American Tower operates 178.8k towers, a key component of digital infrastructure, in five distinct geographical regions. The company operates towers in the United States (40.6k), India (73.6k), Latin America (40.9k), Africa (18.8k) Europe (4.8k).

In the United States, mobile network data growth rate on an annual basis ranges from 30% to 35%. Towers play a role of efficiency and solve the challenge for carriers to maintain their margins. Indeed, towers do this by reducing the cost per gigabit as fast as the gigabits are growing on carriers networks.

Historically, when the tower industry took hold, the carriers were transitioning from 2G to 3G. At this time, the carriers realized they did not need to own their own towers, pay all the operating costs, and finance the tower asset on their balance sheet. Instead, the carriers could monetize their towers and re-invest that money in their networks. Spending was thus shifted to cope with the tremendous increase in network demand. Demand was brought on by new devices, like the iPhone.

There are three primary ways that carriers can extract network efficiencies and thus cost savings. First, carriers can buy spectrum, which itself is expensive. Second, a faster and better algorithm can be built to get more bits, on each hertz of spectrum, that gets transmitted over the carrier network. Third, carriers can deploy more locations and/or communications equipment on towers.

Spectrum (i)

When carriers buy more spectrum, they need to match the panel antenna size with the optimal frequency range from the spectrum purchased (e.g., 600 MHz vs. 2.5 GHz spectrum). As incremental and different spectrum band deployments occur, the equipment that is utilizing that spectrum gets placed on towers incrementally. In this situation, American Tower benefits because it generates amendment revenue by doing this activity for carriers.

Algorithm (ii)

The continued advancement of mobile technology from 2G to 3G, 3G to 4G and ultimately 4G to 5G, becomes a more efficient way get more bits on each hertz of spectrum. Carriers then market the new technology to their customers, driving demand and introducing new devices into their network. In turn, this increases the load that the network has to carry. Shifting network traffic from an older generation to a newer generation of technology reduces the operating expenses for a carrier.

Equipment (iii)

Carriers add a new cell site or more equipment (e.g., radios and antennas) to an existing cell site. Carriers do this to enhance their signal or ensure quality of service. In this situation, American Tower signs a colocation lease with the carrier customer. Spectrum bands used specifically for the much heavier data throughput of 5G networks include mid-band and high-band. These bands will require more densification because the signals do not propagate as far. Densification means that transmission site topologies will be denser. As a result, there will be a need for more towers as well as more equipment on existing towers.

Each method, discussed above, for the carrier to generate efficiencies benefits the tower industry and thus American Tower.

American Tower’s Positioning in Digital Infrastructure

Capital expenditures for carriers in the United States, amounting to $30 billion to $35 billion a year, is also an important indicator for the tower industry. This is because a large component of the capital expenditures from carriers is for equipment purchases, which will be placed on towers.

American Tower’s 40.6k-site U.S. tower portfolio is a critical component of digital infrastructure for carriers like AT&T, Verizon and T-Mobile. Further, the company’s towers can capture a significant portion of this carrier activity during the evolution from 4G to 5G. This concept is similar to past network technology cycles such as 3G to 4G. The company’s tower assets typically have significant incremental capacity for additional tenants. Additionally, these towers are located in high-value areas, such as highway corridors and major suburbs.

American Tower is a passive digital infrastructure owner. This means that the company owns steel towers, operates the land and performs some site operations. However, the investments needed to build 5G networks resides in the active infrastructure. This active infrastructure includes radios, antennas, cables, switches, and other core network equipment, which is all purchased by the carriers.

Adam Simmons covers Towers for Dgtl Infra, including American Tower (NYSE: AMT), Crown Castle (NYSE: CCI), SBA Communications (NASDAQ: SBAC), Cellnex Telecom (BME: CLNX), Vantage Towers (ETR: VTWR), IHS Holding (NYSE: IHS), and many more. Within Towers, Adam focuses on the sub-sectors of ground-based cell towers, rooftop sites, broadcast / radio towers, and 5G. Adam has over 7 years of experience in research and writing for Towers.


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