American Tower Corp. (AMT), a leading U.S. based wireless tower operator is quickly expanding its business operations in various emerging markets. Recently, the company acquired XCEL Telecom Pvt Ltd, a major wireless tower operator in India.
XCEL own 1,660 towers and has another 70 towers in various stages of development. The acquisition increases the total number of American Tower controlled wireless tower sites to over 26,000.
We see this strategic move having an incremental positive effect on both the top-line and bottom line. After China, India is the second-largest growth market for wireless services where the expected subscriber base would be 737 million by 2012. This provides a significant revenue opportunity for American Tower. At the same time, operations in India will be low cost for the company further boosting its bottom-line.
Previous to this acquisition, American Tower had entered a build-to-suit agreement with a Tier-1 wireless service provider in India to construct 200 tower sites in order to expand its geographical reach. The company controlled more than 2,700 wireless towers in Mexico and 1,000 wireless towers in Brazil. Approximately 13% of the company’s yearly revenue is now derived from international markets, which will further increase after the XCEL acquisition.
We believe in the near-term overall performance of American Tower will be driven by substantial demand for tower space to facilitate high-speed wireless data services and mobile video, along with emerging 3G/4G technologies. The company maintains one of the strongest EBITDA margins in the industry. EBITDA margin for the most recent quarter was 69%, well above its peers Crown Castle International (CCI) and SBA Communications Corp (SBAC).
American Tower enjoys stable operating costs. With the tower industry moving forward, operating cash flow is likely to accelerate. Management guided that its operating cash flow is likely to increase 11% in fiscal 2009.
Our long-term views regarding the wireless tower industry remain bullish and we thus maintain our Buy recommendation for American Tower.
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