Good day, and welcome to the Crown Castle First Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ben Lowe, Vice President of Corporate Finance. Please go ahead, sir.

Thank you, and good morning, everyone. Thank you for joining us today as we review our first quarter 2020 results. With me on the call this morning are Jay Brown, Crown Castle's Chief Executive Officer; and Dan Schlanger, Crown Castle's Chief Financial Officer. To aid the discussion, we have posted supplemental materials in the Investors section of our website at crowncastle.com, which we will refer to throughout the call this morning. This conference call will contain forward-looking statements, which are subject to certain risks, uncertainties, and assumptions, and actual results may vary materially from those expected. Information about potential factors which could affect our results is available in the press release and the Risk Factors sections of the company's SEC filings. Our statements are made as of today, April 30, 2020, and we assume no obligations to update the forward-looking statements. In addition, today's call includes discussions of certain non-GAAP financial measures. Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the Investors section of the company's website at crowncastle.com. So with that, let me turn the call over to Jay.

Thanks, Ben, and good morning, everyone. Thanks for joining us on the call this morning. As you saw from our press release, we delivered another quarter of positive results and maintained our guidance for 2020 growth in AFFO per share of 7% to 8%, consistent with our long-term growth expectations. I believe our strategy and unmatched portfolio of more than 40,000 towers and approximately 80,000 route miles of fiber concentrated in the top 100 U.S. markets have positioned Crown Castle to generate growth in cash flows and dividends per share both in the near term and for years to come. Dan will discuss the results and the full year 2020 outlook in a bit more detail, so I'll focus my comments this morning on two key points. First, our business is performing well despite the challenges and uncertainties created by COVID-19. And second, I believe the strong fundamentals of our business and long-term trends driving demand for our critical infrastructure remain intact and provide a long runway of growth for Crown Castle. On the first point, we see robust activity across our business both in terms of customer demand as well as our ability to continue to effectively operate. As a provider of critical telecommunications infrastructure that is considered essential to public health and safety, we continue to construct and install our customers on our infrastructure. Since the outbreak of COVID-19, we have focused on two primary goals to help guide our decision-making: first, care for our workforce; and second, deliver for our customers and the communities in which we operate. We have undertaken a number of measures to promote the health and safety of our employees, including implementing work-from-home arrangements for the portion of our workforce that typically works from the office, imposing travel restrictions, and canceling in-person meetings, providing an additional five days paid time off to all of our employees, allowing flexible working hours to accommodate our employees who are taking care of children and other loved ones, and maintaining our workforce at pre-COVID-19 levels. Our people have been terrific throughout this crisis adjusting to our new normal and we will continue to make the appropriate decisions to promote their health and safety. In addition to our employees, we have focused on delivering for our customers, and I am encouraged by the activity levels we are seeing across the business. On the tower side, our customers continue to invest in their networks by deploying additional spectrum and new cell sites to keep pace with the 30% to 40% annual growth in data demand. As we previously discussed, the noticeable decrease in activity that occurred late last year amid uncertainty around the merger between T-Mobile and Sprint carried into the first quarter of this year. With the merger now complete, we believe this slowdown will prove temporary as we anticipate a significant increase in industry activity in the second half of this year as all our carrier customers begin to spend money to improve their existing networks and as 5G investments begin to ramp. Within our small cell business, we finished the quarter with approximately 45,000 small cells on air and expect to deploy approximately 10,000 this year, as we are actively working on our construction pipeline that currently exceeds 25,000 nodes. We continue to respond to the significant demands from our customers, while at the same time navigating ongoing deployment challenges from some of our municipalities and utility. Adding to the returns we are seeing on our fiber investments, we generated 3% revenue growth from our fiber solutions business in the first quarter and anticipate similar levels of growth for the full year. This growth is due to the increased bandwidth requirements we are seeing from our large enterprise and carrier customers, which make up the vast majority of our fiber solutions customer base. Although we have not seen a material impact from COVID-19 on our ability to deliver for our new small cell and fiber solutions customers to date, it is possible we could see some new challenges emerge with respect to getting construction crews to sites or traversing an already difficult zoning and permitting environment. On a positive note, we have seen the wireless carriers' efforts to improve their networks continue during the last six weeks. As we discussed last quarter, we are expecting a significant ramp in activity throughout 2020, particularly in the second half of the year. Obviously, the level of intra-year ramp implied in our outlook is significant. And while there are many unknowns due to COVID-19, we believe we will be able to achieve this growth. Importantly, we believe that any potential near-term impacts from COVID would not alter our long-term growth trajectory, which brings me to my second key point. We remain confident that our long-term contracted revenues will allow us to deliver value to shareholders through a high-quality dividend that we expect to grow 7% to 8% per year given the durability of the demand for our critical infrastructure. We have situated the company with the right assets in the right markets with market-leading capabilities to deliver value to our customers and generate shareholder returns for years to come. We are providing investors with a consistent return of capital with a dividend funded with contracted revenues from our existing tower and fiber assets, while investing in new assets that will be critical for the future of communications networks. Since last year, we have experienced the highest level of tower leasing activity in more than a decade, with activity largely tied to our customers investing heavily in their 4G networks, to keep pace with the 30% to 40% annual data demand growth that I mentioned earlier. The combination of the market dynamics and our unique portfolio of assets positions us for a long runway of continued growth as the wireless industry transitions into another long investment cycle, this time to deploy 5G. As I look at the big picture, I believe we are seeing the very beginning of the wave of 5G activity that will begin this year and continue for years to come. My view is supported by the public comments that Verizon, AT&T, and T-Mobile have made over the last several weeks affirming their commitment to build robust 5G networks. Adding to this long-term opportunity, a new customer is entering the wireless market at scale for the first time in more than a decade, with DISH Networks planning to deploy a nationwide network over the next several years to compete with the established operators and to meet its significant build-out requirements in its DOJ settlement. With our unmatched asset base of towers, small cells, and fiber, we believe we are in a very favorable position to assist DISH as they build out their network. And with this unmatched portfolio of assets, our financial wherewithal and operating in the best market in the world for communications infrastructure, I believe Crown Castle is in a great position to excel in the current environment, and to capture substantial long-term opportunities, while consistently returning capital to shareholders through a high-quality dividend that we expect to grow 7% to 8% annually. And with that, I'll turn the call over to Dan.

