SBA Communications focus on assets where they have a high degree of exclusivity

There are towercos that are seeking to diversify and reinvent themselves as holistic infrastructure services providers. Then there are towercos that content themselves to simply build and acquire high return towers and rooftops, and they generate handsome returns doing so. SBA Communications is one such towerco. Not that SBA precludes the possibility of diversifying if opportunities arise which match the return on invested capital in towers, but for now their portfolio consists almost exclusively of towers and rooftops in the Americas. In this interview, Jeff Stoops, CEO of SBA Communications offers an exclusive update on the company’s activities in Central and South America and its overall business strategy.

TowerXchange: What can we expect from 5G deployments across the United States and on a global basis? Which role are towercos going to play in the next wave of network deployments?

Macro-site architecture will remain the cornerstone and backbone of 4G and 5G. And even of 6G, should there be one in the future.

We are currently seeing the very beginning of 5G playing out with discussions on high frequency millimetre wave spectrum and focusing on 5G’s short signal propagation. And obviously these initial plans are primarily for urban deployments, while outside of urban areas macro towers will continue to play an essential role in the future.

I think that all towercos will benefit from next generation networks. In fact, operators looking at utilising new equipment for 5G or re-purposing existing spectrum will require new radios and, in some cases, new antennas both in the United States and in international markets like Latin America.

TowerXchange: Is the towerco business model shifting towards broader infrastructure services provision? And what is SBA Communications’ strategy in terms of fibre and heterogeneous network solutions?

In general, we continue to focus on assets where we have a high degree of exclusivity, and for now, that has almost entirely consisted of towers and macro rooftops.

We are interested and even already developing some indoor DAS and small cells but we are only pursuing opportunities where we retain a certain degree of exclusivity or control on the property. And this is the case across all Western hemisphere markets where we operate.

With regards to fibre, we do recognise that there are plenty of fibre projects being deployed in the United States, but I don’t think that fibre offers the same value proposition as macro sites. The returns on invested capital may not be as great as with macro towers.

Additionally, we don’t see a lot of synergies between macro sites and fibre from an operational and deployment standpoint. In reality, the only shared attribute between the two is the common customer base.

I don’t think that the approach we have developed and enunciated is going to change in international markets. I’ll caveat that by adding that fibre markets seem to be less developed outside of the United States and if we see better value that meets our ROI criteria internationally, we might change our approach.

We don’t dislike the fibre business. We are just opting to allocate our capital where it generates the highest returns for our shareholders. You don’t have to be in the fibre business to grow capital and be an integral part of the wireless ecosystem.

TowerXchange: Compared to when we last spoke (Q216), how has the market changed in Brazil?

In Brazil, we’ve definitely seen some improvements in terms of foreign exchange compared to last year. And thanks to that, we are now able to better appreciate the cyclicality of these markets.

Prior to last year’s turn in forex, we had straight years of consistent forex decline since our entrance in Brazil in 2012, and being a company that reports in US Dollars, forex does matter to us and to our shareholders. So we are thankful to finally see a positive turn and improvement in the Brazilian Real.

Another key change since we last spoke has been that Oi filed for bankruptcy. We believe that this will end in a successful reorganisation, with our leases being confirmed and duly paid just as we’ve seen since the initial filing.

That said, the Brazilian economy continues to struggle and the telecom and tower markets have improved more thanks to the expectations of a recovery rather than based on an actual improvement.

In terms of our performance, I’d say that we are doing well, considering the circumstances. In fact, we’ve exceeded our lease-up targets last year and are off to a good start in 2017. And the key drivers that motivated us to enter Brazil remain the same; underdeveloped wireless networks as well as data demand and favorable population demographics.

SBA has over 100 employees in Brazil and is extremely committed to the country. We are confident that if and when the economy improves and the telecom market is able to push prices up in exchange for a better service, we’ll see new investments being made to enhance networks. This is more a matter of time really, driven by macro-economic conditions.

TowerXchange: The investment bankers haven’t had much to do in terms of tower transactions in Brazil since 2014. Are we likely to see any tower transactions taking place in 2017?

I think so. While the investment banking community may not be busy, there are definitely some direct buyer-seller negotiations going on. And we could see some deals happening.

In reality, there were a few attempts last year but the spread between the actual bids and asking prices was too large. Forex has helped close the gap a little, while some private equity-backed towercos are now running beyond their investors’ desired timeframe for an exit.

TowerXchange: What about the other international markets where SBA operates in the region?

Central America continues to be a great investment for us and last year SBA achieved very positive results in the region. In fact, every single one of the five countries where we operate exceeded our lease-up goals.

SBA entered Colombia and we now have a small portfolio of twenty-five towers in the country. Our approach has been to go slow and to only secure attractive locations that offer us the right economics.

The Colombian tower market remains slightly irrational and overpopulated with towercos so we are seeing some terms being agreed that we aren’t comfortable with. For this reason, we haven’t bid on any major BTS project yet.

We are focusing on what we call “strategic siting” in Colombia, where we control all the various aspects of a potential site based on our knowledge of what a good site is, then we work out a deal with potential customers. This approach doesn’t always yield high volume, but it is good for return on capital invested.

Chile is a new market for us too. It has been one of the most stable economies in the region for quite some time so it’s a market that made sense for us. We’ve entered Chile through an acquisition from CTR, a local cable and internet provider that hosted some wireless customers on their structures. And to date, we have 172 towers in the country.

Our approach in Chile is a bit different, mainly due to the fact that there isn’t an oversupply of towercos. Entering Chile isn’t easy since companies need to be licensed and approved, and SBA has been through that process, which has been a barrier to entry for other towercos. In Chile, we’ll focus on new deployments and we’ll keep an eye if any portfolios of existing assets become available.

While neither Colombia nor Chile will be materially impactful to our growth; however we have lots of shared customers, such as Claro and Telefónica, and can capitalise on that.

With regards to Argentina, we’ve made the basic decision that it’s a country we want to be in and we have committed resources to the market. We don’t have any assets yet and we are looking for the right opportunity. I am fairly optimistic we should have assets in Argentina this time next year.

TowerXchange: A year ago I asked whether U.S. towercos were undervalued, when you were trading at around US$100, how do you feel now that you’re trading at US$125?

We are still undervalued based on the prospects for the future and the importance that tower companies will have in the growth of the global wireless sector.

Last year our conversion to a REIT was pending and now we hold a GICS code in the real estate industry. However, we aren’t yet in the RMZ, the REIT index, but none of the towercos are. We are hopeful that SBA along with American Tower and Crown Castle will be granted access as it would open up to a large new set of investors for us. I am not sure why towercos haven’t been included in the RMZ yet, for example American Tower would be the second largest REIT in the United States behind Simon Properties. The MSCI decides which companies can be included and in the past, they’ve admitted data centres and other non-traditional brick and mortar businesses.

Even though we are a REIT, this won’t change the way we run our business. We continue to have large operational losses to shield us from the requirement to pay dividends at least through 2020. We believe that growing the company and buying back stock is a better use of capital at the moment, but we will pay a dividend at some point.