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We upgrade our recommendation on Crown Castle International Corp. ( CCI - Analyst Report ) to Outperform ahead of its second-quarter 2011 financial results. Increasing deployment of 3G/4G high-speed mobile voice, data, and video technology and significant growth of mobile Internet traffic have aided Crown Castle to report robust results in the last couple of quarters. The company continues to perform well with respect to several parameters, including its core site rental revenue and gross margin, adjusted EBITDA, as well as recurring cash flow.
We believe future financial results will be driven by substantial demand for more tower space to facilitate high-speed 3G/4G wireless networks. Massive growth of mobile data-enabled devices e.g. smartphones and tablets are the examples of this trend. Our long-term view regarding wireless tower industry remains intriguing and we believe Crown Castle is well positioned to successfully capitalize on these opportunities.
Wireless services are advancing rapidly in terms of additional features and capabilities. Much of the infrastructure and upgrades require effective site management of cell towers and equipment. Crown Castlee ffectively addresses this opportunity as 95% of its quarterly revenue is currently derived from wireless service providers. The company accumulates most of its revenue from long-term (typically 5-10 year) tower leases.
It has become imperative for carriers to improve network quality, and coverage, in order to minimize customer churn. Increased wireless coverage, by using more tower space, is one of the major initiatives that carriers take to improve transmission quality. Since moving equipments from one tower to another is cumbersome, carriers normally renew these contracts upon expiration, which implies that a high percentage of Crown Castle’s revenue is recurring. Top-line growth is mainly achieved by increasing occupancy levels at the existing towers, as well as through annual price hikes of approximately 3% - 5%.
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