start there because obviously you guys have a large international business. And we feel good here in the U.S. I've gotten both my vaccines, feeling good about that; business travel probably starting back up, but people in other parts of the world are really still feeling the pain of this pandemic. You guys have a lot of business in India and Brazil. Can you update us a little bit about what is going on there and what the prospects look like?

No. Sure, Ric. We are. We're in just about 25 countries around the globe, and not everyone is doing nearly as well as we are here in the United States. And I think even in the United States we're not -- clearly not out of the woods yet. What's been so obvious over the last 12 months is just the criticality or the critical nature of having a broadband wireless signal. One of the reasons we're in these international markets is because the wireline presence is so small. In many markets, less than 10% of the population actually have a wireline number, and so the carriers themselves are committing all of their CapEx really to their wireless infrastructure. And in an event like we've had over the last 16 months or so, in terms of just how isolated it is, how people are alone -- people need health services. They need educational services. They need commerce. It's the resilience, if you will, of our particular business model has been incredible, and the governments and our customers realize it. And so our people are all considered essential services, essential personnel, so our customers and ourselves have been able to get out into the environment and to be able to get infrastructure on the sites and build new sites. Last year, we actually had a record-level build-to-suit year, and this year as well, but having said that, in markets like India, like -- and a lot of the Latin American markets, in particular Brazil, the infection rates are just incredibly high. Now I track them, as you would expect, on a daily basis. They are getting better, but they're still so incredibly high. Many companies like ourselves are trying to send everything that we possibly can into those markets, including vaccines, including oxygen, you name it, to be able to support not just our employees but the population at large. And the government is doing quite a bit, as you've seen, in terms of sending tens of thousands -- hundreds of thousands of vaccines to a lot of these different markets. And so we're monitoring it on a daily basis. Our customers are still again heavily investing in their infrastructure. We noted on our last earnings call that we are probably going to see a bit of a delay in India on the build program, but we would expect to be able to make that up in the kind of the balance of the year. But I would expect it, and I've seen on a kind of a daily basis, that our build programs are being delayed a bit, but other than that, there's significant growth going on. And as I said, it comes back to just the underlying importance of having a broadband wireless signal. And so as I said, the governments, the customers, ourselves, we're doing everything we possibly can. There were some issues, I think, from -- a little bit from a customer perspective, from a supply chain perspective, but I think, given the inventories that they have of equipment and of gear, they -- we haven't really seen any impact on any supply chain issues kind of around the world. And even on our own build programs, the ones that we are actually putting in the ground, we have sizable inventories to be able to meet that demand. So let's just pray that we do continually get out of this and that the each and every -- it's important for the world, for everyone to be vaccinated and for vaccines to be able to get into each one of these markets, so we're paying it -- day by day.

Great. It's been like a decade we've been doing these at NAREIT now as -- it's interesting. In the early days, people were like, what the heck is a tower? I think real estate investors now have gotten very well educated on the tower industry. You've become the largest market cap real estate NAREIT member out there, I think, still. What we get a lot these days, particularly from real estate investors, though, is help them stay current on what's the technology risk for towers. They hear on one side that fiber small cell is what 5G is all about. And is that going to make towers go away? And on the other side -- small cell fiber at the ground level. And the other side, we get people asking questions, well, what about satellites? Everybody hears about Elon Musk and SpaceX, Starlink. And aren't satellites going to cover the Earth, and aren't they going to make towers go away? So as you think of the coming at you high, coming at you low, how do towers fit into that technology risk positioning not just in the U.S. but then globally?

Yes. And Ric, we spend a lot of time looking at all of the disrupting potential technologies or disruptors themselves coming into and interrupting the kind of business model that we have in place. And I think the headline is that there is no better infrastructure from both an economic perspective as well as a propagation perspective, in terms of a quality-of-service perspective than the 150- to 175-foot tower. As we see 5G evolve, there's clearly going to be then -- and as well as the use of mid-band spectrum, there's clearly going to be the need for densification. And so we're going to see that evolve. Now small cells, I think, will play a role in that, particularly in your very dense urban markets, your New Yorks, your Bostons, your Philadelphia, even kind of the top half of the NFL cities kind of around -- I'm not sure Tampa Bay would make it in there, but many of the...

The Super Bowl champion Tampa Bay, okay.

