SBA Communications Corporation (SBAC) Earnings Call Transcript & Summary

Great. Wonderful. Good afternoon, everybody. Welcome to the SBA Communications fireside chat at the Goldman Sachs Communacopia and Technology Conference. My name is Mike Ng, and I cover SBA and telecom services and infrastructure here at the firm. And I have the privilege of introducing Brendan Cavanagh, who's the CEO and President of SBA Communications. First and foremost, thank you so much for being here today, Brendan. It's a privilege to have you here.

Yes. Happy to be here, Mike. Thanks for having me.

Great. To start things off, I was just wondering if we could kick things off and talk about big picture strategy, overall priorities. You spent a couple of years optimizing the asset portfolio. Maybe you can just walk through the opportunity set as you think about each of the regions and whether you see any specific market or segments that have a more meaningful monetization opportunity?

Yes, sure. First of all, we are fortunate to be in one of the better businesses that was ever created in terms of the stability and the profile of it. And so our focus has been on maximizing our core business, trying to strengthen it in the areas where we've had challenges. Some of those challenges have come from consolidation among our customers, both here in the U.S. as well as in our international markets. And so we made a decision a couple of years ago to focus on trying to -- focus on the markets where we have a stronger position, and either enhance our position in those markets where we are a bit subscale and be one of the leading tower providers in that market aligned with the leading carriers or, in some cases, exit those markets. And so we've done that in a number of cases in some of our subscale markets. And so our focus is really on bolstering and strengthening our core business, making sure we're delivering service to the top customers, carrier customers in those markets and can be a leader in terms of organic growth opportunities in those markets. And that will be our focus, I think, going forward as well.

Great. I was wondering if you could just characterize the current state of U.S. carrier activity. It seems like many of them are in the middle to later stages of the their respective 5G coverage build-outs. What are you seeing from carrier activity more broadly? And what do you anticipate in terms of changes in activity as we head into the rest of the year and into 2027?

Yes. So activity in the U.S. has been relatively steady. I would say it's not necessarily the same across every customer. They each have their own kind of focus areas and the things that they're doing. And frankly, their cultures in the way that they behave in terms of network deployments have always been a little bit different from carrier to carrier. In this particular environment, we've seen one of our customers who we signed an MLA with last year, be particularly busy over the course of this year in terms of new leasing activity. That's both amendments upgrading existing installations as well as infill with a lot of new leasing being done as well. So that's been the biggest part of our organic growth drivers during 2026. Some of the others have been a little bit slower. I think some prioritization of initiatives around fiber deployments and other initiatives have had to be a little bit slower than it's been in the last couple of years, but that's not that atypical. There's sort of a cyclical nature to some of these things. And I would expect as we move into next year, and we start to see new spectrum getting auctioned, and you'll probably ask me about some of the upcoming spectrum auctions, but there'll be a large upper C-band spectrum auction that happens midyear next year. And I think that will the outcome of that and who participates in a meaningful way, and I'm sure all the 3 incumbents will, we will see the next cycle of activity starting to build on that as well as some of the fallow spectrum they're holding today.

Great. I think that's a great segue, maybe you can expand on that. As you think about that 160 megahertz of upper C-band that's going to come to auction next April, how would you contextualize that opportunity for SBA? How quickly can that spectrum be cleared and deployed? What are your expectations there?

Yes. So, it's hard to say exactly how quickly it will be cleared. It has to go through that clearing process after it is auctioned off. First of all, it's a large amount of spectrum. It's the largest amount of spectrum being auctioned at one time in many, many, many years. And so that's a good sign. And the speed at which it was made available to the auction was another positive. But on top of that, some of the rules that have been placed around spectrum auctions now by the FCC to help ensure the deployment of that spectrum and that it happens quickly and efficiently, including penalties, including the loss of the spectrum, if you don't meet certain coverage objectives, I think will drive that activity maybe faster than it's been driven in the past. And so that's good from our perspective. Obviously, the clearing of the spectrum has to take place first. That sometimes can take a couple of years, but it might actually happen faster. In this case, I think there will be agreement around trying to make it happen as fast as possible. And I think there's an opportunity to possibly see activity starting maybe even as early as 2028 in terms of initial deployments related to that. That remains to be seen. So we'll see who wins it and how it rolls out. But I think there's an opportunity to see a clear amount of increased activity as we get towards the end of this decade.

Great. I certainly appreciate your perspective there. And maybe just talking about the broader 800 megahertz that's been mandated to auction through 2034. What additional bands do you think will make up the remainder that we don't know about already or we haven't spoken about yet? And does the deployment of that spectrum change -- differ in terms of an opportunity relative to what you just talked about as it relates to the upper C?

Yes. Well, there's a number of different bands that are being evaluated now for potential ultimate wireless usage. The 2.7 spectrum was recently approved for that by the NTIA. And I would expect that, assuming it gets through its approvals in Congress, it will be made available potentially for auction as early as 2028. So that's likely the next one that happens after the upper C-band auction. In addition, right now, there's attention being paid to the 1.6 spectrum, the 4.4 spectrum as well as the 7 gigahertz band. What's really good about some of those -- the higher bands, if you get up to 7 gigahertz that spectrum simply doesn't propagate as well as the historic low band and mid-band spectrum. And so what that means from our perspective is you're going to need denser networks, equipment that's closer together, and that's an opportunity set for incremental leasing. So it's setting up well. There's a lot of spectrum that will certainly be made available because of this 800 megahertz that's been identified is the amount they need to get out there. And the more of it that comes in the bands that we just talked about, I think it will be a driver of incremental growth for, frankly, the next decade.

