American Tower Corporation (AMT) Earnings Call Transcript & Summary

All right. Good morning, everybody. My name is Brandon Nispel. I cover communication services for KeyBanc. This presentation is 25-minute fireside chat. With us today, we have American Tower's CTO, Ed Knapp. Ed, . Thanks for being here.

Thanks, Brandon. It's great to be here.

Maybe just start, what's your background and roll at American Tower? It's very unique to have a CTO at a tower company.

Yes, I've been with the business 6 years now. I came from a long generation of wireless businesses. So I was formally at Qualcomm working on infrastructure there on the Sovereign level. But when I had the opportunity to join American Tower, the business was looking at new growth on areas and innovation. And the job really took on new meaning for me because it broadened my perspective on the wireless business. So we looked at things in our own energy space in one area that I work on now, a lot of optical areas where we interconnect towers and data centers, wireless in general, right? So it's everything from satellite and building systems to, let's call it, even other parts of the wide area network that I'm involved with. And then the other part is really a data center, right? So we've done a lot of work recently. We obviously acquired CoreSite about 1.5 years ago, but the edge data center business is part of what I've come to, let's say, recalize these areas in the business and then talk about them with our executive team and the management team looking at how our regions around the world. we'll be able to take advantage of that.

Got it. Let's start on the U.S. segment. And there's a lot of talk around U.S. capital spending trends from your major customers. What's your view on where your customers are from like a 5G deployment standpoint?

So we've talked, and I think when you look at the history of a lot of the wireless build out, there are multiple phases of the build-out, right? So the first phase has always been about getting coverage out there. In the 5G cycle, it's a little bit different maybe because we started out maybe 5 years ago looking at millimeter wave in the U.S., we didn't have the mid-band spectrum. And then the mid-band spectrum came online through some of the satellite changes in terms of reorganizing the spectrum from 3.7 GHz to 3.98 GHz .Even the second part of that is just becoming available now. So there was this pent-up demand to sort of push that coverage through in the last year or 2. So we probably got to the point where that has happened. And I think about half of our sites we'd say, have been touched with 5G. And there are different underlying technologies in how people are building out 5G for coverage. So that's the first phase. And the second phase will be sort of continuing to build coverage because you get to this, how many pops can you cover efficiently and then you have a longer tail of pops you need to cover and a lot of our sites do represent suburban and rural areas, too. So there's a long tail ahead of that for coverage growth, which we hope to see, and that's part of the capital plans that the operators will continue. And then that next middle phase is really about building the demand. So we didn't have necessarily the wide area coverage in mid-band and then the devices have to catch up. So once you get devices in the marketplace, and the transformation in the network to stand-alone. So you also -- the one of the other cores is when all the other Gs were built, we built new end-to-end solutions like day one, like we had the radio and we had the core and we put new services from the beginning as devices ramp those services became part of that. So 4G had a brand-new IP, everything went to IT in 4G. And so now in 5G, we use the 4G core to append 5G radios initially. And so now you're seeing the stand-alone core where new services can start to take place. So we can look at voice over NR, you could look at things like slicing. You could start to really experience the true potential of 5G. So it's the coverage bill. Now the second phase is about putting more services and demand and grooming the network for performance. So there's a lot of work that's gone on in the last few years with raised CapEx in the industry, and the second phase is about trying to find new services and applications. The third -- and the next phase after that will be once those applications start to drive demand, we'll see densification and fill in, whether it's in building systems maybe some smaller cells and hotspots and also more potentially modifications and colocation as densification is required. And then we deployed a lot of what's called MIMO and so those things have to be tuned to support whether you're doing Beamforming for link budget gain. [Technical Difficulty]

So would you say it's fair to characterize sort of we're getting past Phase 1 and Phase 2 is sort of at our fingertips or where we're really looking for new applications on the 5G network. And then help us understand Phase III, the densification and the capacity layer that customers will eventually build. What does that look like? It means to you?

