American Tower Corporation (AMT - Free Report) is set to acquire transmission towers from Telkom Kenya. The move comes as part of American Tower’s expansion plans and in fact, the Kenya market will represent the company’s fifth in Africa and the 17th globally.
Specifically, up to 723 transmission towers will be purchased for an undisclosed amount, per the Reuters report. Notably, Telkom Kenya is the third biggest telecom company, in term of user count, in Kenya. It is 60% owned by London-based Helios Investment Partners and 40% by the Government of Kenya.
This transaction, which is likely to completed in the second half of 2018, will help Telkom Kenya unleash capital from the sellout, which can be invested in its internet network and enhance service delivery. On the other hand, the move will enable American Tower to capitalize on the expansion of mobile broadband in Kenya and fetch long-term gains.
Notably, there is a rising trend of telecom companies to shrug off the tower infrastructure to wireless infrastructure companies like American Tower, Crown Castle International Corp. (CCI - Free Report) and SBA Communications Corp. (SBAC - Free Report) . This is because it helps telecom companies to avoid huge outlay of money in maintaining the expensive infrastructure and rather channelize resources on service delivery.
And this growing trend is offering ample scope to these infrastructure REITs to prosper. In fact, wireless services are advancing rapidly in terms of additional features and capabilities. Much of the infrastructure and upgrades require effective site management of towers and equipment. Moreover, with the advent of new technologies, especially 5G and Internet of Things (IoT), companies like American Tower and Crown Castle International have higher chances of growth.
However, consolidation in the wireless industry might reduce demand for cell-tower deployments. In fact, take the example of the recent merger news of T-Mobile US Inc. (TMUS - Free Report) and Sprint Corp. (S - Free Report) . If such a deal materializes, then it can be a concern for the tower operators. This is because T-Mobile US and Sprint are being facilitated by the same wireless tower operators to install their cellular networks. However, a merger of these two will result in elimination of many overlapping towers and consequently, tower operators will lose on lease rentals.
Nevertheless, American Tower currently continues to benefit from increased investment of wireless carriers in 4G LTE and 5G networks. Its tower buyouts in emerging markets and long-term tower leases with major wireless carriers lend it a competitive edge over rivals.
Nevertheless, the company has a substantially leveraged balance sheet. Further, high customer concentration is likely to affect the company’s top line. Additionally, the company has been affected by change in rate of foreign currencies, stiff competition and integration risks. Additionally, flaring up operating expenses remain another challenge for American Tower.
American Tower currently carries a Zacks Rank #3 (Hold). Moreover, shares of company have gained 7.6% in the past year against 2.4% decline of its industry. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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