Thanks, Jay, and good morning everyone. As Jay discussed, we got off to a solid start with first quarter results performing in line with our expectations and we continue to expect to generate attractive growth in cash flows and dividends per share for the full year 2020. Turning to slide 3 of the presentation, we experienced another excellent quarter of strong top-line results that included nearly 6% growth in organic contribution to site rental revenues, driven by approximately 10% growth from new leasing activity and contracted tenant escalations net of approximately 4% from tenant non-renewals. The revenue growth was offset by lower services contribution and increased costs relative to the same period last year, resulting in 1% growth in adjusted EBITDA and AFFO. The lower services contribution was in line with our expectations and tied to the slowdown in tower activity that began in the fourth quarter of last year and carried through the first quarter of this year. As Jay mentioned, we anticipate a significant increase in industry activity in the second half of this year, as all our carrier customers invest to improve their existing networks and as 5G investments begin to ramp. With respect to the increase in costs, we incurred approximately $10 million of costs in the first quarter that we do not expect to recur going forward. Turning to page 4, we are maintaining our full-year outlook for 2020. At the midpoint, this represents approximately 5% growth in site rental revenue, 6% growth in adjusted EBITDA, and 9% growth in AFFO year-over-year compared to 2019, and includes approximately 6% growth year-over-year in organic contribution to site rental revenues. Turning to investment activities, during the first quarter, capital expenditures totaled $447 million, including $21 million of sustaining expenditures and $426 million of discretionary capital investments across fiber towers and small cells. Additionally, we returned significant capital to our shareholders during the first quarter, with our quarterly common stock dividend totaling $513 million, or $1.20 per share, representing growth of approximately 7% on a per share basis compared to the same period a year ago. At the end of the quarter, we further improved our financial flexibility by opportunistically accessing the investment-grade bond market to lock in long-term debt at attractive rates. Specifically, in April, we issued $1.25 billion of senior unsecured notes with a combination of 10 and 30-year maturities using the net proceeds to repay outstanding borrowings under our revolver. The offering had a weighted average maturity of 18 years and a coupon of approximately 3.6%, achieving the second lowest coupons in our history for comparable maturities. Our ability to opportunistically access long-term capital at historically low all-in rates, during a period of disruption in capital markets, speaks volumes to the strength of our underlying business and the level of support we have from our investors. Following this financing transaction, our balance sheet and liquidity position remain in great shape with $5 billion of available liquidity from our undrawn revolving credit facility, only $1.6 billion of debt maturing through the end of next year, and a weighted average cost of debt of 3.7% with a weighted average maturity of seven years across our entire balance sheet. In addition, we finished the quarter at 5.6 times debt to EBITDA. We remain committed to our investment-grade credit rating and anticipate a glide path back to our target leverage of approximately five times by the end of 2020 based on the expected EBITDA growth throughout the year. So to wrap up, our first quarter results were in line with our expectations and we believe we will remain well positioned to generate 7% to 8% growth in AFFO per share in 2020. Looking further out, we believe our ability to offer towers, small cells, and fiber solutions, which are all integral components of communications networks, provides us the best opportunity to generate significant growth while delivering high returns to our shareholders. With that, operator, I'd like to open the call to questions.

