320 session. I'm Jon Atkin, I cover the communications infrastructure space here at RBC, and I'm pleased to have the Executive Vice President and Chief Financial Officer of SBA Communications, Marc Montagner. Welcome.
Thanks for having me.
I think let's start a little bit about the core U.S. market and any kind of trends that you would like to call out in terms of U.S. leasing. There's a bit of a trough going on with leasing in 2026, and who knows what 2027 will bring. What makes you excited about some of the incremental drivers for same-store growth on your U.S. portfolio?
Yeah. I think I've been in that industry for 30 years, and it's a very cyclical industry. The cycle repeats itself. Wireless operators buy or receive a new spectrum band. They open a new generation technology and then harvest that technology until the next one comes along. I think if you go back 20 years, CapEx as a percentage of revenue for the big three operators, at the peak of the cycle, right after they receive the spectrum and deploy, is about 25% of revenue. In a harvest model, it drops to about 15% of revenue. In 2022, 2023, we were right at a 25% mark. Last year and this year, we were at about the 15% mark. I think the beauty for our company is that even at the trough in the cycle, we are still growing.
This year is going to be $35 million. 2022, I think it was $78 million. I think that's, kind of, the range. 6G of spectrum is going to be auctioned in the first half of next year. It's about 18 months clearing, so it makes it like late 2028, early 2029. I think the cycle will repeat itself, so I'm pretty excited about 6G. I also think that the FCC is auctioning 160 MHz of spectrum, which is interesting because 6G is probably going to be a 40 MHz band. They may be expecting more than three bidders for this, maybe four or five. I'm hoping that we'll see some satellite operator there and accrue more demand. That's really on a pure leasing side from the wireless operators. I'm excited about the use case.
I think obviously it's still unclear what the satellite operators are going to do. If you think of a base station, it's probably has a capacity of over 100 satellite. There are about 200,000 base stations in the U.S., so I just don't think you'll ever replicate that capacity in space. It'd be too expensive and it will take too long to build this. I think the other thing is, if you're in an office, a conference room, under a true downtown Chicago, Manhattan, you're not going to have an unobstructed view to the sky. I think you're going to need some terrestrial component in order to provide services. We have edge data centers. A lot of talk about edge data center. We have probably 50% of our site could accommodate a small mini data center, 300 MW of power.
We've seen companies that have raised a significant amount of capital to one of those mini data center at the edge of the tower, the bottom of the tower, and basically sell compute power directly to companies providing AI agent apps on mobile device. The big advantage there is that from day one, you have no zoning requirement because you are in a closed place. You have like this one concrete slab, you have power at the site, you have fiber to the site, and you have low latency because you're right sitting at the bottom of the tower. I'm pretty excited about those cases and 6G, so I feel good about the future.
On the edge compute, any kind of demand signals worth commenting on, or is this more of a belief at this point that it's likely to happen as opposed to exploratory discussions?
The company have raised capital and are negotiating this lease agreement. When I ask them, "Have you signed any, basically a retail customer or people are going to use that compute?" I get very fuzzy answers. I thought they would want an answer and that they're paying close to the rest. But are people really looking to basically sign leases for the space and get access to the tower and the bandwidth? I assume that demand will show up in the next year or so.
Sticking on the edge compute, what is it that you foresee offering? Is it still going to be largely a passive infrastructure model in terms of just the ground lease, or do you get up in terms of things like power, space, shell? Thoughts on how much up the value chain you would be willing to go.
Passive real estate company. We sell vertical space on the tower and we lease vertical space on the tower and we lease horizontal spaces on the ground. For these particular edge data center, we may provide power as well to the extent they want it, because their power demand are fairly limited.
Maybe we can pivot to LATAM and what are you seeing there?
