The mobile telecommunications world is growing very fast. The
number of cellular subscriptions worldwide more than doubled to 6
billion between 2006 and 2011, estimates the International
That's equivalent to an 87% penetration rate of the global
population with developing nations accounting for 76% of global
With such strong growth comes a heightened demand for
technology and infrastructure. American Tower (
) is well-positioned to address that market's needs.
The Boston-based firm operates cellular towers that are leased
by wireless carriers and, to a smaller extent, TV and radio
broadcast companies. It is the largest third-party tower operator
in the U.S. with annual sales of $2.4 billion and a market cap of
The international arena is one of two main areas of growth for
American Tower. It has a presence in Mexico, Brazil, Chile, Peru,
Colombia, South Africa, Ghana and India. In the first quarter,
28% of revenue came from the international rental and management
"Five years ago, they said that at some point international
could be 30% of revenue, and people thought that implied they
would stop there," said Colby Synesael, an analyst at Cowen &
Co. "They have expectations now to go beyond that long-term
target of 30% they once had. When you look at the amount of tower
acquisitions, the overwhelming majority have come from
It owns 47,000 properties globally. Since the beginning of
2011, it bought or built 11,400 sites overseas. In the latest
quarter, it built 597 sites internationally and 29 domestically.
It also acquired 800 sites in Brazil and 35 sites in the U.S.
"They've indicated there is a finite amount of markets that
make sense to them, so I would not anticipate for them to be
doubling the amount of markets they are in today," said Synesael.
"But I think there is certainly an opportunity for them to add to
their current country portfolio."
There are advantages to doing business internationally vs.
domestically. The company can use its existing back-office
structure and customer agreements to expand in existing markets.
It also typically passes through a portion of its operating
expenses, such as ground rent or fuel costs, to the tenant.
But there are risks. Currencies can fluctuate, and the
political and regulatory environment can change.
In addition, the cost of building a tower overseas is much
lower than in the U.S. In India, a tower costs $40,000 to
$60,000. In Latin America, the average cost is $125,000 to
$150,000. Compare this with a cost of $225,000 in the U.S.
While revenue per tenant per tower in the U.S. is about $2,000
per month, international rents are at a discount, but not at the
same magnitude. This drives higher returns relative to the U.S.
business, writes analyst Ben Lowe of Stifel Nicolaus in his
In the most recent quarter, international gross margins were
at 88% vs. domestic at 81%. The company starts getting
incremental returns when leasing the space to more than one
tenant, usually three.
Eighty percent of American Tower's revenue comes from 15
tenants. Domestically, the big four areAT&T (
),Sprint Nextel (
) and T-Mobile. Internationally, tenants include
), Nextel International, Clearwire and MTN.
The second area of growth for American Tower is amendment
revenue from increases to existing leases as well as new tower
That's driven by the deployment of 4G networks in the U.S.
"The amendment activity is effectively where you already have
a customer on a tower and that customer is simply adding
additional equipment to support a new generation of technology,"
Whenever a customer adds additional capacity to a tower, they
have to negotiate a new price with American Tower.
"You can imagine with AT&T and Verizon building out their
4G network, that's been a really strong area of growth for
American Tower, as well as for all the tower providers," he
Typically, companies sign non-cancelable leases for five to 10
years with five-year renewal periods. At the end of 2011,
American Tower had $18.5 billion in such contracted revenue.
Another interesting area is the purchase of land on which the
towers stand. Historically, land was leased from private
landlords such as farmers. But this entails risk as landlords can
demand higher prices for their land.
"The tower providers have realized in the last two or three
years that there is value in actually owning the land," noted
Synesael. "So they've been spending more capital in actually
purchasing the underlying land that their towers operate on."
The company currently owns or has capital lease agreements on
28% of the land under its towers in the U.S.
As of January, American Tower became a real estate investment
trust, or REIT, and issued its first regular dividend of $83
million in March.
"It's ultimately just a tax-efficiency move," said Lowe. "To
avoid paying corporate taxes in the U.S., you convert to REIT to
To maintain the REIT status, the company has to pay out 90% of
its taxable income. However, due to past-years' carry-overs of
net operating losses, the dividend yield has been depressed.
Once the company works through those losses, dividend yields
What makes American Tower different than its two main
competitors,Crown Castle International (CCI) andSBA
Communications (SBAC), is that it has the less debt relative to
its earnings, giving it room for more acquisitions.
This year, it plans to spend up to $650 million acquiring
2,300 sites. Another $600 million of capital expenditures are
going toward the construction of 2,200 or so new towers.