Yes, those guys. So you will see small cells simply because you can't put a large site into a large, a very dense urban market. The towers themselves are serving 2,000, 3,000, 4,000 sites or customers; and so there's no better way to get that signal out in the most economic way than using that type of infrastructure. Satellites, I think, will be playing a role, but given a lot of the attributes of the satellite technology, it will be best used in those areas where the tower technology just isn't economically to be, on the oceans, in your very, very rural areas around the world. Think about the -- whether to have like a -- balloons or LEOs or even higher. There is a significant amount of latency that occurs between -- from a satellite down to the Earth itself, but one of the more challenging areas is that you have people moving and you've got the satellite moving at the same time. And that creates a lot of havoc with being able to provide a high-quality signal and it is also expensive. So you go back to the quality of service in the pure economics; and there is nothing like that 150-, 175-foot tower. And just to put it in some perspective: In the United States, we have 40,000, 45,000 sites. Our biggest customer is on half -- only on half of those sites, so there's a significant amount of capacity and a significant amount of room for our customers to actually go on sites that they're not on within our own portfolio, and the other tower companies are themselves. So from a densification perspective, the first place that our customers are going to look is to come onto a space where they're already at. They've already got infrastructure there. There's power there. There's backhaul there. They know it works. It's part of their overall radio planning, so the radio frequency planning, it's already established. And so when you look at the -- our customers here in the United States, for example, who are very aggressively rolling out 5G, they're going to go where they're most comfortable. It's like going home every time. They're going to be most comfortable going home to the sites that they're on. And there are large leasing agreements and arrangements that are already well established, and so from a time-to-market perspective, it's quite easy for them to be able to roll out the network. So I think that, as I said, we continue to look at this internally. We use external consultants as well to be able to look at all the various technologies. I do see a role for small cell, clearly. I do see a role for satellites. They'll fill a certain part of the market that's not being filled by infrastructure like ourselves, but the bulk of the traffic around the world is going to be supported by the tower infrastructure just as it has been for the last 15, 20 years.

[ Kind of ] the physics, yes. Okay, when you think about American Tower, you guys have not done a lot of outdoor small cells in the U.S. You do have some indoors. You're looking. You have fiber in some of your international markets. Help us understand your allocation of capital then, as far as if small cells will play a role, what role is that at American Tower's asset allocation.

Yes. No, as you said. I mean, if you look at our kind of nontraditional tower revenue, it's probably less than 5%. We do have more venues than anyone else in the United States and around the world in building. We're in a lot of sporting events, sporting venues, race tracks, casinos and those types of things. And that's proven to be good business, candidly. I mean it is a closed environment. It's our network. It's a kind of a neutral host type of an environment, so it fits the model that we're trying to build. When we think of a small cell -- and we bid on certain small cell projects. And if they financially make sense, we'll lean into it, but what we have found is that, given our complement of markets that we're in and the over 200,000 sites that we have, the better place for us to be able to drive value creation or return on investment is just replicating the model that we've built in as many markets as makes sense. It's known. Our customers are looking for it. It's a neutral host. It's based upon exclusive real estate rights. It's multi service, multi tenant; and we can control all of the inputs. And so when we are looking to allocate capital, probably the first place I'll look to allocate capital is on our build program. So we'll build 6,000, 7,000 sites this year. I've got a road map that we'll build 40,000 to 50,000 sites over the next 3 to 5 years. We generate double-digit ROIs right out of the gate with that kind of investment. There's no other model that will generate those kinds of returns right out of the gate. And then we'll be able to enjoy the growth in those markets as carriers continue to -- and other customers continue to come on those sites. So that's the best place, and so I'll invest as much as I possibly can into our build program. And then I'll look for ways to be able to expand and grow within those markets and even better scale. Telxius, the transaction that we just closed in Europe, part of it is also down in Latin America, is a perfect example. That's a model that looks exactly like the model that we have in the United States, a terrific counterparty in terms of Telefónica being the lessee on the sites. The sites look exactly the same as those that they do in the United States. We have certain ways of being even able to underwrite some of the risk in some of our international markets, more so than the United States, so for us that's a better place to be able to allocate capital. And so our chessboard, if you will, is much bigger than most other tower companies. And so we have a lot of maneuverability on that chessboard to be able to make moves and to be able to pick our spots where we can in fact drive incremental value where others might not have that same opportunity.

Okay. We hear a lot of acronyms in this industry being out there, the O-RAN; C-RAN; MEC, mobile edge compute. How is that impacting your business; and what's happening at the cell site, at the tower location? And then also what it's mean, as far as where you might look to put money.

