SBA Communications Corporation (SBAC) Earnings Call Transcript & Summary

Hello, everybody. Tim Long here at Barclays, along with Brendan Lynch and Alyssa Shreves on my team. Thank you for joining us for this fireside chat with SBA. We're happy to have with us Jeff Stoops, President and CEO. Obviously, he's been an icon at this company for a few decades and very well known in the industry as well. So we're really looking forward to the time with Jeff today. Jeff, thanks for joining. I think we'll just start off with some of the topics, maybe some of the more topical ones. Just love to get your views, particularly since you've seen some cycles here.

So a lot in the press lately about C-band and FAA and FCC kind of bickering back and forth. So would love your thoughts on kind of what you think this means to the near-term rollout plans for the C-band? Of course, heading into this, the whole industry has seen a lot of site activity. So setting up for a pretty good period for the towercos, but curious to see if you see any near-term or medium-term impacts from this?

Well, first of all, Tim, Brendan and Alyssa, thanks for having me. It's a pleasure to be with you this morning. And I appreciate your kind introduction, Tim. I can assure you, my family does not use the word icon around my own house. This FAA, FCC thing is a bit perplexing to me. FAA continues to push the issue. They just issued, I believe, yesterday, a couple of more directives. But when I think about it, I mean, it's hard to believe that this won't get resolved fairly quickly and easily. I mean the company spent over $90 billion on this spectrum for the -- and the money went to the U.S. government. And I -- and that was during a period of time where this spectrum was already in deployment in a number of other countries. I think we're up to like 40 countries around the world where the C-band is being safely and properly utilized alongside air traffic. So I do believe that there is a resolution here. A number of folks have spoken to what that might be, whether it's less coverage around airports or powering down the equipment around airports. I don't think it's a different equipment installation. And I don't think the pendency of this issue is going to slow down our customers unless, at some point, that they conclude that this is going to be more than a temporary issue, and I don't see any signs of that. So I think it's going to get resolved. It has not affected any activity for us as of yet.

Okay. Great. Makes sense.

Jeff, maybe I'll ask another one on something that's been quite topical recently, the American Tower' acquisition of CoreSite and bringing communication infrastructure under one roof. I'm interested in how your stand-alone edge facilities and a few data centers that you have, what you're learning from these initiatives? And what you would want to see before scaling the offer more?

Well, we are pleased with the business, in general. I mean data centers are a good business. What we would like to see, though, Brendan, to move things forward with more scale is the convergence of the edge at the tower site. That hasn't happened yet. It's moving out from metro areas. There's more regional data centers and more micro data centers that are being established. But there is no -- not as of yet, a concrete tie-in to require a mini data center to be at the cell site. And that, of course, would give us the competitive advantage that was the reason why we kind of went down this path in the first place. We have the tower site, we have the power, we have the backhaul, we have the entitlements. And obviously, that is the closest point you're going to get to wireless network. So we're watching. Things continue to move in that direction. Obviously, the development of products and applications that have the micro latency requirements that I think ultimately will need to get us to that point have not yet happened, and that will be a good sign when that finally does start to hit the market. So right now, we're still in a learning and preparing mode, but I will say that we're pleased with the business itself and what we're learning. But I think you should take away from this and our investors should take away from this that our approach will continue to be very incremental.

Yes, Jeff, maybe let's touch on some of the larger customers without getting too specific on them. If we talk about DISH first. Obviously, we haven't had a kind of a new large player in a while here, and they seem to be fairly aggressive at this stage as far as deployment. So how do you view the impact of that -- of this new customer on the business? And do you think -- second part of that, do you think kind of a different network approach, the O-RAN type of approach here will ultimately lead to amendment activity or some other benefits to SBA from other big U.S. players over time?

Well, DISH is certainly very active. And obviously, we're rooting for them and working hard for them. They've exceeded our expectations to this point in terms of levels of activity, and they're staffed with network experts who have been in other stops over time, but now together are a pretty well-oiled network deployment machine inside DISH. So they're certainly acting in every respect as if they're steadily moving down the track to meet their obligations to the FCC and power up and provide service. In terms of the O-RAN architecture and some of the cloud stuff that they're doing, I think that is going to lead to efficiencies and getting the most bang for the buck out of their network. But in terms of what it means to us, remember, our business is fairly straightforward. I mean we are the place where radios and antennas need to go for networks to work. And the O-RAN and then moving the software around and the compute doesn't really impact that at all. And actually, there will be some -- many data centers on cell sites as a result of that. But by moving the compute around, in some cases, off of a cell site to another O-RAN location, you still haven't varied the fundamental reason that a wireless carrier would come to us, which is the location of the tower and where they can mount their antennas and radios.