LATAM for us is Brazil. That is 15% of revenue, 15% of TCF. I feel very bullish about Brazil for the long term. The country has a net balance of payment over $5 billion a month, large exporter of grain, commodity, minerals, energy. Very young population, fast-growing, and the population is probably 25% of the density we have in the U.S. The inflation was under control. Central Bank has done a great job, and I think Brazil is going to do well. Just like in the U.S., where Sprint was consolidated by T-Mobile, Nextel to all wireless in Brazil and was carved out to the other three wireless operators. So we are facing consolidation churn. It is hitting us in 2026. It is going to stay elevated in 2027. It is going to go away after that. But long term, 5G rollout in Brazil is less than 50%.
The carriers have 5G deployment requirement. They have coverage requirement. The regulator is really pushing the operators to deploy. You have three very well-capitalized operator, Claro, part of Mr. Slim enterprise. You have Telefónica, Vivo, and then you have TIM, Telecom Italia. So they are well capitalized, and they need to build capacity and coverage. So I feel pretty good about Brazil long term. It is like 2026 and 2027 headwind, but will go away over time. Then you have Central America. We built 7,000 sites for Millicom last year, 11 x multiple, 15 year contract in U.S. dollars, escalated with U.S. CPI. And we have from them for 2,500 BTS over the future. We locked in a net to ice single-digit growth rate in U.S. dollars. Those sites are very attractive to Claro.
I feel pretty good about Central America, and then we still have three very small market there that are totally immaterial.
On some of the smaller markets, does it make sense to just sort of consolidate your portfolio and perhaps seek buyers for some of the non-core contributors?
Yes, it does.
Just maybe still on Brazil, there is a fragmented universe of some amount of POTS developers. The MLA multiples in that market are different than what we would find in the U.S. in the private market. So the path forward there would be primarily build to suit, or could you see some inorganic growth ahead?
We have 12,000 towers. We have significant scale in Brazil. I think we have top two or three operator in Brazil. American Tower Corporation is bigger than us, but we have significant scale. I don't see us expanding in Brazil's M&A.
On DISH Network, maybe any thoughts on settlement discussions with some of their debtors, essentially, and outcomes for the tower industry and for SBA Communications in particular, as well as the plans for DISH Network equipment that is still on towers that are being operated.
That's a good question. We get that a lot. For us, our exposure to DISH is $56 million revenue this year from DISH, so that's churn. We get about coming from short term. We have short-term lease with DISH was about $100 million. Our unpaid payment from DISH was around the $100 million mark. We have a claim in the bankruptcy court. I have no idea what the recovery is going to be. Every week you have a new ruling and a new speculation. I think for us, we have a claim. It's a small number. If we get it's great, but really it's not that material. As far as the equipment goes, last three weeks claiming that the equipment DISH left on the tower is deemed abandoned, and we could reclaim that equipment. We're seeing demand from the locals right now to use the space.
If we have a demand for that space, we take down the equipment and release the space. Otherwise, we just leave the equipment up there until we are able to release the space. But I think that's where we are.
Happy to take any audience questions if there are any. Contract structures in Brazil and in U.S., MLAs, usage base. You've got a different escalator structure in Brazil than in the U.S. But as you prepare yourself to optimize growth beyond next year, let's say, what are your thoughts philosophically around your MLA relationships and contracts?
We signed last year a 10 year deal with Verizon. It's going extremely well. Verizon is very busy with us. We have MLA in place with AT&T until April of 2028. It's going very steady. Verizon is very busy, AT&T is steady, and T-Mobile, I think, with the new management team and the focus on free cash flow is slowing down a little bit this year, but we don't know what next year is going to be. At some point, everybody's going to have to be busy again on sub 6 GHz, so our goal is for you to be a good partner, provide good quality of service, make it easy for our customers to roll out. I think MLA makes sense for everybody. It's predictable for them, it's predictable for us, and it makes it easier to deploy.
AI, we had a discussion with some other tower companies earlier about what that means in terms of traffic patterns and just as traffic patterns perhaps change with mobile use of AI, uplink traffic and so forth. Any implications for your business that you can see that would be material?
