American Tower Corporation (AMT) Earnings Call Transcript & Summary
August 9, 2022
Earnings Call Speaker Segments
Gregory Williams
analystGood morning. My name is Greg Williams. I cover telco and comm infra here at Cowen. Joined for this session by Steve Vondran, the EVP and President of the U.S. Tower Division for American Towers. Steve, thank you for joining.
Steven Vondran
executiveThanks. Glad to be here.
Gregory Williams
analystGreat. I want to start with demand in the U.S. and organic growth. On your earnings call, American reiterated U.S. guidance and expects the second half and a 2023 acceleration in U.S. gross bookings. Just help us understand this confidence. Is it primarily the MLA mechanics? Is it an actual increase in carrier activity? Or is it both?
Steven Vondran
executiveSure. So we reiterated our guidance for 2022 of approximately 1% OTBG in the U.S. for 2022. And if you look at the contribution from new site leasing and amendments to that, about 75% of that comes from historical growth from 2021 and from our comprehensive MLAs, meaning only about 25% of that is variable activity from 2022. So as we look out over the course of 2022, the combination of couple of things. One, when a customer transitions from a comprehensive agreement to pay by the drink, it affects the ramp of that toward the back half of the year, because that's one of the factors playing in. But also, we are seeing robust demand from all of our carriers throughout 2022 that gives us the confidence to reiterate that guide. And if you think about what goes into that guide, and kind of the back half of the year, we're expecting the back half of the year to have about $40 million of contribution from new site leasing and amendments versus Q1 was about 36%, Q2 was 30%. So that's an acceleration toward the back of the year, and that will also play out for you next year.
Gregory Williams
analystRight. So that's my next question. Is this $40 million you exit the year with. Do you think it remains in that level thereafter, increase from there? Can you help us out with that?
Steven Vondran
executiveSo I don't want to try to give guidance for 2023 yet. We'll do that in February. But if you look at the long-term expectation that we set out for organic growth in the U.S., we messaged that we expect it to be at least 5% on an average basis from 2023 through 2027. So if you factor in our 3% escalator that we have contractually committed, and you factor in the historical churn, which is kind of toward the low end of the historical 1% to 2% and then factor out the spread churn, you'll see that you can kind of know what those new business expectations would be. So we do expect an acceleration in organic growth in 2023 and beyond as we've mentioned.
Gregory Williams
analystFair enough. You mentioned pay by the drink earlier. And as we think about that, you have an MLA with AT&T that was a comprehensive one. And T-Mobile and DISH, but not to Verizon. Just help us with an update on whether American is in discussions with the new MLA with Verizon? Are both parties content to proceed without an agreement in place?
Steven Vondran
executiveLook, we're in constant conversation with all of our customers. The ink doesn't even dry on the contract before you're talking to them about the next one. So you can -- rest assured, we're talking to all of our customers all the time about their network needs. Verizon did transition off of the comprehensive portion of their MLA at the end of the year last year. So for 2022, they've been in a pay-by-the-drink scenario. And I wouldn't rule out the possibility we might do something comprehensive with them. But we're perfectly happy. We think that we can maximize NPV either way, whether it's paid by the drink or into a holistic structure.
Gregory Williams
analystRight. I know you can't speak on behalf of them, but you've done this before. I mean, whether Verizon want to have an MLA? They're about to unleash kind of C-band over the next 2 years. Just maybe understand the pros and cons of what it is for the tower to carrier and MLA?
Steven Vondran
executiveSure. Look, it's a classic negotiation where you're looking at the value on it. Our opinion is these comprehensive agreements are, if you can get to the right economics for both parties, it's the most efficient way to deploy a network. You get a ton of operational efficiencies by not having them back and forth of the pay-by-the-drink pricing. So our preference, I guess, from an operational perspective to help them out, would be to be in that type of a structure. But it's a classic negotiation. And when we look at these MLA negotiations, we're not looking to leave money on the table. So as we're negotiating these type of holistic agreements, we put a ton of work into trying to figure out what would happen in the pay-by-the-drink scenario. We've got historical references. We've got some RF engineers who help us look at the difference of the different spectrum bands. We talk to the equipment manufacturers. We put a lot of work into figuring that out. And so we have a really good visibility into what we think that activity level is going to be. And so when we negotiate with the customer, we kind of lay that upfront because we think it's going to happen. Here's what it looks like in a PxQ scenario. So here's the value we're looking at. And that's usually where the discussion is. They may not...
