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What's Not to Like About Wireless Towers?

The business model is fantastic, but the industry isn't risk-free, and interest rate sensitivity could hurt.

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The wireless tower industry provides access to fantastic cash flow and exposure to exploding wireless data demand. Long-term contracts and, more critically, high switching costs provide a narrow economic moat despite heavy customer concentration. At the same time, wireless carriers will need to build denser cell site grids to add data capacity, since density makes the best use of advances in wireless technology and higher-frequency spectrum, which has recently shot up in price. 

The three publicly traded wireless tower companies-- American Tower (AMT), Crown Castle (CCI), and SBA Communications (SBAC)--dominate the U.S. tower market, making each an essential partner for every carrier in the nation as capacity needs grow.

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