So if we open up pipes, like one of the applications you start to see in the marketplace today is fixed wireless, right? So you start to see demand on these networks grow significantly. Now we've grown year-over-year at 30%, 40% in wireless, how many exabytes a year are being driven over wireless networks, but that continues to grow regularly. And now that you have 5G, we just deployed what was considered what they call best efforts like eMBB, right? So this enhanced mobile broadband. We need to then start to take the services with FA , this 5G core into things like 4K video. We need to look at metaverse applications in AR, VR, MLA. Those devices are in the pipeline. So when they happen, then you're going to see site thresholds start to essentially get reached. And so the operators will have to then refactor where do they want to place investment from a CapEx perspective to support those demands. And there'll be hotspots that they vary as a function of the time of day because if it's a machine to machine. We haven't even seen IoT take off in 5G yet. So there's this reduced capability, modems that are coming online now. We call it REDCap for short, release '17 and release '18 and really that the meet of features and capabilities beyond eMBB that really are the 3 legs of 5G. So that should drive a lot more demand, and we should see that, that demand translate into changes, whatever you can program software-wise on the site, but then also more colors and more modifications to upgrade the capabilities of what's on the towers.

You mentioned everybody is sort of taking a different approach to 5G in terms of deploying from an underlying tech perspective. Can you just sort of help us outline what those different technology deployments look like, whether it's carrier aggregation or you mentioned MIMO, but what are you seeing there?

Well, in general, around the world, and we see it from a global perspective, when 5G came and mid-band was the global piece of spectrum that you needed to get to really have 5G, right? In the U.S., we took a little more time to get that in place. But what you really need to do is so you're at a higher frequency, right? So when you're dealing with like the lower frequency bands, you get a lot of more coverage. So the higher frequency bands how to compensate for that. So that's where MIMO plays a role, right? So now you can extend essentially to keep. What they wanted to do is keep the same Intersight distance. And so you've coupled, let's say, the mid band for a lot of your, let's call it, best efforts data with some of the lower frequencies for what was essentially the voice that's still impinged on the 4G core. So everybody kind of went through that phase if they built mid-band from start. In the U.S., when we had 2 millimeter wave, we were building small cells in the beginning and doing stadiums. And then all of a sudden, mid-band, and some operators had mid-band, but not the 3.5, they had 2.5, they were able to race the head and build a lot of the millimeter wave -- I'm sorry, a lot of the massive MIMO capabilities, which allowed them to take sites before that maybe weren't able to provide contiguous coverage and use that to provide contiguous coverage. So all the operators started to go down that path. when you had a gap in mid-band, people substituted what was called DSS, right? So this was this sort of dynamic spectrum so you could switch between 4G and 5G. And that kind of was giving you 5G on your phone but really wasn't giving you a full 5G experience. So we see the beginning of the progression like mid-band, massive MIMO, try to stay on the same site grid, build that out from city center towards suburban to rural as 5G devices come online. See it in markets like U.S., Japan and China and other markets where device costs are high. We just see device costs coming way down now to something where you can get 5G market prices and some devices could be in $150, right? Instead of a $1,000 device. So that's going to push 5G out in more markets around the world. And then when you get into what's happening under the hood, there are a lot of variations and details around massive MIMO and how people will employ that. And when we first saw it, we saw a lot of power increase in the sites. So people had to consume a lot more power because you have a lot more antennas, you have a lot more radios and now you're trying to rationalize that. So the portfolios of the OEMs continue to grow in terms of complexity and also optimization of cost and power. So you'll see the second generation of that build-out for coverage start to fine-tune how coverage will be optimized as we move to further and further pop coverage from where is, let's say, $200 million today in the U.S. is something like more like $300 million where people will want to get to.

Right. One of the things that you mentioned there is sort of the OEMs and their portfolios. I know the OEMs are sure working on, trying to develop dual-band radio centered around 3.4, 5 gigahertz spectrum and C-band spectrum. What's your view on what that means to your business and sort of the timing aspect of when carriers come back with those types of radios, I would assume that, that would sort of go through the densification Phase II process that you were talking about.

