US Cell Tower Primer: The Landlords To Your Data 

EXECUTIVE SUMMARY

• The U.S. tower space dominated by 3 largest players (in order) – AMT, CCI and SBAC. Consolidation among them would meaningfully shift market share in favor of the acquirer, likely resulting in anti-trust obstacles and reducing its likelihood.
• Tower economics are attractive due to high operating leverage. Fixed cost structure results in high operating leverage – incremental tenant revenue flows almost fully to operating income. This is supportive of strong EBITDA margins of 61%-68% across U.S. tower companies.
• Multi-year customer contracts provide high revenue visibility and support stability of cash flows. Recurring cash flows are underpinned by long-term contracted lease revenues with annual escalators. CPI-linked escalators and expense pass-throughs in international market contracts help maintain stable cash flows.
• Positive structural trends domestically and internationally. The new 5G technology cycle and deployment of C-band spectrum are pushing carriers to invest in denser networks, increasing the demand for more cell sites. Less developed international markets provide longer runway for revenue growth.
• Carrier consolidation events result in concentrated churn events. Given the oligopolistic nature of the MNO industry, consolidation among carriers leads to occasional high churn events above the historical rate of 2%. As of 2Q22, churn has increased to 5% at AMT, 3.7% at SBAC, and 2.4% at CCI, above the ~2% historical norm.
• Growth via M&A in international markets and adjacent industry verticals. International tower expansion has been championed by AMT and SBAC. AMT is positioning to build data centers at the edge with the CoreSite acquisition. CCI has entered the fiber and small cell market through acquisitions and growth capex. Edge and small cell bets will likely pay-off in the long-term, but patience is required.