Crown Castle Inc. (CCI) Earnings Call Transcript & Summary

Great. Hello, everybody. Welcome to the Crown Castle fireside chat at the Goldman Sachs Communacopia and Technology Conference. My name is Mike Ng, and I cover telecom services and infrastructure here at Goldman. I have the absolute privilege to introduce Chris Hillabrant, who is the President and CEO of Crown Castle. First and foremost, thank you so much for being out here today with us, Chris.

Thank you, Michael. It's great to be here.

I was thinking we could start off and talk about big picture overall strategy. Earlier this year, in May, Crown Castle closed on its small cell and fiber business sale. -- making it the only publicly traded U.S. pure-play tower company. Could you talk about your strategic priorities now following the portfolio transformation?

Yes, sure. It's obviously been a big year of change for Crown Castle. I'm coming up on my 1-year anniversary here next week. And I have to pinch myself sometimes to realize how much has gone on in that short period of time. upon successfully closing the fiber and small cell business. We are, as you stated, the only pure-play U.S.-focused tower company, publicly traded here in the U.S. And we are now moving into the next phase of focus for us, which is all about maximizing organic growth. finding ways to invest in the systems and processes that will allow us to be more efficient and serve our customers better. And so this is a journey, and we're now starting to see some acceleration of embracing that long-term strategy of serving our customers here.

That's great. I was wondering if you could talk about carrier activity. What are you seeing from the market? Is it accelerating? Is it stabilizing? Is it slower, yes?

I think the year for us is unfolding very much as we anticipated. This is a slightly back half of the year loaded plan for us in leasing. And we're seeing a very traditional mix of amendments and first-time installs as we would expect from prior years.

Great. Are you seeing any pickup in amendment or colocation activity as a result of recent spectrum activity? And I'm thinking the AT&T 600 megahertz from DISH back in August, Verizon was a significant bidder in the AWS-3 designated entity auction in June. Have you seen anything yet? Do you expect to see some over what time period?

Yes, we're sticking to the guidance that we provided earlier of a range of $60 million to $70 million in new leasing. The way to think about our business is really in 3 different time periods. There's the here now, which is really dictated by the MLAs that we have in place with our customers where we have visibility into the amendment-based activity and the new leasing that they will be required for this year's plan of record. Then kind of a midterm catalysts from our perspective is the recent EchoStar sale of the 600 megahertz to AT&T. If you recall, they were able to take advantage very quickly of the 3.4 gigahertz spectrum that they deployed, which was primarily software upgrades, albeit that will eventually lead with capacity to new radios being deployed as well. But the 600 megahertz is a new technology that AT&T isn't currently deploying. These antennas are quite large. I'm 63. They're bit taller than I am. We saw the equipment out of Mobile Congress this year. And so this will be a midterm catalyst. And then I think longer term, the 800 megahertz of 6G spectrum that's being made available, the first tranche will be the PerC-band. This will really fuel the next 5 to 10 years of growth for Crown and the industry as a whole. So we're excited about where this is headed. In general, anytime new spectrum has been made available. It's typically a good omen for the tower industry as a whole.

I mean that's a great segue into the next question. Just as you think about that 800 megahertz, I think 160 megahertz of that is going to be available through the auction for the upper C band next year in April. How do you frame the opportunity here? How long does it take for that spectrum to actually be deployed cleared and all the things that need to happen for it to be productive.

Yes. Maybe start by just acknowledging the leadership of Chairman Car and making the spectrum available for lobbying within the administration and the policy to actually have the 800 megahertz for 6G is very, very significant, given the most recent activity in the industry. typically, when the spectrum will come to auction, there's a couple of things that -- and once the auction is over, a couple of things come into play. One is, many times, the spectrum is encumbered by the existing legacy users. -- you'll need to go and typically relocate them off that spectrum. And then in the case of upper sea band as an example, one of the things that we saw in the lower C-band in the time that this was originally deployed by both Verizon and AT&T. There were some issues with interference with some of the alternators. The key takeaway, I think, for investors to understand, which is where there's a will, there's a way, and the carriers have almost always found a way to clear the spectrum faster but on a little bit of money at the problem. And then they've been able to design engineering solutions around the issues like the alltimeter. So I think 2 years max, but oftentimes, it can be quite a bit faster based on the needs of the networks and the high rate of data growth across the industry.

Great. As you think about the remainder of the 800 megahertz of spectrum that is mandated for auction by 2034, what bands beyond upper C band do you think will be most likely auction candidates?