Gregory Williams
analystSo the operational efficiencies are there, but it could be advantageous for American to hold off on an agreement and have Verizon sort of pay by the drink. Or is it just more expensive for you guys to actually help them to deploy it?
Steven Vondran
executiveWe think that we're really good at evaluating what pay-by-the-drink looks like. So we're pretty agnostic as to whether we sign a holistic format from a mathematical perspective. It does smooth it out a little bit. If you do a holistic, it protects your downside, if there's an economic downturn or something like that. But we don't think that we're discounting when we do those. So we're pretty agnostic about it.
Gregory Williams
analystGot it. I want to look into AT&T. There seems to be mixed messages with AT&T. On one hand, they previously noted, I think in the first quarter call, they're waiting for dual-band radios to be ready this summer. But on the recent earnings call, they seemed to suggest that they're going to see some massive C-band acceleration in deployment, especially next year to cover the next 100 million POPs. Meanwhile, on your earnings call, you sort of noted that AT&T was at a "I think steady, solid pace and nothing new". Just help us understand what AT&T is doing in terms of activity and will it accelerate from here?
Steven Vondran
executiveSure. Well, I have to be careful not to talk about my customers' deployments contrary to what they're doing. What I would say is that we're under a comprehensive agreement with AT&T. So we have very good visibility into their contribution to our results regardless of any spikes or troughs in their activity. Having said that, we continue to see a good pace of activity for all of our customers, and it's right in line with the expectations that we had when we negotiated those agreements. So we're not seeing anything that surprises us. It's pretty much what we think of what's going to happen.
Gregory Williams
analystAnd that includes DISH as well. If you -- you can't talk too much on carriers, maybe just talk about the meeting the 23 shock clock and what you're seeing?
Steven Vondran
executiveYes, it's the same scenario. DISH, we're in a long-term comprehensive agreement with them. So we had very good visibility into the contributions that they could provide. I would point out that any time you're building a network, there's some ebb and flow in terms of leasing activity, because you focus on leasing for a while, then you focus on building what you leased, then you go back to leasing. And with our comprehensive agreements, it smooths that out a bit. Now what I would also point out with DISH is our long-term expectation we set out is our contractual baseline. So...
Gregory Williams
analystRight. 20,000 towers.
Steven Vondran
executiveYes. So if they're able to overachieve that, if some of their aspirational goals come through, we hope they are, we're very supportive of what they're trying to do, there could be some upside if they surpass what we expect them in the...
Gregory Williams
analystRight. If you believe those Vegas numbers of getting this $30 billion TAM of this P 5G market and they're going to get like 20% of it. It seems like they'd need a lot more than your 20,000 towers in Crown's Towers?
Steven Vondran
executiveI hope that's correct. That would be a great result.
Gregory Williams
analystThe other side of that, though, says that the P 5G use cases are still years away. We heard it on 2 panels go here about edge compute. The stuff is going to happen. We're still in early days. So you don't want to spend too far ahead, you don't want to spend in 2022 and 2023 for something that's going to happen in 2026. Curious to hear your thoughts if maybe -- and that is not just DISH, it's all the carriers, maybe not spend so much ahead of a market that's not there yet.
Steven Vondran
executiveWell, that's where these comprehensive MLAs are very helpful, because you're protected against any of the ebbs and flows that you may see in terms of build activities while still capturing that long-term NPV that you have gotten and pay by the drink.
Gregory Williams
analystRight. I also want to talk about the CapEx for these carriers. All big 3 carriers are promising CapEx declines in 2023 or even 2024 and beyond. And one of the arguments is that it will come out of the towers opportunity as each carrier completes the respect of mid-band coverage, they paint the map with red or blue. And the counter argument is that carriers are going to pivot from painting the map to one of the densification, so you'll still get a lot of business. So what are your views on how the cycle looks year 3- and a 10-year cycle in terms of your long-term growth rates? I think you said 5% in 2023 to 2027. Do you think it's steady, lumpy? And how do you reconcile that with the CapEx declines by the big 3?