Well, what's -- thanks for the question because what's really interesting now is the impact that 5G technology is really having on our business and our customer's business. If you step back and you kind of say, okay, what do we know for sure: What we know for sure is that wireless users over -- around the world are going to continue to grow at a very rapid pace. And we know that usage per customer is also going to continue to grow at a very rapid pace. I mean there are forecasts that are showing 20% to 25% growth in usage on a per-customer basis over the next 3 to 5 years. Think about your usage even 2 to 3 years ago. If you tracked it, you were probably using 1 gig maybe, 2 gigs. I bet, if you track it now, you're using north of 10. And the forecasts are for that to go up to 50, 50 gig within the next 3 to 4 years, so there's -- and then you multiply that by an increasing number of users, right? And so you look at that incremental demand. And the question is, okay, how are our customers going to be able to keep up with that kind of demand? And so you come back to the fundamental site. Each one of our sites on average is probably 4,000, 5,000 square feet. And so you look at what's happening as 4G has been deployed. And by the way, we're not even going to be around the world. We're not going to be a 90%, 95% coverage until -- for another 4 to 5 years, so we still have a long runway even for 4G around the world and even within the United States. And as 4G was rolled out, what did customers do? Well, as they did with really 3G and 2G, they added a lot more antennas up on the portfolio, on the site itself that required more fiber. They put more technology, radio units on the platform itself to improve the quality of service. By doing that, they had to improve the conduit that go down from the platform down to the baseband, so they added a lot of fiber. And so as customers have continued to deploy different bands of spectrum, they've just added more fiber and they've added more infrastructure to the site itself. And that's what we've really been enjoying over these last 3 to 5 years in terms of the rates of growth that we've seen in the United States. So along comes 5G. And if you think about kind of T-Mobile kind of leading the charge, particularly at the tower site level with their low-band spectrum, there was really just software that was required at both the platform itself as well as down at the site at the ground itself. And so now what we're starting to see in terms of being able to meet that demand is a lot more infrastructure, a lot more antennas. We're seeing MIMO, so instead of 1 antenna, we're seeing 64 small antennas. Well, that needs a lot more power. There's a lot of heat that comes as a result of it. And there's a lot more fiber that's coming down the site itself. And so customers are investing heavily and will be heavily with C-band to be able to meet that demand. And a lot of it will look very much like it did in the past by just adding more and more infrastructure and really starting to kind of virtualize what's happening down at the baseband unit. Again we're in a unique position because those sites are exclusive to us. We've got the exclusive rights to be able to use that land for decades, okay? And so we think we're in a really good competitive spot to be able to take advantage of that growth. What's interesting with 5G is that now customers have the ability to improve their economics, have to -- they're able to lower their overall total cost of ownership. And they're also able to increase the value proposition that they're going to be ultimately able to provide to their customers. They're able to reduce their economics because of O-RAN, right? They're able to open up the network such that they can now competitively bid elements of that network to a number of OEMs, as opposed to giving all of the keys to one OEM. And so I mean DISH is really taking the leading role on this because they are just rolling out a 5G-only network and they're really leaning into this. And we see this in other parts of the world, where customers are able to bid out all of this. It doesn't impact the tower company because none of that stuff is -- we don't play in that supply chain at all. This is infrastructure that they need from an electronics perspective to be able to deliver a signal. So we think that's really good, to the extent that our customers are going to be able to lower their overall cost because ultimately then they'll be able to then reinvest some of that available cash back into stuff that's going to impact us, i.e., adding antennas and radios and fiber and those types of things at the site itself. The other interesting element that is going on is that the baseband unit, which is really the [ guts of the brains ] at a given site, as you well know, is now being able to be disaggregated. And so there's going to be an element at the site that's going to be required, really hardware-driven. And then the software brains is going to be able to be someplace else. It might be at the site, but it might be at a neighboring site. It might be a central office. It might be at a cluster of sites that we have. It can be in a number of different spots, and that's where then all of those additional value types of services are going to be created. And as the cloud continues to be pushed out to the edge and all of those applications really cloud-created applications, taking advantage of that very low latency less than 5 milliseconds that 5G is going to offer, that's going to happen in that disaggregated CU or that part of that baseband unit. And so that's the part that we think is very interesting for us going forward. And we have a number of MOUs in place, trials going on. We brought compute power actually out to our sites. We believe that we can at least bring a 500-kilowatt capability to a site, but what our focus is on now is clustering sites to be able to get up to 2 to 10 -- or yes, 2 to 10 watts of power so that we can now provide a much more robust capability to either data centers, to cloud service providers, to MNOs, to whomever it might be. And that -- those are the trials that we're doing right now. So we probably have 10 sites, again maybe, yes, 500 kilowatts, maybe 1 meg, where we're really bringing in shelters and servers, customer servers, and providing them [ cages ] to be able to provide kind of a distributed compute capability. That's not what we think is the ultimate opportunity for us. We think the ultimate opportunity is going to be when we are able to create and on-ramp really to our existing wireless infrastructure for our customers to be able to then have access back to again another one of these compute facilities, a metro facility, a larger IBX, to be able to provide that kind of connectivity. So we're excited about it. As I said and as you mentioned, it's a couple of years away, I think, until that really develops, but we do think, given the kind of the exclusive real estate that we do have and the relationships that we do have with our customers, that we're in a very unique spot. And that's why, when I then consider what we've done just recently in Europe, what we've tried to do and what we continually are trying to do is not just creating value from our customers, for our customers in the local markets, but we think that -- if we can create a global presence in those critical markets around the world, that we can provide kind of a unique offering to somebody who is also trying to provide a unique capability around the world, whether it's a cloud service provider. Who knows what it might be? But we'll have presence in those critical markets around the world and we'll then be able to offer that kind of global presence to our customers.