Yes. So the business in general is based on the fact that every time you have new spectrum, you have to build the radios and the physics eliminates the opportunity to say, I can build one radio that covers it all, right? You just can't do that. So we had low band and people have been for years trying to trying to package different frequencies that are adjacent. So we've seen like 600, 700, maybe even 800, 900 people trying to repackage that. So this is not -- this is a phenomenon that's been going on for a long time. You took in the old days, a passive antenna and you had the radios on the ground, then you move the radios up next to the antenna, we called it an RRH. Then you put two RRH there for 2 bands, then you put them together with the antenna, you put them in the same package. And now when you talk about 5G and mid-band, you have the DoD spectrum at 3.4, 3.5, 5 gigahertz and operators that have that in markets came later, right? So now they already deployed the mid-band at 3.7 gigahertz the radios that exist to support the tool is just starting to go through the sort of approval process in the FCC for type acceptance. And they have out-of-band emissions and all kinds of regulatory requirements to make sure they're not interfering. And in the middle, you have CBRS, which is it's got its own set of technical specifications. So now you're trying to build the radio that's 500 megahertz across and you have to have -- what they call the occupied bandwidth that can operate continuously on both. And so that's really something that is great technology. And what you'll have to do is go back and do an amendment, go back to the sites and change out those requirements and there are MLAs. We'll accommodate that according to the agreements we have with our operators. So it is a natural process. It's happened historically in the business. We've seen operators working with OEMs to try to consolidate what they can do with each radio, but there's always going to be physical limits, right? You can't take all the radios. And the more challenges of spectrum band as we move forward. We've expanded spectrum now from what it used to be just sub-1 gigahertz then we went in 4G to sub-2 gigahertz. Now we're looking at sub-4 gigahertz, right? And then in the future, we still have the millimeter wave and other things that are coming.

I guess a question on timing still on those pieces of equipment from the OEMs, dual band. Do we know when those are going to be coming to market?

So I've seen some data recently on the FCC website, you can see what has been approved. There are radios today that are I think accepted now that could be deployed. I can't speak specifically to what's been deployed and where by any operator, but the radios do exist. And so that will allow 3.4 gigahertz and 3.7 gigahertz to be used. And that will give carrier aggregation benefits to the operators and gain a higher performance.

Got it. We'll take a step back from the sort of densification, the next wave of densification, go back to use cases. What's your view on sort of the key use cases that are going to drive bandwidth on the network? One that I really wanted to ask you about was Apple Vision Pro, which is, obviously, coming next year. What's your view there?

So we talked about this years ago when I said you asked me what's the game changer. I said that at some point, that smartphone device is going to change to a wearable. I gave the 2020 -- this is in 2020, I think I said 2025. I guess I have to stick to that until we get to 2025. But the reality is the ProVision is really based on wireless today with WiFi, but not cellular. They'll get there. And I do think the whole, let's say, mixed reality environment is going to be transformative because people will talk to their device as opposed to spend a lot of time touching it. So that interaction is going to change. And now when you have large language models in AI, you're going to have a richer interaction potentially that you could prompt things and you can get specific answers to what you want, and it could be visual if you're wearing something on a glass perspective. That phase will start to happen. Apple, obviously, could be a dramatic transformation in terms of the marketplace. Price points have to come down. technology is not really ready for prime time yet for mass market, but that is going to be one of the game changes and should drive edge in some respects as well. So Metaverse is still out there. It's gone through a type cycle. It's now probably in the trough of disillusionment and then we get back into like it that just happens. Qualcomm's got a plethora of devices in the pipeline with around the world. People will start using these things in different ways. There was a pen obviously years ago with Google Glass and others to try to do this. I think people are more acceptable of that. And especially in enterprise use cases, maybe not the consumer, but private networks, private 5G, things like that.

I think the pushback that I would come to you with is things like fixed wireless that would take up more bandwidth on the network sort of a fixed solution. It's not a mobile solution. Vision Pro, it's probably going to go over WiFi. So what's the true like mobile solution? How does the Tower benefit?

