5 Things American Tower Inc.'s Management Wants You to Know

By Fool.com

An American Tower in Floridian sunset. Image source: author

American Tower did OK in the second quarter. Sales rose 14% year over year and earnings beat analyst estimates -- but the stock still fell on the news.

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Well, the numbers rarely tell the whole story. Luckily, public companies tend to let senior management discuss each quarter, in much greater detail, in a conference call with analysts. Of course, American Tower followed that great tradition in the second quarter.

Here are five of the most important, interesting, or incredible details shared by American Tower on that call. CEO Jim Taiclet has made a tradition out of addressing international issues in the second-quarter call every year, so expect to go on a safari overseas.

The big international picture

In other words, American Tower has a two-pronged approach to overseas markets.

On one hand, the company invests in highly developed and stable markets, including more than 2,000 tower sites in Germany and 8,700 towers in Mexico. Alongside the 40,000 domestic sites, these properties form a solid cash-generation foundation from which the company can launch further high-growth projects.

And that's the other prong: big investments in underdeveloped markets with huge growth potential. American Tower operates more than 3,600 towers in Colombia, nearly 14,000 sites in India, and recently added 4,200 Brazilian towers for a grand total of 16,300 sites inside that BRIC bloc member.

This is where the company is looking for strongly growing returns on the original investment, rather than the stable cash flows you'd expect in developed markets. American Tower is getting in on the ground floor where much of the wireless network builds still lie in the future. It's a calculated risk, which is why Taiclet insists on "rule of law and property rights" before moving in.

Brazil

American Tower CEO Jim Taiclet. Image source: American Tower

That's a pretty deep dive into American Tower's largest overseas market. The growth drivers here are laid out in great detail, from the booming middle class and falling smartphone prices to currently congested networks and the upcoming Olympics.

In short, Brazil is already a large wireless market -- but the country still has lots and lots of headroom for even further growth.

Nigeria

Image source: American Tower

Jumping across the Atlantic, Nigeria is a brand new addition to American Towers' portfolio. In a $1.05 billion deal with India-based telecom titan Bharti Airtel, American Tower acquired 4,700 Nigerian Airtel towers in November2014.

Here, Bharti has aggressively kept its tower sites close to the vest, largely refusing to lease the properties out to other operators. Under new management, these towers are not only tied back to Bharti Airtel in a 10-year guaranteed contractbut will also invite other telecoms to populate these sites.

As Taiclet explained, adding more tenants to existing but underutilized sites can grow operating profits very quickly. Given that, Bharti Airtel is only the third-largest wireless network in Nigeria with a modest 20% market share.

Nigeria is the seventh-largest country by population in the world, home to 174 million people. The population skews young, and Nigeria's economy is both large and growing fast. In many ways, this makes Nigeria the Brazil of Africa -- a large, yet still emerging, economy with all kinds of foreign investors wanting to get in.

The biggest question, then, is how much longer this massive market can be served through a relative pittance of wireless towers. Those 4,700 Bharti Airtel sites currently serve 29.6 million customers. That's 6,300 users per Bharti tower. I wouldn't be surprised to see American Tower making more acquisitions in this important market -- or maybe even build out a few properties under its own power.

Customer stories: AT&T

OK, now we're back home.

Right now, Ma Bell sits in-between the last major network build and the next wholesale refresh. Look for renewed investment activity after the FCC's 2016 auction of formerly TV-focused radio spectrum licenses. All the major networks are likely to bid on these high-quality licenses. Then we'll see both reinforced 4G networks and the beginnings of a 5G transformation, all of which requires fresh tower space.

Did I tell you about additional tenants per tower driving revenue and profit margins higher very quickly? Yeah, I did. Don't forget that bit.

With that event on the horizon, I'm happy to be an American Towers shareholder. The last major FCC spectrum action was held in 2008, just ahead of the smartphone boom.

Coincidence or one revolution feeding off another? You be the judge. Here's how American Tower fared when those licenses were converted into wireless operations:

AMT data by YCharts

Long-term thinking

This is Taiclet talking about his favorite customers of the moment. Elsewhere in the call, Taiclet noted that Verizon and T-Mobile "led the way in terms of both new leases and amendments in Q2, and continued to comprise the bulk of our new business pipeline."

But none of that is exactly news. Like American Tower, the telecoms must operate with tons of patience. Network builds are slow and expensive, and then you have the regular maintenance. That's why the wireless tower business is so fantastically stable. In the second quarter, for example, American Tower renewed the lease terms on about 500 domestic towers. The average contract period on these renewals? Twenty-nine years.

So, once you have a customer in hand, that cash flow will remain stable for decades. The way to grow in this business is by expansion, acquisition, and adding more tenants per tower. And American Tower is aggressively pursuing all three of these growth strategies.

The article 5 Things American Tower Inc.'s Management Wants You to Know originally appeared on Fool.com.

Anders Bylund owns shares of American Tower. The Motley Fool recommends American Tower and Verizon Communications. The Motley Fool owns shares of American Tower and has the following options: long January 2017 $80 calls on American Tower. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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