Wireless Tower Industry and Business Model Overview

Wireless Tower Industry and Business Model Overview

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Description: Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This presentation contains forward-looking statements concerning our goals, beliefs, strategies, future operating results and underlying assumptions. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those described at the end of this presentation, Item 1A of our Form 10-K for the year ended December 31, 2015, under the caption “Risk Factors” and other filings we make with the SEC. We undertake no obligation to update the information contained in this presentation to reflect subsequently occurring events or circumstance.

 
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Contents:
Introduction to the Tower Industry
and American Tower
As of June 30, 2016

Forward Looking Statements
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This
presentation contains forward-looking statements concerning our goals, beliefs, strategies,
future operating results and underlying assumptions. Actual results may differ materially from
those indicated by these forward-looking statements as a result of various important factors,
including those described at the end of this presentation, Item 1A of our Form 10-K for the year
ended December 31, 2015, under the caption “Risk Factors” and other filings we make with the
SEC. We undertake no obligation to update the information contained in this presentation to
reflect subsequently occurring events or circumstances.
Definitions and reconciliations are provided at the end of this presentation.

2

Section 1

The Tower Asset

3

Wireless Tower Basics
What is a tower?




A vertical structure built on a parcel of land,
designed to accommodate multiple tenants
Our tenants utilize many different technologies,
including telephony, mobile data, broadcast
television, machine to machine and radio
Tenants lease vertical space on the tower and
portions of the land underneath for
their equipment

What is found at the tower site?




Tower company typically owns or leases under
a long-term contract:




Tower structure
Ground interest (fee simple or lease)

Tenant typically owns and operates:




Equipment, including antenna arrays,
antennas, coaxial cables and base stations
Equipment shelters

4

Types of Towers

Monopole
› 100 - 200 feet
› Typical use: telephony

Lattice
› 200 - 400 feet
› Also called self-support
› Typical use: telephony

Guyed
› 200 - 2,000 feet
› Typical use: television and
radio broadcasting, paging
and telephony

Stealth
› Range in size
› Generally used to maintain
aesthetic quality of area

› Particularly useful in
areas with strict zoning
regulations

5

Typical Tower Components
1.
2.

Whip Antenna
› A stiff, monopole antenna, usually mounted vertically

1

Antenna Array
› A platform (typically three sided) where tenants place equipment to provide

2
3

signal transmission and reception to a specific area. The number of antennas
necessary per array is determined based on a number of factors, including:






3.

the number of active subscribers

5

the volume and type of network usage by subscribers
(e.g., average minutes of use, voice versus data)

6

the technology being used (e.g.: CDMA, GSM, LTE)
the type of spectrum currently utilized by the tenant

Port Holes
› Holes cut into the base and top of a tower to allow cables

7
8

and wiring to pass through the tower structure from the
base station to the antennas

4.

Panel / Antenna
› Tenant equipment that transmits a signal from the
tower to a mobile device or vice versa

5.

4

9

8
10

Microwave Dish
› A specific type of antenna, which is used in point-to-point radio, television and
data communications. Also commonly used by wireless carriers for backhaul

6

Typical Tower Components
6.

(continued)

Coaxial Cabling (Fiber)
› Transmission lines that carry the signal received from the antenna to the base

1

station or vice versa

7.

2

Reinforcement Bars
› Threaded anchors which are used to reinforce towers to add

3

4

capacity to accommodate additional tenants

8.

Shelters
› Buildings at sites used by our tenants to house communications,

5

radio and network equipment. Some shelters are designed to be stacked
on top of one another to conserve space at smaller sites

9.

6

Generator
› Gas or diesel powered generators provide emergency backup

7

power to keep tenant equipment operational during power outages.
American Tower has also introduced Backup Power Solution to allow
multiple tenants to use a single generator

10. Ground Space
› The area within a site where tenants

8

9

8

place their shelters and generators

10

7

Sample Component Ownership Overview
Owned by American Tower




TEN

AMT

Tower structure – our tower sites are typically
constructed with the capacity to support
~4 - 5 tenants

TEN

Land parcel owned or operated pursuant to
a long-term lease by American Tower

TEN

Generators are sometimes owned by American Tower
to help facilitate back-up power for the site’s tenants

AMT

Owned by Tenants




Antenna equipment, including
microwave equipment

TEN
TEN
TEN

Tenant shelters containing
base station equipment and HVAC,
which tenants own, operate and maintain
Coaxial cable

