Okay, let's get started. Cameron McVeigh, the communications infrastructure analyst here at Morgan Stanley. Ben Swinburne, the Communications Infrastructure, Media, Telecom, and Cable Analyst. Marc Montagner, the CFO of SBA Communications. Welcome, Marc.
Thank you.
Before we get started, let me read this. For important disclosures, please see the Morgan Stanley Research Disclosure website. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, we will get started. Marc, just to start, I want to get your thoughts on the growth outlook for the broader tower industry and, you know, what you consider the main growth drivers for the industry today.
I think if you really look at our business, specifically in the U.S., you have a co-location for densification or extra coverage and amendment or for the existing equipment. That's really driving the growth in terms of revenue growth. Let's just step back a little bit, right? The catalyst in this industry, I've been in this industry for 30 years, key areas buy spectrum, and they roll out next-generation technology.
They get about a 10x increase on the capacity versus the prior generation and an exponential cut in terms of the cost per bit, in terms of delivering a cost over the airwaves. If you just cram more bits per hertz. That's really been the driver for the industry for the past 30 years.
I mean, 30 years ago, EBITDA margins for the wireless carriers were about 45% on a mature network, and it's still 45% today. They were charging $0.25 a minute for voice or $0.10 for SMS, $40 for a gig of data, and now it's $55 or $60 all-you-can-eat.
Traffic is still growing at double-digit every year. The EBITDA margins for the carriers is still 45% just because they have been able to take down the cost per bit tremendously. The next catalyst, I think, for our industry. You look at CapEx as a percentage of revenue, they roll out a new technology, they get a 10x increase, and they go to harvest mode for a few years.
[inaudible] goes between paying [inaudible] 15% of, uh, revenue or on CapEx to 25%, uh, when they deploy a new technology. 2022, 2023, they were running, uh, close to 25%. 2024 and 2025, they were running below 15% of revenue. We are at the trough now, and, uh, they're in harvest mode. The next catalyst for our industry really is going to be 6G.
And the FCC is probably going to auction up a C-band block in, uh, 2027. It's probably 18 months clearing period. The manufacturers, Samsung, Ericsson, Nokia, all already have equipment for 6G. They're marketing this aggressively. you could see a rollout of 6G in, uh, 2029, 2030 timeframe. And it's going to be a catalyst for growth again
In 2023, we did $78 million of lease-up, and this year, our guidance midpoint is $35 million. You could really see the delta. At the trough, we're still growing, but not growing as rapidly. At the peak, you could see an increase in the top line growth rate.
Great.
It's a long answer for a short question.
I'll take it. And I wanted to ask, you know, specifically in 2026. On the earnings call last week, it was, you know, 2026 is characterized as the right at the bottom in terms of domestic growth at 2%. That's below what we've seen in the 2%-3% lease-up expectation. Yeah, I guess what gives you confidence that this is truly the trough for the year? What do you think needs to happen to see growth re-accelerate in the short term?
Yeah. I think if you really look at, especially in the U.S., we always say 4%-5% growth. 3% will come from the accelerator on the existing leases, 2%-3% growth from amendment and co-location. As I said, CapEx, as a percentage of revenue right now, is really at the trough, less than 15%.
We see the majority of the new revenue is not coming from amendment, I mean, coming from co-location, densification coverage. It just means that the network is still, the carriers still have double-digit growth in terms of traffic and they need to meet that demand. We still feel pretty good at 4%-5% growth rate, probably closer to 5% on the normalized environment, closer to 4% at the trough.
Great. That's helpful. I wanna ask about fixed wireless.
Sure.
You know, it now accounts for 15 million subs and more than half of the overall network capacity. You know, how directly are you seeing FWA translate into the leasing activity for the towers? Do you expect this to be a meaningful driver into 2026?
I think I've seen research reports showing that 50% of traffic on wireless network today comes from fixed wireless access. You have hundreds of millions of handsets and 15 million fixed wireless access customers. You could just imagine how much tonnage is going on those customers. It's definitely driving co-location for densification.
For us, we have a passive infrastructure. We lease space to the carriers. We know they have visibility and equipment for fixed wireless access or connectivity to a device is the same thing. A bit is a bit is a bit on a RAN network. We don't have that type of visibility, but it's clear that fixed wireless access is going to drive more co-location.
Got it. Thank you.
Marc, you mentioned the shift to co-location. Is there any difference in how we think about the timing between when those leases are signed or, and when they actually hit the P&L when we compare co-lo to amendments?
Yeah. The cycle, book-to-bill cycle on amendment is closer to three months. On a co-location, it's closer to six to nine months.
Okay. You guys also mentioned on the earnings call. We had Verizon yesterday here at the conference, and AT&T this morning, that you've got a lot of contracted activity with Verizon in 2026. Talk a little bit about the growth outlook there, and why you think that MLA is a sort of strategic positive for SBA.
