American Tower Corporation (AMT) Earnings Call Transcript & Summary

Welcome, everybody, and good afternoon for the vast majority of you. Pleased to have Olivier Puech from American Tower with us for our fireside chat. He's the Executive Vice President and President of LatAm and EMEA, a veteran of our events. This year, we're doing it with him virtually for the second year. Welcome, Olivier and I appreciate your spending time with us.

As a way to kind of allocate the time, I think I'm going to go by geography and region. Starting off with Europe, and maybe ask you to give us an update on the Telxius acquisition and how the integration has been going so far on the European parts of it and particularly thinking about Spain and Germany.

Well, thank you, Jonathan, for having me and hello, everyone. Well, we're very happy with the integration so far. As you probably know, we just finalized the closing of the last tranche of rooftop in Germany in August. So it's still relatively fresh. Operationally, everything is running as scheduled. Cooperation with Telefónica is great. We've had a very kind of long-standing relationship with those guys. Initially, in Latin America through multiple acquisition and kind of market development there. And also in Germany, where we had a presence already with Telefónica Germany. So it was kind of the continuation of the partnership with Telefónica on [ steroids ], I would say now, given the size of the portfolio we acquired globally in the 6 markets across LatAm and Europe, but in particular in Germany and Spain because this is where the biggest chunk of towers is coming from. So, so far, so good, I would say, in terms of integration, Jonathan.

And then going forward, from a CapEx standpoint, white space build-outs other projects, what can we expect in those geographies?

So we're very bullish in Europe. We think that the timing of this transaction was the right one for many different reasons. I mean, first of all, the quality of the assets that we acquired from Telefónica and Telxius, in this case. Second, the geographies, we think that Germany is going to be at the forefront of 5G, for instance, in Europe, and it was critical for us to have a bigger scale there. Spain, this is the home market for Telefónica. It was also natural for us to have our presence there. And then from a growth cycle standpoint, I think Europe is starting now to accelerate, I would say, deployment on 5G. There's a big push from the regulators and the government locally to deploy and expand on the 5G side, but also in terms of coverage in some of the areas, especially rural and suburban areas that have not been well covered in the past in Europe. There's a big push from this government towards the MNO to act fast. So the fact that we have -- we now have a more sizable portfolio in at least 3 geographies, France, Spain and Germany. We think it comes at the right moment for those expansions.

And then from a financing partnership standpoint, talk to us a little bit about Alliance, CDPQ, a little bit of insight into kind of what role those sorts of partnerships provide as you look for future expansion in Europe?

Yes. So that's the same. It's part of the same story regarding our commitment to Europe and our willingness to keep growing there. Think of this partnership more strategically than financially speaking. Of course, they brought some capital for us to be able to close the transaction with Telefónica. But I think the spirit of the partnership is really a longer-term commitment in Europe. And the fact that those guys have been in Europe for a long time, Alliance is from Europe, it's German, big German heavyweight. CDPQ has had a long history in Europe, in particular, in France. Both of them have been investing in the telecom and technology sectors, whether it's tower, fiber or kind of other assets already. So there was a natural fit, I would say, in terms of the DNA of the 3 companies. And I would say the strategic intent we have for Europe moving forward. And I think this is the way you guys should be looking at it.

JV versus entirely on balance sheet within Europe, as an example, any sort of guidelines to keep in mind?

Look, I think, again, this is a spirit of partnership. So we look at a [ must ] opportunity, if not all opportunities together. There might be some situation where the returns are not the right ones collectively. There may be a situation where it doesn't fit with the profile of investments that some of those guys have. It might still suit our investment profile. But really the spirit of this partnership is to expand moving forward.

You mentioned closing the rooftop assets in Germany. What are kind of the high-level distinctions to keep in mind if there are any relevant ones as you see it between European German rooftops versus the conventional U.S. model?

Well, first of all, I think the timing for this transaction and the fact that those portfolios in Spain and Germany have a lot of rooftop has to do for us with the fact that 5G is in full swing in Europe. Europe is very different from the U.S. in terms of where the population are located. It's completely urban and dense type of population clusters. U.S. is a bit more suburban. So the importance of the right rooftop in the right locations probably bigger than in the U.S. And through the due diligence that we did in terms of the space allocated in terms of the kind of the property rights and the easement rights there in both countries, the space on the rooftop and so on, it fits with a great lease of capability moving forward. And the fact that the MNOs have to expand now primarily in 5G, primarily on these big cities, so primarily in rooftop makes us seem that we are in a good position to capture part of this new activity.

