September 20, 2016 —
EDITORS’ NOTE — This is the second of three articles revealing the different approaches to small cells of the major tower companies. American Tower owns 40,000 towers in the United States. It owns 300 in-building distributed antenna system (DAS) networks in places such as Las Vegas casinos and Class A shopping malls, among other inside venues. It owns another 30 outdoor DAS networks that cover areas where zoning for towers is difficult to obtain.
The company’s senior vice president and CFO, Rodney Smith, said wireless carriers need towers, DAS and small cells to solve their mobile network problems. He said American Tower believes the carriers spend about 5 percent of their capital on small cell and DAS deployments, generally in urban centers where permits for macrosites are difficult to obtain. “But we do see the carriers choose macrosites whenever they have the chance,” Smith said. “If you can get a macrosite zoned and built, they will go on that before they’ll build an outdoor DAS network.” American Tower has been constructing new in-building networks and leasing to additional tenants on its older networks.
Smith said he believes wireless carriers will grow their investments in small cells by at least 5 percent and maybe by as much as 10 percent during the next four or five years. “That would mean if they’re spending about $30 billion dollars altogether, they will be spending about $3 billion of that on small cells,” he said. “That’s not a huge drag away from macrosites, which the carriers will continue to need to use in the long term and outside of urban centers. But they will also need the DAS networks in other places.”
Smith compared in-building DAS with outdoor DAS, saying that in-building systems are where American Tower has chosen to spend most of its capital allocated to DAS. “When we invest capital, we look at the returns that we can get, and we’ve done really well with our in-building deployment,” he said. “We generally see those networks lease to an average of two carriers, or a little more, similar to the way we see towers lease. On outdoor DAS networks that we’ve had for as long as five or six years, the average is 1.2 or 1.3 carriers per system. They don’t lease up quite the same way.”
American Tower also obtains lower margins on its outdoor DAS networks compared with its in-building systems. Smith said the margin for indoor networks is about 70 percent, compared with 50 percent for outdoor DAS. The outdoor networks are more complex and they have a heavy operating expense (opex). Smith said they are capital-intensive, too, resulting in a mid-single-digit return on invested capital. “That’s primarily because we don’t see the clear path to lease to second tenants because every time you put a new node in, you’re running new laterals, you’re running fiber, you’re splicing your investing and you’re increasing your investment,” he said. “In the indoor space, we see returns that are similar to the tower space when they get in the double digits.” As a result, American Tower invests more in in-building systems, although Smith said outdoor DAS definitely is needed.
“We also have the whole globe available to us to invest in macro towers,” Smith said. “One of the reasons we are somewhat choosy about what we invest in in the United States is because we can invest in India, Mexico, Brazil, Germany, South Africa, Nigeria and other countries in Africa. We see better risk-adjusted returns from macro towers in those markets. For us, the ability to invest internationally is key. When you ask, ‘Why isn’t American Tower investing in outdoor DAS,’ it’s because we believe we can achieve better returns in different spaces in the United States and outside of the United States.”
Rodney Smith spoke at the Wireless Investors Conference, part of the Wireless Infrastructure Show, in May. The next Wireless Infrastructure Show is scheduled for May 22–25, 2017, in Orlando, Florida.