NOVEMBER 2024

Wireless Tower Industry

More use of mobile data requires increased
investment on cellular towers globally.
INDUSTRY LANDSCAPE | TOWER INDUSTRY

Table of Contents Morningstar Equity Research

Executive Summary: Tenant investment on towers 3 Europe: Europe has redundant infrastructure, but 37 Samuel Siampaus
continues as carriers invest in wireless networks. we expect ongoing efficiencies in the next decade. Equity Analyst

Economic Moat: Efficient scale and switching 9 Africa: Most opportunity for new tower building, 42 Javier Correonero
Equity Analyst
costs provide barriers where towers are present. network development, and more users
Martin Szumski
Industry Basics: Towers are passive components 16 Latin America: We see less opportunity in most 47 Associate Equity Analyst
in networks that telecom providers build. Latin American countries than in other markets.

Outlook: A region-by-region analysis: 27 ESG Snapshot 54

Important Disclosure
United States and Canada: Without new spectrum 32 The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of
auctions and Sprint churn, growth will slow. Conduct Policy, Personal Security Trading Policy (or an equivalent of), and
Investment Research Policy. For information regarding conflicts of interest, please
visit: http://global.morningstar.com/equitydisclosures
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Executive Summary
Wireless network investment provides strong growth prospects for tower firms,
which have business models that result in high operating leverage.
EXECUTIVE SUMMARY Morningstar Equity Research | 4

Industry Map

Towers Are Critical but Largely Passive Components of the Networks That Enable Wireless Communication Tower structures are critical to mobile communications.
Wireless service providers use a collection of many towers
and other sites, such as rooftops, to deploy radios and
antennas that provide broad network coverage. Generally,
tower firms merely need to secure land, obtain any
necessary building permits, and then build the actual
structure. Originally, wireless providers undertook this
activity themselves and then sold tower portfolios to
independent tower firms.

Once a tower is built, the owner’s ongoing business

relationships are primarily only with its tenant and, if
applicable, its landlord. Most expenses fall to the tenants,
who buy the equipment deployed on the tower and secure
backhaul services to communicate between the tower,
their core networks, and often the wider internet. Power
costs are typically passed through to the tenant as well.

Source: Morningstar; Freepik.com, Wikimedia Commons. See Important Disclosures at the end of this report.
EXECUTIVE SUMMARY Morningstar Equity Research | 5

Key Industry Themes

More Mobile Data Use Requires More Tower Spending Much of the Globe Isn’t Using 4G Networks Yet Towers Have High Operating Leverage
Global Mobile Data Traffic (LHS) Traffic Growth (RHS) % of Phone Connections 4G or Better Profit Expenses Margin %
140 100 100 $90,000 90
% % %
105 67,500
60
Exabytes per month

40 45,000 45
70 50
0
0 0
Asia Eurasia Europe China Latin MENA UCAN Sub
0 0
Pacific America Saharan One Tenant Two Tenants Three
'11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 Africa Tenants

As consumers demand more and higher-resolution video In many emerging markets, much of the population has yet Tower company costs are largely fixed once a site is built,
content and adopt newer services like video calling, mobile to adopt a 4G capable smartphone, and 5G networks as existing towers require little maintenance spending. As
data consumption continues to grow rapidly, requiring remain sparse. Most of these countries are implementing a result, additional revenue on existing towers is almost all
additional network capacity. Wireless carriers can upgrade policies to bring advanced services to more residents. As profit. An increasing number of tenants with equipment on
networks in multiple ways, but all generally require more carriers in those countries continue to build 4G and 5G a tower and incremental spending by existing tenants can
equipment on existing towers or expanding the number of networks and more customers use wireless services, drive continued sales growth beyond the contractual rent
tower sites in use. New equipment can take the form of mobile data traffic should grow rapidly, with tower escalators built into most leases. This often leads to
radios and antennas that can utilize recently licensed companies the beneficiaries of continuing carrier continually expanding margins in mature markets, where
spectrum bands or that employ new technologies, such as investment. few new towers get built.
the recent migration to 5G.

Source: Ericsson; Data through June 2024, GSMA; Data as of 2023, American Tower: Sample annual economics for a US tower. See Important Disclosures at the end of this report.
EXECUTIVE SUMMARY Morningstar Equity Research | 6

Market Share and Concentration

The telecommunications industry is siloed geographically. Each country has its own regulations, participants, and tower conventions. We cover only tower firms based in the United
States and Europe, though two US firms own towers on multiple continents. Below, we’ve highlighted the market share of tower participants in the US and the five biggest countries in
Europe (measured by GDP and excluding Russia). These are the most mature regions globally and make up the bulk of profits for the US and European tower firms, respectively.

Towers in the United States Number of Towers in Europe: France, Germany, Italy, Spain, and UK
The Big Three public tower companies own about 70% of the towers in the US. Cellnex has the most European towers and broadest exposure across major countries.
Public Tower Company Carrier Privately Held Tower Firm Public Tower Company Carrier Privately Held Tower Firm
50,000 75,000

40,000 60,000

30,000 45,000

20,000 30,000

Number of Towers
Number of Towers

10,000 15,000

0 0
American Crown SBA Vertical US Diamond Harmoni Peppertree Other Cellnex Inwit American Vantage GD Totem Others
Tower Castle Comm. Bridge Cellular Comm. Towers Capital Tower Towers Towers

Source: Wireless Infrastructure Association, Wireless Estimator, company filings. Data as of Dec. 31, 2023. See Important Disclosures at the end of this report.
EXECUTIVE SUMMARY Morningstar Equity Research | 7

Industry Value Drivers

Simplified Financial Statement: American Tower 2022 Example 1) Revenue. Tenants pay to lease space on towers. Organic cash revenue growth
stems from net new tenants and equipment on existing towers, plus contractual
escalators. Inorganic growth comes from building or acquiring new towers.
Noncash, straight-line revenue can make reported revenue misleading.
2) Straight-Line Revenue and Expense. Tenants sign multiyear contracts with tower
firms that include annual escalators, but accounting conventions require revenue
and expenses to be recognized evenly over the terms of the contracts. Firms
generally reverse these amounts to reflect actual cash flows.
3) Cost of Goods Sold. Largely fixed per tower, with land being the biggest cost.
4) Depreciation and Amortization. The useful life of a tower is usually much longer
than the assumed depreciable life, which is why adjusted funds from operations
(AFFO) adds real estate D&A back to net income and then deducts maintenance
capital spending.
5) Interest Expense. Tower firms typically carry a lot of debt, making interest
expense a material factor in net income and AFFO.
6) Income Tax Expense. In the United States, tower firms qualify as real estate
investment trusts, resulting in very low income taxes.
7) Capital Expenditures. Capital spending consists mainly of the cost of building
new towers. Firms with stable portfolios typically have very low capital spending.
8) Net Acquisitions/Sales. Tower firms often buy new portfolios of towers.
9) Adjusted Funds from Operations (AFFO). This metric is cited more frequently
than net income because it is a closer representation of the economic picture than
the accounting numbers suggest (see depreciation and amortization).

