Earnings Call Transcript - CCI Q1 2021

Operator, Operator

Good day, everyone, and welcome to the Crown Castle Q1 2021 Earnings Call. Today's call is being recorded. At this time, I would like to turn the conference over to Ben Lowe. Please go ahead.

Benjamin Lowe, Investor Relations Host

Great, thank you, Vicki, and good morning, everyone. Thank you for joining us today as we discuss our first quarter 2021 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.

Jay Brown, Chief Executive Officer

Thanks, Ben, and good morning, everyone. Thanks for joining us on the call. As you saw from our first quarter results and increased full-year outlook, our consistent execution is delivering outstanding results as we support our customers' growth initiatives with their deployment of nationwide 5G in the U.S. Following a period of building excitement and anticipation, we have seen a significant increase in activity as our customers have started to upgrade their networks to 5G at scale. We expect this elevated level of activity to result in a year of outsized growth for Crown Castle as we now anticipate 11% growth in AFFO per share for the full-year 2021, meaningfully above our long-term annual target of 7% to 8%. Beyond 2021, I believe our strategy and unmatched portfolio of more than 40,000 towers, approximately 80,000 small cells on air or committed in backlog and 80,000 route miles of fiber concentrated in the top U.S. markets have positioned Crown Castle to generate growth in cash flows and dividends per share for years to come. Our strategy is to deliver the highest risk-adjusted returns for our shareholders by growing our dividend and investing in assets that will drive future growth. That focus has led us to invest in towers, small cells and fiber assets that are all foundational for the development of 5G networks in the U.S. We believe the series of strategic agreements that we have announced in recent months further highlights the synergistic value our shared infrastructure provides to our customers.

Daniel Schlanger, Chief Financial Officer

Thanks, Jay. Good morning, everyone. As Jay mentioned, we are excited to see our customers beginning to deploy 5G at scale. We have seen a significant increase in activity levels, leading to solid first quarter results that exceeded our expectations and support our increased full-year guidance. Turning to Slide 4 of our earnings presentation, you can see our strong top line results were driven by more than 6% growth and organic contribution to site rental revenue. This growth included more than 9% growth from new leasing activity and contracted escalators, net of approximately 3% from non-renewals. We also generated a $23 million increase in contribution from services when compared to the first quarter of 2020, culminating in 10% growth in adjusted EBITDA and 20% growth in AFFO per share on a year-over-year basis. Turning to Slide 5, we increased our full-year AFFO guidance by $40 million, reflecting a $25 million increase in expected services contribution as a result of higher-than-expected tower activity levels, and a $30 million reduction to interest expense following our successful recent refinancing activities, partially offset by $15 million of additional labor-related costs associated with the higher activity levels. Additionally, as Jay discussed, we entered into a long-term tower leasing agreement with Verizon that resulted in increasing the average current lease term of our Verizon tower site leases to approximately 10 years and adding straight-line revenue of approximately $140 million in 2021. Taking these changes into account, we now expect our adjusted EBITDA to be $150 million higher than our previously provided 2021 outlook. Our expectation for site rental revenue growth has increased to approximately 7%, inclusive of the expected organic contribution to site rental revenues of 6%, which remains unchanged. Our expectation for organic growth across towers, small cells and fiber solutions also remain consistent, with approximately 6% growth from towers, approximately 15% growth from small cells and approximately 3% growth from fiber solutions. Focusing on investment activities, during the first quarter, capital expenditures totaled $302 million, including $17 million of sustaining capital expenditures, $49 million of discretionary capital expenditures for our tower segment and $225 million of discretionary capital expenditures for our fiber segment. Our full-year expectation for capital expenditures remains unchanged at approximately $1.5 billion or less than $1 billion after customer cash flow contributions. And we continue to expect to fund our discretionary investments this year with free cash flow and incremental borrowings.

Operator, Operator

Thank you. And we will take our first question today from Simon Flannery with Morgan Stanley. Please go ahead.

