Blue skies above a populated cell tower. Source: American Tower.
American Tower runs a very simple business model: Buy or lease plots of land in strategically selected spots, build or lease wireless towers on these spots, and then sell long-term contracts to radio stations and wireless networks who want to install base stations or transmitters in these towers.
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As simple as this overall model may seem, there are plenty of important wrinkles in its very fabric. Luckily, American Tower's management is not shy about discussing the finer points of its strategy and tactics.
Recently, American Tower CFO Tom Bartlett and CEO Jim Taiclet dove deeper into their operations against the backdrop of a strong third-quarter earnings report. Here are five of the most telling nuggets of wisdom the executives shared in the ensuing analyst call.
American Tower, international growth
In other words, domestic business is good, but it can't hold a candle to the fantastic organic growth seen in overseas markets.
American Tower is very busy acquiring and building fresh tower sites in places like Brazil and Nigeria, but that's not the whole story. Existing towers are also enjoying plenty of new business in international markets, which explains why American Tower wants to build more of them in the first place.
Source: American Tower.
D-me um exemplo, por favorExpanding on the international theme, Jim Taiclet plucked an example from the Brazilian market. American Tower operates 6,800 towers in Brazil, not counting the 6,500 tower sites covered by a $1.2 billion acquisition announced in November:
The thirst for more and faster mobile data is global, including markets where the existing wireless infrastructure is weak or nearly nonexistent today. That's why American Tower is chasing overseas expansion opportunities like a ravenous wolf -- and a big part of why I see massive long-term growth ahead for this company.
American growth drivers Bartlett also explained the secret sauce behind his company's respectable organic growth in the domestic market:
The revised domestic core growth figure isn't shockingly high, as the company expected to "be in the mid 9% range for 2014" three months earlier. But it's good to see a firm explanation of why organic growth is supposed to rise by nearly double-digit percentages in 2014.
VoLTE technology, or Voice over LTE, shifts mobile voice calls over from a dedicated channel to a new format that's based on standard Internet protocols. This way, the calls can be routed over the same 4G LTE connections the high-speed data service uses, both simplifying the whole connectivity model and improving the quality of voice calls.
For all of its benefits, VoLTE calling requires the network to install new hardware in its wireless base station. As this technology refresh moves along, American Tower's customers amend their leases to allow for the new equipment.
This happened before, when wireless operators moved into 3G data networking, and then for 4G LTE upgrades. It'll happen again for 5G network rollouts, 6G upgrades as well, not to mention the next-generation technologies that haven't been imagined yet.
In short, technological progress is the gift that keeps on refreshing and extending American Tower's business relationships.
Long-term leases? Yeah, we've got 'em.
You want stability? American Tower is dead set on controlling its assets for the very long haul, and then turning around to sell leases on even longer terms.
That's stability for the extremely long run.
Source: American Tower.
Three major market trends Finally, Taiclet outlined three strong market trends for the wireless sector as a whole, based on his own observations while doing business there in 2014.
On the first point, American Tower analyzed its American growth against the backdrop of 27 different metrics and found data traffic volume to be the single best indicator of rising customer spending. In turn, rising smartphone penetration and bandwidth-hungry audio and video applications are the core drivers of this rising data thirst.
That led straight to the second point, where American Tower identified a virtuous cycle that drives data traffic even higher. Impressed by the capabilities of new devices and better 4G networks, consumers get attached to new activities like watching video streams on the go -- thus driving up the demand for even better handsets and stronger networks. And American Tower is there to help the mobile carriers improve their infrastructures to match.
Thirdly, the overseas growth curve acts much like the American one did over the last decade or so -- except that mobile technology has moved on to offer better devices and networks for less money this time around. So the growth curves should point even further skyward in the new batch of growth markets.
It's true that Taiclet, as the CEO of a company with plenty of skin in the wireless growth game, has an obligation to get people excited about the growth drivers on the table. Even so, his conclusions make sense from both technical and economical points of view. I'm buying this line of reasoning -- hook, line, and sinker. And that's another reason American Tower's focus on international growth looks so attractive.
The article 5 Things American Tower's Management Wants You to Know originally appeared on Fool.com.
Anders Bylund owns shares of American Tower. The Motley Fool recommends and owns shares of 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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