Steven Vondran
executiveSure. Two questions there. Let me address the lumpiness first. So I wouldn't necessarily call it lumpy. But if you look at our churn in particular, we said that 2022 is the high watermark for churn from spread, but we do have some churn continuing into '23 and '24. So the growth -- you'd expect the growth to accelerate coming out of '22 into '23 and then to further accelerate when the churn finally completely rolls off. In terms of how we see the carrier build-outs going and any lumpiness there, we view 5G very similar to going from 2G to 3G and 3G to 4G. And that is the carrier start out with the paint the map strategy. That's typically amendments on existing sites where they deploy a coverage network over their existing sites, and they typically do pivot to fill-ins to improve the quality of the network and sometimes there can be additional new sites, sometimes it's augmenting existing sites. And then once you see the adoption of the technology and the 5G handsets getting into people's hands and they're using the network actively, and you do have some of the use cases, that's when the capacity adds come in. And again, that comes in the flavor of both the amendments to the existing sites and also new sites. And so we see 5G playing out very similarly to 3G and 4G in terms of that build.
Gregory Williams
analystRight. And you alluded to my next topic on the mix of new colo versus amendments. I imagine DISH plus this whole mid-band carrier deployment has shifted your bookings mix from -- towards new colos as they expand, again, paint the maps. But what's your mix of new colo and amendments today? And where does it go, you think, in 2023 and beyond?
Steven Vondran
executiveYes. So we don't break that out separately anymore because in terms of our comprehensive agreements, the way the economics work, it's a mix of new sites amendments sometimes, sometimes it's just amendments. We have seen, as you alluded to, more new leasing coming predominantly from DISH but also from others as they have done a little bit of fill-ins and some coverage increases. Again, as that transition from the initial phase of 5G goes to fill-in, we'd expect to see even more of that.
Gregory Williams
analystAll right. I wanted to shift gears into just the macro environment. Inflation, we'll start there with this -- well, we have a 5G up-cycle and record spending, we obviously have our challenges. Just on inflation, the large tower operators are honoring that 3% escalator. It was a friend of many years. Now it's like a foe as we go well beyond 3% in terms of inflation. If inflation remains at the high single digits for a prolonged period of time, would you revisit this 3% escalator with the carriers?
Steven Vondran
executiveYes. So as you said, we've enjoyed having a 3% escalator for fixed in our agreements. I'd also note that the escalator is fixed around that level and our land leases as well. So when you think about our direct expenses, the land leases are say 65% to 70% of our land expenses. So we have some good margin protection there.
Gregory Williams
analystAll right. How about wage pressures, I mean, are you anticipating any wage pressures?
Steven Vondran
executiveIf you look at our SG&A as a percentage of revenue in the U.S., it runs right around that 4% mark. So it's not a huge driver of margin pressure for us. So like everyone else, we've seen a little bit of pressure in terms of wages, but it's not material to our results. So we're not really worried about that.
Gregory Williams
analystAnd then how about equipment? Are there equipment shortages with either you or your carriers deploying? Are there any bottlenecks that's impacting your business?
Steven Vondran
executiveWe haven't seen anything that's material to our business yet. We haven't had any material adverse effects. We've seen a little bit of delays, in particular, on the data center and in the building side, we've seen some elongated time lines. And what that's meant for us is we have to be a little more proactive about ordering things further in advance, and we have started to stock a little bit of inventory, which wasn't our typical practice before. But at this point, nothing that's really significantly impacting our results.
Gregory Williams
analystWhat do you warehousing? Because I understand like a Verizon or a carrier to warehouse saw the radios steal?
Steven Vondran
executiveWell, for us, again, because it's predominantly in building and in the data center side. It's going to be cabling and probably cabling, but then maybe some radio units, things like that, but it's not heavy inventory. It's small dollars for us.
Gregory Williams
analystAnd on the labor side, any labor bottlenecks?
Steven Vondran
executiveAgain, maybe some elongated time lines. And that's probably pressuring our services business more than anything else. So it's having a very minimal impact on our services margins right now. But we're not seeing anything that meaningfully impacts our guidance or what we think is going to happen in the future, just a tiny bit of pressure so far.
Gregory Williams
analystGot it. And another...