Source: Morningstar; American Tower filings. See Important Disclosures at the end of this report.
EXECUTIVE SUMMARY Morningstar Equity Research | 8

Coverage List and Ratings

Morningstar covers five independent tower firms globally. These are large, multinational companies, and all have narrow moats. We currently think all are attractively valued, with the
US firms compelling for the first time in several years after significant selloffs over the past year.

Independent Tower Providers

Source: Morningstar and Pitchbook. Data as of October 8th, 2024 See Important Disclosures at the end of this report.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Economic Moat
Efficient scale and switching costs provide a barrier to competition in locations
where towers are already present.
ECONOMIC MOAT Morningstar Equity Research | 10

Summary of Moat Ratings and Sources

We award all our wireless tower coverage a narrow moat rating, significantly higher Narrow Moats Are Prevalent Among Wireless Tower Firms
than for the overall real estate sector, where only 24% of firms enjoy a moat, either Wireless Towers Real Estate All Sectors
narrow or wide. Wireless tower firms enjoy competitive advantages due to the 100
uniqueness of their assets, creating customer switching costs for phone carriers and % All wireless tower firms
limiting the economic rationale to duplicate infrastructure. Each wireless tower its are narrow moat.

unique as it serves a specific land area. We haven't granted any of the wireless tower
firms a wide moat rating, however, as land ownership and the potential for 50

technological change create some long-term uncertainty. There is only one wide-moat
company in our real estate coverage—CoStar—but it owns a proprietary data base 0
rather than properties, so its moat comes from intangible assets and switching costs. None Narrow Wide

All wireless tower firms we cover benefit from customer switching costs. Moving Switching Costs and Efficient Scale Are Wireless Towers’ Moat Sources
equipment from one tower to another is expensive and can lead to network disruptions Wireless Towers Real Estate All Sectors
that would result in customer dissatisfaction and reputational risk for mobile carriers, so
100 All wireless tower firms enjoy customer
it is generally not worth from a cost/benefit perspective. The economic rationale for % switching costs as a moat source. All
duplicating wireless tower infrastructure is also low as one tower is normally adequate but Cellnex enjoy efficient scale.

to serve a given area, leading to most wireless tower firms also enjoying efficient scale 50
advantages (all but Cellnex, which operates in some markets with redundant
infrastructure). Moats for non-tower real estate firms normally come from switching
0
costs or intangible assets for service providers like CoStar and CBRE or efficient scale for
Cost Advantage Customer Efficient Scale Intangible Network Effect
firms that own unique assets in prime locations, such as the city of Hong Kong. Switching Costs Assets

Sources: Morningstar. Data as of October 8, 2024. See Important Disclosures at the end of this report.
ECONOMIC MOAT Morningstar Equity Research | 11

Switching Costs: In Addition to the Financial Burden, Moving Equipment Risks Network Disruption

Moving Equipment Between Towers Can Be Costly and Cause Disruptions Tower firms and wireless network operators are mutually dependent. Tower firms need
In the US, removing equipment from a tower could cost up to $40,000 mobile operators to generate revenue and normally have very high revenue
concentration (there are typically only three or four major mobile operators per country).
At the same time, mobile operators need tower infrastructure, as otherwise they would
have no service to offer.

Any network disruption could lead to customer dissatisfaction and reputational damage
for a wireless carrier. This means operators must be careful when switching radio
equipment between towers. On top of this, there are also economic costs. US tower firm
Crown Castle has estimated that it would cost a carrier around $40,000 to remove
equipment from a tower in the United States. We estimate Crown Castle tenants pay
around $40,000 in yearly rent, meaning they would have to recoup a year’s worth of
payments to justify the tower switch. Tower contracts can range from 5 to 25 years,
showing that mobile operators have little incentive to relocate once they secure a
position on a certain tower.

In Europe, tower firms normally have all-or-nothing extension clauses in their contracts
with wireless carriers that eliminate the carriers’ ability to cherry-pick towers when
contract renewal is due—they have to choose the entire tower portfolio or none. We
think it is unlikely an MNO would not renew a tower contract, as this would cause a big
network disruption and result in reputational damage and customer losses. Contract
renewal terms are also for long-term periods.

Source: Wikimedia Commons, CC BY-SA 3.0 Unported License. See Important Disclosures at the end of this report.
ECONOMIC MOAT Morningstar Equity Research | 12

Efficient Scale: One Tower Is Enough To Cover a Given Area

Duplicating Towers Does Not Make Sense From an Economic Perspective As we explore in the Industry Basics section in more detail, the geographic reach a
One tower per cell often provides adequate wireless coverage. carrier can achieve from a single tower is called a cell. Normally, one tower is enough to
blanket a given area with coverage and provide adequate service. Carriers can then
augment capacity in high-traffic areas within a cell using “small cells” that often operate
at shorter heights on things like lampposts or utility poles.

If three carriers want to give service in a certain area, sharing one tower makes more
economic sense than deploying three individual towers. If each operator used its own
tower, it would either own the site and bear the costs directly or pay high enough rent
to compensate the tower owner for the lack of additional tenants. Tower sharing also
makes economic sense for the tower firm, as it will only have to buy or lease one piece
of land instead of three, resulting in higher margins. In the past, many mobile carriers
still saw tower location as a competitive advantage, but as network quality has
equalized in many countries, most carriers have decided to monetize these assets,
selling them to specialized tower operators.

Efficient scale is strong in the US, with tenants per tower (called the tenancy ratio)
generally exceeding 2.0, as tower sharing has long been the norm. Some European
markets like Italy, Spain, and the UK also enjoy efficient scale characteristics, with
tenancy ratios in the 2.0 range. However, there are inefficient tower markets such as
France, where mobile operators have historically not shared infrastructure, leading to
low tenancy ratios (around 1.2). Regulatory limitations can also be an impediment to
sharing infrastructure, such as in Germany.

