Tom Bartlett
President and Chief Executive Officer at American Tower
Thanks, Igor. Good morning, everyone. Consistent with our prior two, three calls, my comments today will center on the key trends driving our business now and how we think the technological landscape will develop in the future. I'll touch on how we are positioned to benefit as 5G deployments accelerate and cloud native applications in the edge evolve, particularly in the United States. Additionally, I'll spend some time discussing our European markets, where we now have a scaled presence and are poised to create further value as technology evolves there. And then briefly cover what we are seeing in our earlier stage international markets. Finally, I'll outline some of the progress we've made in some of those same emerging markets on the platform expansion side, particularly with respect to our investments in sustainability and renewable energy, as we continue to lead the industry into a greener future.
At a high level, much of my commentary today will sound familiar to those of you who have listened in on prior technology focus calls and we view that as a positive. Technology is evolving and advancing right in line with our expectations. And the long-term secular trends that have driven and continue to drive our business remains strong. There are also new developments in the marketplace around the overall digital ecosystem that we are excited about and our tenants continue to power ahead with their network augmentation and expansion activities. Taken together, this is a backdrop that we expect will lead to sustained attractive growth for us over the long term.
Central to this belief is the view that our core global macro tower business will be the foundation of our success and the main driver of our cash flows for the foreseeable future as macro towers should remain the most cost and technology-efficient network deployment solution in most topographies worldwide. Our conviction in this regard has only grown stronger over time, supported by our customers' significant investments in new spectrum assets, record levels of wireless capex spending in markets like the United States, and numerous public statements by them, indicating their intention to utilize macro sites to drive aggressive deployments of 5G and other wireless technologies globally.
We continue to view mid-band spectrum, which includes the recently auctioned C band and the 2.5 gig band currently being deployed in the U.S. as the workhorse of the true 5G experience and, we believe, to be the fundamental enabler of the immersive next generation 5G applications and use cases that are set to emerge as coverage improves and advanced devices penetrate the market.
Importantly, we continue to expect the propagation characteristics of these sub-6 gig frequencies compared to traditionally deployed mobile spectrum to necessitate significant network densification over the long term, supporting a multi-year period of strong growth on our tower sites. We're seeing the leading edge of this activity in the U.S. today, generating record services revenues, driven by all of the major carriers as they accelerate the early stages of their respective 5G deployments.
Further, application volumes within our property business are strong, supported by expected wireless capex spend in the mid-$30 billion range this year. Industry experts anticipate that these elevated levels of capital spending will be sustained for a number of years, driven via mobile data usage growth CAGR of more than 25% over the next five years. Amazingly, this follows a more than 25% CAGR for the last five years and cumulative growth of approximately 7,500% over the last decade. This compelling demand backdrop, coupled with the long-term non-cancellable leases that comprise our more than $60 billion global contractual backlog, gives us confidence in our ability to drive organic tenant billings growth in the mid-single-digit range on average in the U.S. through 2027, and to drive higher growth rates abroad in that same period.
I'll touch on this further in a few minutes, but as a quick reminder, these baseline growth expectations exclude any material contributions from our various platform expansion initiatives. What they do include in our expectations for an extended period of solid growth in our European markets, where we are seeing similar network growth trends to United States with early stage 5G deployments set to accelerate in the coming years. We expect that our newly scaled European presence will allow us to drive a long-term value creation as the explosion of mobile data usage across the region continues and the need for communications infrastructure accelerates as a result.
Across Germany, Spain and France, where 5G mobile subscriptions currently make up less than 5% of the total user base, we expect mobile data usage per smartphone to grow by more than 25% annually for the next five years, similar to the United States, and consequently expect capex spend across the three markets to exceed $11 billion annually over a similar time period.
And it happened in the United States, we are already seeing this acceleration in network investment translate into elevated activity. In fact, in the third quarter, normalizing for the impacts of the Telxius deal, colocation and amendment contributions to European organic tenant billings growth rose by around 200 basis points year-over-year. Although, we expect a significant portion of initial 5G investments to be focused in urban locations across our European footprint, where roughly 80% of the population resides, we anticipate urban-oriented consumer demand to be complemented by an ongoing push from European regulators to deliver rural connectivity, which will represent another opportunity for us to drive colocation on our tower sites in those areas. We believe our balance of rural and recently expanded urban assets positions us well to capture significant market share of upcoming 5G deployments over the next decade.
