Tom Bartlett, American Tower CEO, told the Q3 earnings call last week how American Tower aims to use its neutral-host real estate portfolio to help customers deal with the convergence of wireless and wireline networks, which will lead to numerous additional services that call for mobile data centers.
“We believe that this convergence along with increasing digitalization, network virtualization and cloud-native software-defined services will lead to increasing demand for distributed, interconnected global edge compute processing,” Bartlett said.
Infrastructure at the edge should remain a critical component of the network architecture as it evolves, according to Bartlett, which is where American Tower’s real estate assets reside.
“We are focused on developing communications infrastructure business models that augment the value of our existing assets, expand our revenue base beyond traditional tenants, and enhance our leadership role in the wireless ecosystem,” Bartlett said. “At the highest level, our goal is to selectively extend our digital infrastructure core capabilities to further encapsulate neutral hosted wireless connectivity, transport, and compute functions as part of our comprehensive platform.”
American Tower plans to offer tenants an integrated suite of complementary solutions to fit within the increasingly complex network designs.
American Tower will focus its investments on business models with contracted long-term revenue commitments from Tier 1 customers; multi-tenancy and multi-service offerings with low ongoing maintenance capex; operating leverage characteristics similar to towers; and synergies and adjacencies to existing American Tower assets and skillsets, Bartlett said.
In the United States, as 5G deployments accelerate, American Tower expects an increasing number of lower latency applications and more cloud-based customer demand for application-level and network compute functions at the edge.
“There are two distinct solutions within this emerging ecosystem: distributed compute and mobile edge compute,” Barlett said. “We believe that these two offerings will develop on different timelines and will allow us to provide differentiated valued propositions for our customers.”
On the distributed computing side, enterprise workloads continue to move to the public cloud. In the near term, on- or off-premise private cloud computing is also being used as a hybrid solution. American Tower has begun deploying micro data center facilities at select tower sites and has seen early indications of solid demand in collaboration with partners like Flexential, a nationwide data center platform.
“Small and medium-sized businesses are often willing to move legacy workloads to more responsive, proximate, cost-effective data centers, and we believe that many data centers at some of our macro towers can represent optimal locations for these installations,” Bartlett said.
In the long term, however, 5G mobile edge compute solutions at the tower to represent a much larger opportunity to fulfill the need for low latency, according to Bartlett.
“The foundational concept of our mobile edge strategy is the expectation that localized neutral host, multi-operator, multi-cloud micro data centers can be the most cost- and technology-efficient means to which latency can be reduced,” he said. “These facilities can be optimally located at select macro tower sites that already have power, fiber and multiple wireless tenants, rather than each cloud provider and carrier forging ahead with their own connectivity arrangements.”
Colo Atl, an American Tower company and provider of carrier-neutral colocation, data center and interconnection solutions, is in the early stages of small-scale deployments at the tower sites.
“At this point, we think a scaled solution is still at least a few years away, but there is tangible progress being made, and we are excited about the possibilities,” Bartlett said. “Underlying this excitement of the potential future 5G related use cases that we expect to drive rapid uptake of mobile edge compute functions.
Although the tower company will see some churn related to network rationalization, Jim Taiclet Jr., American Tower’s chairman, president and CEO, reiterated his expectations that the merger of T-Mobile and Sprint will be “net neutral to net positive” in the mid- to long-term. Taiclet spoke during the company’s fourth quarter 2019 earnings call.
“This optimistic perspective has been driven by our belief that the combination would speed up the deployment of multiple band spectrum, including a number of mid-band assets, and that the accelerated nationwide 5G coverage requirements associated with this transaction will drive further demand for tower space,” Taiclet said.
Tom Bartlett, American Tower’s chief financial officer, agreed, saying that the new business activity is expected to increase in the second half of this year and into 2021.
“With all that said, we remain incredibly constructive on the long-term demand trends for tower space in the United States, and given the forecasted demand growth, anticipated spectrum deployments and opportunities associated with 5G,” Bartlett said.
American Tower anticipates even stronger long-term upside from Dish’s commitment to building a new full nationwide network.
“We anticipate that [network rationalization] will be more than offset by incremental industry network investments in coverage, capacity and densification over time,” Taiclet said. “We’re excited to partner with all of our tenants, including the new T-Mobile and Dish, to help speed the deployment of fast, efficient 5G broadband service to consumers throughout the country.”
Meanwhile, in the United States, American Tower is revamping master lease agreements and working with its tenants to optimize service levels to support both 4G and 5G deployments, reducing cycle times and increasing efficiency in network deployments. The tower company’s goal is to reduce its run-rate SG&A (selling, general and administrative) expense as a percentage of revenue, while adding scale, growing revenue and improving business processes.
“Among the contributors to this are our master lease agreements that provide for more streamlined administrative processes for site applications and our highly capable in-house zoning and permitting and structural engineering teams,” Taiclet said.