Image by Santeri Viinamäki, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=60559587. See Important Disclosures at the end of this report.
ECONOMIC MOAT Morningstar Equity Research | 13

Returns on Invested Capital Aren’t Especially Strong, but Return Durability is High

We believe wireless tower firms’ returns on invested capital, or ROIC, are durable over the long term for several reasons: 1) The switching costs and efficient scale moat sources provide
negotiating leverage; 2) Mobile operators usually sign long-term contracts that can last up to 20 years; 3) Towers enjoy high operating leverage; and 4) Contracts include annual
escalators that can be fixed (around 3% in the US) or inflation-linked (Europe); 5). Ongoing maintenance expenditures are low. These factors produce long-term cash flow visibility.

Tower Firms Tend To Have a Low Cost of Capital Given Their Long-Term Cash Flow Visibility Supported by Long-Term Contracts
US tower firms enjoy higher ROICs than European peers thanks to higher tenancy ratios.
Industry Weighted Average Cost of Capital (WACC) ROIC (Historical 5-year Average) ROIC (Forecasted 5-year Average)
20

15

10

0
American Tower Corp Crown Castle (Narrow) SBA Communications Cellnex (Narrow) Inwit (Narrow)
(Narrow) (Narrow)

Source: Morningstar. See Important Disclosures at the end of this report.

ECONOMIC MOAT Morningstar Equity Research | 14

A Longer History And Higher Tenancy Ratios Dictate That US Firms Enjoy Higher ROICs Than European Peers

The earlier establishment of the “tower company” model in the US limited the Mobile operators in Europe held on to their towers longer. This created redundant
duplication of infrastructure and created a rational competitive environment, resulting in infrastructure and lower tenancy ratios. Mobile operators began to divest towers to
higher tenancy ratios and thus higher ROICs. tower companies and private equity firms in 2015.

Crown Castle and SBA Tenancy Ratios Are 2.5 Times and 1.9 Times, Respectively Inwit Is Europe’s Most Efficient Tower Operator, on Par With US Firms
Already high tenancy ratios leave less room for improvement. Cellnex tenancy ratio has been diluted after many acquisitions.
Crown Castle SBA Communications Cellnex Inwit
3.0 2.5
x
Tenancy ratio range (AMT, CCI, SBA): 1.9x – 2.5x x
Tenancy ratio range (CLNX, INW): 1.1x* – 2.3x
ROIC (Forecasted 5y Average AMT, CCI, SBA): 10.8% ROIC (Forecasted 5y Average CLNX, INW): 7.3%

2.5
2.0

2.0

1.5
1.5

Tenancy ratio
Tenancy ratio

1.0 1.0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Company documents, Morningstar estimates. Only data of publicly listed companies is included. * 1.1 times is the lowest single-country tenancy ratio observed. See Important Disclosures at the end of this report.
ECONOMIC MOAT Morningstar Equity Research | 15

Wireless Towers Enjoy Attractive Unit Economics

Tower unit economics depend on four main factors: 1) the price at which the tower was The US and Italy Are Two of the Most Attractive Tower Markets Globally
acquired, 2) the annual fee paid by the anchor tenant, 3) the tenancy ratio (the number Internal rates of return reach double digits when the tenancy ratio is 2 or above.
of tenants on the tower), and 4) land leasing costs. These variable often depend on each
Typical U.S. Tower
other, as a tower firm will likely pay a lower price for a portfolio with lower average
anchor tenant rents, fewer opportunities to sign up new tenants, or higher land costs. Intial Investment ($) (275,000)
These factors, which ultimately determine the internal rate of return that a tower Tenancy Ratio 2.0x
portfolio generates, can differ significantly by country and by operator within a country. Annual Revenue Anchor Tenant ($) 25,000
Annual Price Escalator 3%
On the right, we show examples of a typical US and Italian tower based on recent cost
Annual Operating Expenses ($) (16,000)
levels and assuming two tenants on each tower, which is common in both markets. In
WACC 6.70%
the US, towers are generally taller and provide greater signal reach, which makes them
Estimated IRR 17.3%
more expensive to build. When tower acquisitions occur, the price paid per tower can
vary wildly, along with the fees paid by the anchor tenant. Fees for secondary tenants
can also vary. In Europe, secondary tenants normally pay less, as operators must give
carriers an incentive to move towers given redundancy in many markets. Typical Italian Tower
Intial Investment (EUR) (100,000)
The terms of price escalators can also differ. For example, American Tower receives a Tenancy Ratio 2.0x
fixed increase in rents in the US, typically around 3% annually. In most European
Revenue Per Anchor Tenant (EUR) 11,000
contracts, escalators are linked to CPI, sometimes with floors or caps.
Annual Price Escalator Linked to CPI
Operating Expenses (EUR) c. (12000)
WACC 6.70%
Estimated IRR 11.2%

Source: Company documents, Morningstar estimates. Note: The US Tower reflects numbers from American Tower Corporation. The Italian Tower example reflects numbers from Inwit. Numbers could vary See Important Disclosures at the end of this report.
for other tower operators.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Industry Basics
Towers are passive components in the wireless networks that telecom providers
build.
INDUSTRY BASICS Morningstar Equity Research | 17

Towers Provide the Plumbing Enabling Wireless Communication

Wireless Networks Rely on Radio Signals Sent Via Equipment on Towers Wireless communication is made possible by data that are transported over airwaves.
Towers are the needed infrastructure to transmit radio signals. The full electromagnetic spectrum consists of an infinite range of wave frequencies,
though physics dictates that frequencies above and below certain levels are not
practically useful for communication purposes. Frequency bands (ranges) within the
wireless spectrum act like separate lanes on a highway in which traffic can move.

Sovereign governments generally hold the right to manage their airwaves, and the
governments can allocate varying frequency ranges for governmental uses or license
them to private companies. Broadcasting and aviation are historical examples of private
industries that needed the right to communicate over dedicated frequencies, but
communication services have spurred the most demand, by far, over the last 30 years.
Carriers in many countries have connected nearly everyone over nearly every square
mile of developed land, and the population now relies heavily on these services.