The first question comes from Simon Flannery at Morgan Stanley.

Thank you very much for the detailed information. Could you elaborate on the expected ramp-up in the latter half of the year? How long do you anticipate negotiations with T-Mobile will take, and what is your current status on that? Will we see significant activity in Q3, or is the main momentum expected in Q4? Additionally, regarding fiber, can you discuss your exposure to the SMB segment and any pressures you may be experiencing there? Thank you.

Good morning, Simon. Thank you for your question. Regarding the ramp in the second half of the year, I believe it's most notable in our services business. We saw a decline in this area from one quarter to the next in the first quarter. We anticipate the second quarter will be similar to the first quarter. As we move into the second half of 2020, we expect it to resemble the first half of 2019, based on the activity we're observing throughout the industry. Notably, Dan mentioned what we experienced with T-Mobile in the fourth quarter of 2019, which continued into 2020 until their merger was completed. However, if we step back from focusing solely on one customer, I encourage everyone to review the activity during the first half of 2019 as a reference for what we expect in the second half of 2020. This is distinct from what we observe in recurring revenue. Our site rental revenues are projected to continue growing throughout 2020. The significant difference in the ramp pertains to services, particularly as carrier activity begins to increase and they reap the benefits of 5G. In response to your second question about fiber exposure to small businesses, less than 5% of our total fiber revenues come from small and medium businesses. The majority of our fiber business is tied to large enterprises, including sectors like education and healthcare, which are not expected to be adversely affected by COVID-19. Currently, we don't see much impact from COVID-19 and have minimal exposure to the small and medium business segment in that area.

Great. Thanks for the color.

The next question comes from Philip Cusick at JPMorgan.

Hey guys, thanks. First a follow-up on Simon's question. I wasn't quite clear. So services ramp certainly should ramp in the second half. Do you think that site rental revenue ramps as well, or does it just happen too late to really impact this year and the impact is more on next year?

Sure Phil, good morning. Regarding the ramp and recurring revenue, the nature of our business means that any revenue we recognize today will carry over into next quarter and build upon that. Therefore, we do anticipate a ramp in the second half of the year. However, when considering the extent of this ramp and its significant impact, it is more influenced by the services side. As we evaluate site rental revenue growth for 2020, keep in mind there are three main components driving that growth within the calendar year, which are factored into our top-line expectations. First, there are the leases we signed in 2019, which became effective that year. Although we did not realize the benefit for a full year, we will see a rollover effect in 2020 since we will receive a complete 12 months' worth of those leases. Next, there's a set of leases that we signed in 2019 that will turn on now in 2020. We have confirmed visibility on these leases as they are already signed and scheduled to begin contributing to revenue growth year-over-year. Lastly, the smallest component involves leases signed in any given year, such as those initiated in 2020 that will activate within the same year. This accounts for the least amount of our site rental revenue growth. The elements that create the most significant impact are well within our visibility since they have already been executed and, in many instances, are already generating revenue through the rollover effect. As our numbers indicate, our organic revenue growth aligns with prior guidance, and we have not altered our full-year expectations. If you examine the components of that guidance regarding organic revenue growth across towers, small cells, and fiber, those figures remain unchanged from our previous projections. Consequently, we continue to expect tower revenue growth of $175 million, small cell revenue growth of approximately $70 million, and fiber revenue growth of about $165 million year-over-year, which is consistent with our previous estimates.