Simon Flannery, Analyst, Morgan Stanley

Great, thank you very much. Thanks for all the color. Jay, perhaps you could just dive into the services business. What are you seeing going on there that led you to increase the guidance and then how you see that translating time-wise into higher leasing trends and any comments on the U.S. M&A environment? Thanks.

Jay Brown, Chief Executive Officer

Good morning Simon, we are obviously very encouraged by the activity that we are seeing among the carriers. We are not surprised by the urgency that our customers are showing in deploying 5G. The level of commitment that they showed during the C-band auction was really a clear sign that they are going to invest heavily in 5G. And so the activity we are seeing, I think, just flows from that. We are seeing that turn into actions as they are deploying significant amounts of 5G networks. And we are really encouraged by the activity that we are seeing. When we think about that activity translating towards revenue growth, we obviously saw a big step up towards the end of last year and that has continued into this first quarter and as it relates to the services activity, most of that activity is either in the nature of preconstruction work that we are doing for carriers and then some portion of it carries over to work that we are doing as we actually install them on the site. So the elevated activity that we saw, the step-up we think sort of continues through the balance of this year and is a direct result of the overall encouraging level of activity that we are seeing from the carriers.

Daniel Schlanger, Chief Financial Officer

Yes. And the second part was just on the M&A environment in the U.S. I think what we are seeing across the board, Simon, is that there is a lot of money that is interested in infrastructure right now and that is reflecting itself in the M&A environment, both for towers and for fiber assets. What we have been focused on and been clear about is that we think that there is not a lot of additional M&A we are going to pursue in the U.S. for fiber. We think most of those assets that we wanted, we have purchased. There may be some others out there that meet the criteria we have looked at, being high-capacity dense metro fiber, but not a lot. So we anticipate most of our capital will go to organic growth in our business, but also in the fiber business.

Simon Flannery, Analyst, Morgan Stanley

Okay. Thank you.

Operator, Operator

We will now go to Michael Rollins with Citi.

Michael Rollins, Analyst, Citi

Thanks, good morning. Curious, first, just to start with the Verizon agreement and extension. Can you frame the types of activities and upgrades that Verizon's committed to within this agreement and extension and what might be opportunities that fall outside the scope of this agreement. Just to think about what is kind of predetermined versus what other activities you could pursue with Verizon to further grow your revenue over time. And then just a quick follow-up, on the net debt leverage, can you just give us an update on what the target range is and to the extent that the leverage, I think, in the deck ended at 5.5 times in the first quarter, just how you see that progressing over the next couple of years? Thanks.

Jay Brown, Chief Executive Officer

Sure, Mike good morning. Obviously, we are really excited about the Verizon agreement that we announced on the tower side. I think it provides significant value and certainty to Verizon as well as to ourselves and I think the significance of that agreement is obviously evidenced by the impact that it has on our 2021 outlook and the step-up that we have put into that outlook last night in the press release. This really went through the same thought process that we have gone through over the last several years as we have done large transactions with the carriers on the MLA side, and has similar components to it. We are trying to meet the customers' needs, particularly with regards to certainty of price and then lowering or reducing the amount of time that it takes to go through the paper portion of getting them on to our site. So it is designed to facilitate their ability to go back to sites that they are already on and speed up that process of them being able to do upgrades. And obviously, they have been specific about the desire to do that with regards to C-band. On our side of it, we are trying to make sure that we price the economics of that transaction appropriately. We get the 10-year extension on the leases that they are already on which moves the maturity out from about four years to about 10 years on those sites. And then over the next several years, gives them an opportunity on those sites that they are already on to upgrade their equipment to handle new spectrum bands and to get that where they want it to be from a 5G standpoint. We still maintain the upside on new leasing and other activities associated with that. And then once we get past this initial push into 5G, the opportunity is there for us to see greater growth over time. So excited about the agreement there and excited about what it means in terms of total activity. As I said before in the prepared remarks, being on the doorstep of seeing 5G deployments at scale enables us to be responsive to Verizon's desires to get there.