AMT

8

Section 2

The Business Model

9

Recurring Long-Term Revenue Stream
Revenues
Sources



Multiple tenants lease vertical space on the tower
for their communications equipment



Rental charges are typically based on:





Property location
Leased vertical square footage on the tower
Weight placed on tower from transmission
equipment and backhaul solutions

10

Recurring Long-Term Revenue Stream
(Continued)
AMT Non-Cancellable
Lease Revenue

Revenues

($ in Billions, As of Period End)

Long-Term Customer Leases







$27

Contracts are typically non-cancellable
Typical contract terms include an initial term
of 10 years with multiple renewal terms at
the option of the tenant

$19
$10

Average annual lease escalators in the U.S.
of
approximately 3%

AMT Segment Revenue
($ in Billions)

Escalations in international markets are
typically based on local inflation rates(1)

$5.8
$4.8
$4.1

Low historical annual churn of
approximately 1 - 2%

$3.4
$2.0

Services
Excludes escalators in India and Nigeria, which are typically fixed.
Reflects 2Q 2016 annualized results.
Includes Asia, EMEA and Latin America.

$20

$23

$14
$9

$1.6 $1.7

(1)
(2)
(3)

$32

$30

$2.4

$2.9

International Property(3)

U.S. Property
11

U.S. Operating Cost Structure
Largely Fixed Operating Costs

Direct Cost of Operations(1)
Sources





Ground rent
Monitoring
Insurance





Real estate taxes
Utilities and fuel
Site maintenance

Land Interest Attributes







Own ~28% of land under our U.S. sites
Approximately 67% of sites are on owned land or have a
ground lease with at least 20 years until renewal
Long-term leases: average remaining ground lease term is
nearly 25 years until final maturity in the U.S.
Annual lease escalators in the U.S. averaging approximately
3%
Selectively purchasing land interests where return
hurdles are met

Fixed Cost Structure of Towers


(1)

Additional tenants result in minimal incremental operating
costs

Characteristics as of June 30, 2016.

12

International Operating Cost Structure(1)
Similar to U.S. cost structure, but with ability to pass-through certain expenses to tenant

Direct Cost of Operations(2)
Sources





Ground rent
Monitoring
Insurance





Real estate taxes
Utilities and fuel
Site maintenance

Land Interest Attributes




Long-term leases: average remaining ground lease term is
over 9 years
International escalators are typically based on local
inflation indexes

Pass Through



Our international markets typically pass through a portion
of their operating expenses to the tenant (e.g., ground
rent, power and fuel costs)

Fixed Cost Structure of Towers



(1)
(2)

Additional tenants result in minimal incremental operating
costs

Includes Asia, EMEA and Latin America.
Characteristics as of June 30, 2016.

13

Low Ongoing Capital Requirements
Capital Expenditure Types
Revenue-Maintaining CAPEX:
Capital Improvements





Includes spending on lighting systems, fence repairs and ground upkeep
Per tower spend of ~$400 - $600 annually in our international markets and $1,000 - $1,300 in the U.S.
Corporate Capital spending primarily on IT infrastructure

Revenue-Generating CAPEX:
Redevelopment




Capital spending to increase capacity of towers (e.g., height extension, foundation strengthening, etc.)
Cost is typically shared with the tenant, and investment payback period on net CAPEX is typically one to two years

Ground Lease Purchases



Capital spending to purchase land under our sites

Discretionary Capital Projects



Capital spending primarily for the construction of new communications sites and generators

Start-Up Capital Projects



Expenditures that are specific to acquisitions and new market launches and that are contemplated in the business cases
for these investments
14

Historical Capital Spending
$1,200

Total Capital Expenditures

$1,000

($ in Millions)

$800

$676

$600
$400

$243

$200
$2008

2009

2010

2011

2012

2013

2014

(1)

2015

2Q16A

Redevelopment

Start-Up Capital Projects

Ground Lease Purchases

Discretionary Capital Projects

Corporate

Capital Improvements

Revenue-Maintaining CAPEX per Tower
Average: $1.6
$1.4

Revenue-Maintaining CAPEX

($ in Thousands)
$1.7 $1.7
$1.7

(as % of Property Revenue)

$1.5

3.3% 3.4% 3.4%

$1.3
2.5% 2.4%

$1.1
$0.8

2008
(1)

Average:
2.7%

$1.2

2009

2010

2011

Reflects 2Q 2016 annualized results.

