Rod Smith: On fixed wireless.
Steve Vondran: Oh, fixed wireless. So, on the fixed wireless side, look, we’re seeing our carrier customers aggressively leaning into fixed wireless. And it’s – we’ve always said that that might be one of the first use cases of 5G and we’re seeing that play out. And I think the number is about 10 million subs that we’re at total for fixed wireless in the US. At this point, we’re not seeing them deploy standalone fixed wireless networks by the major carriers. We do have standalone fixed wireless for some of the small guys, the WISPs and people like that. But at this point, the carriers continue to utilize the excess capacity they have in their current builds. What that means for the long term, I think it’s too early to say.
I’m encouraged by the ARPUS they’re getting, the growth that they’re seeing, the competitiveness that they’re showing with the fixed line broadband. And if those trends continue and if they’re able to kind of underwrite some additional incremental network builds to support that, that would be upside to our base case. When we’ve set our long-term guide in the US, we were not anticipating any type of a standalone fixed wireless build or incremental network activity driven by fixed wireless. So, that would be upside for us if it happens, but I think it’s too early to tell right now if that’s going to drive a lot of additional business or not.
David Barden: Got it. Thanks, Steve, I appreciate it.
Operator: Your next question comes from the line of Nick Del Deo from MoffettNathanson. Please go ahead.
Nick Del Deo: Hey, good morning. Thanks for taking my questions. First on CoreSite, your MMR per cabinet growth has been really strong. Steve, you talked about that a little bit earlier. I guess, can you help to decompose the drivers a bit more, how like for like pricing gains versus mix changes versus higher consumption per cabinet might be driving that. And you also noted that you had a record quarter for retail signings in the quarter. I guess more generally, can you comment on the mix of retail versus scale deals that you’ve had in recent periods and what’s in your funnel today?
Steve Vondran: Sure. Let me attack the first part of that. So, when you look at pricing across our markets, what’s really driving it is supply-demand dynamics. And so, we’re seeing similar increases in retail scale and hyperscale pricing in those markets. There’s probably a little bit more increase in hyperscale at this point because contiguous capacity is becoming more rare, and because it had the lowest pricing to begin with kind of in the markets. And so, what we’ve seen across all of our markets is the supply is less than the demand, and part of that’s just I think AI and other use cases have taken off faster than people expected, and the entire ecosystem has not provided as much capacity as what people are seeking. And that’s really the underlying driver for what that pricing is happening in our facilities.
Our funnel has a healthy mix of retail and scale. I don’t have the exact breakdown in my fingertips, but a lot of that’s driven by what capacity we have to sell and what contiguous capacity is out there for some of the scale installations. And so, depending on which facility and which market, we could be flexible in terms of what we offer people, and we can be selective on the customers. Because CoreSite is really an interconnection hub, it’s not just a retail or co-location facility, we don’t underwrite all -we don’t write all the business that comes to us. We’re not a low cost provider per se in those markets. People come to us because of the interconnection we provide. And so, we curate a mix and we try to balance networks, cloud players, and enterprises, with a healthy mix of retail in a way that gives us that kind of industry-leading returns on our capital that CoreSite was delivering before we bought them and that we can continue to use to underwrite our model there.
Nick Del Deo: Hey, Steve, have higher powered entities influenced the MMR cab at all, or is it more just the like for like pricing dynamic you described?
Steve Vondran: I mean, certainly, we price the higher density cabinets more because they’re taking up more power. So, that does influence it. We did have a press release a couple of weeks ago about being NVIDIA-certified in some of our facilities. And so, certainly when you’re putting GPUs in versus CPUs, there’s a pricing differential on that cabinet. But really what’s driving the pricing increases across the board are the supply-demand dynamics.
Nick Del Deo: Okay. And can I ask one on expenses? You’ve always run a pretty tight ship from that perspective. Seems like you’re running even tighter than normal this year. I guess, can you drill down into any of the specific actions you’re taking to really help keep costs down?
Steve Vondran: Sure. Let me give you kind of the backdrop to it, then I can give you a few examples. So, over the last decade, we’ve been in a rapid growth mode in a lot of our markets. And when you’re growing very quickly and you’re buying and integrating assets, you’re really focused on that piece of it and making sure that no balls drop and that you’re providing good customer service, et cetera. Now that we’re not buying a lot of assets and integrating them, it’s a good time for us to really focus on operational excellence. So, across the board, what we’re doing is, we’re looking at our operations and saying, how can we be better without negatively impacting customer service or the future of our business? So, we’re being very careful that we’re not damaging the long-term trajectory of the business with it, but we are finding opportunities to do things more efficiently.
And I would say what we’re doing today is kind of phase one, and that each market is looking at what they can do on their own. And then there is an opportunity that we’re focused on to more globalize the business, and that’s taking best practices from each market in terms of what their expertise is, and taking that to other markets to see if we can drive additional efficiencies there. For example, in the US, we’ve automated a lot of our processes, and the question that we’re asking ourselves is, can we take those automations and use them internationally to drive even more efficiency there? In Africa, we are extremely efficient with how we use fuel in our power-as-a-service business. So, we’re looking at that saying, can we export those practices to other markets like the US?
And so, right now, we’re being very deliberate in kind of chasing the low hanging fruit that’s just inherent in the business after coming off a decade of growth. And then we’re going to be very thoughtful about continuing to look at those costs as we try to become as efficient as we can everywhere we can over time.
Nick Del Deo: That’s great. Thanks, Steve.
Operator: Your next question comes from the line of Batya Levi from UBS. Please go ahead.
Batya Levi: Great. Thank you. Can you talk a little bit about the trends you’re seeing in LATAM? I think the quarter came in a bit ahead of your outlook. An update on activity and maybe expected churn from Oi, any exposure to its wireline business would be helpful. And just a second question on your build-to-suit program across regions, any changes given the macro pressures or some regional risks that you’re seeing? Thank you.