In most countries, wireless service providers secure licenses—through auction or

grant—for specified frequency ranges within the wireless spectrum, which is measured
in hertz (Hz). To use those licenses, the carriers need to deploy equipment on physical
structures. The equipment can send and receive communication signals that travel over
the airwaves to reach the end users within range. Depending on the nature of the
geography and the radio frequency being used, equipment can be attached to buildings
and light poles, but often the most efficient place to deploy equipment is on some type
of tall structure, with the highest point often being the most premium position.

Source: Morningstar; Freepik.com. See Important Disclosures at the end of this report.
INDUSTRY BASICS Morningstar Equity Research | 18

Cellular Networks are Made Up of Varying Individual Cell Sizes

Factors Like Population Density, Topography, and Frequency Determine Cell Sizes Tower companies’ customer bases are very concentrated and consist almost exclusively
Cells sizes are efficiently determined based on these factors. of the major wireless carriers, who use the towers to build their networks.

At tower locations, the carriers deploy equipment needed to make use of their spectrum
licenses and create wireless communications networks. Most notably, antennas and
radios are mounted on towers, and other critical equipment is located in ground-level
High tower shelters.
density, typical in
an urban area. The geographic reach of the equipment on a single tower is called a cell. The
Rooftops and other aggregation of many cells that are served by many different towers comprises a cellular
structures are network. Greater “tower density” refers to the need for more cells and towers within a
often available. fixed geographic space.

An individual cell’s size is dependent on a few factors. Foremost is that a wireless signal
can only travel a limited distance before degrading, which varies from meters to
kilometers depending on the frequency being used. Other factors that influence the
required geographic density of a tower grid within a network include the population
density, the geographic constraints placed on the license, and the technology choices a
carrier makes. Network traffic is highly correlated with population density, but new
Low tower density, technologies and use cases are also pushing traffic per user higher. As usage strains
typical in a rural
network capacity, carriers can allocate new frequencies to an existing cell if available,
area
deploy more advanced technologies to pack more capacity into existing licenses, or split
cells geographically, with each smaller cell generally broadcasting at lower power.

Source: Morningstar; Businesstechweekly. See Important Disclosures at the end of this report.
INDUSTRY BASICS Morningstar Equity Research | 19

The Mix of Frequencies a Carrier Uses Determines Tower Density and Equipment Needs

Lower-Band Frequencies Travel Farther and Penetrate Objects Better Currently, the wireless spectrum used by carriers mostly falls into the “low-band” and
Frequency can be the difference between miles versus meters of coverage. “midband” categories. Low-band spectrum holdings generally are in the 600 MHz-900
MHz range, and midband holdings are mostly in the 1,500 MHz-4,000 MHz (1.5 GHz-4.0
GHz) range. In any given geographic market, a carrier will have the rights to various
frequency ranges (e.g., 10 MHz of bandwidth from 720 MHz to 730 MHz). Carriers do not
yet widely rely upon “millimeter wave” spectrum, which includes high bands from 30
GHz-300 GHz but may in the future.

Low-band spectrum has the best propagation characteristics—its signal can travel
farthest, and it penetrates barriers better—but the inventory of it is more
mathematically limited as the entire range from 600 MHz-900 MHz encompasses only
300 MHz of bandwidth to split among carriers, while the midband from 1.5 GHz-4.0 GHz
holds 2,500 MHz of bandwidth. Also relevant for tower firms, broadcasting at lower
frequencies requires bigger antennas on towers, all else equal.

Despite the theoretical range of low-band spectrum, network congestion often limits the
distance it covers in practice. As networks close in on functional capacity, carriers need
to deploy more spectrum, often prompting governments to auction additional spectrum
blocks. With low-band spectrum generally already licensed, governments have been
seeking to free up and auction blocks in higher frequency bands. As carriers receive the
rights to new spectrum frequencies, they go back to their towers to deploy more
equipment. In some cases, because midband frequencies don’t travel as far, they also
deploy equipment on new towers, “densifying their networks.”

Source: Morningstar. See Important Disclosures at the end of this report.

INDUSTRY BASICS Morningstar Equity Research | 20

Tower Firms Provide Towers and Not Much Else

Typically, Tower Companies Provide Only the Physical Structure Tower companies generally provide nothing other than the physical structure needed to
Tenants typically own and are responsible for everything that goes on the tower. deploy equipment. Tower companies own or lease land, and they erect the physical
tower. Locations usually need zoning approval before towers are built and must have
access to infrastructure to meet their tenants’ power and backhaul needs.

From there, the tower owners simply lease space, meaning that the key factor that
drives tower sales is network investment by wireless carriers. Nearly all ownership,
operating, and maintenance costs and work are the responsibility of the tenant, though
tower providers will undertake some work for a fee if the tenant chooses.

Tenants hire tower climbers to fasten equipment like antennas and radio heads on the
towers. Tenants also house equipment, including radios and networking equipment as
well as heating and cooling equipment, in shelters on the ground. Tenants pay for their
own power needs, but tower companies sometimes negotiate with utilities and pass
electricity costs on to tenants, and tower firms often provide backup generators. Tenants
are also responsible for their own backhaul service, which usually consists of a fixed
cable or fiber connection to the tower that transmits data back to the core network, from
where it can reach computing and storage facilities, the party on the other end of
communications, or a website.

Source: Morningstar, KDM Force, American Tower. See Important Disclosures at the end of this report.
INDUSTRY BASICS Morningstar Equity Research | 21

The Tower Business Takes Advantage of Substantial Operating Leverage

When Tower Portfolios Are Stable, Margins Generally Trend Up Tower companies often can house multiple tenants on
The size of the US tower market has been largely flat over the past decade, and margins have risen. each tower, but tower operating costs are mostly fixed. A
SBA New Towers AMT New Towers CCI New Towers SBA Margin AMT Margin CCI Margin tower with a single tenant—which is frequently the case
12,000 90.0 with newly built or acquired towers—often doesn’t earn a
Acquired 11,000 towers from Verizon, % return on investment that exceeds the cost of capital.
growing its US portfolio by 40%. Subsequent tenants, however, generate almost all profit.
As a result, profit margins tend to continually improve as a
tower portfolio matures. Further, if a tower needs work to
9,000 80.0 support a new tenant, like a stronger foundation or taller
mast, the new tenant will often foot the bill, a transaction
the tower companies book as prepaid rent.