Bartlett said the post-merger New T-Mobile will bring American Tower roughly the same organic tenant billings growth it would have had before the merger, or perhaps slightly higher in the first quarter. He said he expects more of the billings growth to fall into the second half of this year, which will be positive for American Tower ahead of 2021.
In the United States, Bartlett said, American Tower is well positioned to benefit from the new wireless industry structure, working with existing and new tenants to deploy 5G wireless communications equipment. He also commented on other areas that represent growth possibilities, such as edge compute.
“As far as edge compute is concerned, my vision long-term is that there’ll be a lot of value to being able to interconnect at the cell site for multiple mobile operators and multiple cloud providers to benefit from the latency improvements and the throughput and responsiveness of 5G in the future,” he said.
American Tower is testing edge compute with Colo Atl in the laboratory and at six sites at American Tower locations in the Southeast.
“This year we decided to go ahead and test this out with a few very well-regarded parties in those fields,” Barlett said. “We hope to lead the infrastructure definition of what it is going to take to do these kinds of edge compute solutions.”
Quotes Courtesy The Motley Fool.
American Tower’s U.S organic tenant billing grew 7.1 percent in the third quarter, which helped drive strong results during the period, according to Jim Taiclet, American Tower’s CEO.
“Our tenants are making significant investments in their networks as mobile data usage growth continues, and in the United States, we are now seeing the early stages of 5G spending,” he said. Taiclet expects the impact of 5G to continue to grow in the future.
The Impact of Mobile Data Growth Pushes Wireless Infrastructure to Lower Costs
With spectrum usage growing 30 percent annually, carriers have had to add equipment and spectrum to their existing sites to support today’s 4G networks. By 2028, total U.S. mobile data usage is estimated to be six times current levels, further pressuring carrier bottom lines, Taiclet said.
“We recently concluded that the need to efficiently manage the networks’ cost challenge, which this mobile data traffic explosion creates, will actually be the main driver for the deployment of 5G,” he said. “Simply put, the cost per gigabyte delivered must continue to decline at roughly the same rate as the growth in aggregate traffic of the network that is needed to sustain carrier tenant margins.”
Historically, each successive generation of technology has brought about more efficient radios, advanced network design, new spectrum deployments and additional network density, according to Taiclet. 5G will bring massive MIMO, dynamic spectrum sharing and self-optimizing networks, which demand wider allocations in the low-, mid- and high-band spectrum, tailored for coverage and capacity.
“All of these network improvements will enable wireless carriers to efficiently manage the cost of the exploding network demand,” he said. “Eventually, when nationwide coverage is achieved, 5G will pave the way for a variety of interesting next generation products and services that may offer profitable opportunities, not just for mobile operators, but for a variety of industries. So from a cost, efficiency and practical perspective, 5G is the logical and necessary next step in network evolution.”
American Tower looks to benefit from mobile network technology evolution over the long term through mutually beneficial master lease agreements (it signed a new MLA with AT&T during the quarter), continued tower portfolio expansion and its innovation program.
During the third quarter, in the United States, the company acquired 615 communications sites for $500 million, and spent $43 million to purchase the 243 remaining towers under its previously disclosed sublease agreement, with ALLTEL Communications, a predecessor to Verizon Wireless.
American Tower’s master lease agreement with AT&T gives the tower company more predictability over its cash revenue and growth over the next several years, Rod Smith senior VP, corporate finance & treasurer, American Tower, said last week at the Bank of America Merrill Lynch 2019 Media, Communications and Entertainment Conference.
“It also came with a bump up in straight line revenue of $130 million, which gives more predictability into future revenues of our business beyond the initial term,” Smith said. “We are not increasing our guidance on organic growth or cash flow because the agreement just firms up what we expected to get in organic growth.”
Smith said, contrary to common wisdom, the relationship between American Tower and AT&T is not suffering. But he did note that the relationship had a “few obstacles.” One of which was a lawsuit between the companies, which was resolved in the MLA.
Similar to other MLAs, the agreement between American Tower and AT&T is holistic in that it sets a fixed fee for executing amendments and collocations, instead of pricing them ala carte.
“If we can understand what they need to do and what revenue we are going to get, we can lock that into a fixed fee and it makes the administrative process easier, quicker and more predictable for us and them. It helps everyone,” Smith said. “We don’t give discounts to get the predictability and we don’t really give up any upside. We grant certain terms and rights to the carrier.”
American Tower’s key to success, according to Smith, is maintaining an understanding of the carriers’ development needs. “We talk to them all of the time about their development needs and objectives. In the different constructs of agreements, we look to remove the variability and have more predictability in our revenue stream,” he said.
Smith described the U.S. leasing environment is “healthy and strong.” The tower company, however, is expecting a step-down in its organic growth in the second half of the year, as a spurt in growth cycles through.
“If you look back at 2018, we saw a step up in Q2 with some new business, which has funneled through and is now tailing off,” he said. “With that said, we do see very healthy demand for our assets in the United States. We will end 2019 at 7 percent growth, which is similar to last year.