Finally, in our earlier stage markets across Latin America, Asia and Africa, we continue to see solid demand for our critical infrastructure, largely driven by deployments of legacy network technologies, particularly 4G. Whether looking at Brazil, Mexico, India or Nigeria, consumers are rapidly increasing their utilization of smartphones, thereby, driving mobile data usage growth higher. In many of these regions, existing network infrastructure is insufficient to support this deluge of usage as sell-side performance is challenged with increased levels of network load.
In response to these trends, we are aggressively marketing our existing assets and continue to look for additional acquisition opportunities to bolster our footprint in these markets. But at the same time, we have significantly ramped up our new build program, given the tremendous need for entirely new infrastructure. In fact, if you take the nearly 5,900 sites we built last year and add our expected 7,000 sites at the midpoint of our outlook to be constructed this year, it would represent almost as many sites as the previous five years combined. And as we laid out a few quarters ago, we are targeting the construction of up to 40,000 to 50,000 new sites over the next five years. With day one NOI yields on these builds continuing to average above 10%, we are excited about deploying significant capital to these initiatives going forward as we capitalize on the advancement of network technology across the emerging world, while helping to connect billions of people.
In addition to the core secular growth trends driving our global tower business, we are seeing indications, particularly in more mature markets like the United States of a broad evolution within the overall wireless ecosystem. This evolution is closely intertwined with 5G and includes an increased prevalence of cloud native network solutions, more emphasis on the various permutations of the network edge and an ever-increasing intersection of the wired and wireless portions of today's converged network architecture. As networks virtualize O-RAN or Open RAN, it's expected to become a more important option to improve their economics. We are now starting to see this phenomenon with DISH in the United States and in Germany, where 1&1 has spoken extensively about its intent to utilize this technology.
By utilizing O-RAN, carriers have the potential to optimize network design and drive cost efficiencies, freeing up incremental capital to invest in densification and other network enhancements to help drive growth in site deployments in colocations.
Importantly, the role of the tower in this evolving network design is as critical as ever. While base station functionality will likely continue to evolve to be cloud native software agile, the radio equipment that is placed on the tower itself, which has always driven our revenue, will continue to reside on the tower. Importantly, we believe we can leverage our extensive global distributed real estate portfolio to not only drive continued strong growth within our core tower business, but also to take advantage of other emerging opportunities as networks virtualize. This may include multi-access edge computing and potential other edge cloud permutations of neutral host infrastructure.
At the end of the day, modern software-driven networks are becoming smarter, faster, more capable and more dynamic and we are focused on ensuring that American Tower has a meaningful role to play in this context on the infrastructure and real estate side of the equation. One of the areas we focused on is the development of the network edge or more accurately, the development of multiple layers of the network edge. With the need for lower latency expected to become more and more critical over time with applications like AR, VR, telemedicine, real-time analytics, autonomous driving, entertainment, streaming, you name it, and many others beginning to emerge, we continue to believe that this can be a meaningful opportunity for American Tower as we've done more work on the evolution of the edge. The concept of multiple edge layers has come into better focus.
Today, for example, by far the most prevalent layer is the regional metro edge owned for the most part by the large data center companies where vast amounts of data processing is then centralized. These locations provide access to cloud on ramps and are absolutely critical within today's networks. We expect this need to be the case for the foreseeable future. In fact, if the volume of data carried across networks continues to explode, we anticipate the demand for these types of large-scale facilities will only grow.
The upside of these locations is their size and capacity. The downside, which to this point hasn't been all that relevant, is the fairly significant network transit costs and latency built into reaching these central compute functions as the data often has to travel hundreds of miles to reach these destinations. These transit costs and latency considerations, which we expect to become more important in the future will necessitate more edge locations as uplink data increases from IoT use cases and demands for distributed computing advance.
The next layer beyond the metro edge, in our view, will be the aggregation edge. Here, you're likely to host C-RAN hubs in future MEC applications as network virtualization advances along with distributed data processing, AI inferencing and other compute functions, which will need reduced latency. The major hyperscalers continue to evolve their edge cloud platforms so that they can extend computing capabilities deeper into the mobile access network at the aggregation edge.
The next layer beyond this, which we term the access edge is where our existing tower sites are located today, offering an opportunity to meaningfully enhance the value of our legacy real estate. We expect to eventually see V-RAN and O-RAN network functions, AI inferencing, data caching and a variety of other next generation AR and VR cloud native ultra low latency applications residing at these locations.
Finally, we've also identified the on-premise edge, which would lie beyond even our tower sites and could eventually help support private networks, smart factories and a host of other applications located at the end user site. At the end of the day, our 20,000 foot view is that all of these edge elements will need to fit together to provide a cohesive framework for full scale 5G across the network ecosystem.