As we said earlier, we're a passive infrastructure provider. We lease space. It's going to depend on the 6G equipment, the manufacturer, the Ericsson, Nokia, Alcatel, Lucent, Samsung, Apple, are going to have to engineer the equipment, the network to deal with a more 50/50 spread between uplink and downlink versus the current 80/20. I think it's going to be part of the massive MIMO equipment that's going to be deployed as part of the 6G rollout and so forth. It means new reviews, new towers, new equipment bill reviews and new equipment. It means new leases, more amendment, more touch to the tower, so it's good, but we're not an engineering business. It's really up to the carriers to design the network to take care of this.
Question.
Are we ever going to get to a point or anytime soon where satellite phone service is going to start causing less towers to be needed?
Are satellites a threat?
I think satellite is a complement, and I think SpaceX said that at some of their investor meeting. If you really look at in an urban, suburban environment, that's going to be very difficult to have direct line of sight to a satellite, and they're never going to have enough capacity to basically cannibalize wireless. I'll give you an example. XM shows, which is a satellite radio company, has thousands of repeaters in urban and suburban environment just because if you are driving along downtown Chicago, downtown New York under a tree, you just lose coverage. So they just repeat the signal. I assume they're going to have to do the same thing if they really want to go and provide basically coverage. As far as a totally rural environment, I think frankly, those sites are built, they're running, they're cheap to operate.
Most of them have three tenants on them. If you are one of the big three, why would you take them down and give that traffic to a competitor like SpaceX? I think it's probably easier just keep the site, maybe add a backhaul by satellite, which is going to be cheaper than doing fiber backhaul on any other backhaul. So I think even the rural sites are probably very few of them are going to be at risk. Actually, we heard different things that one of the operator now has an agreement with SpaceX, and they could see where basically a call is being originated through their network using satellite because they don't have tower, and they could pinpoint to the on the map where they have coverage holes where they should actually build the tower because there's satellite traffic coming out of very particular spots.
Let me ask you the opposite question. My dad lives in the suburbs here. I never thought I'd see this. He got a letter from AT&T saying that they're no longer going to be offering landline service. And they gave him a choice of having some sort of cellular module that connects to his home line where you can go to Comcast and get it board. Do you see growth coming? Any significant growth coming from companies getting rid of their POTS? Plain old telephone service.
Wireless displacement of legacy wireline as an opportunity.
It's been going on for 20 years. I still have never canceled my wireline phones, and we have three places and zero wireline phone. It's all cellular now because the quality is good enough and even the security system runs on wireless now. You don't even need a telephone line for your security system. It all runs on wireless. Yeah, I think the copper wire is going away. It's just that infrastructure is over 100 years old. I won't see it coming back.
90 seconds maybe just quickly put a bow on capital allocation, building towers, buying back land, balance sheet actions. What are kind of the top priorities? Then the AFFO algorithm and maybe total shareholder return given AFFO growth trajectory, dividend yield, perhaps share buybacks. Maybe you can quickly summarize.
Summary, I think you look at us with some in those numbers of probably like $1 billion in five of EBITDA, $250 of maintenance CapEx, gross CapEx, $7 million of cash taxes, $530 of dividend, $500 million of cash interest expenses. You're left with $600 million of extra capital every year. In 2023, we paid down about $70 million of debt. Last year, we bought share for half a billion dollars, and it depends on where the share price is, where the MLA opportunities are, and interest rates are. We just want to be flexible. The algorithm is for us to create shareholder value for the long term. Right now, with AFFO per share at $12, where our stock is struggling, 6.5% + yield on buying back shares. We just do a raise capital, raised that at 5.25%, so buyback is more accretive than paying down debt.
We are just flexible, but right now we're indexing towards share buyback.
Good summary. Thanks so much.
Thank you. Thanks for having me.