American Tower’s recently minted master lease agreement is not only good for the tower company, but good the tower industry, Rodney Smith, SVP, American Tower’s corporate finance & treasurer, said in his conversation with Batya Levi, UBS Investment Bank, at the UBS Global TMT Conference, this week in New York City.
He noted the MLA that the tower company signed with AT&T defines a longer commitment by the carrier. Previously, AT&T had voiced its displeasure with American Tower’s leasing terms and has gone out of its way to have companies who build them new towers agree that they never be sold to a public tower company.
“The deal with AT&T really increases their level of commitment on our towers,” Smith said. “Our committed order book of revenue has gone up from $34 billion up to about $46 billion, primarily because of this deal. So that — in a way, you look at that as kind of an extension of all these sites. It’s really a longer-term commitment, which we think is really good for us, and it’s good for AT&T.”
Within that deal, AT&T now has certain use rights on American’s towers, and it doesn’t have to go through an individual application process every time it wants to work on a tower. So the administrative side of amendments and collocations has been streamlined and the payment mechanism is simpler for AT&T and more predictable for American Tower.
“I think it’s good for the whole industry, where the tower companies and the telecoms really work together to make sure that all this infrastructure that exists is utilized and accessible and efficiently used by all the carriers,” Smith said. “We price it out. We do discounted cash flows. We figure out what it’s worth, and we make the payment mechanism much simpler.” However, he added that the 3 percent escalator, which has caused consternation, is still in place.
Smith talked about other bright spots on the horizon. As it waits to obtain mid-band spectrum, Verizon will probably engage in additional cell-splitting to increase system capacity. But mid-band spectrum, when it is rolled out, will be used for 5G with equipment deployed from macro towers in suburban and rural areas: good for the public tower companies.
“And when we get into mid-band spectrum deployment cycle, that certainly is something that the tower companies would monetize,” Smith said. Another opportunity brought on by 5G will be massive MIMO antennas, he added.
Although it has deployed around 500 outdoor small cells, American Tower is still not interested in deploying and owning small cells, because the return on investment is not big enough. Plus, the technology risk demands an even higher RoI.
“When I think of small cells, it’s not like towers,” Smith said. “When people in this industry talk about small cells, what they’re really talking about is fiber backhaul. So the infrastructure companies provide the fiber backhaul to the small cell, and they provide the services work to deploy the small cell, but they don’t own any real estate where they’re renting that space to the carrier to place the small cell.” Additionally, fiber deployment is so competitive that returns are even going down further, he added.
However, American has 350 in-building fiber-fed small cell network deployments in premier building locations, such as Las Vegas casinos, high-end malls and NASCAR racetracks, which do fit into its business model.
“If there’s a place where we have dedicated, dense occupancy, even though it may be for a short time, like at a sporting event, the cost of the networks is much more realistic,” Smith said. “You’ve got a dedicated customer base in that building, because you might have 60,000 people going to a sporting venue. That means the carriers really do want to cover it. So, if you build it, you’ll get one, two carriers, maybe three. So we do see the lease-up in that model.”