Key Takeaways from American Tower (AMT) Q4 2015 Earnings Call

American Tower Corporation (AMT) provided its 4th Quarter 2015 earnings call this past week.  In reviewing the transcript, here are our takeaways:

1. American Tower now has upwards of 140,000 towers worldwide – which represents a sizable increase in India of 42,000 towers over 2015 and the 11,500 sites from Verizon this past year.  AMT expects to be at 145,000 sites by the end of the year, which suggests that there aren’t any sizable acquisitions out there for 2016.

2. American Tower built approximately 3,000 towers and 50 new indoor DAS networks in 2015 (almost all of them outside the US).

3. AMT says they have been effective at containing churn due to “skilled master lease contracting.”   However, they don’t provide any details to support this conclusion.

4. Growth for AMT in the US was fairly limited at 6% on an organic growth basis as compared to 11% in international markets.  AMT expects US growth to remain steady in the mid 5% range while international will accelerate slightly to 12%.  AMT does expect the US growth to be straight lined throughout the year – which is surprising because 1Q so far hasn’t been very exciting from our vantage point.

5. Average tenancy per tower of the newly acquired towers in the US and internationally is 1.4.

6. American Tower makes a very clear effort in this earnings call to talk about communications real estate and property revenues as opposed to towers and tower revenue.  This is a clear nod to concern by the market that towers are no longer the only way to provide wireless service.  American Tower generates 3% of its revenue through DAS, and another 3% from rooftops.  Interestingly, American Tower is now coming around to rooftops again – after distancing themselves from their rooftop management history (Spectrasite/APEX) in the 1990s. They allege that they intend to grow these areas, but offer nothing concrete on how or when they will do so.

7. American Tower continues to point to 30%-50% data usage growth in the US and make general aspersions that such growth will correlate to more amendment revenue.  They also suggest without demonstration that the carriers will continue to build out their sites based upon carrier aggregation and the use of higher frequencies which will increase site density needs by all wireless carriers.  We don’t believe that any of the tower companies have sufficiently answered questions about the impact of small cells and C-RAN as they impact tower collocation uptake rates.

8.  Ironically, American Tower has now done an about face from proclaiming how many of their towers are in core urban environments/top 50 BTAs to emphasizing that 95% of their towers are in suburban, corridor, and rural environments.   They do this because they are trying to answer questions about small cell and densification efforts by the carriers that don’t use towers.  (See the Sprint mini-macro efforts – or Verizon’s substantial small cell efforts in suburban and urban areas.)

9.  American Tower claims that 95% of capex is being spent on macro networks, although they clarify that this may fall to 90% in the next few years.   I don’t know where they pull these numbers from – Verizon has indicated explicitly that a majority of their spending this year will be on small cells and DAS installations.  Sprint has limited plans for macro deployments – publicly indicating that they intend to use mini-macros (big small cells) for densification.  Not unexpectedly, American Tower declines to talk about master lease negotiations in place and whether the carriers are using alternative technologies to push back on lease rates and other terms.

10.  American Tower clearly doesn’t like small cells as a business opportunity, stating that they are focused where they think revenue opportunity is – which they define as towers and indoor small cells.   They keep posturing about their indoor small cell space (really DAS not small cells), pointing to their in-building DAS systems in the US as having 2.3 tenants per DAS.  They do point out that their outdoor DAS has not grown as fast as they expected.  I find it interesting that AMT states they have the leading multi-tenant indoor small cell portfolio. I doubt this is true – but don’t know who else has more indoor DAS facility leases in place.

11.  AMT completed lease extensions or lease buyouts on approximately 3,000 properties in the US, with 2/3 of those by lease extensions and the other 1/3 by lease buyouts.  They now control the land rights under their towers for 63-65% of their total portfolio in the US with an average of 22 years remaining.

Overall, it appears that American Tower is focused overseas and that while the US market still commands attention from the market analysts, American Tower isn’t that bullish on it. The growth opportunities are limited other than site amendment efforts and they don’t appear to be focused on building or buying new towers in the US, at least not for the foreseeable future.   American Tower gives lip service to small cell opportunities – but really doesn’t appear to be doing anything other than continuing to operate those indoor and outdoor systems that are already in place.