So you'll see, obviously, there's a lot more, let's call it, bits that each device is consuming. Just -- you have to watch the silicon on the device side. So carrier aggregation and the ability to put more spectrum on a single device and more efficiency in terms of bits per second per hertz that spectral efficiency is going to drive opportunity for supply. Now the question you're asking is on the demand side. So today, we've seen people experience more or less -- more of the same in 4G. So we need new transformative use cases. What are those? Well, first of all, voice. Voice is still primarily a VoLTE, which is, let's say, guaranteed bit rates around 30 to 40 kilobits per second. You've got a rich immersive voice spatial audio, you start to talk about hundreds of kilobits. You're trying to maintain that. So voice over NR could be a game changer when you have FA when you have a stand-alone core. That's one thing. Interactive, let's call it, video relative to what we do today, resume and all that, that's going to be also something that's going to have a richer experience and capability over a mobile network. Those are practical use cases that are coming. Obviously, you could stream 4K. Obviously, more capable screens, larger foldable devices also drive that behavior. And no one has a crystal ball, but fixed wireless does consume. I think it's there to stay. But really, what we haven't seen is automotive. We haven't seen the heavy use cases of drones and robots and those types of devices. So in San Francisco today, right, you can see Crews and Venmo do their thing. But they have to upload a ton of data. Well, they have to do, they go to a parking garage at night and do it over and say, WiFi. That's going to be more continuous. That's going to require a lot more updating and information to get that to mass market scale. Wireless operators stand ready. Today, most vehicles have 4G fronts and 4G modems in them. 5G modems are just starting to sort of be in the pipeline in production, that will be another driver. So you'll see machine to machine and as opposed to just consumers consuming what they did in 4G the same way. Those are just examples.

That was great. Are there any questions from the audience? Does anyone want us to dial this back a little bit [indiscernible] We do have a question. It was power on MIMO and tenants.

So if you look at 4G, we had 2 layer, 4-layer MIMO they would probably be about 300 watts or something like that. If you look at the massive MIMO ones that had 60-40, 64 they could be up to over a kilowatt. So 2 to 3x is what we bit -- some of them have backed off and tried to come up. So it gets into things like GaN, right? So what's your power amplifier, how many watts per PA are you supporting what's the efficiency of that, that led to a lot of consumption. Frankly, the OEMs have gotten their arms around that, and there are also some things that are occurring on the network side to tune and turn on and off different complexity arrays to make them more power efficient. So you'll see the average power come down, but the peak will still be something that will be on the order of a kilowatt per sector. That would be one sector, yes One sector. So 3 kilowatts to 4 kilowatts you can see and that doesn't include the baseband changes. So we've seen -- there's data on the web about a 4 to 5-kilowatt lift in the consumption at a site for an operator based on massive MIMO.

[indiscernible]

So it depends on the area. It might be 500 meters in the city, you could be like kilometer suburban, maybe 4 to 5, 2 in the light suburban and rural, it could be somewhere around 10 to 20 kilometers. You're trying to use the MIMO in different ways. You also use frequency, right? You want lower frequencies and the more rural. The mid-band frequencies have been in urban to try to support stuff, but they'll progress out. And what you're trying to do with the bandwidth now you have much bigger band-width than we had in the recent years. So we started out in with like 30 kilohertz enhanced. So then we went to megahertz and then we went to tens megahertz in 4G, and now we're out to 20 megahertz to 100 megahertz channels and combining them, which back to the carry ag, we now can -- combine all these things give even higher data rates. So one of the things you're trying to look at when massive MIMO is you put that entire bandwidth up and you now have to put weight on the antenna to point beams and to make adjustments based on where users are, and that gives you some additional capacity gains. So you can get coverage gains, as I mentioned earlier, by being able to use it for, let's call it, the ray size gives you some ability to point energy in a certain direction. And that helps alleviate the coverage gap when you move up in frequency. -- when you also want to add capacity, can then tune that differently and change the way you use your antennas. But you have to have the right number of transceivers and that's where the cost comes in. So what we're seeing is operators are going to have to rationalize. Do I need 64T/64R, 32T/32R, 8T/8R and back to the 4G 2T/2R , 4T/4R. Now you have a lot of complicated set of CapEx expenses and challenges and power consumption. So this -- the whole deployment has become more complicated, even with 5G and carriage, you've got 4G plus 5G, you've got TDD, FTD. You've got a lot of different things that, as an operator. You have to think through. And so from a tower perspective, we're -- we're obviously staying ready to support them on how they want to deploy and how they want to update and we have tools to help them know what towers are ready to support their equipment, and we think we're best in class at doing that.