Daniel Schlanger, Chief Financial Officer

And Mike, I will take the second question on leverage. Our target still remains four to five times. We believe we will stay in that five times as we continue to invest in our small cell and fiber business, which should be for several years. We are, as you pointed out, at 5.5 times at the end of Q1. We believe that with the growth in EBITDA that we see coming through the rest of the year that we will end the year close to that five times, maybe slightly above it, but pretty close to that five times debt leverage target. And feel really good about that position we are in, because we are able to invest in the growth of our business while relying on cash flows and incremental borrowing capacity and not equity to fund that growth.

Michael Rollins, Analyst, Citi

Thanks.

Operator, Operator

We will take the next question from Matthew Niknam with Deutsche Bank.

Matthew Niknam, Analyst, Deutsche Bank

Hey guys, thank you for taking the questions. One on small cells and then one on services. On the small cell side, revenues were flat sequentially. I think year-on-year growth slowed into the high single-digits. So can you give any color in terms of the drivers there and then how we should think about the outlook for the rest of the year if you are reiterating the 15% growth guide? And then on services, if you can give any more color in terms of what drove the strength in margins this quarter. And I'm just trying to get a sense of what the cadence for services contribution will look like in the next couple of quarters over the course of the year. Thanks.

Jay Brown, Chief Executive Officer

Sure, good morning. On small cells, I would point to, as we have tried to do in our outlook, looking at the full year. So a little bit of timing changes naturally happens as we go through the construction phase of small cells; it will have some quarter-to-quarter movements that may not tie out exactly to the full-year outlook. But as we look at the full-year outlook, we still think small cell growth year-over-year is in the 15% range, that mid-teens that we have talked about for a long time. We think on the fiber solutions side will be around 3% for the full year and then towers right there at around 6%, as we previously expected. So I don't see anything, Matt, in terms of those numbers in the quarter that are indicative of anything happening in the underlying business that I would point to. I think it is just the timing differences quarter-to-quarter. And as we look at the full year, I think that is more indicative of the actual activity, what we are seeing from the carriers and how we expect those businesses to perform. On the services side and the cadence there, we are at a level of elevated activity. We probably had a better first quarter in terms of services than we would in many years, where we often talk about years being back-heavy to the second half or even towards the fourth quarter. We saw a step-up in activity going into the end of last year, and that level of elevated activity just carried right into the first quarter. So we saw a real nice contribution from services in the first quarter and expect basically our full-year assumption to be pretty similar to where we were previously with that adjustment for the first quarter.

Daniel Schlanger, Chief Financial Officer

Matt, just on the question on margins specifically. It is the mix of business Jay talked about earlier, having a mix between preconstruction and construction as part of our services business. The preconstruction is a little bit higher margin, and that is what we had a little bit higher mix of within the quarter, and that drove the higher overall margin.

Matthew Niknam, Analyst, Deutsche Bank

Great, thanks guys.

Operator, Operator

And we will go to Colby Synesael with Cowen.

Colby Synesael, Analyst, Cowen

Great thank you. You spoke pretty bullishly about what you are seeing from an activity perspective. But it is, I guess, a little surprising then that you didn't raise your organic tower growth. And given that you gave your guidance all the way back in October of 2020, were you already seeing or had the conviction that you would see this acceleration in demand and therefore it is already built into the guidance? It just seems like given how early you gave your guidance and how quickly the demand has kind of ramped that you wouldn't have necessarily included that. And then secondly, as it relates to the Verizon MLA, you talked about making it easier to deploy. And I guess one of the bigger questions people are trying to get a sense on is whether or not the agreement includes just some standardized pricing to make it easier for them to move quicker or whether or not there is actually some type of financial benefit where you allow them to go to X amount of sites over X amount of period, shorter than that 10-year period, to kind of move quickly. And if that is the case, I would assume that there is some type of cash benefit, yet we didn't really see the AFFO change for that in particular. So again, any color you can give on that would be helpful. Thank you.

