Top 3 Cell Tower Companies in the U.S.

By Markets

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Telecommunication companies like Verizon and AT&T use thousands of cellphone towers across the U.S. to deliver cellular connections. But the companies that own, lease, and operate these towersare largely unknown to many people. For investors looking for stocks in the obscure -- but potentially lucrative -- cellphone tower market, the largest players are SBA Communications (NASDAQ: SBAC), Crown Castle(NYSE: CCI), and American Tower Corporation (NYSE: AMT).

Here's a brief rundown of each company:

Company Market Cap 2015 Annual Revenue Tower Sites (owned, leased, or managed)
American Tower $47.95 billion $4.77 billion 144,000
Crown Castle $30.93 billion $3.66 billion 40,000
SBA Communications $13.86 billion $1.63 billion 30,000

Data sources: Yahoo! Finance and company filings.

American Tower's dominant position

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Like some other cell phone tower companies, American Tower is a real estate investment trust (REIT). This can be a bit of a tricky thing to understand, but essentially, it means the company makes money from its real estate holdings (in this case, tower properties). These companies have to pay out 90% of their profits as dividends to their investors, and in return, the company receives some tax benefits.Most tower companies lease or rent out their towers to cellphone carriers with long-term contracts (think 10 years).

American Tower has a large U.S. tower presence, but it also has a massive international footprint that accounts for more than half of all its 144,000 sites. Part of the company's most recent growth came from its purchase of a 51% ownership stake in Viom Networks in India, which added about 42,000 towers to its holdings.

The company's recent stake in India is an attempt to tap into the country's growth in data usage. Cisco predicts that India's mobile data usage will grow at a compound annual growth rate of 63% through 2020. All of that growth means new towers need to be built, and existing towers will need antenna upgrades, all of which adds to American Towers' bottom line.

Even the U.S. CAGR for mobile data traffic will be 42% through 2020, which should bring new lease agreements for small cell nodes (antennas typically located in high-density areas like cities that allow for better connectivity and improved coverage) and large tower antenna upgrades across the country.

The company's trailing annual dividend yield is currently 1.78%, and revenues in Q2 2016 were up 22% year over year to $1.4 billion. Consolidated adjusted funds from operations (AFFOS) were up 10.3% to $552 million.

Crown Castle's small-cell opportunity

Like American Tower, Crown Castle, is structured as a REIT. Crown has about 40,000 towers, making it the second-largest cellphone tower company in the U.S. Crown also has more than 15,000 small cell nodes and about 16,000 miles of fiber cable that it rents out to customers.

In Q2 2016, the company brought in 88% of its site rental revenue from its towers and 12% from its small cells. Crown Castle's CEO Jay Brown said on the Q2 earnings call that there's plenty of new growth opportunities for the company stemming from 5G technology.

Further out on the horizon, we expect the deployment of 5G will drive growth on both our tower and small cell assets, as the carriers look to densify their networks to provide the coverage, capacity and speed needed to support mobile video, the Internet of Things, fixed wireless broadband, and other developing use cases.

Crown Castle has acquired several companies over the past few years -- including NextG, Sunesys, and TDC -- in order to strengthen its small cell position; the company views this segment as an area that will add to its bottom line.

"And our investment in small cells represents a significant growth opportunity to further enhance our long-term dividend growth," Brown said on the call.

The company's trailing annual dividend yield is 3.78%,and revenues in Q2 2016 were up 7% year over year to $962 million. Consolidated AFFOS were up 14.6% to $392 million.

SBA Communications' growing potential

The third-largest U.S. tower company in the U.S. is SBA Communications. The company owns about 25,000 tower sites and manages an additional 5,000 across North, Central, and South America. That's a far cry from American and Crown Castle, but it still makes it a major player in the cell tower space.

Earlier this month, the company announced that its board has approved the decision to be structured as a REIT and will proceed with the process before the end of the year. The company's CEO, Jeffrey Stoops, said in a press release:

We expect our conversion to a REIT to have little to no effect on our operations, as we have been operating in compliance with REIT rules since prior to the beginning of 2016.

In terms of growth areas, Stoops said on the second-quarter earnings call that, "The type of work we are seeing continues to be primarily around the refarming of 2G and 3G spectrum to LTE, as well as AWS 1 and 700 MHz deployments," but that other areas like 5G technology should help spur new business as well.

The company isn't yet structured as a REIT, so there's no dividend at this point. Revenues in Q2 2016 fell by a little more than 1% year over year to $405 million.

Where these stocks go from here

American Tower appears to have the clear advantage over its competitors right now because of its large international footprint. But all of these companies could stand to benefit from capital spending that's expected to come from the big four wireless carriers next year. Small cell expansion, increased data traffic, the 5G network, and the government's new FirstNet public safety network could all bring more growth to these cellphone tower stocks in 2017.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends American Tower. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.