Steven Vondran
executiveBut I would just say, we're watching all these things, like these are evolving situations. So we're watching both supply chain and inflation and kind of labor markets because we want to be there to react if something does change.
Gregory Williams
analystRight. And the other topic about the macro challenges is the recession. Yes, there's a fear that the carriers could curtail spending in a recession in this rising rate environment. It just seems though that they're going to have to keep up with each other in terms of network and so that -- you might be more recession proof, but I'd be curious to hear your thoughts.
Steven Vondran
executiveWell, again, that's where having these long-term conference agreements is a good thing for us because we do have a lot of protection on the downside if they did pull back. However, I -- if you look historically, when we've gone through some economic downturns, you haven't seen the carriers pull back that substantially. Because if you think about the rising mobile data usage, the competition they have in the U.S., they tend to go ahead and build through. And our carriers just spent a lot of money buying spectrum. They're not going to let that spectrum lie [ fallow ]. They need to compete, they need to build 5G. And so I would be surprised to see a major pullback. Even if they did, we're fairly well protected with our conference of agreements.
Gregory Williams
analystRight. And we see more spectrum even today. We saw T-Mobile pick up another 600 megahertz swath. And of course, you have an Auction 108 as well. How big is Auction 108 you think in terms of your business with T-Mobile?
Steven Vondran
executiveWell, if you look at the 600 megahertz they bought today, they're largely using that spectrum. And with Auction 108, I think it's TBD. It depends on what they do with it. And it's not the major metropolitan markets for the most part. So it will depend on how aggressively they build it. But I'm excited any time spectrum comes to the market, it's good for our industry. It's good for us. It's good for our competitors. And so we like to see spectrum auction.
Gregory Williams
analystSure. I wanted to pivot to CoreSite and the edge. Help us with the concept. The idea isn't really to interact with tenants at the base of the tower, but it seems some low-latency edge compute applications and cache storage could be there. And then if it needs to be backhauled to, of course, a cloud on-ramp, you'd be there. So help us with the concept and why you needed to own that process?
Steven Vondran
executiveSure. So first of all, when it comes to edge, it's confusing because people use edge to describe a lot of things.
Gregory Williams
analystSure. So how do you...
Steven Vondran
executiveYes. So we talk about it in terms of multiple edges. So eventually, the mobile edge, we think will exist and you will interact with things at the tower site. In the meantime, the edge is actually happening much closer to the core today. So you have peering that's happening inside the large data centers, interconnection, and that's the edge to some people. The next version of the edge that we're seeing sort of evolved today is what we call the Metro edge and that's going into Tier 2 and Tier 3 markets. And it used to be that the drivers in those Tier 2 and Tier 3 markets were content delivery networks, people who are caching a football game or a movie, something like that. But we're seeing more demand in those Tier 2 and Tier 3 markets, partially driven by latency, but also driven by the vast piles of data that people are producing. When you think about things like machine learning, AI, digital twin technologies, so the more robust, visual editing stuff that's coming out there. It creates a lot of data and it's expensive to move that data back and forth. So it's actually cost savings to not move those petabytes of data around. So the Tier 2 markets are a little bit more of a nearer-term opportunity potentially. And we're exploring that and the evolution out. The way we see it evolving is kind of a hub-and-spoke model. So you start with a company like CoreSite and then you'll see spokes going out to this Metro edge and then spokes going out from there into a further edge and eventually getting out to the cell sites. Now with CoreSite, it's important to understand that we underwrote that acquisition just on the value of CoreSite. So we look at the business, we look at the potential for growth there. We looked at what we thought we could do with that business, and we underwrote the purchase price just on that. So anything that we realize from edge or any international expansion would be upside to this business case. So what we think that gives us an advantage with the edge is this. When you start talking about deploying smaller facilities at the edge, they have to be interconnected back to a robust ecosystem. And if you don't control that connection back, there could be a value transfer from whoever is owning the edge facility to who is controlling the interconnection back in the centralized facilities. So we think by owning both ends of that, that gives us an advantage in being able to bring a more economic offering to the customers at the edge. And we think with the edge, whether it's at the tower site, at the Metro edge or wherever it's occurring, the most economic model will be a neutral host model like we have at the tower sites, where you have an independent third-party owning it versus having each carrier trying to peer with each of the on-service providers.