Jay Brown, Chief Executive Officer

Sure, good morning Colby, thanks for the questions. On the first question around organic tower growth, a couple of things I would put in front of you on that. One is there is a pretty good lead time or lag time from the time that we see revenue start to turn on, start to get the applications from the customers to when we actually see the revenues start to turn on that is about six to nine months. So the increased level of activity that we have been talking about for 2021 is something we did see all the way back into the fourth quarter of 2020. We started to see the application step up then, and that informed our increase in the overall activity. Our organic revenue growth in 2021 in our outlook is a step-up of a little over 25% of the average over the previous four years. So it is a meaningful increase in the activity, and we baked that into our outlook when we gave 2021. So what we are seeing now in terms of that activity is pretty consistent with what we had expected. The other thing I would mention is that, as we look at this activity, we are encouraged and think that there is the opportunity for it to stay at this level of elevated activity for a period of time. In the business, inflection points where activity spikes and then falls off are relatively rare; you see the carrier step up levels of activities and hold at a plus-or-minus certain amount for a long period of time. So when we look at that activity, we are really encouraged and, frankly, not surprised. To the broader point on revenue growth and activity, the way that we create value for shareholders is by stacking years of good growth one on top of another. What is happening in the business right now is a tremendous year of growth, growing AFFO at 11% year-over-year on a per share basis and stacking another year of great growth on top of a good base. Our goal is to consistently deliver that growth over the long term, 7% to 8%. On your second question around the Verizon MLA, we try to stay away from getting too specific about the terms of the agreements that we do with our customers. We will let them speak to how they think about their deployment plans and why they structured certain agreements with us. But I would tell you that there are components of both parts of your question in the agreement. It certainly does include certainty of pricing for them and, depending on levels of activity, then it will drive an answer for us in terms of top line growth over a long period of time. So it does provide pricing certainty. And then there is also a component of committed activity in it where we have certainty of some revenues associated with activity as they deploy C-band over the next several years. So there are components of both of those in the agreement. As we go forward, we will see more consolidated, rather than specific to a customer relationship, the contribution of cash revenues beyond what Dan spoke to in terms of the impact on GAAP financial statements this year and years to come.

Daniel Schlanger, Chief Financial Officer

Colby, I just want to put a little context around it that our growth in the tower business of around 6% is roughly double where our closest peers have guided to for 2021. So we feel really good about that. This deal that we signed with Verizon and the one we signed with DISH all went into our understanding of what was going to drive that 6% growth. Looking for us to increase above what is already a really strong number would be a stretch in any one year for the tower business. We are excited that we are able to provide as much growth as we are right now and driving the type of returns that we are for our shareholders.

Colby Synesael, Analyst, Cowen

Got it. Thank you.

Operator, Operator

Next is Phil Cusick with JPMorgan.

Philip Cusick, Analyst, JPMorgan

Hey guys, thanks. First, Jay, to your comment on leverage remaining at five times, should we expect accelerating CapEx next year to keep that leverage at five times? Because it seems otherwise it would be falling below that pretty quickly. And then second, DISH announced yesterday it will be using the AWS Cloud, not a big surprise. But can you give us thoughts on how that may impact Crown over time on site leasing revenue as well as any impact on the opportunity in edge computing. Thanks.