Yes. And speaking of global, the big deal in Europe, predominantly with Telxius deal, changed your platform there. It went from small to large, brought in private equity sponsor as well to the whole European platform. How should we think about what your aspirations are in Europe? There's a lot of buzz about more M&A. The mobile network operators are maybe looking to shed assets. How should we think about what you see happening for American Tower in Europe?

Well, I mean what's intriguing to us right now is the growth of 5G in the market. And so where -- we've had 4,000, 5,000 sites in the region for a number of years. The growth rates have been in the 2% to 3% range. We see that doubling, and so we think we're at the right time to be able to enjoy that growth. We have presence in the critical markets in the region. There are still a couple of markets that we would like to be in that we're not. And so we're looking at that platform as one that we're really excited about growing it. We think that we have a great customer in Telefónica, so we're very anxious in terms of building that out. We've got terrific relationships with Orange, with BT, with all the players there. And so we're hoping to really be able to be positioned to enjoy really good organic growth, but our aspirations are to grow in the region. My aspirations are to grow in the regions. And so we actually have third-party capital, as you will know, supporting us here. And so we think that, that provides a -- even a broader platform for us to be able to put our hands on more sites in the markets either through build-to-suits as well as through M&A, but it's -- well, who knows? We'll see what it looks like, whether we're able to secure those kinds of portfolios at attractive rates. And that -- we're very patient. We're there for the long haul. We found that a lot of assets that trade -- and we're not one of those participants. After a couple of years, a lot of them come back into the market. And so then we're able to -- so we're there for the long haul. And we'll do it very deliberately and thoughtfully, but our aspirations are to grow that market.

Yes, sounds right, got the right platform now. One other question we get a lot and on this one is digital infrastructure used to be towers. Then it was data centers, hyperscale data centers, fiber, small cell. It seems to be a lot of people talking about is it converging. Is it important to have a combined here is my tower, here is my small cell, here is my fiber, here is my mobile edge compute? Or is it à la carte? How should we think about how you're going to go to market and getting that growth rate that you see?

I'll come back to, if anyone leaves with anything after this half hour, our competitive advantage is our exclusive real estate rights, right? And we have that on a global basis. And as a result of that, we're able to provide multiservice, multi-tenant neutral-host types of services. So everything that we see that can be done within that moat that we have around that very specific longitude and latitude makes a heck of a lot of sense to us. To the extent that we start reaching into other areas where there's a lot of competition for it and varying levels of usage, varying levels of it being a multiservice or multi-tenant type of an offering, that's not that interesting to us. We want to build everything from in, out; and so we want to leverage the platform, if you will, that we have, the 220,000 platforms that we have around the globe. And for us that's where simple things like power generators, simple things like edge computing can reside. And that's the place where we think we can create the most value. That's the place where we think we can provide the most value to our customers, and so everything that we'll do is going to be centered there. There may be some fiber that -- coming into it, Ric, and coming into the site, which is going to obviously be required for -- not just for 4G but for 5G, but -- so there will be fiber elements of that. And we've done some of that work ourselves for our customers, but everything will be centered within that exclusive piece of real estate.

[ All right ]. And so good growth in Europe. Mobile edge compute still may be a couple of years away but sounds like some good opportunities for you guys; look for more expansion into markets, particularly in Europe. What's the one thing besides just the competitive advantage that you want investors to know about American Tower?

I mean it really is the model itself that we have that is not just within the United States. It is global. And I'll come back to the -- kind of the real estate exclusivity. As I said, if I'd like anybody to leave with anything, it's knowing that we've got the exclusive pieces of real estate that are integral to our customers rolling out their wireless signaling in this world that's transforming digitally. And so we think we're really uniquely positioned to be able to support them not just in the United States but around the world.

Great. I think we just hit our allotted time. So appreciate your time today, Tom.

Okay, great, Ric. Yes, thanks...

I hope you and your family and employees stay well and look forward to when we can actually see you in person. And hopefully, that's November, at NAREIT; and some other events that we have coming up.

Look forward to it, Ric. Thanks, as always.

Everybody stay well. Have a great day.