On Feb 29, 2016, we issued an updated research report on American Tower Corporation AMT. Recently, AmericanTowerreported strong financial numbers in the fourth quarter of 2015, with both the top and the bottom line outpacing the Zacks Consensus Estimate.
Mobile subscriber growth, over the years, has significantly boosted the wireless tower industry. Next-generation 4G LTE networks and the increased usage of smartphones and tablets are ramping up demand for tower leasing. In order to support the rising demand for LTE deployment, American Tower plans to construct nearly 2,500 sites globally in 2016.
India, EMEA and the Latin American markets together have contributed nearly 50% of the organic core revenue growth. Increased spending by Airtel, Vodafone Group Plc VOD and Telefônica Brasil S.A. VIV on 4G LTE networks has resulted in such strong organic revenue growth. Moreover, American Tower has a specific focus on India. The company recently signed a deal with Tata and its current partners in Viom, which will take its tower count to over 57,000. This transaction will not only increase the tower count, but also help build deeper ties with mobile network operators in the country, such as Airtel, Vodafone, Idea, Tata, Reliance and Aircel.
AmericanTowergenerates most of its revenues from long-term (typically 5-10 year) tower leases with major wireless carriers. In addition, the company provides on-site maintenance and servicing of antennas, amplifiers, and base station equipment. Since moving equipment from one tower to another is cumbersome, carriers normally renew these contracts upon expiration. This generates a strong long-term lease-up cycle. The revenues generated from leasing and management of such networks is remarkable and over 95% is recurring in nature.
However, customer concentration is very high for American Tower and the top four customers account for nearly 60% of its revenues. The loss of any of these customers or consolidation among these wireless carriers will have a significant material impact on the company’s top line. Moreover, the completion of the Sprint Corp. S and Japan-based SoftBank deal may create further headwinds for the company as the united entity will possibly turn to Chinese companies for network support.
Also, a large number of carriers are experimenting with alternative technologies like Voice Over WiFi (VoWiFi). The technology allows users to make and receive calls on Wi-Fi networks as they would on standard cellular networks. Such a feature is useful in areas with strong Wi-Fi but low cellular signal strength. Moreover, an increasing number of wireless carriers are now planning to use microwave technology instead of the traditional tower backhaul system to reduce dependency on towers and save rental costs. This may prove detrimental to American Tower's revenues, going ahead.
American Tower carries a Zacks Rank #3 (Hold)
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