Okay. And does the restatement of services change the benefit at all as you compare that second half 2020 activity levels versus first half 2019?

No. The numbers that I'm speaking to in terms of pointing back to 2019 would be the restated quarterly numbers for 2019. So it's an apples-to-apples comparison.

Good. And then finally, can you give us a sense just digging in on what you see in fiber and small cell construction, not a surprise there hasn't been any delay in permitting and construction here?

In the first quarter, we experienced no impact from COVID-19. So far in April, the impact on our business has been minimal. We believe our guidance remains unchanged because we can navigate the challenges without any significant impact on our results. My earlier remarks acknowledge the notable disruptions seen across various industries, and I feel it's prudent to note that we may not fully understand the potential effects of COVID-19 on our business at this time. Overall, we are confident our performance will align with our unchanged outlook. We are pleased with our progress thus far and believe we are well-positioned for the remainder of the year, while staying aware that there may be unforeseen factors we currently cannot predict.

Good. Thanks, Jay.

The next question comes from Jonathan Atkin at RBC Capital Markets.

Yeah. Thanks very much. So a couple of questions. I wanted to ask you about the ramp that we see in the second half attributable to 5G. Is that true across each of the major carriers, or was that more of an aggregate trend that you're calling out?

Jonathan, it would be true of both, both in aggregate and individual.

Okay, yeah. That's very helpful. And then I apologize if you didn't touch on this, but the $10 million increase in costs that you didn't expect to recur going forward, what's the nature of those?

Yeah, Jonathan. Those are related to some legal fees associated with our lease statement and then taxes on our RSU vesting that happened in the first quarter in terms of the number dollars.

Okay. And then lastly, I have a broader question that I've asked in previous calls as well. What are your updated thoughts on edge computing and the role of your Vapor IO investments, along with your fiber assets?

We're seeing very promising results in this area. As you may remember, we invested in Vapor IO a few years ago, giving us insight into edge developments. This aligns with our strategy of controlling infrastructure within the telecommunications ecosystem, both in fiber and tower assets, which we believe have significant strategic value. Edge networks have evolved largely as we anticipated, helping to allocate resources, alleviate network congestion, and enhance latency. We view the opportunity here as integrating fiber with network access, as the physical edge itself isn’t particularly unique. Owning real estate near cell towers is important, but what sets us apart is the combination of that access with fiber. We see a compelling opportunity at the edge. Currently, we are active in four U.S. markets regarding edge operations, and we plan to expand into several more markets soon. While this isn't significantly impacting our results yet, it indicates that our strategy is presenting attractive long-term opportunities. We view this as a long-term growth opportunity, which may not be significant this year or even next year, but as it develops, it could lead to unique and exciting prospects for us.

Thank you.

The next question comes from Colby Synesael at Cowen.

Thank you. You may have touched on this with Jonathan's question, but have there been any significant changes in carrier behavior since 2019? We've seen Verizon increase its CapEx expectations, while AT&T seems to indicate that theirs might not be lower than previously anticipated. Could you provide some insight on that, without naming specific companies if you prefer? Additionally, regarding T-Mobile, do you plan to sign a new MLA with them? If so, could you share any details on when that might happen? Thank you.

Sure, Colby. On your first question around the change in carrier behavior, if I step back and look at where we are today and where we were six to nine months ago, I think our long-term visibility around the investment that the carriers are going to make around 5G is better today than it was six to nine months ago. We can see it across the entire industry. The plans are becoming more real, more specific. We're starting to see exactly where they're targeting the sites, and how they're thinking about deploying 5G networks in terms of what equipment needs to be added, how much of it needs to be added. So I think the visibility today is there has been a change in behavior. If you were to ask me this relative to six months ago, yeah, the change in behavior is better today than what it was. And that thing that's happened in the last six weeks around COVID-19 has changed that view. As I mentioned in my prepared comments, I think carriers have been really public about the fact that they are intending to build 5G networks and have affirmed that even in the midst of the current environment. So I think from everything that we can see, we're more encouraged today than we would have been six months ago about what that deployment and opportunity looks like. On your second question, I'm going to beg off of that. We really prefer not to talk about specific customers or what their network deployment plans are. So, we're in great shape with all of the carriers across the industry in terms of their ability to access our sites and we're certainly really focused on making sure that all of them are able to achieve their deployment plans across our infrastructure.

