BOSTON (TheStreet) -- American Tower (AMT), Crown Castle International (CCI), SBA Communications (SBAC) and other U.S. wireless-telecommunications tower companies may extend gains as infrastructure spending rebounds to satisfy demand from users of smartphones including Apple's iPhone and Research in Motion's BlackBerry.American Tower has risen 12% in the past three months. Crown Castle International is up 8.3%, and SBA Communications has climbed 10%. (All have soared more than 40% over the past year.) Meanwhile, the benchmark S&P 500 has advanced 1.8% in three months, and technology-stock bellwethers Microsoft and Google have fallen 6.5% and 1.5%, respectively. Shares of the tower companies started their ascent in late July after LightSquared, a planned $7 billion wireless broadband network designed to manage 4G services, was unveiled. A total of 40,000 base stations will cover 92% of the U.S. population upon completion in 2014. An improving economy is expected by analysts to spur growth in infrastructure spending. Sprint Nextel ( S), Verizon ( VZ) and AT&T ( T) are upgrading existing services and adding greater capacity to handle new subscribers and increased demands of smartphone services, which are video- and data-heavy. Global infrastructure expenditures may rise 6.7% to $40.3 billion next year, according to Jagdish Rebello, an analyst at iSuppli, a technology market research firm. That's as spending will dip 2.3% this year, less than half that of 2009, according to iSuppli. "Starting in 2011, wireless carriers in industrialized countries will start to deploy 4G in order to attain faster speeds and to unclog the heavy data traffic generated by the exploding use of smartphones," Rebello says. Smartphone sales jumped 64% in the second quarter, putting the devices on pace to comprise half the North American mobile-phone market by 2013, analysts predict. That means more telecom gear will need to be added to existing towers as well as the need for new ones in an already tight real-estate market for such structures. The difficulty in finding space for new towers, particularly in North America where there are about 250,000 structures now, is keeping new competitors at bay. Rocketing shares have led to overvaluation, which is concerning some analysts. American Tower's price-to-earnings ratio is a whopping 60, about four times that of companies in the S&P 500. Still, the industry's growth potential and huge cash flows are attracting investors. American Tower reported better-than-expected second-quarter earnings despite a soft patch in the economy. Revenue increased 11% to $470 million, while operating income rose 16 percent to $367.6 million. And recurring free cash flow -- in this case, money generated by existing communication towers -- jumped 23.7% to $236.4 million, giving the company $384 million in cash at the end of the quarter.
Recurring cash flow is one of the sweetest spots for this industry. Once a company gets a tower in place, future costs are limited. But its owner can steadily raise rates on existing customers as well as gain more revenue from new customers, further boosting sustainable cash flow. And that sort of cash allows for acquisitions, whether of others' towers, access to geographic markets or whole companies, providing even more growth prospects, especially in the relatively untapped, fast-growing markets in Asia and Latin America.
-- Written by Frank Byrt in Boston.
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