Gregory Williams
analystSo this Metro edge example, into Tier 2 and Tier 3 cities, will you need to build more in terms of CoreSite data centers or...
Steven Vondran
executiveLook, it's early days. We're trying to figure out what makes the most sense there. It's an opportunity for us. We haven't capitalized on it yet. But when we're talking about edge, we're exploring all different versions of the edge. And when you hear us talk about some of the things like the tower sites that could accommodate 1 to 2-megawatt facilities, for example, that's really an internal assessment of feasibility where we're looking at it saying, what's possible.
Gregory Williams
analystRight. So these 1 to 2 megahertz cuts at the towers. Are they actual -- is this a trial? This is a proof of concept sort of stuff?
Steven Vondran
executiveGot it. At this point, we haven't built any of that size. We have 6 edge data centers, a little bit smaller than that, that we've built. And that was really just to create a sandbox to let some folks come play and see how it worked.
Gregory Williams
analystAnd are you seeing early use cases with this sandbox?
Steven Vondran
executiveI'd say right now what we're seeing is people interested in trying to figure out the challenges of the ecosystem. When you go from an environment like CoreSite, it's very well controlled, security, all types of ISO certifications to something that's remote based and unmanned, there are challenges that come with that. And so we built those to really bring people in to say, what are the challenges? How do we overcome them? And we do have partners who are interested in helping figure those out.
Gregory Williams
analystAnd when do you think American is going to see revenue in this technology and move the needle, I mean is this 2 years out?
Steven Vondran
executiveLook, if I commit to that, then my CFO is going to put it in my budget, so I'm not going to commit to that.
Gregory Williams
analystFair enough. Does anybody in the audience have any questions? No. All right. I have plenty more. Maybe talk about fixed wireless access and cable. Are you seeing any notable demand in this fixed warehouse space? I assume Verizon and T-Mobile fixed warehouse is leveraging mobile infrastructure, and it's a fallowed spectrum argument. So I don't necessarily see additional business there. But on the cable or the smaller WISP side, when you add that together. How big is that? Is that like another extra carrier if you add them up, or is it...
Steven Vondran
executiveSo let me start with the major carriers. I view the fixed wireless for those major carriers as another use case driving demand on the 5G network. So again, that's -- it's good for towers because it will create more demand for the network. And maybe it will get us to that capacity phase quicker because of that. When you look at the smaller wireless internet service providers, they're providing fixed wireless. They've been doing that for years even before 5G came around. And so we have what we call our vertical market segment. And in a given year, it could be 10%, 15% of our sales. It's -- it's not that material. But WISP is a decent percentage of that. And in particular, we've seen an increase in the WISP builds over the past several years, mostly because of some of the government funding. So there's the Rural Development Opportunity Fund, RDOF, other programs like that, that have helped kind of propel that industry. So we do think there's opportunity there. We are seeing some of those experiments with CBRS versus some of the spectrum they were using before. And ...
Gregory Williams
analystHow about cable deploying CBRS? Are you seeing any of that? I mean, it seems like you'd be in the right spot, a couple of rooftops?
Steven Vondran
executiveLook, I think it's early days. I think you have a lot of people playing with CBRS. And at this point, I think it's premature to project how material it's going to be. But if you look at our expectations that we set out for that '23 to '27 period, that's based on the visibility we have today, so things we don't have visibility to would be incremental upside to that potentially.
Gregory Williams
analystRight. And we just had Verizon speak here about 30 minutes ago and talked a little bit about O-RAN, and I'd be curious to hear your thoughts. You anticipate any of the carriers deploying O-RAN equipment on your towers in this 5G upcycle. Other than DISH, who we know is big time...
Steven Vondran
executiveWell, I missed that presentation, so I feel like I'm going to trap here. But look, I think that if you think about what O-RAN is and it's an attempt to open up the networks, right, to more access points and then also the ability to get away from bespoke BBUs and get into something that's a little bit more generic in terms of the equipment. Overall, I think that could be a good thing for towers. It wouldn't be a negative for us. It's similar to C-RAN. We're not going to see a decrease in the rent for our towers if it decreases the ground space that's there. But it could improve the CapEx position of our carriers if their equipment is cheaper to deploy. So I think overall, that would be a good evolution.