Okay. Thank you.

The next question comes from David Barden at Bank of America.

Hey, guys. Thanks for taking the question. So thanks for sharing the details or the data point on the small business exposure being kind of sub-5% in the fiber services business. I was wondering if you could kind of elaborate a little bit more on what the enterprise fiber services exposure you do have is related to. And then Dan, we saw some provisions being taken at AT&T and BD for their business services exposure, presumably mostly on the SMB side, but I was wondering kind of what if anything you guys are provisioning for or expect you may have to provision for on the bad debt in enterprise services. Thanks.

Thank you for the question, Dave. Most of our customers are categorized as carriers and large enterprises, which together account for over two-thirds of our revenue base. Specifically, we have a strong focus on the healthcare, education, and financial services sectors within the large enterprise segment. These three sectors, along with carriers, contribute the majority of our revenue. As I mentioned earlier, less than 5% of our revenue comes from small and medium businesses. Considering the nature of our customers in healthcare, education, and financial services, we believe they are less susceptible to the impacts of COVID-19. In March, despite the Northeast corridor experiencing significant shutdowns, we did not see any negative effects on our new lease bookings; in fact, we performed well that month. While some clients have postponed access to their facilities due to COVID-19 protocols, we expect this impact to be temporary. Once we can implement safety measures and access their locations, we will be able to expand our bandwidth and services. Overall, I think our business will experience very minimal to no impact from COVID-19.

Great. Thanks.

The next question comes from Brett Feldman at Goldman Sachs.

Hi. Thank you. I would like to ask a broader question about MLAs. When we consider your business, you have customers who might be looking to combine MLAs. Additionally, there are new emerging customers who might need to create them, as well as existing customers that you might want to revisit for various reasons. You are now offering multiple types of infrastructure, including towers, small cells, and fiber, which may interest many of your large wireless customers. As you engage in these discussions, what are your main objectives when entering into new, modified, or combined MLAs? What factors do you consider to determine success in this area? Thank you.

Thank you for the question, Brett. To give a broad overview of our approach to managing our assets and investments, we base our decisions on the expected recurring yield from those assets and their contribution to our long-term dividend growth rate. In order to achieve growth in dividends, we must consider all capital costs tied to the assets we're evaluating and the cash flow they can ultimately produce. We start by analyzing the cost of capital required to acquire an asset and estimate the potential return. This assessment is particularly relevant when discussing our investments in fiber and small cells, where traditional methods of evaluating tower pricing differ. For small cells, which we see as crucial for fiber returns, pricing is influenced by deployment costs, varying between dense urban areas and suburban regions. Our goal in discussions with carriers is to offer them a more economical option than owning or constructing their own infrastructure. We aim to provide a shared infrastructure model that is more cost-effective for all carriers to lease from us rather than building independently. Additionally, when evaluating whether an asset or opportunity aligns with our interests, we assess it against the required returns, ensuring they exceed our capital costs. Specifically, we focus on the needs of carriers by identifying the markets they want to enter and the types of infrastructure they require from us, allowing us to establish appropriate pricing to secure the desired returns.

Thank you.

The next question comes from Ric Prentiss at Raymond James.

Hey. First off, you guys and your family, employees are all safe and well during this crazy time, so it sounds like you’re doing a good job there.

Thanks, Ric. You too.

Should we consider whether new or modified MLAs are necessary to support the growth in the service business in the second half?

No. We don't need to sign new MLAs with our customers in order to achieve the ramp in front of us.

Okay. And then, obviously, you guys have approached the debt market, got some really good tenor and cost of debt. You've got the glide path. But what, if anything, would cause you to think that you would have to tap the equity markets? I know in the past you've kind of laid it out there as a potential. But what would make raising equity interesting as opposed to not interesting?

Yes, Rick. Generally, we prefer not to issue equity, as we want to preserve it for our current shareholders, believing there's substantial long-term value there. The only scenario where we might need to issue equity would be if we reach a point where our financial trajectory isn't progressing and our leverage remains too high, which could threaten our investment-grade rating. This situation would arise if our EBITDA generation is insufficient to provide the leverage capacity to offset our capital expenditures, prompting us to consider equity issuance. We're not looking at this from an opportunistic viewpoint, but rather from the perspective of how it affects our overall leverage and the timing needed to maintain our desired investment-grade rating. This rating is crucial for accessing the debt markets, especially during challenging times, allowing us to secure favorable terms. We want to ensure we can invest in assets that promise solid long-term returns, particularly in both stable and turbulent times, and having an investment-grade rating significantly aids in that.