You know, I think if you look at the industry, the wireless industry is an oligopoly, three major carriers, three large publicly traded company. I think, the carriers have long-term network needs. They're growing the top line at mid-single digit. They clearly don't need to control their cost over the long term. For us, we have three customers, and, we wanna lock in a minimum growth rate.
There's a healthy dialogue there where, I think it makes sense for all of us to agree and try to have a predictable outcome for the next 10 years. We signed an agreement with Verizon. We're very pleased with the agreement. It's a 10-year agreement, with an escalator minimum volume commitment.
In exchange, they have certainty on the pricing. I think it's going very well, and we're very pleased with the way they are. We are working together. At the end of the day, we wanna support our customers. We wanna make it easy for them to deploy. T-Mobile was, I think, the largest generator of new revenue last year.
They had build-out requirement as part of the acquisition of Sprint. They need to meet 95% coverage of POP, and they have some densification need. Now they have kind of deployed 5G on over 85% of the SBA towers, so they're pretty much slowing down in 2026. Verizon is picking up the slack. Verizon is gonna generate, is gonna be our most active customers in 2026 in terms of new revenues.
Sticking with the big three, I think you guys also said AT&T would probably be a bit of a H1 versus H2 story. Maybe just talk a little bit more about what's driving, you know, the trend line with that customer in 2026 versus 2025.
Well, AT&T's, I think is steady. We have a five-year agreement with them. We signed that in mid-2023. It's a structure agreement helping them really roll out, deploy 5G, make it easy for them to deploy. It's, it's basically following the term of the agreement.
Okay.
Great. Wanted to ask about, you know, EchoStar has been in the news.
Every day.
Yeah. Perhaps could you know, explain to the audience, you know, how we got to the situation where we are today and maybe potential next steps on the legal process and, you know, path to recovery?
Yeah. I mean, DISH was starting a fourth carrier in the U.S. They needed basically towers to deploy their equipment. We signed agreements with them, lease agreement. It's about $56 million of annual revenues. Last year, we did $37 million lease of $2 million aware with DISH. Almost nothing in the second half.
They stopped paying. We have basically a $56 million revenue contracted with DISH in 2026. We assume it's gonna be a 100% churn for 2026. We have short-term contract with DISH, the total exposure under the term of the leases that we have is slightly above $100 million. They run out through at the end of 2027 and 2028.
Our total exposure is about $100 million, and we file a lawsuit, basically, in order to protect our legal rights. There's not much I could comment beyond the fact that we filed a lawsuit, and we're gonna pursue all legal remedies trying to basically collect as much as we can under the contract.
Thanks. On the topic of churn, I wanted to ask about Sprint. You know, you mentioned on the last call that the expectation for Sprint churn in 2026 is raised a bit. You know, can you help us think through, you know, potential timing of Sprint churn over the next, you know, couple years?
It's $56 million this year, and going forward, it's gonna be less than $20 million over the next few years, basically. It's, it's really minimum exposure going forward.
Okay, great. Let's switch a bit to, you know, the international markets. Brazil represents almost, I think, 15% of your site leasing revenue, 12,000+ towers. There's some near-term, you know, headwinds with the Oi consolidation and, you know, FX volatility. Not telling you anything you don't already know. You know, what needs to happen for Brazil to transition more to a growth story? What do you think is the realistic time timeline?
Well, I think Brazil is a very interesting country. I've over 30 years of experience in Brazil for multiple companies, and I'm always very bullish on Brazil. 200 million people, large exporter of food, commodity, minerals, oil and gas. Balance of payment is positive. I think they exported more than imported, like, by $4 billion in January alone.
The population is young. 5G is less than 50% deployed. The country is now an oligopoly. You have three carriers, Vivo, Claro, and TIM. The traffic keeps growing. I think Oi. We're indexed towards Oi, which has been basically carved out into the other three. The Oi Wireline is going out of business. We have a $14 million churn from Oi Wireline. That company is gonna disappear, basically.
We have a little bit more churns coming from Oi Wireless going forward. It's really the peak years in terms of churn in Brazil. The central bank has done a phenomenal job in terms of controlling inflation. The carriers really very few towers have been built in the last two years just because short-term interest rate, we're collecting 15% interest on our checking account in Brazil today.
The cost of capital is clearly high teens, 20%. When we look at a new BTS, a new tower that an operator wants us to build, that's kind of a high teens hurdle rate we look at. We really have cut down the build in Brazil tremendously, and so have the other carriers.
Suddenly, I think it's a much healthier market for the tower company because the wireless operators have to keep deploying in terms of colo, in terms of new towers. 5G is less than 5% deployed, 50% deployed. The churn is basically where the tail end of the churn. I feel pretty good about Brazil over the next few years.