Gregory Williams
analystRight. I mean how does it impact your business? If you go V-RAN, O-RAN and your own proprietary equipment?
Steven Vondran
executiveYes. Again, for us, ground space is not a huge driver of our rate structure. So going to less ground space, using more virtualized radios, things like that. We don't view that as being negative at all. It's just an incremental upside because again, if it's cheaper for carriers to deploy sites, maybe they'll deploy more of them.
Gregory Williams
analystGot it. Yes. So cloud native solutions will take a lot of equipment away and put it in the cloud, but you're saying that that's not a big portion of your revenue anyway.
Steven Vondran
executiveNo, it's not. It's incremental upside for CoreSite.
Gregory Williams
analystRight. Okay. Got it. And tangentially, just talk about shared networks. It seems the idea of shared networks could be an existential threat to the towers and the tower growth. We see the dynamic overseas. Do you foresee shared networks as a possibility in the U.S.? DISH could become a big facilitator of it?
Steven Vondran
executiveLook, we haven't seen the propensity in the U.S. for network operators to share and there's certainly more elements of the infrastructure besides O-RAN that could be shared that aren't today. So we're not seeing that trend in the U.S. Internationally, we've talked about we have seen those trends and that we have seen a greater propensity for network sharing. In general, in most of our contractual agreements, we have some protection from that. And it enables us to either monetize network sharing is on a per site basis or maybe something that was negotiated until like an acquisition document that gave them that value upfront. And we've talked about our experience in Brazil, where we've seen some network sharing happen, and we've been able to monetize incremental revenue from that. So broadly speaking, we're going to work with our customers wherever they are, to meet their needs. If customers in the U.S. decide they wanted to do some network sharing, we'd entertain those discussions and we would make sure that we price it accordingly to get the right NPV that works for us and also for them. So it's not something that concerns me.
Gregory Williams
analystAnd you said you have not seen any shared networks with the big carriers in the U.S. But why do you think that is? Is it as simple as security and control enjoying $50 ARPUs today?
Steven Vondran
executiveLook, I think there's a competitive advantage in terms of how our customers compete and they compete on network quality. So I think that to some extent, the sharing would impede that competition. I think $50 ARPUs are certainly helpful. The pressure to do that is not here. But I think overall, the way our carrier customers have developed their networks just didn't lend themselves to that. They don't have the same types of overlap. They've different spectrum positions, they've different customer bases. So I just don't see the impetus in the U.S. to do that at this point.
Gregory Williams
analystOkay. And then moving on to just indoor DAS and you have an indoor DAS business. While you veered away from small cells and you went more international. And companies like Crown decided to open small cells, but there could be an opportunity for more shared deployments in terms of the CBRS space and indoor use. Help us just articulate the opportunity for American in terms of CBRS or any other spectrum in the indoor DAS solution space?
Steven Vondran
executiveSure. Well, I'll touch on small cells first because you brought it up. Because we do continue to look at the space, we evaluate it. And we just haven't found that market changing in a way that we find compelling to change our strategy. We still think we have better opportunities to deploy our capital internationally and with other businesses in the U.S. When it comes to the in-building DAS business, it's a great business for us. It's a small business. And we also have some outdoor DAS businesses as well. And we're certainly looking at opportunities to expand the TAM in that market. And when you look at things like CBRS and even some of the new Wi-Fi technologies, we're experimenting with that. And we're looking at O-RAN as a possibility for opening up some private networking shared networking there. And we're working with various parties on it. At this point, I think it's too early to say how meaningful that's going to be. There's appetite to look at it and play with it. But for the traditional venues that are already covered by DAS, the quality of the service you get from DAS just isn't replicating those other technologies yet. So we haven't seen a move away from those technologies in the existing facilities.
Gregory Williams
analystYes. Plus it's a tough business, right? I mean, it's a lot of -- it's labor-intensive, it's building by building, hard to scale.
Steven Vondran
executiveIt takes time. We've been in this business. We bought SpectraSite in 2005. That business came with that, and we've been able to slowly grow it over time. And it's a good business. But yes, it's not something you can get to 50,000 in easy fashion.
