First slide contents

Overview
There are close to 205000 telecom towers in USA at present and are estimated to increase at a CAGR of 3% over next 4-5 years. The decline in
growth of voice usage along with industry developments and regulations in USA have raised concerns about the growth of independent tower
businesses, thereby affecting their cash flows and debt repayments. However, exploding data traffic is leading to in-building solutions and smaller
cell sites, and is expected to drive growth of the Indian tower industry in the future.

Approximately $30 billion in annual CAPEX spending by U.S. service providers over the last few years

Continued deployment of voice and initial data networks

Spectrum auctions and new market entrants

Demand from new technology overlays

Secure real estate assets

Strong recurring cash flow characteristics

Long-term, non-cancellable lease revenues

Embedded contractual escalators

High incremental cash flow margins

Low maintenance CAPEX

Financially strong tenant base

There is a total of 205,000 cell phone towers in the United States. Most of them are owned by Crown Castle International (CCI), American Tower
(AMT), and SBA Communications (SBAC). Carriers such as AT&T and Verizon are selling their towers to Crown Castle and American Towers.
However, with less competition, they might end up paying higher prices for tower space.

The focus of the industry is to manage contracts efficiently. The pressure to deploy services to new markets has made operators focus on the
wireless infrastructure. Safety concerns have led operators to pay closer attention to the qualifications of the vendor

trends

Single use facilities

Different aspects

TowerCos have sought to drive revenue growth by increasing tenancy ratios on their portfolio of sites. Ongoing demand from operators for greater network coverage and, to a
lesser extent, network capacity led to a sustained period of rising tenancy ratios for TowerCos. This trend is now losing steam, as operators in developed markets, especially in
Europe, are not undertaking significant coverage expansion and are partially utilising rooftops and to a lesser extent small cells to provide network capacity. However, there
are other sources of revenues from tenants deploying new equipment on existing sites and densifying networks in order to improve the quality of data services. At the same
time, the investment case is complicated by a number of ongoing trends which pose a risk to future revenues.

TowerCos play an important role in enabling the telecoms industry to make most efficient use of its passive infrastructure, and therefore in
reducing costs for Network Operators and in improving service coverage

There are significant fixed costs involved in constructing and maintaining towers. However the costs to industry can be significantly reduced if
more efficient use is made of towers: Increasing the utilisation rate of each tower ensures that the unit costs for Network Operators can be
much lower. It makes it cost effective to improve service coverage, including to areas where it is currently unprofitable for Network Operators
to invest in additional infrastructure such as in rural areas. Furthermore, by reducing the pace at which new towers need to be constructed it
enables the faster rollout of wireless broadband network expansion and upgrade.

Over recent years the TowerCo sector has seen an expansion in the share of the towers that they manage both globally and within the EU.
This has principally been driven by MNOs facing a need to realise cash for investment in rolling out 4G or for market expansion. MNOs and
other Network Operators have also been driven to sell off towers by

Trends

Attractive Business Model Driving Strong Free Cash Flow The tower business model includes a high probability in breaking even
with one tenant, a low churn rate

Network Quality Improvements Carriers are intensely focused on improving both the capacity and coverage of their networks. The
amount of coverage a subscriber receives is the number one factor when deciding to switch and/or choose a carrier. Carriers are
currently adding antennas to existing towers and seeking entirely new towers

A key factor enabling higher tenancy for a telecom tower company is growth in its tower portfolio. Tower companies with larger
tower portfolios have been able to command higher tenancy on account of following factors:

a. Telcos prefer to deal with large tower companies that offer wider coverage. This helps the telcos avoid dealing with multiple
tower companies (which makes managing network rollout easier), and also lowers logistics costs.

b. Telcos can benefit from volume discounts that come with placing orders for a number of towers with large tower companies.

c. Each incremental tenancy on a given tower lowers the rental for all the tenants. Thus large

tower companies with an already high tenancy are more likely to attract more tenants.

risks
Risk to the industry
one of the disruptive forces this past year has been T-Mobile and their new phone plans. They have been messing with the
current wireless near-duopoly held by AT&T and Verizon by changing the way wireless consumer contracts are structured. Since
being acquired by Softbank, Sprint has also been shaking things up by heavily investing in their network and beginning to lower
prices, as well. The industry is beginning to compete more on price than it has up to this point, and this is likely to continue. One
of the reasons many believe that the price war is just beginning is that Softbank (the Japanese telecommunications company that
acquired Spring in 2012) reached a strong position in its home market of Japan by competing and growing market share based on
price.
These dynamics could be good or bad for wireless tower operators. They are good in that there seems to be a steady amount of
capital expenditures by major wireless tower operators on their networks, which gives SBAC more incremental income on their
currently held towers. These changes are bad in that a price war would lead to carriers being more demanding on costs all the
way through the supply chain.
Carrier ConsolidationResulting in consolidation of tower leases
Possible CAPEX Decrease
Pressure on Rents
Higher Interest Rates
Alternative Tower Structures
Increased FCC, FAA and Local Zoning Regulations
Cable, Satellite, and Newer Technologies:
Satellite Radio Technology
WiMAXThis is a standards-based wireless technology that provides high-throughput broadband

About the company

Company overview (from the case)
EBITDA margin ( from the case)
AFFO (calculated not to be inserted now)
Valuation revenue growth (not to be inserted now)
80% penetration and low growth

Driven by the spike in mobile data use, by 2025 tower

sites will grow at a CAGR of 3.9%