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Tickers in this Article: SBAC, CCI, AMT, S, VZ, GS
Standing anywhere between a modest 50ft and stretching up to heights of 2,000ft, wireless tower operators SBA Communications (SBAC), Crown Castle International (CCI) and American Tower (AMT) have found a comfortable home in the sky. Over the past two years, stock prices for SBAC ($18.74), AMT ($29.06) and CCI ($28.78) have increased 279%, 124%, and 123% respectively. Wireless tower operators solid revenue streams along with their existence in the crucial sweet spot between service providers and content crazed consumers are clear signals for investors to continue counting towers in the sky.


Revenue Generation
Wireless tower operators derive the bulk of their revenue from renting space on their towers, using 5 year contracts that can be renewed for an additional 5 year at the option of the lessee. The contracts can have rent escalators that take effect yearly in 3%-5% increments. Cost associated with operating the towers tends to be fixed over a monthly or year period for items such as property taxes, utilities, repairs and insurance. Given the stable cost structure, additional costs are normally not incurred as tower operators add new tenants.

Driving the Growth
The Cellular Telecommunications & Internet Association estimates that there are over 200 million wireless subscribers in the US. Consumers are anxious and excited for each new reincarnation of their handheld devices, along with the prospect of being able to do everything imaginable on a PC right in the palm of their hands.

This bolsters competition among the service providers to capture the attention of consumers who are demanding the ability to send and receive more content.

An example of the demand for content can be seen in the creation of mobile virtual network operators (MVNOs) who are essentially buying wholesale minutes and repacking their services to target specific audiences. For example, ESPN has recently begun advertising to the public that they will never have to miss another sports event score with their new phone service.

In order to push more content into portable devices, wireless service provides must continue to lease more space on wireless tower sites. All of the wireless tower operators pointed to growth in revenue from renewal of existing contracts along with increases in new tenants' renting space.

If I Had to Choose One
SBA Communications is the best long term play that has several factors working in its favor. Same tower revenue growth was up 9% for the first nine months of 2005 over 3,045 for the same time period in 2004. SBAC also reported during their 3rd Quarter conference call that 76% of new leasing came from new tenants while 24% came from existing clients. SBA Communications has 7,905 tenants with an average rent raising to $1,750 per month. SBAC's primary revenue driver is its site leasing fees, which totaled $118 million for first nine months of 2005, up 11% from the previous year.

SBAC's top three clients in site leasing include Cingular, Sprint Nextel (S)and Verizon (VZ). Site development, which is the second biggest revenue driver for SBAC, lists Sprint Nextel, Cingular and Fredrick, MD-based Bechtel Corporation as its top clients. Top Institutional Holders include Goldman Sachs (GS), Barclays Global Investors and hedge fund Permit Capital. In addition, with a stock price below $20 I feel that SBAC has the most upside potential in the future as CCI and AMT approach the $30 dollar range.

Consolidation Fears

There have been fears of a pull back in wireless tower utilization, centered around the consolidation that has taken place in the wireless service provider arena by players including Cingular & AT&T and Sprint & Nextel. While the consolidation could lead to wireless service providers eliminating the use of redundant sites, the wireless operators are confident that the demand for data-rich content will force the wireless providers to buy more space in order to provide their services.


End Game
While it's easy to spot these wireless towers in your neighborhood or on the expressway, it's difficult to choose the right investments at the right time. The goal for investors is to construct a balanced portfolio that can run with the bulls and withstand a storm. The increasing demand for content and the competition among Sprint Nextel, Cingular, T-Mobile, and Verizon Wireless creates an environment where wireless tower owners SBA Communications (SBAC), Crown Castle International (CCI), and American Tower (AMT) are perfectly positioned to rule the skies and take advantage of all the best the wireless service providers have to offer.

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