2012

2013

2014

(1)

2015 2Q16A

2008

2009

2.5% 2.3%
2.1%

2.2%

2010

2011

2012

2013

2014

(1)

2015 2Q16A

15

Accommodating Additional Tenants
When towers reach their capacity, there are multiple options to
accommodate future tenants
1

Redevelopment CAPEX Examples
1.
2.

2

Height Extension
› Allows for more equipment and more tenants
Multiple Antenna Mounting Scenarios
› Options include whips, panels, microwaves and various combinations determined by

3

internal RF engineering

3.
4.
5.
6.
7.
8.

Port Hole Additions
› Additional entry and exit port designs accommodate additional coaxial cables
Tower Reinforcements
› Adds structural strength to accommodate additional tenants
Strengthened Foundation
› Increases load capacity of the tower
Backup Power Generator
› Provided by American Tower, maximizes compound space
7
Stacked Shelters
› Shelter stacked atop an existing shelter using a steel platform
Extended Ground Space
› Where space allows, expanded to accommodate more equipment

2

2

4

6
5

8

16

Sample Macro Tower Leasing Scenario
One Tenant

Two Tenants

Three Tenants

Adding tenants, equipment and upgrades results in significantly higher returns, as revenue is
added with minimal incremental cost.

17

U.S. New Macro Tower Build Economics
Drive Strong ROI(1)
One Tenant

Two Tenants(2)

Three Tenants(2)

Construction / Upgrade Costs ($ in USD)

$275,000





Tenant Revenue

$20,000

$50,000

$80,000

Operating Expenses
(including ground rent, utility, monitor)

$12,000

$13,000

$14,000

Gross Margin

$8,000

$37,000

$66,000

40%

74%

83%



97%

97%

3%

13%

24%

Gross Margin (%)
Gross Margin Conversion Rate (%)
Return on Investment (3)

(1)
(2)
(3)

For illustrative purposes only. Does not reflect any American Tower financial data.
Collocating tenants typically pay higher rents than anchor tenants on build-to-suit towers.
Calculated as Gross Margin divided by Construction/Upgrade Costs.

18

International New Tower Build ROI Typically
Exceeds U.S. Returns(1)
40%

Sample Return on Investments(2)

35%

32%

33%

30%
25%

25%

24%

23%
21%

20%

17%

15%

13%

10%
5%

13%

12%

8%
3%

0%
One Tenant

Two Tenants
Domestic Market

LatAm

Three Tenants
Africa

India

U.S.
Typical Tower
Construction
Cost
(1)
(2)

LatAm

Africa

India

$250 - $300K

$85 - $170K

$50 - $120K

$20 - $30K

For illustrative purposes only. Does not reflect any American Tower financial data.
Calculated as Gross Margin divided by Construction/Upgrade Costs.

19

Business Model Summary
Numerous factors contribute to the success of the tower business model.






Secure real estate assets
Strong recurring cash flow characteristics






Long-term, non-cancellable lease revenues

High incremental cash flow margins

Barriers to entry




Embedded contractual escalators



Low maintenance CAPEX




Economies of scale



Replicate established systems and processes in



Ability to add additional assets to existing
markets without a need for significant increase in
overhead

Source: Wall Street Research.



Location-based business, typically with
significant zoning restrictions
Capital and time intensive to build meaningful
scale

Consistent U.S. demand

Financially strong tenant base

new markets

(1)



Approximately $30 billion in annual CAPEX
spending by U.S. service providers over the last
few years(1)
Rapidly increasing wireless data usage and
adoption of advanced wireless devices

Strong international demand





Continued deployment of voice and initial data
networks
Spectrum auctions and new market entrants
Demand from new technology overlays
(e.g.: 3G and LTE)

20

Section 3

Technology Overview

21

The Mobile Call Sequence
Wireless
ANALOG PORTION OF CALL
[Steps 1 – 4]

Fixed Line
DIGITAL PORTION OF CALL
[Steps 4 – 7]

Wireless
ANALOG PORTION OF CALL
[Step 8]

7. MOBILE CORE
Call is “switched” and routed
to another tower site closest
to receiving device

2. SPECTRUM
Call signal travels
via radio wave
spectrum to antenna
on tower

1. DEVICE
Call signal starts
at user device

(1)

6. AGGREGATION
POINTS
Market-level points
that aggregate traffic
before sending on to
the Mobile Core

5. BACKHAUL
3. TOWER
Call signal travels via
Spectrum radio waves
backhaul to markettravel down tower via
level Aggregation
fiber/coaxial cable to
Points
base station
4. BASE STATION
Spectrum radio waves
get translated into
backhaul(1)

In some cases the radio has been moved up onto the tower.

