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Communications Infrastructure

Fritzsche's Forum

Towers: Welcoming More Guests to the Table

March 15, 2023 | Late last month, American Tower (AMT) and Qualcomm announced a collaboration to “advance network architecture and accelerate near-edge applications.”  I have been on record as saying that Edge is (finally) more than a whiteboard concept.  This collaboration – of two of the industry giants – offers one more pin on the map to this thesis.

Under the terms of this partnership, a system integrator (Xingtera) will install a 2U Arm based server at AMT’s edge data center in Denver.  This server will incorporate 80 of Qualcomm’s chipsets to help developers enable chip computing applications.

This development offers further evidence of AMT’s desire to expand its infrastructure story well beyond macro towers.  In addition to purchasing CoreSite in 2021, AMT is also evaluating six colocation facilities in different markets (one being Denver).  This Denver edge facility where it will be working with Qualcomm has power capacity of 100kW.  AMT management has publicly said it is looking at more than 1,000 of its sites which could offer 1MW of power to edge customers.

The dividends “edge” can pay to AMT go well beyond additional revenue streams.  The bigger boon is from whom these revenue streams will come.

As an analyst, I remember that one of the (few) the pushbacks the tower model faced was the high degree of customer concentration.  With only 3.5 (0.5 being DISH) nationwide US wireless players, towers want a way to further diversify their customer mix.  When we look at the customer bases for data centers, cloud players represent a whole new (investment grade) customer silo where AMT could begin to penetrate.

At a conference earlier this year, American Tower CEO Tom Bartlett made it known this is very much a part of his strategy, stating:

“While… edge applications are in the formation stage, the relationships that we’ve been able to build out with cloud providers over the last 12 months have been significant…That’ll develop over the next several years……”

There is no question 5G is a focus for the Cloud players.  In 2020, Microsoft made two large acquisitions which offer evidence of this. First, it bought Affirmed Networks, a company that specializes in fully virtualized, cloud-native networking solutions for telecom operators.  Less than two months later, Microsoft announced the purchase of  Metaswitch Networks, a U.K.-based provider of cloud-based communications products used by carriers and network providers.

Following these announcements a TechCrunch write up summarized this cloud / 5G / telecom intersection well:

“These deals speak to a growing focus from tech companies leveraging cloud architectures and the adoption of new networking technologies — specifically 5G — to capitalize on a bigger role in becoming service providers both to carriers and to those who would like to build carrier-like services (potentially bypassing telcos in the process), through the offering of virtualized products delivered from its cloud.”

Back to AMT (and its tower brotherhood). To maximize the benefits of these clouds’ bets on 5G, densification will be needed.  In order to densify, more infrastructure will also be needed. By closely following the data center space the past few years, we have seen firsthand that the cloud players have embraced third parties to help build this infrastructure. As a result, we would expect to see a greater amount of capital directed toward edge players.  While this has been alive and well in the data center space, the towers are leaning forward.

Those infrastructure players who step up to the plate early to help with this edge enablement process will be best positioned to capture more cloud revenue.  Marc Ganzi and his team were the first to make the move here with all the “DigitalBridge kids” (i.e. VerticalBridge, DataBank, ExteNet, Vantage, Boingo, etc.) but AMT is fast following and thinking out of the “macro tower infrastructure box.”

We expect the tower news flow to continue to build around announcements that allow them to cast a wider net of customers.  With the telecom carriers in balance sheet protection mode and other demands on their capital (fiber, dividends, debt paydown, etc.) to invite some new “guests” (aka customers) to the digital infrastructure party on the tower side is not a bad thing, right?  The more the merrier!

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