The profit gains that come with having multiple tenants on

6,000 70.0
a tower have pushed up the prices tower firms are willing
to pay for tower portfolios. Higher valuations have induced
carriers around the world to sell their towers to
Net Tower Additions in the US

independent owners that are typically more willing to

US Towers Gross Margin

3,000 60.0 market space to rival carriers. In short, towers are often
Acquired roughly 2,000 towers, Acquired about 700 more valuable and more efficient in the hands of
nearly all in the US, from InSite. towers from PG&E independent owners than to carriers because the towers
will more likely house a higher number of tenants.
0 50.0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Filings from American Tower, Crown Castle, SBA Communications. Data as of Dec. 31, 2023. See Important Disclosures at the end of this report.
INDUSTRY BASICS Morningstar Equity Research | 22

The Tower Business Model: Same-Tower Sales

Cash Revenue on Last Year’s Tower Portfolio (Same-Tower Sales) On a cash basis, revenue on an individual tower changes every year because of the
following drivers:

• Colocation – Revenue coming from a new tenant leasing space on the tower falls
into this bucket.

• Amendments – Leases generally allow for a very specific size and weight of
equipment, though some leases allow some leeway. Generally, any time a carrier
needs to add more equipment or make other changes or adjustments, it “amends”
its lease, resulting in higher monthly rent. Amendments have accounted for about
half of the revenue growth on existing towers in the US over the past decade. The
need for amendments is so customary that many tower companies sign carriers to
master lease agreements, or MLAs, that specify amendment activity each year.
New Tenants Joining Towers Is One Driver of Organic Sales Growth
• Escalators – Tower contracts call for rent increases each year. The standard in the
US is for escalators to be fixed at about 3% annually. Outside the US, escalators are
more commonly linked to an inflation index, often with caps and floors.

• Churn – Tower contracts that are not renewed subtract revenue from a tower. The
most frequent cause for a sharp spike in churn results from carriers that cease to
operate independently, either due to their own bankruptcies or an acquisition by
One Tenant Two Tenants Three Tenants
another carrier. In the case of an acquisition, churn does not occur until the lease
expires, unless the tower company and the acquirer reach an agreement.

Source: Morningstar; Aerofly. See Important Disclosures at the end of this report.
INDUSTRY BASICS Morningstar Equity Research | 23

The Tower Business Model – Other Revenue Drivers

Total Revenue Includes New Tower Sales, Foreign Exchange, and Noncash Beyond same-tower sales, the biggest source of revenue growth is from new towers,
Adjustments whether built or acquired. For 12 months following a tower’s new entrance into a firm’s
portfolio, it is accounted for as a new tower.

In the past, acquisitions of tower portfolios, typically from carriers themselves, have
been the major acquisition targets for the tower firms, but few large opportunities
remain. All major carriers in the US have sold most of their towers to tower companies,
and many in Europe have done the same or spun off independent tower units.

Today, new tower builds are the most common driver of growing tower portfolios. The
companies we cover generally don’t build towers speculatively (without tenants already
attached) and instead undertake “build-to-suit” contracts. Here, a tower company will
erect a tower for a specific carrier with a contract in place to provide the specifications
that the carrier wants. Tower companies may subsequently add other tenants, but the
tower companies are more likely to demand a sufficient return on capital from the
anchor tenant alone, especially if the site is unlikely to fit the needs of rival carriers.

In most developed markets, there is not a great need for additional towers. New tower
construction in the US each year is minuscule. Build-to-suits are ongoing in many
European countries, however. For example, France and Poland are still adding hundreds
of towers each year. In more developing nations the need for new towers persists, and
we think a significant number will be required to achieve adequate coverage for
advanced networks in some countries.

Source: Morningstar. See Important Disclosures at the end of this report.

INDUSTRY BASICS Morningstar Equity Research | 24

Next-Generation Networks, Growth in Network Traffic Drive the Need for Colocation and Amendments

Tower Growth Rates Rise in the Years After Carriers Secure New Spectrum The carriers’ needs to enhance network quality and capacity drive the demand to locate
Same-tower gross tenant billings growth (excl. churn) in the US equipment on more towers (colocation) and add new equipment to their existing towers
AMT CCI SBA (amendments). Three major catalysts, which often, but don’t necessarily, overlap are:
11
% 1. Growth in wireless data traffic that strains existing network capacity.
2. Carriers’ receipt of new spectrum.
3. Next-generation wireless network buildouts, e.g., 3G to 4G to 5G, etc.

9 If a carrier did not have new spectrum to deploy, but network quality was deteriorating
due to the level of network traffic, the carrier would either have to reduce the size of its
cells, resulting in equipment deployment on more towers, or it would have to use
advanced technologies—like cell sectoring, dynamic spectrum sharing, or massive
MIMO—on existing towers, leading to equipment amendments.
7

Often, governments auction additional spectrum when it can be made available and/or
600 MHz Spectrum carriers have a need, and the deployment of the new spectrum, either on existing or
Results, 4/13/2017
new towers, also offers a way to increase network capacity, again driving more
5 3.5 GHz Spectrum spending on towers.
Results, 9/10/2020

Regardless of whether there’s a capacity need, each buildout of a new generation

requires new equipment. But also, the new capabilities that successive network
3 generations offer have historically led to much higher network traffic, perpetuating a
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 cycle that then leads to further tower spending.

Source: American Tower, Crown Castle, SBA Communications. Data as of March 31, 2024. See Important Disclosures at the end of this report.
INDUSTRY BASICS Morningstar Equity Research | 25

Land Contracts and Control Present the Biggest Risks to Tower Companies

The Land Under Towers Is Either Owned or Leased by Tower Companies The biggest operating cost for tower companies—and also the source of the biggest
risk—is the land underneath the towers. Land lease costs can account for around half of
Leased 5 Years or a tower firm’s cash operating costs (that is, costs excluding depreciation and
100
% Less amortization). Tower companies’ land portfolios are made up of a combination of owned
Leased 10 Years or and leased land. In mature regions, tower companies are constantly looking to buy land
Less or extend leases for long terms, but they also face switching costs once a tower is
Leased 5 Years or
erected and need landlords willing to sell or negotiate.
More
75 Leased 10 Years or
More Variability of cost is not a huge concern, because escalators on land leases typically
Leased 10 Years or mirror the revenue escalators that tower companies receive—fixed at about 3% in the
More or Owned United States and tied to inflation or passed through to tenants in many international
Owned markets. We therefore don’t believe land costs are likely to dent margins. Historically,
50 margin variability has come mostly from putting up or acquiring new towers.