Great. And then you mentioned at the onset, there may be an opportunity for currently fallow spectrum or maybe some spectrum licenses that the carriers have that have yet to be deployed whether that be, I guess, AT&T's recently closed 600 megahertz spectrum acquisition from DISH or some of the, I guess, lower -- upper C-band that have been acquired but not yet deployed. Just would love to have your perspective on when do the carriers actually go and deploy this stuff and when you might be able to see some tailwinds?

Yes. I think we'll see. First of all, AT&T has not -- on our sites at least, and I think broadly has not yet started to deploy the 600 megahertz. We do believe that will require incremental equipment. So it's an opportunity down the road. And I think we'll probably start to see that, my guess would be next year, some time that, that would be starting, but we'll see how it goes. T-Mobile still sitting on C-band spectrum. They have not deployed any of that yet either. I do think that they probably are waiting on the outcome of the upper C-Band auctions, and it will be a more coordinated rollout of that spectrum band, both pieces, the mid-band and the mid- C-band and the upper C-band together in the future. So the timing on that probably remains to be seen until after the next spectrum auction, and we'll get a better picture then. But again, there are -- the clock is ticking on those bands as well in order to hang on to them. They're going to have to get moving on them pretty soon. And they have every incentive to for their network quality as well.

Great. Super helpful. Where are we in the U.S. as it relates to 5G deployment and additional densification? And then as you think about 6G, will there be a similar dynamic, as you described as it relates to the 7 gigahertz where is 6G going to operate in a band where the propagation characteristics would result in a need for denser networks?

Yes. I think on the 5G progress to date, the carriers are fairly far along. The -- they're not all at the same level, but they're getting towards the latter days in terms of the upgrading their existing network for 5G mid-band spectrum, which is how we kind of measure it. How many of their sites do they have with us? Have they upgraded with that mid-band spectrum? And if it's been 90% of those? Then I would say they're pretty far along with completion of that. And they're not all at that level. One of them is closer to 65%, 70%. That's probably the lowest one. So there's a little bit of upside still left. But by and large, we've seen a lot of that get done. On the 6G side, a lot of the spectrum bands that we just talked about a moment ago, I think will be key components to ultimate 6G deployments. And I think about 6G as being defined in my mind, by AI-enabled applications being the biggest driver of the usage of a 6G technology. And given that dynamic, it will result in a much greater percentage of the total traffic that's occurring happening on an uplink basis as opposed to downlink. Today, you have roughly 90% or more of the traffic is downlinked as opposed to uplink. And I think we'll start to see that shift. Some people have said as much as 50-50, but even if it's 45 -- 40-60, something like that, it's a huge shift. And that will require a lot of incremental equipment at the tower site to make that happen. And so I think that dynamic will be very, very positive for our industry. And that's not going to happen tomorrow, but it does set up the trajectory very well over the longer term.

Great. Could you just expand a little bit on what the increased uplink capacity means for towers? Is that just different types of equipment that would be needed?

Yes. So different types of equipment, some different antennas, there's certainly different radios and I think it's just a sheer increase in the number, actually.

Okay. Very helpful. Starlink and satellite has obviously been very topical for the industry. Could you just talk a little bit about whether or not that's a positive or a negative for the industry for SBA? Could satellite be a substitute for future rural densification? Do you worry about femtocell terrestrial deployments as something that replaces macro towers?

Yes. I don't worry about that. Just to answer that last question. I think it remains to be seen how the satellite direct-to-cell market develops and it could go any number of different ways, obviously. And so I don't know for sure how those will shake out. But as I look at the range of possibilities, it's, in my view, worst case for us and our industry, it's neutral. But the best case is there's a meaningful contributor to increased organic growth. If you have true competition being brought to the existing incumbents through one of these providers where they're providing direct-to-cell, I'm 100% certain that there is a terrestrial component that will be needed as part of those networks. I do not believe that femtocells are the answer to that. Maybe there's some element of it that's in there. But in terms of it being the wholesale solution, I'm highly skeptical of that based on everything we've seen throughout our entire history, and it's been tried before. So, that, to me, says that there will be a macro-based terrestrial component of those networks. And basically, it provides us a whole new customer potential. Now, it may not be 3 customers going to 4, it might be 3 going to 3.5 effectively. But still, it's all incremental and would be a meaningful growth driver. That's, of course, if they're going to compete as a true stand-alone competitor. And that's what they've indicated to date, and so take at least SpaceX at their word that, that is their intention. And there are other providers, by the way, who this applies to as well, it's not just them. So we'll have to see. But if it doesn't go that way and they end up with some kind of partnership or MVNO relationship, which I know has been said by our existing customers that, that's not something they're going to do. But if it should ever go that way, I think at a minimum, it's a positive in the sense that it drives incremental traffic through these networks, and that's at least around the margins is certainly favorable to us. It's definitely not a negative. We're no lesser position than we are today, and I think we're modestly better off. So to me, that's sort of the downside case as it relates to our industry, but the upside is quite promising if it goes in that direction.