Thanks. From the zoning permitting perspective, do you have any concerns about the ability to secure crews or equipment given the current supply chain situation?

Yes, Ric. I mean, I can speak to only what we've seen thus far, which is we haven't seen, as I mentioned before, we haven't seen any impacts to date from COVID-19. So I recognize and again, I'll say it again, I think that the widespread nature of COVID-19 and maybe the second and third derivatives of impacts, I don't want to say that I have perfect visibility to what that's going to look like into the future. But thus far our crews have been able to continue to work and install our tenants and deliver the infrastructure that's necessary. So we've not seen any impact. We didn't see any impact in the first quarter results and haven't seen it thus far. Our teams are continuing to work. And the states have been great as well as the federal government and they have been really clear that the deployment of telecommunications infrastructure is essential work that needs to be done. And so our crews have been able to navigate and to work and to do so safely and install the infrastructure. And so at this point we don't see any impact from COVID-19 in terms of limiting our ability to continue to deliver for customers.

Again, wish you all the best for you and your family. Stay safe and warm this time.

Thanks, Ric.

The next question comes from Michael Rollins at Citi.

Hi. Good morning. Thanks for taking the questions. Two if I could. First, if you can step back on the small cell business can you frame how the contract value allocates between the fiber infrastructure you're providing versus the access that you have to poles and to other structures that they might be attached to and then the actual electronics or antenna or anything that you provide that's on a more technical basis. And then just secondly, is there an update to your prior disclosures around the inquiry from the SEC? Thanks.

Sure. Good morning, Mike. Thanks for the question. On the first question around the small cell contracts. We don't differentiate that in terms of the contract itself. I think probably the best way and hopefully this answers the question in terms of what you're driving towards. If you think about the capital costs associated with building small cell networks about 80%, 85% of the total cost of building those networks is in the fiber itself. So if you think about the contractual value coming back to us and what we're pricing the investment back to my comments about it differs market-by-market and even inside of the market based on the type of infrastructure that has to be deployed in order to achieve a small cell solution for the carriers. The majority of the — think about the revenue and the underlying cost associated with that is going to be in the fiber asset, the fiber asset itself. And then what it looks like in terms of the aesthetic and the actual delivery of the antenna that will really change based on the architecture and the desired aesthetics by the municipality or potentially by the utility that we're working with in order to figure out what is the vertical infrastructure that becomes the broadcast point for that small cell. And that's a much smaller component of the overall cost and therefore a smaller driver of what the return to us is or cash flows to us are. On your second question, we don't have any update to the SEC process. The prior comments that we've made still stand. Obviously, we're fully cooperating with any questions that they have for us and we'll continue to do so.

Thanks.

The next question comes from Nick Del Deo at MoffettNathanson.

Hey, good morning. Thanks for taking my question. First with respect to small cells and fiber solutions, can you help us understand what the typical lag is between when the permitting for a project is complete and when you actually deploy an infrastructure? And does it vary very much between small cells and fiber?