Okay. Good. Good. That's helpful. Maybe just one follow-up here or 2 quick follow-ups on DISH. First, how do you think it's going to shake out between the different view and your competitors over time at DISH? How do you view kind of the landscape there? And the second part of it, it sounds like DISH maybe has started with slightly less loading on towers, so maybe a bit of a lower revenue opportunity at first, but likely to build over time. So can you talk a little bit about the dynamic of whether that's going to be traffic growth or user growth? Or what do you think is going to cause that potential revenue gap with the more established players to close over time?

Well, the established players have now had 10, 20 years of building capacity in their networks, which have done primarily through amendments. But they didn't start out any differently than DISH is starting out, which is you want to build for coverage first. There are certain coverage obligations that they need to meet with the FCC. So what typically happens is you build, I won't call it the minimum necessary, but on the lower side of ultimately what capacity might require. And then as capacity builds over time, you come back and you augment the site, you amend and that's really been the history of wireless deployments for 20 years, and I don't see that the DISH experience is going to be any different. In terms of what that means for us, we have a high level of activity, but our contractual relationship with DISH is that revenue commences upon the sooner of the date certain or completion of construction, which would be the installation of their equipment on the site. So the first one we know that's under our control. If that's the way it goes, we're looking at 2022 before we start to see material impacts and contributions from DISH. If they accelerate as they are, in some cases, their construction, that would cause the revenue to commence on those sites a little bit earlier. I think you had one other question, Tim, which -- did I cover everything?

Yes. I was just curious to see what you think SBA's position will be rather relative to AMT and CCI with them?

All right. Well, probably all think we're going to get more than our fair share. But the reason I believe that is we are very good operationally. We are consistently ahead of DISH's requirements and expectations for timeliness and completion and quality. We get along very well with them. We're doing a lot. We're very -- the fact that we continue to have an in-house services group, which is, of course, the formation of the company, but continues to kind of run through our culture, I think really serves us well here because we get things done for and that's what they need.

Great. Yes, we hate to see the market share to add up to 150%. Doesn't do anyone any good.

If you talk to all of us, it'd be probably 200%.

Jeff, maybe we could touch on Sprint churn briefly. The churn has been delayed relative to the expectations that you had laid out. Maybe you could just give us a little color on what the cause of this delay is? And how much you think you could persist into the future? And then more generally, how complicated is it for T-Mobile to turn off some of these sites?

Yes. I don't think there's anything systemic about the delay. I think it's just a function of when they decide they can truly turn off a site when they can actually get around to scheduling the decommissioning of that say. So it's a variety of different things that have caused our somewhat worse case churn predictions to be less than that. I mean just as you'd expect anything that would be kind of pegged to a theoretical worst case, it's never going to be quite that bad or quite that good. And I think that's what's going on here. I don't expect that there's any kind of permanent changes in our numbers. They'll move around from year to year because of what I just described. But the $1 million or $2 million that we're going to do better this year, we think now is going to end up in 2022. And you may have the same thing going into 2023 and 2024. But not anything in particularly that I think changes the long-term calculus as to what we're expecting. I mean T-Mobile is extremely sharp and prepared on these issues. But they're also doing a lot in terms of adding new sites and things like that. And perhaps, I don't know for sure, but if they have to prioritize adding some equipment here versus taking something down here and delaying some churn for a month or 2, I mean maybe that's some of the decision-making that's going on.

Naturally, there would be a lot of puts and takes, how many sort of network integrations?

Yes. And that's really it, Brendan. It's puts and takes against what we guide to initially as kind of a theoretical worst case.

Jeff, yes, I'd love to talk about PG&E a little bit. I think that was an interesting move, a little bit different than maybe what we've been seeing across the space. So I think at the time of the agreement, there was about 900 tenants and 700 sites. So just give us kind of an update of over the past year, how that stuff has transpired? How has this acquisition work? And what are you doing to improve tenancy ratio on those assets?