Steve Vondran: Go ahead, Rod.
Rod Smith: Hey, Batya, this is Rod. I’ll start with LATAM and give you a little a little insight on the trends there. So, we’re seeing, for the outlook for 2024, LATAM is going to be coming in around 2% organic tenant billings growth. That’s coming with about 3% being contributed via the co-location and amendment revenue. And if you put that up against prior year, it’s pretty flat. So, we’re seeing a steady level of demand and activity across Latin America in that 3-ish percent for new business. The escalators are also in that 4%. So, a touch above that. That’s actually down kind of moderating because inflation across the region has come down. So, last year, that was north of 7%. This year it’s about 4%. So, that’s a big driver of any headline change that you’ll see is just the moderation of that inflation.
The good news is, we also are seeing a lower level of churn. So, churn is about 5% in this year’s guide. Last year, it was up closer to 6%. Within that 5% churn, almost half of it is coming from Oi, which I know you’re familiar with. That’ll take a couple more years to kind of work through, and we will sort of get to the other side there. And then we would expect that more normalized overall growth will come back in the region, but it will take a couple of years before we get there. When you think about, maybe just hitting the wireline side of OI, you heard – you probably saw a couple of comments come out publicly around the wireline of Oi and what they’re doing, but I’ll give you a couple of numbers here. They represent about $35 million to $40 million of revenue for us in our LATAM business.
We did agree to about a 20% discount that is assumed in our outlook. So, there’s no negative impact to the outlook that we have out on the Street based on that. That means that – that comes into about $7 million on a per year basis over the next couple of years in terms of the discount. And as part of the transaction, we will also be taking ownership of certain sites down there from Oi. I’m not going to give you a count or any more detail there. We’ve got a little bit of work to do to look at that, but we have kind of worked through that. So, we’ll be working through the remaining churn down in LATAM. We do think it’s temporary, but we also do think that you’ll see kind of relatively low growth for the region for the next couple of years, let’s say lower single digits in that 2% to 4% range, let’s say.
Batya Levi: That’s helpful. Thank you. And maybe just the build-to-suit update.
Rod Smith: Yes. In terms of the build-to-suits, I mean, we’re keeping that consistent, up in the range of a couple thousand, 2,500 to 3,500, Q1, the volumes were a little bit lower, but we do expect that to increase. We continue to see strong demand for us building towers for our customers across Africa and also in Europe. So, we certainly have been happy with that. We are being fairly disciplined with the higher cost of capital, looking to make sure that pricing around build-to-suits reflects the new reality. But we still see several thousand sites that we can build every year. And I would say the volumes have come down a little bit, but one of the results of that is the quality, let’s say has increased because we’re really being very selective on where we build, who we build for, and what assets we build. As we look at the macro environment with the uncertainty around rates and cost of capital, we’re being extremely disciplined.
Batya Levi: Great. Thank you.
Operator: And your final question today comes from the line of Jon Atkin from RBC. Please go ahead.
Jon Atkin: Thanks. Question about MLAs, maybe a two-parter. To what extent do you use them internationally? I know a lot of it is paid by the drink. But maybe just update us on holistic MLAs and to what extent they’re used internationally. And then as we look into maybe year-end 2025, anything changing around the holistic portions of your domestic MLAs that roll off, or even take effect. Thanks.
Steve Vondran: Sure. So, when it comes to our international markets, we have a variety of contract structures, and sometimes they depend on whether it’s with an acquisition that we did or build-to-suits or a bigger part of the business there. So, I would say, there’s a lot more variation in terms of how we construct our contracts internationally. We do have a couple of holistic-type deals internationally. Again, a little bit different flavor than we would have in the US, but we do try to utilize those contract structures. I think that’s something that may be an opportunity for us over time, but it takes time to get the customers to understand those. They’re not typically used in a lot of those markets. And so, kind of educating them on the benefits of those type structures and seeing the experience that our US customers have had in terms of being able to continue to utilize those agreements and see value from them, is something that may take some time.
In terms of the US agreements at the end of the year this year, there’s nothing that we would point to specifically on that, that we’re talking about publicly at this point. So, I would expect a ton of change there
Jon Atkin: And any change into 2025, given that these are often five years in duration.
Steve Vondran: Well, look, it’s a little early for us to be giving any type of guidance for 2025. But look, we think that our fundamental growth algorithm kind of holds true. And so, when we look at 2025, we continue to see strong fundamentals in our business, and that includes a continuation of solid US and Canada organic tenant billings growth, even while we’re still absorbing some headwinds associated with that final tranche of Sprint churn that happens in Q4 of this year. We see leasing volumes in Africa and Europe remaining positive, with churn remaining low in Europe, and an expectation for further moderation in China and Africa, continued strong growth from CoreSite, especially as we’re commencing those kind of record levels of new business that we’ve signed since the transaction was consummated.
And we’ll complement that top line growth with, again, continuing to focus on margin expansion and cost discipline, and continue to be very disciplined in our capital allocation. Now, that growth is going to be a little bit offset by the headwinds we have in Latin America because we do see an elevated consolidation churn environment there for the next few years, and that’s going to keep Latin America kind of in that low single-digit growth. And then again, when you think about 2025 and beyond, there’s a lot of variables that we’re keeping our eyes on, like FX rates, interest rates. Services is inherently harder to predict. So, we won’t be trying to guide anything on that until early next year. And then the timing of the India closing will also have an impact on what that AFFO per share growth rate is, although we think we’ve been very clear about what that means to us.
I think most of our investors understand the variability on that with the timing. But all those kind of variables, we think point to our long-term growth algorithm remaining strong in 2025 and beyond.
