In a raising economy, property is the key component to grow your wealth. In today’s digital world, the prized property is no longer the Empire State Building or Trump Tower. The hidden kings of property today are the Cell Towers, which force cell phone operators to lease digital relay stations to widen their coverage across the world.
The key players are America Tower Corp (AMT), Crown Castle International (CCI) and SBA Communications Corp (SBAC), which has a combined $123.5 billion market capitalization. Among these three players, they control over 80% of the macro cell towers in the United States. AMT and SBA are also international players while CCI focus solely on the US.
Macro cell towers have the advantage of focusing on mobile data and they got their big breaks when cell phone operators decide to ditch their towers in 2000s to focus on expanding cellular coverage. These third-party cell towers service multiple cell phone operators such as Sprint (S), AT&T (T), Verizon (VZ) and T-Mobile (TMUS) in a single tower.
Strengths – Supply Constraint and Multiple Revenue Sources
US zoning restrictions place a strict limit to the number of new cell towers that can appear on the landscape. City councils don’t want ugly cell towers to appear on their residence areas and this restriction place a lid on supply. As the US gets more connected, it would require more macro cell tower, which provides a balance between capacity and coverage.
Besides the four major operators, smaller regional and local cell phone operators will also need to lease space on the macro cell towers. Each new client adds incremental cost and adds significant amount of revenue to the cell tower operator. As US consumers start to feel more confident of their future, they are boosting their data consumption by 42%, which is raising the revenue of both the cell phone and cell tower operators. US consumers are comparing consumer loans to purchase big ticket items, which would help boost device purchase and in return increase consumption further.
Weakness – Big Cost Cutting Targets
Cell phone operators spend 20% of their cost on the cell tower leases, which makes them a prime target for top management. While they can’t negotiate on price, they can merge to cut down on overlapping cell tower costs. Therefore, cell phone operators suffer whenever there is any news of a merger, which is the case today when Sprint and T-Mobile is expected to announce a merger in October 2017.
All three major macro cell tower operators experience significant drops in the few days as a result. AMT dropped 7.4% from a peak of $148 on 31 August 2017 to $137 today. CCI dropped 7.4% from a peak of $108 on 01 September 2017 to $100 today. SBAC dropped by 7.2% from a peak of $153 on 31 August 2017 to $142 today. Of course, if the merger were to fail, we can expect a swift recovery back to its previous peak.
More Growth Ahead
As Internet of Things enters our life through wireless sensors, autonomous vehicles and other applications, Ericsson expects worldwide total mobile data traffic to increase at a compounded annual rate of 42% from 8.8 EB in 2016 to 71EB in 2022. This means that over the next 5 years, there will be huge potential for these cell phone operators and cell phone towers. This is worth a look for your long-term investment portfolio.