Got it. Also wanted to ask about the some of your African markets, which it seems like they have some of the highest returns on invested capital. you know, do you expect to continue to expand your footprint in these markets or, you know, or deepen some of the existing positions?
We're in two markets in Africa, South Africa and Tanzania. I think we got in early at the right valuation. We have done extremely well there. It's the two countries with the highest return on invested capital. We're into the double digits. Tanzania is still growing. The government is really pushing coverage. Wireless is probably the only physical telecom infrastructure that's working well. Africa was a high-growth market for many years, and it's kind of slowing down a little bit now. I think we like our position in Africa. I don't see us expanding into new African markets at this stage. I think I like where we are right now.
Great. Just on that topic, you know, in terms of portfolio rationalization, it's been a focus recently. You know, how should we think about some of the markets in which you have less scale versus others? Maybe just, you know, take us through a dynamic where it would lead you to become a more of a scaled player.
Right. I think when Brandon became CEO and when I joined, he announced, I think on his first earnings call in February 2024, a portfolio review. We look at the 15 markets where we operate, and we realized that the markets where we're doing well were the market where we're at scale. When an operator has to roll out a new technology, they come to you because you know you could help them deploy fast and at scale.
Also gets you better margins because your SG&A are pretty much fixed costs. You need to be in a market where the economy is healthy. If the economy is healthy, corporate are hiring people, they need wireless connectivity. People have jobs, they spend money on their wireless devices. You need a healthy economy.
You need to be in an economy where you don't basically invest in front of churn. We've seen, like Brazil going from four to three, the U.S. with Sprint being consolidated away. You need to be in a market with an oligopoly. Scale is important. On that basis, we exited the Philippines, we exited Colombia, we sold our operation in Argentina, and we sold our operation in Canada. We love the market, but we only had a few hundred towers in a very large country, and it didn't make any sense. We sold to AP for an attractive multiple.
We look at the markets where we operate in Central America, pretty much consolidated to two operators, Millicom and Claro. Very healthy operators, investing in the network committed to 5G. 5G was under deployed. When Millicom decided to sell 7,000 towers, we struck a deal with Millicom. We took 50 new contracts in U.S. dollars with escalator and new bill commitment.
We're looking at upper single-digit growth rate and it's low risk, healthy market growing very rapidly. The bulk of the towers we will build in 2026 will be built in Central America. We had operations in the regions with people in the ground. This is a business with we don't need that many more people to operate new sites.
You touched on 6G a little bit earlier. I wanted to kind of bring 6G and AI together and just hear you discuss how you think those standards are coming together, how AI plays into the opportunity. I know it's early, but how does the 6G opportunity compare to what you've seen in previous generation cycles for the tower business?
Right. I think it's still early to say. I think if you think about I was listening to the CEO of AMD this morning at 7:00 A.M., was talking about AI, and she already sees demand for AI chip for inference data center closer to the urban center where the applications are gonna reside. I think if you wanna make real-time decision using AI app, latency is gonna be very critical. For that you need to be close to the user. If the user is gonna use a mobile device, you need to be close to the site. People are saying is of small data center, inference data center coming to the base of the sites, the wireless sites.
I don't know. A lot of people are talking about it. I think the other thing, AI is just gonna generate much more, I think, traffic on the network, probably more uplink. 6G is gonna mean, just mean more new equipment at the site, heavier equipment at the site, and it's gonna be positive for the operators.
You look at some other countries now are using wireless sites to help for drone delivery services in terms of security, more precisions. I think that could be helpful. In clear where autonomous vehicle are they gonna need some local signal. Today most of the processing is being done in the car, but is that gonna change or not? Are they gonna need more connectivity to the cars?
Some countries are using wireless sites for drone detection. It's cheaper and more precise at doing it the way we're doing in the U.S. using radars. Is that gonna come to the U.S.? I don't know. I can see that wireless infrastructure that's really difficult to replicate because it took 35 years to build. You have zoning laws. Now you have power at the site. You have fiber going to the site. You have generator. You have batteries. It's all fully robust site. You're protected. You could see how it could support a number of new use and applications going forward.
Yeah. That's interesting. In addition to AI, another big topic this week has been direct-to-cell satellite connectivity. I'm sure you probably are aware. You know, probably starting last August, I think EchoStar was talking about their plans and they introduced the idea of, you know, carriers using satellite instead of tower capacity, at least in rural markets. I know this is not a new question you've got, but it'd be great to get your updated view on how satellite fits in to the overall, especially U.S. market, and how you think that impacts your business, if at all.
Sure. I think satellite is great for coverage, it's not great for capacity. I think it's really a complement to the terrestrial wireless network. If you really look at the wireless network in the U.S. covers about 95% of the population, but only 2/3 of landmass. A third of the landmass is not covered by wireless network.
