$10 billion CoreSite acquisition gave American Tower combination of tower and datacenter infrastructure
Although U.S. carriers are lowering capex as 5G deployments slow, American Tower is still seeing activity levels that are “really strong in the U.S. and around the globe. And it’s all about increases in mobile data consumption,” company EVP and CFO Rod Smith said last week at the JP Morgan Global Technology, Media and Communications Conference. Looking ahead to future growth opportunities, Smith called out American Tower’s combined portfolio in the U.S. of tower sites and data centers, and eventual densification efforts to keep up with the aforementioned increases in mobile data consumption.
In the U.S. market, T-Mobile US has effectively completed its network integration with Sprint, and AT&T and Verizon are well underway in deploying available mid-band spectrum although clearing those frequencies is ongoing. Dish Wireless is conducting a nationwide greenfield build of a cloud-native 5G network. Given all that, Smith said, “We’re seeing activity from all four carriers. We expect..that the capital cycle for 5G is going to be a long cycle.” He noted about 50% of American Tower’s macro sites are supporting C-Band equipment.
On the near-term outlook, Smith said there was a potential future shift from amendment-driven business wherein existing sites are upgraded to densification wherein new sites are added. Variables to consider are penetration of 5G-compatible handsets and new applications hitting the market that consume large amounts of mobile data and bandwidth. “Not right away but over the next several years we think we could a transition” to a densification-led capex cycle.
Smith also discussed the dynamics that validate American Tower’s $10 billion acquisition of datacenter, interconnect and cloud onramp provider CoreSite. A cloud onramp is a secure, dedicated connection between private IT systems and the public cloud; this is a key connection as enterprises, operators included, flesh out hybrid cloud operating models. Smith said the CoreSite portfolio is designed around cloud access points and offers 23 cloud onramps, which brings in networking companies and enterprise customers.
“We think this business is a really good set of U.S. assets that has very limited downside,” Smith said. He also called out possible “revenue synergies” between the CoreSite assets and the tower assets. “We know that the cloud companies want more and more access points in the U.S….some of their biggest customers are going to be the network companies, particularly the wireless companies…We do think there’s an opportunity to kind of bring the cloud access points out to the tower sites.”
Smith continued: “That business model is not there yet, but we think over the next several years that business model is developing and will develop…As networks develop and use cases for network develop, lower latency is going to be a requirement for a lot of the new functionality…The way you get lower latency is have cloud access points and compute power closer to where the end users are,” with the end users in this case being cellular basestations.