[indiscernible]

So we have 20,000 sites in Africa today that are -- Africa has a low tower portfolio. They haven't done 5G, but we use solar and we use lithium-ion battery, and we have DG, right? So generators, these are off-grid sites, a lot of them, right? The grid isn't unreliable. And we are, we believe, world-class when it comes to tuning between those power sources at a tower site using AI as well behind it. And so we have the ability to take the -- when the sun is coming up, we now how much charge is in the battery. We can look at how to switch from solar, how to minimize diesel fuel, and that's part of our ESG report we just released a couple of weeks ago. Now in the U.S., because the grid is very reliable. What we're trying to do in our -- this is back to my earlier statement about Power and Energy is getting deep into like behind the meter, what can we do from a sustainability perspective? Now the operators and the OEMs are doing their best to try to reduce that number. The peak number might stay, but the average number might come down. Before when they put it up, it was like a continuous burn of power because they didn't have the smarts behind it. So now with the peak of average, you still have demand rate pricing. You have utilities looking at their grid, moving to renewables. Renewables are less reliable. So we're trying to also work with our operator partner and say, what can we do to invest behind the meter on shared power and shared power would be being able to say the power plant just like the tower could be something that people should share because it's more efficient to share than to do it all yourself. So that's not happened yet, but it's something we do, and we already do that in markets around the world. So we believe we're a leader already in that sector. It's a matter of can we get the benefit of doing that in other markets where the grid is reliable. And we're looking at that in South America as well.

I have to switch gears just a few minutes left. I have to ask about foresight. But mainly, I want to just get your thoughts around AI. I think everybody is trying to get investment implications around AI, in particular, for the data center, you look like in a pretty good position to be able to have good visibility in terms of what's going to happen. What are your thoughts?

Obviously, AI has been around for a while. I think anybody who sort of panel this morning, I think they rationalized it quite well in terms of the hype versus the reality and where the large language models have democratize the ability for people to understand like what's possible, dialing that in is something that every corporation or even consumers have to figure out how to do However, it has really been transformative for CoreSite business because people were moving already from like, say, we have the cloud on range we got interconnection. So we're not just 4 walls in a generator, I would call it. It's a much more intelligent operation that's behind people wanting to interconnect and rise on data, which is going to be generated by these models, give corporations and opportunity to say, do I want to do a custom model on-prem? Do I want to use a cloud model? Most of -- and we said this recently, too, in our earnings call is like Tom opened up with saying, yes, a lot of this is still in the public cloud. It's people getting to and from that, but that has implications for interconnection in CoreSite. Then the hybrid multi-cloud model says, you want to be in colo because then you can connect with other data sources and you could find ways to sort of use the large language models in the cloud, maybe lock them or use them as a copilot. But you still build your fine-tune models within colo or you could do them on-prem. So we're seeing that, and it goes into how many billions of parameters you want, what sort of use cases you have in your business, what workflows you want to improve. And I think the panel this morning spoke to some of that pretty well, especially around the risks and the regulation and some of the things to think about when using these models, so human intervention is important and data timeliness and the ability to use data to make decisions is part of that. So from CoreSite perspective, all of that has really been a positive, let's call it, tailwind to the business. And we see that also moving not just from the centralized platforms, but eventually to talent platforms in near the edge, where I mentioned earlier today to someone the Hardee's example is in the Wall Street Journal when you're using Agile language processing to do your ordering, that's going to transform that sort of let's call it, remote office, branch office environments, call it franchises. How does that work when you start to have many of these and the cost of that is potentially high, the power consumption type. Can I use that more in a centralized or near-prem environment? And so we think some of that as opportunity as well to bring more AI computing for inferencing closer to where our towers are at the edge.

So instead of going into another question, I think we're just about out of time. So Ed, thank you very much. Thanks, everybody, for being here.

Thank you.