Yes. We've heard the 2.7 gigahertz spectrum band as 1 possible option, also 7 gigahertz. I think one of the things for folks to keep in mind is with the application of spectrum at much higher bands. One of the things that we learn when Verizon put out, say, ultra-wideband, which was quite a bit higher in the spectrum scale is that it really requires not only the initial deployment across the macro network that the operators have. But it requires a significant number of densification efforts. And so the total number of co-locations that Crown and others might see the potential for building new sites, both macro towers and small cells -- this is 1 of the things that really excites us about the bands being discussed currently by the government.

Great. I was wondering if you could just expand on and share your thoughts as it relates to what are the kind of near-term opportunities for continued 5G densification? And then what are the opportunities created by the transition of 6G, just as you think about your longer-term leasing outlook and technologies that may be enabled?

Two or 3 just quick stories I'd share with you, 1 of which has recently had the opportunity to spend a lot of time on Capitol Hill up at the FCC even into the White House as part of the DISH proceedings, and I know we'll talk about that later. One of the key takeaways I heard for the first time in a long time where it didn't matter which party was the administration or the Democrats that we met with is the excitement around 6G that the government sees us as an existential arms race, if you will, with China over who will get to 6G first and that will unlock in terms of the use cases that are being discussed now as part of the 3GPP standards body that's focusing on 6G standards. So there's an enormous push by the government to both make the spectrum available and then to get the industry mobilize to go out and to deploy that. The second thing was we were at another analyst conference recently, and we had the pleasure of sitting with the 3 CTOs from each of the operators. And what I've heard consistently is that based on the data rate growth, which has been like at a 30% CAGR over the last 5 years, this is driving both the acquisition of additional spectrum. Again, like you look at the AT&T EchoStar $23 billion invested in the spectrum is that there's a need for the spectrum just to keep up with the growth that it is. And then in order to make sure that the companies remain profitable, it's about lowering the cost per bit. And so the big advantage of 5G over 4G was the ability to connect to a massive number of devices, but it also significantly lowered the cost per bit served. 6G will have a similar catalyst. What's new on top of that is that there's new -- the melding of the AI and the networks, whereby if today, 90% of the network traffic is on the download and only 10% of the upload, these CTOs were indicating that they expect that to be much closer to a 50 to 50 type of ratio. The net result of which is that new wearable devices, AI inference at the edge. These are new opportunities that 6G will represent. Robotics is another use case we've heard quite a bit of. So we're excited as an industry for where this is headed. The fact that spectrum will be available that the -- both the regulatory agencies and the customers are looking to deploy this -- we see this as a good long-term augur for the industry as a whole.

Great. Maybe just a business-related question. I was just wondering if you could talk a little bit about just leasing agreements. Philosophically, do you have a preference for more holistic agreements or a la carte agreements when you go through these customer renewals?

Yes. Well, I'd say we're in favor of whatever is in the best interest of our shareholders. And what I mean by that is holistic MLA has some advantages and that it allows flexibility for our customers to deploy new technologies at a predetermined pricing regime as they go through the amendment process -- it also will stipulate pricing for new colocations across our portfolio. So it's a useful tool for the carriers. And obviously, it's predictable revenue growth for us. But in the case of where that's not the case, then it allows us to get the real value for the sites that we have. And I'll just remind you that Crown Castle, the vast majority of our portfolio sits in the top 100 markets -- and so if you look historically at the type of growth patterns that have been there, typically, Crown is amongst the earliest of the large tower companies to benefit from whole scale technology changes just because of the quality of the portfolio that we do have across our 40,000 sites.

Great. Super interesting. Turning to services. Last quarter, Crown talked about a bit of a pullback in services activity across the 3 major carriers. What's driving that? And what could reignite that carrier activity? And then service is a leading indicator to colocation or amendment activity down the road.

Not necessarily, and I think part of what you need to understand is that even where Crown perform services today, it does not services across our entire portfolio, nor do any of the tower companies typically have a complete portfolio ownership. It's a very competitive environment. Part of the decision that Crown has ahead of it as we look at our strategy long term around services, specifically is, today, we typically provide services in the front end of the process, like leasing, zoning, permitting, A&E drawings and engineering structural calculations. We picked these services because they were good margin services. But we do need to compete against others in the marketplace that might be willing to accept lower margins. Secondly is our customers have consistently asked us to consider going back to what Crown once did, which is a full-scope turnkey based service approach where they just hand you the keys to the car and say, please deliver us back a site. In the past, we did this, we stepped away from this several years ago because it wasn't a great margin business for us. but the customer demand is there. So for us, determining whether and how we can play more in services to the extent that it aligns with what a customer unmet need is and it's good, profitable business for Crown. I think we will continue to stay in this space. But certainly, our core businesses are running out the space on our towers and building new towers. And so at the end of the day, it's one of those things where you really can't draw the comparison to whole scale leasing trends. and services only because it's a very large marketplace.