Jay Brown, Chief Executive Officer

Yes, Phil, thanks for the questions. Around CapEx, we spent some time over the last couple of quarters talking about our expectation for this year's CapEx, which on a net basis is down about $400 million from the levels that we saw in 2019. That was largely related to the fiber acquisitions that we made. Those companies had committed to a number of large enterprise and government build-outs that were built specifically for those activities, enterprise and government broadband services. Post those acquisitions, we just haven't signed up those kinds of agreements at the same scale. As a result of that and our strategic focus around small cells, the CapEx has come down as we have built out those really long lead-time contracts. Many times, they were three- to five-year builds. Now as we think about capital spending, it is strategically focused on what we believe is the long-term value driver of the business around small cells and the opportunity to build these networks for carriers as they build 5G networks. I don't want to get too much into what we think in 2022 and beyond. We have given guidance this year that our net CapEx will be a little less than $1 billion. For the longer term, the driver of CapEx will be what are the opportunities mostly around small cells. Those will go through the same rigorous process that we put all of our CapEx decisions through, understanding the return. We look to see a 6% to 7% initial yield on invested capital and want to ensure there is good opportunity for additional lease-up beyond that to drive the yield into the double digits over time. In the future, we will evaluate the opportunities and give an update as we get later in the year. In October, we plan to give our 2022 outlook as we typically do. Regarding DISH, I will largely defer to DISH and Amazon to speak to how their agreements will drive activity. But DISH has made a significant commitment to us recently in terms of deploying their network, and our operating team is incredibly busy and focused on delivering for them based on their expectations. The team has done a great job out of the gate and I believe delivering for them what they had hoped. We are ready to support DISH in any way possible as they build out their 5G network. On edge computing, a lot of the activity today is around traffic management and potentially reducing costs. But as wireless networks move into 5G, the opportunity will expand beyond that to deliver customer solutions and increase applications as innovation occurs. Tower sites are well positioned to provide the real estate, connectivity and power that enable edge computing. Our combination with fiber uniquely positions us to capture that. We highlighted that in the DISH agreement; it was important to them as they decided to anchor their network around our sites. I think edge computing and CBRS are unmodeled upside and opportunity beyond our forecast and give us optionality to benefit over the long term.

Philip Cusick, Analyst, JPMorgan

Thanks guys.

Operator, Operator

We will now go to Jon Atkin with RBC.

Jonathan Atkin, Analyst, RBC

Thanks very much. Question just on balance sheet, any kind of thoughts on additional debt refi activities that you would contemplate? And then on the small cells, it does seem that you have some structural advantages as we get to the infill and densification part of C-band and other mid-band frequencies. I just wondered if you are starting to see that in the pipeline yet. I realize the revenues might be a little ways off, but are there active discussions at this point or is that more on the come? And then finally, one of the C-band licensees talked earlier this morning about supply chain constraints that they are seeing. On the other hand, another one put out a press release talking about how in the second quarter they are already starting to deploy C-band. And as you consider all those data points around what the carriers are saying, I wondered how that affects your expectation around the second half and what type of ramp you might see. Thank you.

Daniel Schlanger, Chief Financial Officer

Sure, Jon. I will take the first one on the balance sheet and debt refinancing activities. We are always looking at our balance sheet to identify opportunities to reduce borrowing costs and extend maturities. We won't get specifically into what we are going to do right now, but the interest rate environment does remain attractive, and we will continue to look at that versus whatever the economic trade is and any early premium we would have to pay to take out future debt. That is part of our normal ongoing operations within finance. We will figure out what we will do over time and let everyone know when it happens.

Jay Brown, Chief Executive Officer

On small cells, we believe we have a structural advantage around the assets we have acquired. We were intentional about acquiring high-capacity dense, urban fiber. As we have seen in the later stages of 4G and now entering 5G, there is a disproportionate amount of traffic in dense urban and suburban areas. To solve that increased traffic, small cells are necessary. The locations where we acquired fiber and where we built fiber and then started to build small cells set us up well for network densification. That existing fiber will see additional co-location on it, driving up yields and returns of those assets. As happened in prior cycles moving between generations, we expect innovation to further drive traffic demand. We think we have great assets in the right locations and that we will see a strong tailwind for a long period. The impact directly to site rental revenues will not happen overnight; it will happen over time. But the conversations and activity we are seeing, including Verizon's commitment of 15,000 small cells noted last quarter, are early indications of the critical nature of these assets.

Jonathan Atkin, Analyst, RBC

Thank you for that and just a quick follow-up. Last September, American Tower announced their MLA with T-Mobile. Philosophically, can you remind us how you might want to think about that structure of agreement or any kind of an MLA that would address the Sprint and T-Mobile churn? I appreciate that you put out the expiration schedule in the supplement which is quite helpful but any thoughts philosophically on willingness to enter into some sort of an MLA that captures all of that?