Sure. Thanks, Nick. On the small cell side and fiber side, there are different answers depending on the communities because the amount of work that we have to work through whether it's a utility or a municipality or both, those have differing answers. But in general, the entire timeline from the time that a carrier tells us that they would like a small cell to when we have it on air, the outcome there is ranging from about 18 months to 36 months, and the majority are kind of in the 24-month to 36-month period of time. The vast majority of that time period is we're incurring what we would describe as soft costs and those costs are relatively low. And the reason for that is because we're working through the process with the municipalities and the utilities in order to figure out what the structure and access is going to look like in order to build it. Once we have all of the zoning and permitting approvals that are necessary in order to build or to deploy those assets, the build cycle itself is relatively short. So we'll incur the majority of the cost of the capital in the last several months of the build before the revenue turns on. So that build cycle is relatively short. Now when I say relatively short, it's relative to the 24- to 36-month time cycle, there are exceptions to that where we're putting in fiber in places that are very difficult to build and it may take us longer than just a few months in order to actually build the infrastructure. So, but in general that would hold where we go through a long period of time with the soft cost to build and then the actual construction portion is relatively short. The same would hold true on the fiber solutions side, if we're building new fiber for new customers in a new market. But it would not hold true, if we were looking at a building that we were already providing fiber to or a location where we had already built small cells and we had a fiber run just outside or relative proximity to a potential enterprise customer. And in those cases, the ability to get them on air is much faster than that timeline of 24 to 36 months. Generally speaking, we'll have a new customer on air within six months of contracting with them on the enterprise side or on the enterprise fiber side. Some of that, and I think this is helpful just in terms of from a strategic standpoint, as we think about the business, we think about the long-term value drivers, we believe is going to come primarily from small cells. And so where we've invested the capital and as we've thought about the opportunity, we're zeroing capital in in places where we think there's going to be the most small cell opportunity. We then look at that — those assets that have been created for small cells and reinvested in because of the opportunity we think about from a small cell standpoint. And then we pursue customers on the enterprise side that could use those fiber runs. So a portion of the reason why we're faster on the enterprise side is by definition we're targeting customers who can utilize that same asset that we're utilizing on the small cell side. So it self-selects. Whereas on the other side when you think about where we're building small cells, we're working closely with the carriers in places that there is no existing fiber today, and so we're going in and building high-capacity, dense urban fiber for the purpose of small cells and then we would go back and roll that into opportunities that are on the enterprise fiber side.

Okay. That's helpful. And just – maybe just to put a finer point on it and kind of where I was trying to get with the question. If we think about the remaining nodes that you plan on putting on air for the balance of the year, is it then fair to say that a good chunk of those are kind of through the permitting process and ready to go?

Yes. They would be at various stages. However, in order to have them operational in 2020, we need to have a clear understanding of either having received all of the required approvals or most of them, and we should anticipate that the remaining approvals are forthcoming.

Okay. Good. And then one on the expected services ramp. Can you expand a little bit on the degree to which your expectation of the ramp is based on your interpretations of the carriers' intentions versus specific planning discussions you're having or work orders you've received?

Well, I think going back to my comments that I made around the recurring revenue, the leases that we would have signed to date, whether that was last year or this year, the services work would be related to that. So preconstruction work that we're performing for the carriers in advance of them installing on a site and then a much smaller component of the services now coming in the periods in which we perform the work, where we're actually adding tenants to the tower. So we would have pretty good visibility towards what that activity would look like. Now the same comments that have always applied to this business, I think certainly applies today, it is the most volatile component of our results because knowing exactly when some of these sites will turn on when and that work will actually be completed, we don't have the same kind of visibility that we do on the recurring revenue side. So I think any time we couple, and this is why my remarks were really bifurcated between here's what we're seeing in the current year 2020 and then this is what we're seeing over a long runway period of time. Is there a possibility that some of the services activity that we're expecting to come in in the second half of the year, that some of that slides into 2021? That's possible. But the activity level in terms of the recurring revenue, I think we have pretty good visibility on that front and we feel better about that recurring revenue opportunity today than what we did six months ago. And so whether that results in services activity as we believe it will in the second half of the year, if a little bit of it slips into 2021 from a run rate standpoint, if we get out into 2021, I think we feel better today about our run rate in 2021 than what we would've had six months ago. So our best view today is the guidance that we've provided and that looks like second half of services in 2020 kind of similar to what we saw in the first half of 2019. And then that second quarter that we're in right now probably looks similar to what we saw in the first quarter of this year.

Okay. Thank you, Jay.

You bet.

The next question comes from Batya Levi at UBS.

Great. Thank you. A couple of follow-ups. First on the small cell deployment side. Can you talk about if there has been any change in demand from the carriers? The pipeline for the ones on air and under construction seems to be relatively flat in the last few quarters. I was wondering how we should think about that total number going forward. And a second question on the mobile usage growth. With work at home in place right now, is there any change in that usage growth that you could potentially delay the carrier activity down the road? And just a final question on DISH. Now that your tenants are adding DISH spectrum temporarily to their sites, if that is expanded beyond 60 days do you think that could provide an opportunity for you? Thank you.

