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American Tower to Buy New Towers

AMT CCI

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American Tower Corp.(AMT - Analyst Report) recently announced its plan to purchase 2,500 towers from Pegaso PCS, the Mexican arm of Telefónica for $500 million. The deal is expected to be completed by the end of fiscal 2011, subject to regulatory approvals.

The mobile sector in Mexico remains one of the main growth drivers for the telecom industry and grew at approximately 10% annually, achieving more than 85% penetration by mid 2011. Broadband is the other principal driver in Mexico’s telecommunications market. Both cable modem and ADSL continued to enjoy strong subscriber growth in 2011 with a combined average growth rate of over 20%.

Increased usage of smartphones and tablets has led to higher demand for data consumptions. Moreover, increased deployment of 3G networks in Mexico and other Latin American countries will create more demand for tower leasing in those regions, in our view.

Currently, American Tower operates 20,935 wireless towers in the U.S. and 18,261 wireless towers outside the U.S. The acquisition of an additional 2,500 towers in Mexico will further bolster the company’s international presence. According to management, the acquisitions of these towers will nearly double American Tower’s Mexican presence.

AmericanTower is gradually expanding its business operations in various emerging markets. Besides Brazil and Mexico, American Tower has taken major initiatives to expand its operations in India. This will likely generate sustainable business for the company over the long term. After China, India is the second largest growth market for wireless services, where the subscriber base is expected to be nearly 800 million by 2012.

Furthermore, the company is also expanding in the Latin American markets of Chile, Peru and Colombia. Recently, American Tower has also made forays into the South African market. Moreover, during the recently concluded quarter, international operations of American Tower has contributed nearly 29% of the total tower revenue with 80% leasing growth potential outside the U.S.

However, stiff competition from Crown Castle International Corp. (CCI - Analyst Report) coupled with higher operating expenses and huge debt may act as headwinds for the stock going forward.

We, thus, maintain our long-term Neutral recommendation on American Tower. Currently, it has a short-term Zacks #3 Rank (Hold rating).

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