The bigger concern regarding land is control. Tower companies often disclose how much
of the land they own or the level that they control for various time periods. Leased land
that is subject to permanent easements or otherwise controlled through leases and
25
extension options for more than 20-30 years should not be a concern for investors. For
land that isn’t controlled for longer periods of time, a landlord who doesn’t want to
renew the lease or demands severe rent hikes presents a risk. We generally think this
0 risk is low, however, as the vast majority of landowners own a single site, likely have
American Crown SBA Cellnex Inwit few alternative uses for the land, and don’t own the actual tower, meaning the shift to a
Tower Castle new tower company lessee would not be seamless or immediate.

Source: American Tower, Crown Castle, SBA Communications, Cellnex, Inwit. Data as of Dec. 31, 2023. See Important Disclosures at the end of this report.
INDUSTRY BASICS Morningstar Equity Research | 26

Tower Companies in the US Are Structured as Real Estate Investment Trusts and Are Sensitive to Interest Rates

Debt Leverage and Dividend Yields Both Tend To Be High for Tower REITs The tower companies we cover in the United States are structured as real estate
CCI AMT SBAC INW CLNX investment trusts, or REITs, which provides these companies favorable income tax
10.0
treatment. Most REITs pay good dividends because REITs are required to distribute at
least 90% of their REIT taxable income. However, the payout requirement means these
7.5 companies typically keep a high amount of debt leverage and occasionally need to tap
the equity markets to raise capital. Investors should also be aware that for investors’ tax
5.0 purposes, REIT dividends are not always qualified for favorable tax treatment.

0.0 European tower companies don’t have a comparable formal REIT classification. Their
Dividend Yield (%) Net Debt/EBITDA capital allocation choices are freer, but they don’t benefit from favorable tax treatment.

Directionally, US Tower Companies Have Moved Inversely With Interest Rates The combination of a high dividend payout, which can be a good source of cash for
AMT SBAC CCI 10 Year Treasury investors when fixed income rates are low, and high debt leverage, which requires
140
frequent refinancing, has made tower stocks directionally very sensitive to interest rates.
%
Over the past five years, we’ve seen this movement most clearly with the US tower
companies, as their businesses are bigger and more mature. European tower stocks
0 have often followed a similar pattern but have also been moved more by exogenous
events, such as takeover rumors that can drive the stocks up.
–140
7/1/2018 7/1/2019 7/1/2020 7/1/2021 7/1/2022 7/1/2023 7/1/2024

Source: Company filings. Data as of Aug. 30, 2024. See Important Disclosures at the end of this report.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Outlook
Africa and Latin America have the most growth opportunity; the US and Europe
should continue growing sales on existing towers and see margins expand.
OUTLOOK Morningstar Equity Research | 28

Key Considerations In Determining the Growth Outlook for Towers in Given Geographic Regions

The outlook for any country mainly relies on the current state of wireless networks and Crucial Factors in Assessing the Attractiveness of a Market
the likelihood that the networks will need—and get—further investment. Generally, we
think all mobile networks globally will continue to require investment because mobile • 4G/5G Buildout Opportunity – Countries still in the early stages of 4G or 5G
data use continues growing at a rapid rate, which strains network capacity. However, network buildouts likely have a big tower spending cycle in front of them. A 4G
the extent of carriers’ network investment will vary, and several factors may limit or network is the key to enabling significant mobile data use. The 4G buildout in the
promote investment, including government spectrum policies and incentives to get more US was a boon to tower companies; we would expect significant carrier investment
of their populations connected to high-quality wireless networks. to meet the data traffic demand that a 4G network allows.

The ability of tower companies to benefit from network investment taking place depends • Spectrum to Deploy – Where carriers have received spectrum licenses but have
on the quality of the tower portfolios they have in place and the need for new towers to not yet widely deployed new radios, it’s a virtual certainty that significant network
meet the demand. Adding revenue to existing towers generally offers the most investment will follow.
immediate chance to grow economic profits. But in areas with far too few towers,
economic returns on initial towers can at least break even, and they will likely present • Internet/Smartphone Penetration – Smartphone ownership is the key factor that
significant opportunities to ramp profits further in the future. Here, sales growth is likely drives data traffic and strains wireless networks. In many emerging markets, much
to be high, but so would capital investment, and we wouldn’t expect margins to expand of the population lacks any internet access, and building mobile networks can be
rapidly. In markets that don’t need new towers, maintenance capital spending for tower the most efficient way to provide access where fixed infrastructure is insufficient.
companies is very low, and margins should steadily trend up. As has been the pattern with other modern technologies, we expect places with
low internet or smartphone penetration to close the gap with mature markets.
Whether the opportunity stems from adding new towers or driving further investment
from carriers on existing towers, the sales growth drivers are the same. We’ve listed the • Consolidation Risk – Countries with more than three carriers holding meaningful
factors we see as most important in assessing each market. Also, where tower firms market share could be at risk for carrier consolidation, which is generally a
have existing businesses, we consider the risk of losing revenue as contracts expire. detriment to tower companies as it can lead to a major network being shut down.

See Important Disclosures at the end of this report.

OUTLOOK Morningstar Equity Research | 29

To Assess the Competitive Environment and Specific Tower Portfolios, We Consider “Per-Tower” Metrics

American Tower’s Portfolio Offers the Opportunity To Compare Performance Across Regions and Over Time Assessing a company’s unique tower portfolio and its
US and Africa have been American Tower’s best markets. competitive positioning is not as straightforward as
US Towers determining the general need and outlook for wireless
50,000 $9,000
Europe Towers network investment within a region. Tower firms don’t
Africa Towers report granular details about tower locations or the
LatAm Towers presence of suitable competitor towers at any given
US Monthly Gross location.
Profit Per Tower
37,500 6,750
Europe Monthly As a proxy, we look at revenue per tower and profit per
Gross Profit Per
Tower
tower over time to assess how a tower portfolio is
Africa Monthly positioned. With a stable number of towers in a region,
Gross Profit Per we’d expect to see these numbers rise over time. With a
Tower growing portfolio, we’d hope they at least stay steady,
25,000 4,500
LatAm Monthly with greater monetization of existing towers offsetting
Gross Profit Per
Tower dilution from new towers with fewer tenants.
Number of Towers (vertical bars)