Sure. On the first question around the pipeline for small cell nodes, we continue to see activity in normal course and believe that will continue as the carriers work on their 5G deployment plans. We've seen steady growth in that front over the last several quarters and so really encouraged about the continued need for it. I think we're positioned really well for that opportunity both in terms of the systems that we built in the early days and have great locations. Those are anchored by one of the big three operators today and well positioned for additional lease-up from those operators. And then obviously we have the capabilities to be able to stand with the carriers as they think about broadening out the number of markets that they want to go in, and those discussions have continued to be really fruitful. On your second comment around office remote working relations, as I've said in a couple of different ways, we haven't seen any change in behavior from our fiber customer side, and frankly, don't expect to see any change in behavior there. I think it will be interesting to see in terms of what the traffic patterns change and what the impact is ultimately to overall data growth. I think our bias is probably towards believing that it is increased data traffic and then there's been a number of studies out that have kind of shown some increases in overall traffic as a result of a change in the working environment. But I'd say net-net that has not really led to a change in the way we think about the business. And then...

Yeah. Just to clarify on that. So, sorry. I was mostly asking about the macro environment actually. Have you seen any mobile usage kind of maybe stepping down a little bit as more people use their broadband connectivity at home?

No, we haven't. In terms of carrier activity, we haven't noticed any changes. They are focused on expanding and enhancing their networks for 4G and preparing for 5G. The data growth statistics we've discussed for years, indicating 30% to 40% annual growth, still appear to hold true and may even be slightly optimistic. Regarding carrier behavior currently and our discussions about the future, we are more confident about the opportunity now compared to six months ago. As for DISH, they are just beginning to launch their network and have significant deployment targets ahead. We do not anticipate any substantial benefit from them in our 2020 results, as we believe their impact will mainly be felt in 2021 and beyond. We are collaborating closely with DISH to ensure we provide the best service possible, and we'll see how things evolve from there.

Okay. Thank you.

Got you. Maybe it's time for just one more question operator.

Absolutely. The last question comes from Spencer Kurn at New Street Research.

Thanks for taking my question. I wanted to clarify the situation with your tower backlog. I believe that the number of applications has decreased since we noticed a slowdown from Sprint, T-Mobile, and DISH towards the end of last year. I'm interested in how it currently compares to the lowest levels and what your expectations are for volume improvements moving forward compared to the figures from last year.

Sure, good morning, Spencer. I think my earlier comments about our growth in recurring revenue provide the best context for your question. We experienced strong activity across the board from carriers throughout 2019, and many of those leases are now becoming active in 2020. This gives us confidence in assessing our revenue run rate for the upcoming months. We are also receiving new leasing applications daily, which factors into our growth expectations for the remainder of the year and its impact on revenues. The leases we are signing now and starting in 2020 will have a relatively small effect on the overall results for this year. However, we are observing significant activity, and discussions with carriers suggest that this momentum will continue to build throughout the year, leading to more applications than we are seeing currently for our sites. While this trend does not impact our 2020 results directly, we feel more optimistic about the current environment compared to six months ago. Thus, I would hesitate to describe a backlog that is declining; rather, our pipeline and opportunities are expanding as we look ahead.

Got it. I would like to follow up on the topic of churn. In the tower business, we usually consider the normalized churn to be around 1% annually. For the past few years, you've been experiencing higher levels due to issues related to churn from MetroPCS and Clearwire. Could you explain how much churn you still have left? Is there a chance that we could see a return to more typical levels later this year as we look at the upcoming years, especially with the potential impact of Sprint, which may materialize a few years down the road?

Sure, Spencer. We observed the conclusion of the consolidated churn towards the end of the fourth quarter of 2019. When comparing the first quarter of 2020 to the first quarter of 2019, we still experienced elevated churn levels, approximately 2% on an annualized basis, which is about double our normalized churn rate of 1%. Looking ahead to the later half of 2020, we anticipate returning to that normalized churn rate of around 1%. As we consider the net impact on site rental revenues, we are seeing benefits from a decrease in churn throughout the year, along with growth from new leasing activities. By the time we reach the latter half of the year, especially the fourth quarter, we expect all the consolidating churn we've discussed over the past few years will have worked itself out.

Awesome. Thank you.

You bet. Well, thanks everyone for joining the call this morning. I want to lastly just thank all of our employees, who've done a tremendous job over the last six to seven weeks, and both delivering for our customers and delivering for the communities in which we operate. So many thanks to all of you for the hard work that you're doing. Keep up the great job, and we'll talk to everyone next quarter. Thanks so much.

This concludes today's call. Thank you for your participation. You may now disconnect.