So sticking with major geographies, and then I've got a question about kind of more smaller markets within Europe. But there are some carrier sale-leaseback deals that have yet to happen Germany as an example. Are there any structural issues around market concentration that would prevent you post the Telxius transaction from continuing to scale up in that manner in Germany?

Well, in general, in Europe, Jonathan, before the Telxius transaction, we were only in France and Germany with relatively small portfolio. We have a very small presence in Poland. Now, of course, with the Telxius transaction, we will probably become bigger in Germany and the market leader in Spain as an independent telco. There's still a lot of space to grow in Europe, whether it's in some of those markets. or outside of geography, including in Germany. In Germany, you have the [ FMG ] with a big portfolio. You have Vantage, Vodafone with a big portfolio. So there is already significant competition, if you want, among the towerco in Germany. So we feel confident if there is the right opportunity with the right structure that we can keep expanding inside the markets where we are and outside of those markets if the right opportunity is there.

And then lastly, whether it's Eastern Europe, Nordics, elsewhere, what is the sort of return framework valuation framework that you apply when you think about using your our balance sheet capital to enter new markets?

Well, first of all, Europe, like the U.S. is a more stable environment in terms of FX, in terms of the macros, rule of law, even competitive environment, I would say, between the MNO. So that's the starting point. Then the criteria to invest are the same everywhere on the planet. It's about how many MNOs in the market? Is it competitive enough? Is there more spectrum to be allocated, the size of the population, the quality of the assets, the potential terms of the MLA to be signed with the encore tenant? That's one of the reason that's drove us to sign this transaction with Telefónica is that the profile of the Telxius asset, the location of those assets. And again, the timing of what it means for Spain and Germany, in particular, was fitting with the criteria that we have as a company. Now the rest of Europe, again, we have to see some markets are bigger than others. Some markets have more MNOs than others. Some markets already have several towercos and there's already a lot of competition. So some might have very stringent regulatory agenda. Some might not be at the forefront of 5G. So that's all kind of the type of analysis we're making before jumping at a new opportunity.

So I want to pivot over to Latin America, maybe focus on the 2 largest markets, Brazil and Mexico, both have had a lot of impact from COVID, economic-related impacts. Bring us up to speed on what's been going on in each of those geographies as it pertains to your macro tower business?

Yes. So just related to COVID since you mentioned that, Jonathan, and I'm sure I'm not the first one to mention that. I mean what's been interesting beyond the [ drama ] of the health situation globally is, the resiliency, I would say, of the industry and the sector in particular across the world, I would say, over the past 18 months. I think a lot of that has to do with the fact that the government and regulators have been supporting heavily, the MNOs, the ecosystem, the environment, the vendors, the partners to make sure that the connectivity is there for the people to continue work effectively moving from the office to the home. So we've seen continuous activity probably easier from a permitting standpoint in some cases with the regulators and the government accommodating the industry, the MNOs to deploy faster infrastructure, whether it's tower or fiber in every market. So that has helped, I think, greatly the environment. In the case of LatAm, I think we've seen a little bit softer activity on the BTS side. And again, it has to do with COVID. It has to do with the fact that getting boots in the ground in this COVID environment, especially the first 6, 8 months of 2020 with the lockdown has been very, very difficult. And the inflation rates have kept being steady and very high in most of the market. Vaccination rates have been very slow and very low to take up. Now we're at a point where we start to see around 40%, 50% of population in the big markets, at least being vaccinated, and we'll see -- we think some uptake in the BTS activity. On the colos, amendments even on the fiber side, on FTTH, we have seen a lot of activities from the players everywhere, whether it's Brazil, Argentina, Colombia, Mexico. And the other thing, I think, for LatAm, which might be unique in that region moving forward is the commodity cycle. So I think we are in the middle of the kind of super cycle for commodity pricing, which is helpful for Latin America. So soybeans in Brazil and Argentina, copper prices in Chile, oil for Colombia and Mexico. All this would be supporting probably faster, higher growth plus the domestic demand from populations that have been a little bit depressed for 1.5 years should help 2022. And then on the telecom side, the fact that some of the spectrum allocation, some of the auctions have been delayed by the regulator, government to the MNO breakthroughs the COVID cycle. That should also bode well for 2022 in the region.

