Telecom Towers Have Profit Towers

It?s not difficult to figure out why sales of smartphones have taken off nationwide. After all, the average price of one is $155, more than 30 percent lower than last year and today?s models let you talk, e-mail and surf the Internet quickly. But making money off those hot handhelds can be much trickier than just texting your best friend about last night.

Some savvy professionals are ignoring the phone makers and service providers entirely and focusing on the wireless tower operators, the firms that build and maintain the towers that invisibly bounce all those calls, photos and millions of other bits of data to the right place.

Not surprisingly, as sales of the smartphones continue to climb, analysts predict demand for the data bandwidth that makes all those Internet features possible will rise, too. The tower operators lease space on their networks to carriers like Sprint Nextel, AT&T, T-Mobile and Verizon. But unlike the carriers, the tower companies don?t have to worry? about attracting and retaining fickle consumers through price wars that cut into profits. “It?s one of our favorite areas right now,” says Chris Larsen, an analyst at investment bank Piper Jaffray.

Of the three publicly traded tower operators, the blue chip is American Tower, says Larsen, with nearly $1.6 billion in annual revenue and 26,000 towers worldwide. It has the lightest debt load of the three and the biggest international footprint, with towers in Brazil, India and Mexico that contribute about 15 percent of revenue. That could grow dramatically as the wireless markets in those areas develop, Larsen says.

The other two tower operators, Crown Castle International and SBA Communications, refinanced their debt late last year. Thanks to the lending crunch, that meant getting stuck with higher interest rates. But both companies have increased their free cash flow considerably over the past year and have the potential for rapid growth in market share as the economy turns around, says Doug Wilson, an analyst at Cohen & Steers. And he?s not fazed by the fact that both stocks are up more than 50 percent this year; according to Wilson, they?re still undervalued.

Source 2009 Copyright The New York Times News Syndicate