Smith said American Tower has the highest organic growth of the public tower companies,
the highest escalator at 3.2 percent and the lowest churn. No matter what happens with the T-Mobile/Sprint merger or Dish, Smith expects the wireless infrastructure industry to continue to experience growth because of the increase in data usage.
“The growth in mobile data usage of 30 percent to 40 percent annually across the country requires the carriers to invest in the networks at a combined rate of $30 billion a year. That is the number one contributor to our overall program,” Smith said. “There are other contributors, such as the FirstNet buildout and T-Mobile’s deployment of low-band spectrum. Those customers really make a difference.”
If Dish Network builds out a fourth carrier, Smith said it would represent an opportunity of between 10,000 to 15,000 sites in the low band nationwide. He expects Dish would take advantage of the Verizon portfolio of 11,000 towers that American Tower purchased, which has a low second-tenant lease-up rate. American Tower has added tenants in the financial and oil & gas industries in the last five years.
Smith commented American Tower has not seen the deployment of Massive MIMO antennas deployed the millimeter wave bands, which he expects will create a bump in the average amendment rates similar to what the tower company has seen in the deployment of larger antennas in the 600 MHz band.
American Tower has purchased Atlanta-based Colo Atl, a provider of enterprise and carrier-neutral colocation, interconnection and data center services.
Timothy A. Kiser, a licensed professional engineer in 35 states, founded Colo Atl in 2001. Today, the company’s colocation and Meet Me Room (MMR) space spans 1,470 square feet on the 5th Floor and 16,034 square feet on the 8th Floor in a carrier hotel, 55 Marietta Street.
The carrier-neutral collocation space was developed to allow tenants to cross-connect within the space, allowing companies to establish a presence to network with other carriers within the building via two vertical fiber risers, and to connect with companies in 56 Marietta Street via two diverse 432 count fibers between the 55 and 56 Marietta Street Buildings.
The Col Atl purchase won’t move the needle on American Tower’s bottom line, but it shows a newfound interest in diversification at the major tower company.
“American Tower declared that it wanted to diversify its revenue base beyond towers,” said Vertical Bridge CEO and Co-founder Alex Gellman. “They have in-building and venues, but they have made two moves now. They bought a billboard company in the Boston area a few months ago to explore that industry. Now they are buying a data center company to gain an understanding of that industry. These are guys are very methodical, diligent, thorough people. They buy these small companies, operate them and figure out the insides of how they work to see if they can scale it up.”
Digital Bridge Also into Data Centers
It’s not the first news that has broken about diversification by the comm-infra space into the data center business. Digital Bridge entered the enterprise-class data center business by acquiring DataBank in July 2016. DataBank then quickly made two acquisitions, buying select 365 Data Center assets in Pittsburgh and Cleveland and picking up Utah-based C7, which owns and operates three facilities in Salt Lake City.
DataBank has expanded its footprint from six data centers in three markets to 15 data centers in eight markets, while also significantly boosting its product capabilities in managed services, security, and compliance. Today, DataBank is headquartered in downtown Dallas and has additional data centers in North Dallas, Minneapolis, Salt Lake City, Cleveland, Pittsburgh, Atlanta, Baltimore and Kansas City. Digital bridge has invested nearly $2 billion in the sector.
Micro Data Centers at the Tower
In 2017, Vertical Bridge announced that it was partnering with its sister company DataBank, a Dallas-based data center provider, to develop micro data centers (MDC) that would host edge computing at the base of cell towers.
The two companies’ parent corporation, Digital Bridge, publicly announced the plan to enter data centers back in 2014.
“We see micro data centers as part of the major convergence that is taking place,” said Bernard Borghei, executive vice president of operations and co-founder of Vertical Bridge. “Time was needed for technology to catch up, and the carriers needed to understand the benefits of this approach.”
Edge Computing Use Cases
Why do the wireless carriers want edge computing? There are many reasons to put a data center at the base of a tower and many more that haven’t been thought up yet. Tailored content could be stored in the MDC for the geographic area that it is serving. NetFlix could push its most popular movies to the edge. Time-sensitive connected/autonomous car applications could be placed near “smart corridors” of rush hour traffic.
Data Center Knowledge, an industry publication, reports that AT&T is looking at MDCs to support a variety of applications such as data analytics using information from industrial sensors devices like virtual reality headsets.
While much smaller than a typical data center, an MDC allows computing to be pushed to the edge of the network and nearer the user, similar to the relationship of a small cell to a macrocell tower.
“When you reduce the distance and introduce localize computing, you reduce the amount of computer processing at farther distances away and the time traveled to get the data from the wireless device through the backbone network, to the Internet and back. That is how a micro data center allows you to achieve that speed and ultra-low latency,” Borghei said.
What is a Micro Data Center?
Basically, an MDC is a room full of computer servers, possibly 20 feet by 20 feet, and no taller than an equipment shelter. Along with the space, a tower company would need power for the equipment and the HVAC system and adequate fiber access. As with towers, the siting of an MDC depends on the network design, geographic location and surrounding population.