American Tower Corporation (REIT) (AMT)

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American Tower (AMT)

Q4 2012 Earnings Call

February 26, 2013 8:30 am ET

Executives

Leah Stearns

James D. Taiclet - Executive Chairman, Chief Executive Officer and President

Thomas A. Bartlett - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Philip Cusick - JP Morgan Chase & Co, Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Simon Flannery - Morgan Stanley, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Jonathan Atkin - RBC Capital Markets, LLC, Research Division

Brett Feldman - Deutsche Bank AG, Research Division

Batya Levi - UBS Investment Bank, Research Division

John Stewart - Green Street Advisors, Inc., Research Division

Kevin Smithen - Macquarie Research

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good morning, my name is Angel, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Towers and Fourth Quarter Full Year Earning Call. [Operator Instructions] I would now like to turn the call over to our host, Ms. Leah Stearns, Vice President of Investor Relations and Capital Market. Ma'am, you may begin your conference.

Leah Stearns

Thank you, Angel. Good morning, and thank you for joining American Tower's Fourth Quarter and Full Year 2012 Earnings Conference Call. We have posted a presentation, which we will refer to throughout our prepared remarks, under the Investors tab on our website, www.americantower.com.

Our agenda for this morning's call will be as follows: first, Jim Taiclet, our Chairman, President and CEO will provide opening remarks; then Tom Bartlett, our Executive Vice President, CFO and Treasurer, will review our financial and operational performance for the fourth quarter and full year 2012, as well as our outlook for 2013. And finally, after these comments, we will open up the call for your questions.

Before I begin, I would like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2013 outlook and future operating performance, including AFFO growth and dividend per share growth; our capital allocation strategy, including our stock repurchase program and REIT distributions; and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release, those set forth in our Form 10-Q for the quarter ended September 30, 2012, and in our other filings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances.

And with that, I would like to turn the call over to Jim.

James D. Taiclet

Thanks, Leah, and good morning, everybody. American Tower's growth strategy is based on a simple, observable premise: the consumers' appetite for mobile communications and entertainment are growing dramatically in the U.S. and around the world. The most recent industry results and forecasts confirm that we're squarely in the midst of a decade of wireless in the U.S. based on tremendous demand for mobile data and entertainment services. In just the first 2 years of the decade, smartphone penetration increased from about 20% to nearly 60%, and mobile data traffic grew by 5x in just those 2 years. Moreover, as shown on Slide 5, the most recent Cisco forecast that was just released projects that mobile network traffic will grow another 10x over the next 5 years. The Cisco study also estimates that approximately 75% of this growth will be delivered over traditional macro sites, primarily towers. The remaining 25% of the expected growth would be on supplemental solutions such as DAS, picocells and WiFi, with even some of these small cell installations being used on or in connection with macro sites on towers and we're actually starting to see some of that now. Therefore, our view is that macro site network infrastructure, which is predominantly tower based, will shoulder the bulk of network expansion and is expected to grow at a 50% cumulative average growth rate over the next 5-year period as you see in the dark green on the chart.

So to meet this demand, we expect our wireless carrier customers to continue to employ an integrated approach to their networks, which will further increase demand for communications real estate, especially towers. An obvious aspect of this integrated approach is the installation of fourth generation wireless technology, primarily long-term evolution or LTE. This network upgrade requires the installation of additional equipment, especially antennas, to our customers' existing cell sites. As a result, site leasing rates increased due to the amendments our customers make to their existing contracts with us. This investment cycle has been a key driver of recent revenue growth for tower operators as they install 4G.

Another important aspect of the integrated approach is the attainment and deployment of incremental wireless spectrum. This often results in additional lease amendments for equipment that's needed to transmit [Audio Gap] or for other rights at our sites, again contributing to our revenue growth. However, additional equipment in spectrum won't be enough to meet the exploding demand for mobile data and entertainment. Over time, new cell sites will be needed to increase the capacity and density of each carrier's 4G network. Today, less than 10% of U.S. wireless subscribers are experiencing the speed and quality of service offered by LTE technology. As the level of penetration of LTE devices increases and voice over LTE, commonly known as VoLTE, is added to carrier service offerings, it's our technical view that additional cell sites will be needed as a result of the higher signal strength required to effectively deliver acceptable video and VoLTE applications to large numbers of users.

Read the rest of this transcript for free on seekingalpha.com