Well, a number of things, and we could not be more pleased with this PG&E deal, Tim. I mean we're now up to either executed or close to execution, an additional 50 tenants. We've had signed up hundreds of amendments, got another several hundred in the hopper. We hit the deal and closed it right ahead of any type of C-band deployment and ahead of DISH really getting out there. And those 2 things we're really seeing quite a bit of activity. The reason for that is the PG&E assets are extremely well located in areas where people want to provide coverage. It's primarily a central Northern California geography. And that's, a, it's a high-demand area. And secondly, it's hard to find any other structures that are suitable for antenna and radio placement. So we've liked it a lot. It's going well. We are working on -- and this isn't a hard fix, because what we do is facilitate antenna and radio placements for wireless customers. That was not really PG&E's priority. It was nice to have, but they were always much more concerned with any kind of disruption or different people accessing the site. So it was not easy for our customers to access those sites. Now they did it because they -- it was the only game in town. But our kind of methodology and our culture is, I think, going to be one of the reasons why we're going to see continued good success there. And in terms of other opportunities, we'd love to find ones like that. That one had a unique combination of desire by the seller. They had some financial needs that they wanted to fill. The geography was great from our perspective. So we -- and we were well ahead of demand. And the assets were very good for what we intended to use them for. Will those -- will that combination of things arise somewhere else? Perhaps. We hope so. We'd be very interested. But it's not every transmission utility assets, I think, are going to be viewed favorably as the PG&E assets.

Yes. No. Yes. It seems to fill a good geographic need for you guys as well.

Yes.

So it does seem like a lot of things -- work there. What about -- do you think we'll start to see more other non-customary infrastructure other than utilities potentially being brought into the fray by SBA or some of the other tower players? Given that we're talking rooftops, we're talking telephone poles as probably other types of infrastructure that could be used?

I think -- and we've got a couple of other examples. We manage the rights of way for telecommunications purposes of a couple of railroads. Those have proved very interesting opportunities. We do a lot of managed business. We manage some facilities for various state and municipal entities. So all of those will bring at some point the -- really the quality that we're looking for. What we're really looking for are unique exclusive assets that really can't be replicated that will serve our customers well for a long period of time in the placement of their radios and antennas. And that could come from a lot of different places, and we're very open to finding those places and then seeing if we can't seize the opportunity.

Okay. Great.

Jeff, maybe I'll just touch briefly on the Paradigm transaction and their joint venture with Tanzania. When you're looking at expansion opportunities or joint ventures, what governs the timing around those transactions? Is something changing in the market? Or with those carriers that makes now the time to execute relative to some time in the past or some point in the future?

Well, mostly, Brendan, it is the meeting of the opportunity that is presented by the seller, if it's an acquisition transaction versus our entering the country on a greenfield basis, which, of course, that would be purely dictated for the most part by us. But the Tanzania opportunity was something that had been worked on for some time by the Paradigm team. And they were -- well Paradigm team knew well the -- not only Airtel but the Tanzanian assets, in particular. And what really changed there for us was a change in the Tanzanian law, which previously required that any tower infrastructure company float a portion of its equity on the Tanzanian Dar es Salaam Exchange. So that's, as you would readily acknowledge somewhat unworkable for SBA to have a thinly traded subsidiary on the Dar es Salaam. So for that reason, we've been watching, but could not really act. Well, they changed that law. They got rid of that law. And all of a sudden, the stars and the moon aligned. We still had the desire for the sale. We had the Paradigm folks who are well known to us who had stayed close. We had really like the Tanzanian market for a long time. And now this change in the law free up the one large obstacle that we had kept us from acting before. So it's somewhat serendipity when all these things come together, and it's a lot of different factors. But the key to success there is looking at a lot of things and always being ready, knowing what you want, knowing what you don't want. -- and when the -- for the things that you want an opportunity finally does come around, you go for it.

Are there other sort of artificial restrictions on you entering new markets that could potentially clear similar to that of listing requirement in Tanzania?