Monthly gross profit per tower

Results from American Tower, the only company with
12,500 2,250 operations in all global regions, provide a good example.
The US, with a stable tower count and rising per-tower
metrics, is thriving. Latin American per-tower metrics have
stayed mostly constant, a positive given its growing tower
0 0 portfolio.
2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: American Tower filings. See Important Disclosures at the end of this report.
Note: Chart colors are consistent within regions, that is, Blue = UCAN; Green = Europe; Purple = Africa; Orange = LatAm.
OUTLOOK Morningstar Equity Research | 30

The US Is the Most Profitable Tower Marker, Driven by Best-in-Class Results Across All Metrics

High Tenancy Ratios and Average Tenant Fees Make the US the Most Profitable Tower Market The US is the most profitable tower market thanks to its
More tenants on a tower is unsurprisingly correlated with more revenue per tower, but other factors are also relevant. high tenancy ratios and high average tenant fees.
Monthly Revenue Per Tower Monthly EBITDA Per Tower Tenancy Ratio (RHS) Secondary tenants tend to pay more than the first tenant
$11,000 4.0 in the US. The opposite case applies in Europe, where
tower duplication is more common. This contributes to
much higher operating profits per tower in the US. We
believe the higher tenancy ratios are partially attributable
to carriers divesting many towers longer ago. Carriers in
8,250 3.0
many other countries are now doing the same, so over
time, we expect tenancy ratios to rise.

Monetization of towers is lower in Latin America, Africa,

5,500 2.0 and Asia. Both tenancy ratios and rents are lower, but the
costs to build a tower and operating expenses are likewise
below the levels of the US and Europe, meaning returns on
invested capital can still be strong.

2,750 1.0

0 0.0
AMT CCI SBA CLNX AMT INW CLNX CLNX AMT CLNX CLNX VANT VANT AMT VANT VANT AMT VANT
US US US SPA Africa Italy Italy Total Latam FRA RoW Greece GER Europe SPA RoW Asia Total

Source: Company documents, Morningstar estimates; USD/EUR used for non-USD reporting companies is 1.10. See Important Disclosures at the end of this report.
OUTLOOK Morningstar Equity Research | 31

New Towers Needed in Africa and Latin America; Colocation and Amendments in the US and Europe

African Countries Have the Most Need for New Towers; Europe May Shut Towers Down for Efficiency The exhibit at left informs our view of which countries may
Africa is the best source of growth for global tower firms. need more new towers built and in which countries
Ghana current tower footprints are more likely sufficient, with
229
Kenya new investment going to existing towers.
Nigeria
204 Uganda
Idiosyncratic population dispersions in each country affect
South Africa
France the number of towers needed to provide adequate
178 coverage, but generally, countries with a higher number of
Germany
Italy towers per person or per square kilometer likely don’t
153 Poland
require as many new towers. In these places, colocation
Portugal
Spain and amendments provide the most growth potential, and
127 United Kingdom potential churn is noteworthy for companies with big
Brazil presences. In countries with relatively underdeveloped
Chile
101
Colombia
wireless networks and fewer towers, the need for new
Mexico towers can be a big driver. This need is most apparent in
76 Peru Africa, in our view.
Towers Per 1,000 Sq. Km.

United States

50

24
–0
3 15 28 40 53 65 78 91 103 116 128
Towers Per 100,000 People

Source: Worldbank, Government disclosures; Wireless Infrastructure Association (WIA); Tower Xchange, Data Center Dynamics; bnamericas. See Important Disclosures at the end of this report.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Outlook: United States

Tower sales growth should be modest over the next few years, with no major
spectrum auctions on the horizon and Sprint churn peaking.
OUTLOOK: UNITED STATES Morningstar Equity Research | 33

US: With More 5G Spending Past Than Future and Sprint Churn Ahead, We Expect Growth to Slow

US Towers Dominate These Firms’ Businesses 5G Network Buildouts Have Boosted Sales Growth The US Represents the Most Profitable Tower Market
% of Total Revenue % of Operating Profit AMT SBAC CCI CCI SBA AMT CLNX INW VTWR
100 $5,000 10.0 100
% % %
3,750

Gross organic growth

Tenant billings (bars)
50

Gross margin
50 2,500 5.0

0
0 0 0.0 US Europe Africa Latin
$

AMT CCI SBAC 2017 2018 2019 2020 2021 2022 2023 America

The US has been one of the strongest tower markets globally in recent years, both in terms of growth and profitability. We expect the rate of growth to slow, as the initial work for 5G
network buildouts and deployment of recently-won midband spectrum pushed carrier spending higher than what we expect is a durable long-term uptrend. Also, churn will generally be
elevated over the next few years because the Sprint contracts that T-Mobile acquired are now expiring. We expect Dish Network spending to partially offset the industry’s loss of Sprint
revenue. Dish now has more than 20,000 sites on air and is required by the FCC to enhance wireless network coverage further in the coming years.

As a mature market, towers in the US need to little incremental investment, but the carriers continue to invest in new equipment at each site. The introduction of 5G networks prompted
heightened spending over the past few years. We believe much of the foundational 5G tower spending is now past in the US, even in places where 5G networks are not yet live. Carriers
have prepared to deploy most of the midband spectrum licenses they’ve acquired recently, and we don’t anticipate any large spectrum auctions soon. Verizon, for example, claims that it
has deployed C-band, its most recent major spectrum purchase, on 70% of its sites today, with that figure likely to drift higher over the next year. Each of the major US carriers will likely
spend significantly less on its wireless network in 2024 than in 2021 or 2022. T-Mobile has budgeted less than $9 billion for network investment this year after spending nearly $14
billion in 2022. Verizon expects network spending to drop to about $17 billion in 2024 versus $23 billion last year in 2022, and much of its budget is shifting towards fiber networks.