Gregory Williams
analystRight. And you mentioned that you haven't seen much change in small cells, and that's been a theme already at this conference, the actually last few months just the lack of growth in the small cells in the U.S. So right now, it seems like the right decision. But going forward, if we see a proliferation of new use cases that need it, you still find it challenging. Just help us articulate the challenges between small cells in terms of ROIC, return on capital, and time to deploy and why you chose not to go with that route?
Steven Vondran
executiveSure. Look, again, I'm not saying it's a bad business at all and you can earn a decent return on it. We just think we can earn better returns on the other places we have to deploy our capital. And we do look at it. We take a new assessment every year to look at it to see. The main characteristic it doesn't have the towers have, is multiple tenants. And when you build a macro tower, you can get multiple tenants. It's -- we've all proven that to be something that has borne out over time. And we just haven't seen that dynamic proliferate in small cells.
Gregory Williams
analystRight. Because you're saying the network topology of the small cell is pretty bespoke. T-Mobile might want to turn left down the street and Verizon might want to turn right down the street. That's sort of the idea?
Steven Vondran
executiveYes. It's bespoke. And again, we just haven't seen -- we haven't seen or prove out the model yet with multiple tenants on it.
Gregory Williams
analystGot it. We mentioned CoreSite, we mentioned indoor DAS. I'm just curious if there's another way for American to play in this enterprise 5G space that we're not thinking about.
Steven Vondran
executiveIf you have any ideas, I'm all ears on it. We do have a platform extension team who is looking at a lot of different options there. Look there are a lot of people, a lot of companies out there that would like to play in the end building space and like to market directly to the people in those venues. The challenge is no one use case that we've seen is going to justify the cost of a build. So it's a little bit of an experimentation to say, if you build it when they come, is there an anchor that can make this, make more sense. And again, we're working with a lot of different people to try to figure this out. I do think the addressable market is large. And if you think about, in particular, the proliferation of devices with 5G, they're going to need a lot higher bandwidth, lower latency, they're prime areas to do it. But you've got a third party who controls the building. There's no sort of one landlord you can go to, to get immediate scale. So trying to figure that out is a challenge.
Gregory Williams
analystRight. And the carriers, whether it's -- you mentioned if you build a telecom spec building versus success building in every G is really the carriers with spec building. They build 4G first and then Uber comes along, I guess. So I guess that will play out here. You're going to have to build first and then use cases later.
Steven Vondran
executiveThat's what is interesting. All the conversations I hear in 5G are what's the use case, what's the killer app? What's going to make this happen? What's going to make that happen? We had the same conversations in 4G. We actually had the same conversations back in 3G. I remember sitting in meetings like this and having people predict that text would never catch on in the U.S. because people like to talk on the phone. And so I think what we've seen is that those use cases develop, but the ecosystem has to be there first. We didn't -- we weren't doing TikTok videos in 3G because you couldn't do it, and now we do. So I'm confident that the use cases will emerge.
Gregory Williams
analystYour carriers, the more they get at the value of those use cases, the better is for you. I'm curious how much value in this cycle will they get? Because every G, it seems like they get relegated to the dump pipe here. You've got Verizon building the best 4G LTE network and then you look at bull in the market capital, Uber, and what's next going on here. I'm curious if how can they prevent that relegation again? And how do you see this stuff playing out?
Steven Vondran
executiveIf I had the answer to that, I get paid a lot more money to provide that. Look, I do think, if you think about what they're providing in the user experience, 5G is a little bit different. It offers the ability to do network slicing, you can provide different capabilities to different people for a fee. I think the opportunities are there for them to monetize it. I think they're just waiting for the ecosystem to catch up. But you've got to build it first. You've got to be able to actually provide the service, then you can start charging for it. So I'm very confident that my customers are going to find a way. And by the way, they haven't done so bad in the last 10 years themselves. So...
Gregory Williams
analystIt's not like they're hurting. And I guess, to your point, the slicing will provide this permission to any network and in some ways that can help them get a couple of pennies?
Steven Vondran
executiveThey will. And several of them have laid out business cases and I look at those, and I think those all make sense, and I think there are probably other business cases to be had once the networks are fully functional.
Gregory Williams
analystGot it. So with that, we're about out of time. So Steve, thank you for your time.
Steven Vondran
executiveThanks.
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