And then I want to maybe ask a general question about M&A, just as I did for Europe, but what are the -- what's the current environment like? Do you expect a lot of activity in the sector in Latin America?

So for us, with 43,000 towers and the presence in 8 markets, of course, this is different from Europe, where we're only in 3 markets with a lower number of sites. They're probably all markets and subregions within LatAm that are not that appealing to us, I'm thinking the Caribbean or maybe the smaller market in Central America. It's too fragmented. So in terms of growth rates, it's probably below our investment criteria. If there is an opportunity arising in the markets where we are to consolidate our position or to strengthen the partnership with some of the big MNOs there, we look at it. We've been investing for 20 years in terms of markets, 22 years in Mexico and 19 years in Brazil. So we'll continue to look at it. But it will be certainly more difficult in LatAm on the tower space and it is maybe in another parts of the world.

And then from an anticompetitive structure in Brazil where you already have significant scale, is there anything preventing you from continuing to maybe acquire portfolios of size? Or is there structurally a little bit more of an obstacle in that country?

Well, the antitrust environment in LatAm is certainly one of the point to look at if we think M&A because of the competitive situation and market share we might have. Not sure in the case of Brazil, first of all, because you still have big MNO portfolios that are held by the MNOs. There is a lot of competition of independent towercos in Brazil, probably more than many other markets around the world, which is healthy and positive for the industry. And even if you look at the market share per state, which is the way they look at it in Brazil, in some state, we have a relatively low market share. So I'm not sure in the case of Brazil would be an impediment. In general, LatAm, of course, with the number of sites that we have and some of the market share that would be something to consider.

Switching to Mexico, a very interesting dynamic with Telefónica having moved to an MVNO model. Altan has had some challenges. AT&T is a company that you've partnered with in past years. But how do you see the kind of the different moving parts in Mexico as it pertains to organic growth prospects over the next year or so?

Look, we remain positive towards Mexico. We've been there -- this has been the second market where we deployed capital after the U.S. in 1999. We have close to 10,000 towers. We have fiber assets there. We have a very experienced team in Mexico, deep relationship with the existing MNOs. There is a huge population, 120 million people. It is a difficult market because you have an incumbent with very high market share dominating the market and making it more difficult for the other MNOs to compete profitably. But we remain optimistic. Altan is part of this restructuring, as you say. There's a lot of support to make sure that Altan will be successful in the marketplace from the current shareholders of the company from the government. There is this concept in Mexico of internet para todos, Internet for all, which is very strong for the unconnected part of Mexico, and Altan is at the forefront of this initiative supported by the government. There is a very strong support also from the Mexican government towards Altan as a wholesaler, if you want using the 700 megahertz band to serve the unconnected in Mexico. So for all those reasons, I think Altan has, in our view, probably a brighter future in Mexico. AT&T is there and very committed to the market. So this is a key partner for us. They acquired Iusacell and Nextel in the past. And since we had acquired the Nextel and Iusacell portfolio before that, naturally, there is a fit in terms of the partnership with AT&T. And Telefónica, they keep having some strategic commitment to Mexico in parts of the country. And contractually, most of our contracts are due to expire not before 2025, 2026. So there is still a long commitment, if you want from Telefónica towards the ATC infrastructure in Mexico. So all in all, yes, a changing environment, but the fundamentals of the countries, I think, are there for continued moves in the future.

And then kind of a region-wide question around América Móvil, when they spun off in Mexico, that was kind of fundamentally a different type of transaction. It's still largely carrier-captive tower company. It's not fully independent. But as we think about the contours of a potential spin-off of the rest of their LatAm towers across Brazil, Colombia, Argentina, Peru, Chile, et cetera. You operate in all of those markets. What impact do you think that could have on the tower landscape?

Look, we haven't seen any impact in Mexico where Telesites has been operating for some years, and this is a more difficult market because of the market share held by Telcel and AMX in Mexico. The other positive, I think it shows the -- I would say, the positive environment around the tower industry and the fact that some MNOs also thinking of carving out or separating this business to create more value. For me, the big question, and this is the same for AMX in LatAm as it is for the European operators and their captive is how do you really get this value creation to materialize over time when you're still serving your incumbent parent company as a main shareholder of the captive towerco. So I think historically in the U.S., it does not work. It is difficult. It is difficult operationally. How do you prioritize the kind of the workload on your tower between kind of the parent company needs and the other MNO to prove to the market that you're really an independent neutral host type of environment. So we'll see with AMX what it means. It's also difficult for them because it's probably the -- one of the few cases where that many markets are supposed to be now folded into this kind of umbrella captive towerco. In Europe, the [ FMG ] is just Germany. We'll see now with [indiscernible] and Vantage with our multi-country but less so than AMX is supposed to be with LatAm. It is complex. So jury is out, but we're optimistic in terms of our own activity on our sites in the markets where we are in LatAm.