Jay Brown, Chief Executive Officer

Thanks for mentioning the disclosure. We added additional disclosure to the supplement to give a little more granularity. It is not intended to be a forecast; it is the actual numbers so you can separate locations where legacy Sprint and T-Mobile were on the same sites and sites where legacy Sprint was stand-alone and not co-located with T-Mobile. We are always open to considering a new structure or agreement with a customer, but there is not any need per se to do that. We were intentional a number of years ago about extending the terms of leases. If you look back in that disclosure, we have a lot of term remaining on those leases, which was the goal when we extended those Sprint leases: to have flexibility if there was consolidation. We will work with carriers to facilitate what they need, whether that is achieving synergies or increasing speed of deployment, while maintaining and protecting the economics of our agreements and the site. Historically, during carrier consolidation we have been able to grow AFFO and dividend through those periods. Consolidations have actually led to increased spending. We believe the combination of T-Mobile and Sprint will be a net positive for the tower industry and that the investment in 5G will far exceed deductions from any synergies. Net-net, we feel good about the activity in 5G and will work through consolidation when the time comes.

Jonathan Atkin, Analyst, RBC

Thanks Jay.

Operator, Operator

We will take our next question from Rick Prentiss with Raymond James.

Richard Prentiss, Analyst, Raymond James

Good morning guys and congrats to Baylor on the NCAA tournament.

Jay Brown, Chief Executive Officer

Good morning Rick, how are you doing? That was a lot of fun.

Richard Prentiss, Analyst, Raymond James

That was great. And thanks for the supplement on Sprint, that was helpful as well. I want to follow up on something Nick asked you about the pacing. Are we looking still at about 50,000 small cell nodes on air at 1Q? And are you still thinking kind of 10,000 a year is a good pacing number for us to look at over the next couple of years?

Jay Brown, Chief Executive Officer

We do. We think that the activity will end this year with about 60,000, give or take, nodes on air. I think that is a pretty good forecast for the near term. Over a longer period of time, demand for small cells is going to be well in excess of what we have seen thus far. Our view would be, over a longer period, that activity will increase beyond those levels. The carriers' public comments around the necessity of small cells set the environment for us to capture a larger portion of it. There is a long lead time for that, so we get visibility from commitments to when we are actually turning them on. We will certainly update you on our view as we go through the process.

Daniel Schlanger, Chief Financial Officer

Rick, let me add one thing. We get a lot of questions around why 10,000 and whether there is some structural cap on how many we can put on air. The 10,000 is a result of the bookings we have and the time it takes to get those bookings on air, which is typically between 18 and 36 months. We don't see that 18- to 36-month timeframe changing much. If we got a lot more bookings, we could put a lot more than 10,000 on air in a year. So 10,000 is a good point to look at for the next couple of years because of where we are with bookings. With greater bookings, we could speed up deployment, and we would expect that as the necessity of small cells becomes clearer.

Richard Prentiss, Analyst, Raymond James

Makes sense, it is the nice thing about a visible business. Anything more specific regarding the Verizon contract as far as putting that onto a timeline? I know you had the 15,000, but it was kind of uncertain on timing, I think.

Jay Brown, Chief Executive Officer

No, nothing more specific than what we have previously mentioned.

Richard Prentiss, Analyst, Raymond James

Okay. And then on fiber, 3% net growth. Can you help us understand how that business is doing gross- and churn-wise? Is it still kind of close to double-digit churn and better than double-digit gross?

Jay Brown, Chief Executive Officer

Yes. We are still seeing churn around 9% and top-line growth in the low double digits, in the 12% plus range, netting to that 3% we expect for full-year 2021.

Richard Prentiss, Analyst, Raymond James

Okay. Last one for me, Jay. You have talked about it a couple of times, about CBRS. What do you think the opportunities in CBRS will be that you are not in guidance yet? Is it increased tower activity to put it on towers? Is it in building systems that you would like to get involved with? Help us understand a little bit about where you see opportunity might be coming in CBRS?