8. PROCESS REVERSES
- Call signal converts from backhaul to spectrum at base station
- Spectrum radio waves travel up fiber/ coaxial cable of tower
- Call signal transmitted from tower antenna via spectrum to device

22

What is Spectrum?
Spectrum: radio frequency airwaves, needed to transmit analog signals, including wireless
communications signals






Spectrum airwaves are licensed to carriers who utilize the spectrum to transmit wireless signals
The government typically regulates this spectrum and auctions it to wireless carriers for use
Spectrum is measured in units of “hertz” or Hz
The three main considerations in evaluating a carrier’s spectrum position include:
1.

In which spectrum bands does the carrier hold licenses?

2.

How much spectrum (bandwidth) does the carrier have?

3.

What type of technology is the carrier deploying on that band of spectrum (i.e. CDMA, HSPA, LTE)?

23

Spectrum Characteristics





Propagation – radio transmits a signal by driving a current on an antenna; signal
propagates away from antenna as a wave at the speed of light
Lower-frequency spectrum provides a larger coverage area and better in-building
penetration (“beach front” spectrum)
Higher-frequency spectrum covers shorter distances (need significantly more cell sites to
get the same level of coverage)
As spectrum usage increases, the distance spectrum can propagate decreases

Radio Spectrum Signal

2.5GHz

1.9GHz

1.6GHz

700MHz
(Not to scale)

24

What is a Cell Site?
A cell site is an area within a carrier’s wireless network which is serviced by an
antenna array. Carriers commonly refer to these areas as “rings”



Can be located on a tower or alternative structures, such as rooftops, water towers and
church steeples



One macro tower can support multiple carriers’ cell sites through collocation

Cell Site

Cell Site Network
A carrier’s coverage area is dependent upon the
capacity of its equipment and the frequency of
the signal being transmitted.

Tower/antenna location

Geographic area covered by antenna array

25

Narrowing Cell Radius
Signal Strength Curve

As devices become more advanced, the increasing demand for high-bandwidth applications
and higher quality of service result in a narrower range at which signals can be transmitted. As
a result, carriers are investing in denser networks.

26

Network Design Evolution
Network designed for initial
voice and 3G services




Quality of voice services
on the rise
Smartphones introduced
to the market

As data usage rises, the
existing network structure
proves deficient for data
signal propagation





Smartphone penetration
on the rise
New smartphone
handsets introduced

Building new cell sites is
therefore required to create
adequate coverage for
seamless data usage



Carriers consistently
invest in networks to meet
growing demand

VoLTE (Voice over LTE)

Growing wireless usage results in the need for more cell sites.

New cell site

Original cell site

27

Tower Sites are Preferable in Most Locations
Technology Capability
Population Coverage Area

Wide

Narrow

Wi-Fi

Small Cell /
Femtocell

Mobility





Uses licensed spectrum



Satellite

Low latency

Tower Sites

DAS Network



Tower sites continue to be our customers’ preferred solution, as they provide the most
technologically efficient and cost-effective option for coverage and capacity requirements.

28

Licensed Spectrum vs. Wi-Fi
Licensed spectrum allows for exclusive use by licensees with consent of the Federal
Communications Commission (FCC). Wi-Fi spectrum is unlicensed, and it can be used
by any party
Disadvantages of using unlicensed Wi-Fi spectrum:

1.

Limited Mobility – Unlicensed Wi-Fi spectrum is in the high frequency 2.4 GHz and 5 GHz
bands. This means it is unable to propagate far, requiring significantly more transition
locations to cover an area and limiting its geographic reach

2.

Congestion – Any Wi-Fi capable device is permitted to use unlicensed Wi-Fi spectrum,
and as a result, Wi-Fi networks often become congested

3.

Loss of Control – Carriers lose control of their subscribers’ user experience when utilizing
public, unlicensed spectrum

4.

Concentrated in Dense Urban Areas – Because unlicensed spectrum is high frequency
and unable to propagate long distances, it is used predominantly in dense urban areas
where mobility requirements are limited and access points are closer together

29

The Morphology(1) View
Morphology is a useful metric to segment tower locations, varying from dense urban
locations to rural locations
Dense Urban

Urban

Suburban

Rural

11,500+

2,900 – 11,500

230 – 2,900

90%

>90%

80%

~30%

% of U.S. Area