If you have a dual mode handset with the right form factor, dual chip, dual radio communication with a satellite and a terrestrial network, I think is basically the killer app. If we look at Starlink, they bought spectrum from DISH, but also they got the MSS spectrum, which is 40 MH z of a global band. Knowing Elon, he thinks big, he's probably thinking of a global play, and not just the U.S.
Interplanetary play.
I think it's gonna be a great complement to the wireless network. Just look in terms of capacity. You probably need 10 satellites to have the capacity of one base station. We probably have 150-200 sites in the U.S. alone. You can put 1 million satellite in a LEO orbit to replicate that. It's just not cost effective.
It's interesting because I've been having that question from investors for six months, and today at the Mobile World Congress in Barcelona, I think one of the SVP for Starlink basically confirmed that, no, we won't have the capacity. It's a good complement to the terrestrial wireless network, but it's not something that is going to cannibalize it. It's more a complement because can never get the capacity and the scale.
Thank you.
Marc, it seems like the private tower market valuations are much higher than the public valuation. It seems like this disconnect has limited some of the M&A activity recently. If the gap persists, you know, how should we think about capital allocation priorities and buybacks, acquisitions, and maybe debt reduction?
Yeah. There's a disconnect because it's just a scarcity of large tower portfolio for sale in the U.S. two, there are multiple large private equity infrastructure firms chasing those opportunities, right? They could basically fund the acquisition in the ABS market, putting 12 trillion of leverage at attractive rates.
The way they go to committee is probably saying, I could buy this for 35x, 40x today, and market it to another PE firm in five or seven years at 25x-30x , and justify a multiple. That math has worked for the last 35 years. I'm not saying the math is wrong, it's just something that's worked really well for the last 35 years. Just make it very difficult for us to compete.
If you look at our capital allocation strategy, and those are public numbers, it's about $1.9 billion of EBITDA. $525 million for the dividend, about $490 million for cash interest expenses, $70 million for cash taxes, and then you have another $225 million, maybe $250 million for growth CapEx and maintenance CapEx.
That leaves you about $650 million of extra cash to allocate. This is, as a management team and our board, this is how we could create value by being disciplined how we allocate that capital. In 2024, we spent $250 million M&A, $200 million buyback, and we paid down debt in a rising interest rates environment. Last year, we did a $1 billion deal with Millicom, acquired at 11x EBITDA.
We bought $0.5 billion of stock at an average price of $200. Going forward, I think buyback is at this level makes sense. I don't see ourself to buying a large portfolio in the U.S., given the valuation. I don't see us entering new emerging markets. I think we're probably going to index towards buyback.
Great. You know, we have a couple minutes left. Wanted to see if there's any audience Q&A. You guys can think about it. You know, Marc, you know, the tower industry has faced a persistent valuation, multiple compression recently. You know, as SBA's trading at a mid-10s forward AFFO versus a 10-year average in the low 20s. You know, what do you believe the markets may be missing or what catalyst might drive some more multiple expansion?
I think, you know, as I said, CapEx as a percentage of revenue for our customers oscillate between 15% and 25%. We are at the trough, 25%, 26%. We're running below 50%, although historical low. The traffic keeps growing at double digit. fixed wireless access is using 50% of the capacity. Industry is gonna add another 10 million sub this year.
The 15 million that they have is already using 1/2 of the capacity. You're adding another 10, just imagine the demand on the network. I think CapEx as a percentage of revenue is gonna grow. 6G is around the corner. AI adding drone detection, autonomous vehicle, so many, I think, applications. The world is going wireless. Wireless growth is never gonna go away.
I feel really good about our industry. Then you look at the tower industry, it's really difficult to think how you could replicate that infrastructure. Recently visited a tower down close to headquarter that was built in the nineties. The concrete slab is probably a round slab of concrete the size of this room, going 60 ft into the ground.
You have those steel rods going 40 ft down, and you have a 200 ft tower on top of it with tons and tons of equipment. Generators, fuel tanks, batteries for the operators, fiber coming in. It needs in a very dense environment where the zoning law would never let you basically replicate that infrastructure.
Look at the geography where you all live in California, Connecticut, Westchester County, the coast of Florida, Long Island. It's almost impossible to build there. If you're wireless operators, you need to bring more and more traffic to this community. The only way to do it's cheaper to just pay your tower operator to put another piece of equipment on that tower than trying to find a way to build a new tower. I think that infrastructure has been there for 35 years. It's gonna be there 35 years from now in an industry that's growing traffic at double-digit. I feel pretty good about our industry going forward.
I feel pretty good about the barriers to entry and the exclusivity that that it provides, just de facto, given the zoning laws and the cost to replicate that industry. I think people always look at this, okay, well, you're only growing at 5%, only growing at 4%, but that's a trough, and it's very stable, it's contractual, and I feel pretty good about our prospects going forward.
Great. Seems like a good place to end. Marc, thank you so much.
Thank you. Thanks for having me.