Jay Brown, Chief Executive Officer

I think it is all of the above. There is opportunity in in-building systems; we have done trials with some success. That can expand network density and reach places difficult to serve from the outside. There will also be opportunities in macro environments where CBRS may be used by content providers or others who want access to spectrum. Campus-specific activities, like universities or other large, discrete users, could be interesting. CBRS is not in our guidance yet because it is not large enough to move our numbers meaningfully, but over time, as 5G develops and the need for ubiquitous wireless grows, CBRS usage will increase and we stand to benefit as that spectrum is deployed.

Richard Prentiss, Analyst, Raymond James

Excellent. Let's see if the FCC puts more spectrum options on the block, too.

Jay Brown, Chief Executive Officer

Agree.

Operator, Operator

We will take the next question from Nick Del Deo with MoffettNathanson.

Nicholas Del Deo, Analyst, MoffettNathanson

Hey good morning. Thanks for taking my questions. First, I noticed that both the number of ground leases extended and the number of ground leases acquired in the quarter were probably the lowest in many years and they have been trending down for some time. So I was wondering if you could just talk a bit about the state of the market for land acquisitions and extensions and how much headroom you think you have left to push on that front.

Jay Brown, Chief Executive Officer

Sure, good morning Nick. This has been a focus for about 15 to 18 years, where we have specifically focused on extending the maturity of our ground leases. When we started that activity, I think we were in the neighborhood of about 17 or 18 years of remaining term on average and had a little less than 20% of the land owned. Over the last 15 to 18 years, we have increased the percentage of land owned to a little over a third of our overall ground leases and taken the average maturity to longer than 30 years. So there has been a concerted effort to get well ahead of any date at which a landlord would have a termination right or gain leverage from a financial standpoint. The team has done a phenomenal job over a long period of time of consistently improving the quality of the assets and reducing that cumulative risk. It is an ongoing activity; as long as we are in the business, we will continue to pursue buying out land that makes sense at the appropriate multiple and extending ground leases when warranted. Some portion of ground leases will remain in maintenance mode, but the quantity or number of transactions will likely continue to come down over time as a result of our prior execution.

Nicholas Del Deo, Analyst, MoffettNathanson

Do you see a practical limit as to where you can take ownership?

Jay Brown, Chief Executive Officer

There are owners of ground leases that will want to hold the property forever, so there is an absolute component where we will always have ground leases as part of the business. Some ground leases are on government land and those will remain in government hands. We are not close to a practical limit yet; it is more a function of the practical aspects where people like to own land and prefer the income stream. We are happy to be a lessee when that is the right financial relationship and when we have term and certainty of price.

Nicholas Del Deo, Analyst, MoffettNathanson

Okay. And maybe one on the small cell front, I'm sure you guys have pretty good intelligence for where the carriers are self-building small cells and, in some cases, maybe why they went in-house versus using a vendor like you. What are the factors that you've been observing as most correlated to carriers choosing to deploy on their own for particular builds versus leasing? Is it proximity to their own wireline assets or some local market attribute or something else?

Jay Brown, Chief Executive Officer

There are two main factors. Proximity to existing plant is a reason why a carrier would self-perform and use their own plant. The other reason is that there are places where we are not interested in putting the capital because we don't see sufficient lease-up opportunity. There are a limited number of third-party providers building small cells at scale—ourselves being the primary one—so we are selective in where we invest. The nodes must meet our initial return thresholds and also have good potential for lease-up by other carriers. If costs to build are high or lease-up is uncertain, carriers will self-perform. Our view of the total number of small cells needed in the market aligns with carrier comments indicating there may be more than a million small cells in the U.S. We do not anticipate building all of those; carriers will self-perform in many locations. Our opportunity is to be disciplined in choosing markets with the best lease-up potential and executing on cost and timing.

Nicholas Del Deo, Analyst, MoffettNathanson

Thanks Jay.

Operator, Operator

And we will now go to David Barden with Bank of America.