It's been a number of years since you've been involved in to varying degrees in fiber across at least 3 countries in Latin America. But as we think about fiber, edge data centers, small cells, bring us a little bit up to speed about the company's strategy and then how that is manifesting itself within the regions where you have responsibility.

Yes. I think historically, we've been seen as a passive infrastructure company focused on towers. And this is what we are. This is our kind of bread-and-butter, our DNA and so on. But because we grew so much in terms of number of countries, the size in the portfolio of towers and so on, of course, there are opportunities to do more for the ecosystem. And the question is whether there's an opportunity for ATC to move from a pure towerco to potentially an infraco, where we provide support and services to our biggest MNOs beyond doubt. That's why we started looking at fiber. Initially, in LatAm because the demand was more, I would say, precisely well-defined there. There was clearly a shift in terms of CapEx commitment and market needs from the MNOs towards fixed broadband. And by the way, with COVID, this has been accelerating, right, the needs to have FTTH and to serve the consumers better. So there's more competition between the MNO not only on the tower wireless side but also to serve the consumers in the market. And this is where our assets in Brazil, Argentina and Mexico, in particular, have been useful because we've seen an increase of activity on the FTTH side. The model is still the same. I mean the idea is to have something very similar to the tower model in which we have neutral host, long-term contract, tier 1 MNO mainly focused on black fiber, FTTH and FTTT because then you have synergies potentially with the tower to make sure that once you have the tower fiber, you're ready tomorrow for small cells for 5G in densification. Regarding edge compute and small cells, I mean, what we see in general globally on 5G, Jonathan, is more 5G on towers for the time being. So less than using, let's say, right of ways, we're expanding through small cells in very dense environment, the primary target, at least for Europe, using rooftop and potentially greenfield towers for 5G antenna. Then we'll see if 2, 3 years from now, there is room to do more in terms of small cells. And there may be some projects like the Paris Olympics and so on, where it's more opportunistic to look at small cells. At edge compute, it's all about points of connection. We have 220,000 plus towers around the world in 25 markets. I think the belief of the company is the more of those points of interconnection we have, the more chances we have to serve the industry. The industry is moving towards the cloud and with low latency needs, there is a role for the tower to pledge in edge compute and this kind of micro edge data center type of environment we look at it. I think it's still to be defined. It's probably too early to tell.

Great. And maybe 2 minutes we have remaining, I want to kind of touch on ESG, maybe the E part of it. And obviously, the regions where you operate, particularly Africa, but not just Africa, there's a lot going on with respect to energy reduction and efficiency initiatives, battery storage. But any kind of highlights that you can share around recent or ongoing initiatives on the environmental side?

So that's a big, I would say, a focus area for the company. It's really around sustainability and particularly in Africa and India, where we -- since the grid is deficient, or sometimes nonexistent, we had to provide solutions for the operator initially with diesel backed generators that are very polluting, obviously. So we're shifting. We've been shifting those past 2 years towards more renewable, sustainable energy, better batteries like lithium ion for instance batteries, but also solar and wind energy. We just installed our first huge giant turbine on mega tower in South Africa, for instance, just to test the concept of wind energy to power our sites. So this is important to us. We spent more than $250 million on renewable energy on Africa alone this past few years. This is also very critical for our MNO customers. So if you look at the kind of the strategic agenda from the Orange, Vodafone, MTN and Airtel in Africa and India, it is top of mind to make sure that we shift towards small kind of a renewable energy type of agenda. It's tough because the more you grow, the more you build towers, the more power you need. And by the way, with 5G is going to be even worse because you need sometimes more power to power those sites with 5G antennas, but we need to fight away. This is part of the commitment towards environment together with the MNOs to do that in a way which is the right thing for the environment.

We covered a lot of ground. I appreciate you taking the time. Thanks again, and hope to do it again here.

Thank you, Jonathan, for having me. It's a pleasure to see you.

Thank you.

Bye.