American Tower Corp., the tower industry’s heavyweight with nearly 10,000 towers in its portfolio, began as something of an afterthought.
“Our tower roots go back to my cable television days when companies like Motorola started coming to us looking to lease space on our towers,” said Steve Dodge, chairman and chief executive officer of American Tower. “We didn’t know how to deal with them, or how much to charge them or what type of leases to write.
“It stuck in my mind that we should organize ourselves for that opportunity,” he said.
The idea came to fruition later at Dodge’s next company, American Radio Systems Corp., where the company decided to formalize a tower-management group to take advantage of the growing demand for space on its radio towers. The new tower-management group started out mainly building towers, but by its second year, the company began to acquire towers and accelerated that effort within the last two years.
In 1998, American Tower was spun off to shareholders when American Radio was merged into CBS, allowing the company to focus purely on the tower business. Within the last year, American Tower has grown its tower and services portfolio through deals to merge with tower companies OmniAmerica, Unisite and Telecom Towers, as well as by acquiring wireless towers from Vodafone AirTouch plc and microwave towers from AT&T Corp.
“Our end game is to establish a strong and deep presence in as many good tower markets as we can,” said Dodge. “There are (a) number of routes to that objective, and we’ve felt right (all) along that we’ve got to employ all of them to get to the position of having a truly deep and attractive cluster in a large number of markets.”
Dodge said building a strong portfolio includes everything from buying towers from individual small tower owners, to buying smaller consolidators, to merging larger consolidators into American Tower and ultimately to doing some selected carrier transactions. The company also has been focusing its efforts on new tower development, growing from a company with a modest construction capability four years ago to one that will build in the neighborhood of 1,000 towers this year, said Dodge.
Even with its expansive presence, American Tower still has work to do adding bulk in markets it thinks are attractive. Dodge said the company is more likely to do that by acquiring specific clusters of towers and building new towers, rather than doing another big carrier transaction.
“We’re shifting gradually from an acquisition-intensive strategy to a development focus, which will emphasize new construction,” he said. “The reasons for that are numerous, but at the end of the day, we’re trying to put together a meaningful presence in the most critical markets.
“We believe that well-placed new towers will produce higher returns ultimately than towers that we acquire from others,” said Dodge. “A different way of saying that is we can build a tower for $180,000, on average, and expect to eventually see a similar type of revenue performance from that tower as we would from an acquired tower for which we might pay 50 to 100 percent more.”
Dodge describes the last year in the tower industry as intense.
“Sometimes CEOs talk to each other in a sort of understanding way about just how intense it has been,” said Dodge. “It’s been very competitive.
“I think we all realize that there’s a limited amount of time within which to construct our portfolios, and sometimes in critical markets there’s only going to be one or two bites at the apple,” he said. “So we have felt compelled, as I suspect one or two other companies have, to get certain critical acquisitions done whether or not we were truly ready from other perspectives.
“In other words, we were in a position where we all recognized that consolidation is an essential part of our strategy, and while it might be a little more comfortable and digestible to do certain deals over four or five years, we really didn’t have that much time,” continued Dodge. “If we waited that long, we knew somebody else would do it. Further, we would have missed a very strong leasing window.”
Like many tower industry watchers and participants, Dodge has been surprised by how the industry has changed in such a short time.
“I think the speed with which, not just one, but arguably three or four substantial entities got themselves capitalized and going was quite amazing,” he said. “In the aggregate these companies have acquired or built well over 20,000 towers over the past 12 to 18 months.
“I think all of us are wrestling with real issues that attend that kind of growth and that kind of rapid consolidation,” said Dodge, pointing to integration of towers and people and developing systems to manage a large tower inventory as examples of the issues tower companies are facing.
As for the future of the industry, Dodge said it is difficult to predict, but he believes fewer carrier transactions on a dollar-volume basis will be done next year compared with this year.
“It’s a little more difficult to predict whether there will be any serious activity between tower companies,” he said.
“I think the companies that win in the end will be the companies that construct the best portfolios and surround themselves with the best people,” said Dodge.”We’re in a competition for quality towers. We’re in a competition for talent. We’re also in a competition for capital.
“I think that you’ll see as time goes by that certain companies will compete more effectively than others for these essential elements.”