David Barden, Analyst, Bank of America

Hey guys, thanks so much for taking my questions. Is there anything that you are seeing from the operators, from a geographic perspective, that would lead you to believe there is appetite among the carriers collectively who own C-band to deploy sooner rather than later some of the spectrum outside of the first phase A block clearing? Meaning there is a lot of opportunity for the carriers to deploy beyond the first 45 markets should they choose to do so. And I was interested if you had any color as to whether that may or may not be happening. And then the second question would be, given that the carriers are mostly looking at C-band as a macro point to start primarily because of the backhaul they have on existing sites, are the incumbent tower carriers going to gain the lion's share of the demand here or are the new tower companies getting a supernormal share of the conversation at the margin as we think about this new deployment?

Jay Brown, Chief Executive Officer

Good morning Dave. On your first question, I will largely defer to the carriers to speak to how they are thinking about broader C-band deployment beyond the first phase. We are seeing a lot of C-band activity that is driving leasing activity and believe C-band deployment will take multiple years and be very positive for us over an extended period. On the second question about where the activity goes, history is informative. It is most cost-effective to deploy spectrum on locations where carriers already have existing infrastructure—connectivity, power, and basic infrastructure to add spectrum bands. So initially, the vast majority of activity will be on sites where carriers are already located. As it gets built out and spectrum begins to be used, the next phase is densification, which will also include more sites. New or upcoming tower companies generally serve areas outside the core markets where the large public tower companies own assets—locations such as new housing developments and suburban sprawl. Those companies build towers in those locations to meet that need. But the majority of early and medium-term activity will be on existing sites.

David Barden, Analyst, Bank of America

Great. Thanks Jay, I appreciate it.

Jay Brown, Chief Executive Officer

Operator we will take one more question.

Operator, Operator

Our last question will come from Brandon Nispel with KeyBanc Capital Markets.

Brandon Nispel, Analyst, KeyBanc Capital Markets

Alright, great. I wanted to go back to a couple of these questions on the cash component and the agreement with Verizon. Historically speaking, how long is the contracted committed new leasing portion of the contract lasted when you signed these agreements previously? How does it trend over time? And can you help us think about the value you ascribed to the usage fee relative to the term extension? That would be great. Then second question around T-Mobile churn, the disclosures are super helpful. Can you provide what the churn was this quarter and then out of the million or so of collocation and other Sprint sites that you have, what would be a good number as you look out over time for you to retain? Thanks.

Jay Brown, Chief Executive Officer

On the first question, Brandon, I am going to be cautious. We don't get into more specific contractual economics publicly. There is a component of the Verizon agreement that provides pricing certainty for them and a commitment on activity for upgrades to existing sites as they deploy C-band over the next several years, along with the 10-year lease extensions. We negotiated pricing and economics with the sites' economics and returns in mind, but it is too specific to get into the details publicly. On the second part about Sprint churn in the quarter, it was negligible. Longer term, it is early. As we laid out in the schedule, our first meaningful amount of churn isn't until 2023. After that, the annual amounts are under $20 million per year out to 2028, which includes the bulk of the exposure. We are a long way from needing to have that conversation and it is too early to predict precise outcomes. Big picture, I think T-Mobile's investment in 5G will far exceed any synergies they achieve from consolidation. When we have a better view, based on contract or activity, we will update you and provide more forecast detail.

Brandon Nispel, Analyst, KeyBanc Capital Markets

Got it. Thanks for the question.

Daniel Schlanger, Chief Financial Officer

You bet.

Jay Brown, Chief Executive Officer

I appreciate everybody joining this morning, and I just want to end the call by thanking our team who has done a tremendous job delivering for our customers over the last year and navigating through COVID. They continue to perform exceptionally well. So to the team, thanks for listening this morning; I really appreciate all the work you are doing for customers and for shareholders. And thanks, everyone, for joining the call this morning. We look forward to catching up next quarter.

Operator, Operator

Thank you very much. And that does conclude our conference for today. I would like to thank everyone for your participation, and you may now disconnect.