The goal for us is to figure out what the optimal linkages between the layers look like, who the key players will be and what elements of the edge we may want to own in order to further enhance the strong long-term growth we expect from our core existing business. To date, as we seek to connect the dots, we've been active with a number of trial edge compute sites at the access edge while also operating our Colo Atl metro datacenter interconnection facility in Atlanta.
Through these investments, we've built relationships with key existing and potential future customers, have learned a tremendous amount about key demand trends and have had a front-row seat for the beginning stages of the convergence of wireless and wireline networks that I alluded to earlier.
More recently, we acquired DataSite, a data center company consisting of two multi-tenant data centers in the Atlanta area and in Orlando. In addition to strengthening our existing position in Atlanta, the addition of a network dense carrier hotel facility in Orlando provides us with a strong Southeastern presence with a profile and characteristics that we believe will be critical in the early evolution of the metro edge as we evaluate its role in the mobile networks of the future. We expect these facilities, which have 18 megawatts of combined power, in addition of 4.5 megawatts of expansion capacity, to effectively complement Colo Atl and enable us to enhance our ability to develop neutral host multi operator multi cloud data centers to support the broader core to edge connectivity evolution in the United States.
We continue to believe that while a scaled application-driven edge-oriented business model is still likely several years away, it has the potential to be a sizable market opportunity with meaningful potential upside, not only in the United States, but also on a global basis. Leading global M&Os are now positioning their networks with Release 16 5G standalone core features to explore edge cloud opportunities. And with our distributed macro side presence in key markets around the world, we think we're well-positioned to potentially be a provider of choice on the edge, particularly for large multinational M&Os and other categories of customers who may be looking for a multi-market solution.
Switching gears a bit, while we believe edge compute will eventually also be relevant in emerging markets, it is unlikely to happen in the immediate future. Consequently, we have focused our platform expansion efforts across our developing regions and other areas, most notably on increasing the sustainability and efficiency of power provisioning in our sites. As we highlighted in our recently published 2020 Corporate Sustainability Report, we've continued to make progress toward our goal of reducing diesel-related greenhouse gas emissions by 60% by 2027 from the 2017 baseline. In 2020, we achieved an additional 8% reduction from 2019, reaching 53% of the 10-year goal. We are continuing to make solid progress in 2021 with an expectation to spend an additional $80 million towards energy-efficient solutions, primarily in lithium-ion and solar power across our Africa footprint, which will bring our cumulative spend to nearly $250 million. And as we announced earlier this week, we are furthering our commitment to combat climate change by adopting science-based targets, which we expect to help inform our future investments in sustainability.
In addition to the positive environmental benefits from these investments, we are also delivering shareholder value through AFFO per share accretion. Lithium-ion batteries provide significant energy efficiency, density and lifespan improvements over legacy solutions, and while to-date, AFFO benefits to American Tower have largely come through fuel savings, we anticipate, over time, that our yields on these investments will further expand as we are able to lengthen battery and generator replacement cycles. Having already expanded our lithium-ion powered site count from 4,500 in 2019 to 6,700 in 2020, we are targeting another 8,000 sites by the end of 2022 and recently signed a multi-million dollar bulk battery purchase agreement in Africa in support of this goal.
Importantly, we believe that energy efficiency, the use of renewables and sustainability, in our broader sense can represent an important competitive advantage for us, not only from the flow through to AFFO, but also the differentiation in service quality for our customers. We continue to view sustainability as a critical component of our company culture and we'll be highlighting our continued progress in future sustainability reports, which I encourage all of you to read, by the way.
In closing, our excitement around 5G on a global basis continues to grow. Consumers and enterprises are using more advanced devices for more things resulting in consistent elevated growth in mobile data usage, which in turn strains existing wireless networks and necessitates incremental densification and network improvement. Considerable new spectrum is being deployed, new entrants in select markets are building greenfield networks and our macro tower-oriented portfolio remains well-positioned to capture a significant portion of wireless investment activity. In addition, through our platform expansion strategy, we are focused on ensuring that the company benefits from the ongoing convergence of wireless and wireline and the associated expansion of virtualization and cloud native applications throughout the network ecosystem.
Importantly, as we optimize our core business and look for ways to further enhance our growth path in a broader digital infrastructure world, we are as committed as ever to driving profitability, sustainability and recurring growth. We are energized by the future and are excited to be in a vibrant industry that is helping to connect the world.
With that, let me turn the call over to Rod to go through our third quarter results and updated full year 2021 outlook. Rod?