How the Big 3 Tower Companies Get Paid

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There still is a lot of chatter about high-yield growth strategies for tower companies (see, Crown’s $1B Investor Storms the Castle). The Big 3 U.S. tower companies – American Tower (NYSE: AMT), Crown Castle (NYSE: CCI) and SBA Communications (NasdaqGS: SBAC) – each have their own approaches to the market. It is interesting to see how they currently derive their revenues.

AMT follows a tower-only strategy. The company is the largest independent tower company in the world with nearly 178,000 towers in 19 countries.

In the U.S., AMT owns and operates nearly 41,000 towers or just 23 percent of its global base. Yet the U.S. towers generated $4.2 billion or 56 percent of $7.5 billion total FY2019 leasing revenue. The Tier 1 mobile network operators – AT&T Mobility, T-Mobile, Sprint, and Verizon Wireless – together accounted for 51 percent of AMT’s 2019 leasing revenues.

The lion’s share of AMT’s towers, approximately 137,000 sites or 77 percent of the total, are in international markets, mainly Latin America, Africa, and India which alone accounts for almost 75,000 towers. International leasing revenues in FY2019 reached $3.3 billion or 44 percent of the total. Continue reading

Lower international lease revenues are due to lower tower occupancy rates (approx. 1.8 vs 2.2 in the U.S.) and lower lease rates.

AMT adds towers in the U.S. mainly through acquisition of existing towers and select new tower builds. At the same time, AMT is accelerating its international new build trend.

The company provided guidance of $390 million in 2020 discretionary capital expenditures to build roughly 6,500 new towers, up from the 4,495 constructed in 2019. AMT expects the 2020 new tower build plan to add about $4 million to its monthly lease revenue run rate.

By contrast, CCI has adopted a U.S.-only tower and fiber/small cell combo strategy that management believes best positions the company for escalating mobile data demand.

CCI’s base of 40,061 U.S. towers generated $3.4 billion or two-thirds of the company’s $5.1 billion site leasing revenues in 2019. 

The company’s tower business is well-situated. Its top customers are the Tier 1 MNOs that accounted for 75 percent of CCI’s 2019 tower leasing total. Moreover, 71 percent of its towers are in the Top 100 U.S. Basic Trading Areas.

CCI’s fiber/small cell business contributed $1.7 billion or the one-third balance of the 2019 leasing revenue. The company is betting heavily on the growth of this segment to balance its tower business.

CCI has invested 65-70 percent of its total annual capex in the fiber/small cells segment in each of the past three years. CCI’s total capex of $2 billion in 2019, included $1.4 billion allocated to fiber and small cells bringing its installed base to approximately 80,000 fiber route miles and 45,000 small cells.

Expect further expansion in 2020 with fiber/small cell capex estimated in $1.2-1.5 billion range.

SBAC is following a similar strategic growth model as AMT albeit on a smaller scale. At year-end 2019, SBAC owned 32,403 towers split roughly 50-50 between the U.S. and international markets, primarily in Brazil and South Africa. The company indicates an average of 1.8 tenants per tower across its total base.

There is a big disparity, however. Even though its U.S. and international markets each have roughly 16,000 towers, the U.S. operations generated 80 percent of SBAC’s 2019 site leasing revenues. 

Again, the lower international returns are attributable to a lower-than-average occupancy rates and lower lease rates in these markets.

International sites are still attractive, nonetheless. Building new towers in Latin America or Africa tends to be 30-50 percent less expensive compared to the U.S. market when factoring in permitting, land, materials, and labor.

SBAC provided guidance of $280 million in 2020 discretionary capex for acquisition and construction of new sites across all markets.

In the end, no one strategy fits all. Each company already is successful and expects to grow as wireless demand increases in their respective markets.

By John Celentano, Inside Towers Business Editor

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