There are. If you look around the world and some communist regimes, they don't allow a company like ours to own a portion of their telecommunications infrastructure. So you have some of those. Indonesia had a law, which I believe has either been changed or is being changed, which prohibited any non-Indonesian company from owning 50% or more of an Indonesian tower company. And there's a number of them like that. Africa has a number of countries where they will require some portion of local native ownership, not necessarily the public float requirement that Tanzania had, but some countries there require 10% to 15% to 20% local partner and owner. So those are all things that have to be taken into consideration. Some we find workable. Some we find we can't work with it. Yes, it's -- every country is different, very different. It has to be analyzed very carefully.

Make sense.

Yes, I did want to ask another on international, but first, I want to go back to the U.S. Could you talk a little bit about Auction 110 of 3.45 gigahertz, I think it is auction kind of got off to a slow start, then seem to do pretty well. Just curious what you think the implications for that will be? Will that be kind of a -- lead to a lot of amendment activity like C-band? Or will there be common antenna usage? Maybe if you can just scale for us what you think this latest spectrum auction would mean for SBA?

Yes. We're pretty excited about it because our technological read so far is that, that spectrum, the 3.45, will need to be deployed in a separate integrated remote radio antenna unit from C-band. So whereas C-band would have been one new piece on the sector, now they add the 3.45 and C-band, you would be adding to. So we believe that is the architecture that's going to go forward. Obviously, we're -- we don't have any proof of that yet, but we talked to a lot of folks on the equipment side and the deployment side. So that's a long-winded way of saying, yes. We do believe that this 3.45 auction and deployment will be incremental to the C-band deployments.

Okay. And now how would that work with the staggered deployment? I imagine no one is going to wait to deploy their C-band for the 3.45. So it's -- it could -- in the best case, it's an amendment now and an amendment in a year or so when this spectrum is deployed.

Yes. Although I believe the 3.45 doesn't really have the same clearing challenges that the C-band has. So you actually may have some more convergence of timing there. I mean to the extent our customers can wait a little bit to do on truck roll rather than 2, I mean they will. Well, that's just common sense and they should do that. So it will either happen at once or as we've seen in other instances, where the demand and the timing is such that they don't want to wait, you'll see multiple deployments. But at this point, we believe it's a separate unit that will be necessary to deploy the 3.45 spectrum.

Okay. Great. Great. Any other meaningful spectrum auctions that you have your eye on over the next few years?

Not so much in the U.S. Brazil just had one, which is a very comprehensive group of 5G type spectrums. So we're optimistic, enthusiastic about that. South Africa is looking to do the same. They've been delaying it now for a little bit of time, may continue to delay it as the economy sorts itself out over there coming out of COVID. But those will be big deals. And those will allow those countries to pursue the same path that's being pursued in the U.S. for 5G.

Okay. Yes. maybe you just -- you mentioned Brazil. Could you talk to us about the balance macro pandemic impacts and some of this new spectrum and other growth that's in the market?

Yes. Brazil has done extremely well operationally. And if you go back to 2010 or 2011, when we first entered Brazil, it's exceeded all of our operational expectations. Now we've had some foreign currency issues, right? The currency has underperformed during that period of time, which, from a U.S. reporting perspective, somewhat offset some of the operational outperformance. But we're coming this year, things really picked up in Brazil. And we expect now with the Oi consolidation occurring, the rationalization of those networks now down to 3, fairly evenly matched players with Claro, TIM and Telefonica and this new spectrum out there. And it was interesting because the Brazilian government did something really smart, rather than have all the money come back to the Brazilian government in the auction, they basically gave credits that were to be used to actually deploy the spectrum. So help the carriers out in that regard. So now that you didn't have to spend so much for the spectrum and still have to spend all the money to deploy it. So that was very good news, I think, for the deployment of infrastructure down there. And they continue to progress out of COVID. They were hit pretty hard, but they're returning to work. Our folks are, for the most part, back in the office. We think other businesses are doing the same. And I think their economy will continue to improve certainly absent any additional outside shock to the system.

Okay. Great. Jeff, really appreciate the time. We're up at the end here. So everybody, thanks for joining today. Jeff, thanks again, and good luck with the rest of the meetings and happy holidays and look forward to seeing you in person soon.

Great. Same to you, Tim and Brendan. Take care.

Thank you.

Thank you.