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A Fantastic Business Model in Telecom

Wireless-tower companies such as Crown Castle, American Tower, and SBA have dug themselves economic moats through high customer switching costs, but carrier consolidation is a risk.

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Michael Hodel: The wireless-tower industry presents investors with the opportunity to buy into a fantastic business model. Wireless towers, the structures that you see around your neighborhood, hold the equipment that wireless carriers used to provide service to their customers.

What makes the business model so great is that wireless carriers typically sign very long-term contracts with wireless-tower owners--typically 10 years or more. Those contracts call for annual rent increases that drive nice, steady cash flow for the wireless-tower companies.

Michael Hodel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.