Source: Company filings. Data as of June 30, 2024. See Important Disclosures at the end of this report.
OUTLOOK: UNITED STATES Morningstar Equity Research | 34

US Competitive Environment: Tower Portfolios Are Performing Well for Each of the Three Big Providers

With Mostly Stable Tower Portfolios, Each Prover in the US Has Seen Revenue and Profit per Tower Rise We believe each of the three biggest tower owners in the
US have high-quality portfolios and will remain strong.
50,000 $9,500 AMT Towers
SBAC Towers While nuances each year may disrupt the trend in revenue
CCI Towers and profit per tower, each metric has trended higher and
AMT Monthly Cash risen substantially over the last seven years for each of the
Revenue Per Tower big three US tower owners, reflecting the stability in tower
($)
37,500 7,125
portfolios.
AMT Monthly
Gross Profit Per
Tower ($) It appears that American Tower and SBA produce stronger
SBAC Monthly results, but we suspect this reflects portfolio attributes not
Cash Revenue Per related to actual quality. For example, Crown Castle is
Tower ($)
more exposed to urban areas, where rooftops and other

Monthly Revenue and Gross Profit per Tower

25,000 Signing a new master lease agreement adds to noncash 4,750
straight-line revenue and can cause reported profits to SBAC Monthly
Gross Profit Per
similar structures play a larger role, generating less
artificially fluctuate.
Tower ($) revenue per site but only with a modest upfront
CCI Monthly Cash investment required. Prices paid to acquire tower
Revenue Per Tower portfolios also reflect the starting lease rate. As a result,
($)
12,500 2,375 we think the trend in these metrics over time is more
CCI Monthly Gross
Number of Towers

Profit Per Tower important than rankings relative to rivals.

The break in American Tower’s uptrend in 2022 was due to

0 0 it realizing a huge chunk of its Sprint churn. Its peers will
2016 2017 2018 2019 2020 2021 2022 2023 realize that churn within the next few years.

Source: Company filings. Data as of December 31, 2023. See Important Disclosures at the end of this report.
OUTLOOK: UNITED STATES Morningstar Equity Research | 35

Sprint Churn Will Still Weigh on US Tower Growth Over the Next Five Years

Sprint Revenue Churn Is Mostly Ahead for Crown Castle and SBA When T-Mobile acquired Sprint, it intended to eventually eliminate 35,000 redundant
SBAC CCI AMT Sprint towers from its combined network. As T-Mobile completed its network integration
$300
in 2021 and 2022, it decommissioned nearly 30,000 net tower sites (including new sites
the firm is building to expand coverage), meaning that most sites planned for elimination
225 are no longer in use. The Sprint leases, however, expire over a range of dates, so T-
Mobile is still making rent payments on many of these sites.
150
($ millions)

The tower companies have disclosed the amount and timing of lease expirations on
0 decommissioned Sprint towers. Lease expirations continue to affect reported same-
2021 2022 2023 2024 2025 2026 2027 tower revenue growth for 12 months following lease expiration.

Remaining Sprint Revenue to Churn as a Percentage of Current US Cash Revenue American Tower’s Sprint contracts had earlier expirations on average, and most of its
2027 2026 2025 2024 expired leases have already been realized. The firm will finalize its remaining contracts in
8
the fourth quarter of 2024. Alternatively, SBA and Crown Castle have remaining Sprint
% contracts. Crown Castle will finalize its contracts with a $200 million impact in 2025, a
mid-single-percentage hit to its leasing revenue. SBA’s leases are spread through 2027,
which should reduce its US tower leasing growth by mid-to-high single-digit
4 percentages each year.

0
SBAC CCI AMT

Source: Morningstar; company disclosures and filings. See Important Disclosures at the end of this report.
OUTLOOK: UNITED STATES Morningstar Equity Research | 36

Midband Deployments Should Slow but Will Remain the Key Driver of United States Tower Sales Growth

Midband Spectrum Covers Over Half the US Populace Peer Tower Spending Should Close Gap With T-Mobile Am. Tower Has Less Exposure Than Peers to T-Mobile
2024 1H 2025 Estimate . AMT CCI SBAC . T VZ TMUS

100 T-Mobile AMT

%

Verizon CCI
50
AT&T SBAC

0 0 2,500 5,000 0 11 22 33 45
AT&T T-Mobile Verizon Annual Tower Spending Excluding Sprint Churn ($mm) Percentage of US Site Leasing Revenue

Midband spectrum deployments have driven new tower spending in the US since auctions in 2020 and 2021. While reported coverage metrics still show that the carriers have a ways to
go to reach much of the country, these firms have already done a lot of the heavy lifting needed to put spectrum to use. In many cases, the carriers have been waiting for prior users of
these spectrum bands to move to other frequencies before turning on radios. T-Mobile, which had a midband head start via spectrum it acquired from Sprint, is by far the closest to
blanketing the entire US population, so we expect its multiyear spending slowdown to be more dramatic. T-Mobile’s tower lease spending with the major three US tower providers was
much higher than AT&T or Verizon’s at the end of 2022, even after excluding all the Sprint leases that will cease over the next few years. The majority of the Big Three carriers’ US tower
spending is with one of the major three tower providers.

As AT&T and Verizon extend their midband coverage, we expect their tower spending to close the gap with T-Mobile. Hence, we expect companies with relatively less exposure to T-
Mobile to see less of a sales growth slowdown than those with more. Here, too, this puts American Tower in a more favorable position than peers. Even after excluding total Sprint
churn, T-Mobile makes up a lower proportion of US revenue for American Tower than it does for SBA or Crown Castle. American Tower has relatively higher exposure to Verizon than its
peers do, and a high amount of exposure to AT&T. This breakdown should assist relative outperformance for American Tower, while we expect the US market to be slightly weaker.

Source: Company disclosures; Company filings; US Census Bureau See Important Disclosures at the end of this report.
Note: Revenue base includes towers and small cells.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Outlook: Europe
Europe has redundant infrastructure, but we expect ongoing efficiencies in the
next decade. Select markets enjoy attractive unit economics.
OUTLOOK: EUROPE Morningstar Equity Research | 38

Despite Its Heterogeneity, We Expect Europe Will Be a More Efficient Market a Decade From Now

European countries vary widely in terms of tenancy ratios, anchor tenant fees, and land Europe Shows Large Variability in Profit Margins, Tenancy Ratios and Redundancy
lease expenses. European mobile operators historically held on to their towers longer Italy, Spain, and Germany are among Europe’s best tower markets.
than carriers in other parts of the world. Only in 2015—two decades later than the Others Inwit American Tower Corp Cellnex
US—did European mobile operators begin to sell towers to independent firms or carve 60,000
out tower operations. The late development of tower markets together with varying In the UK and Germany, Cornerstone (joint
venture between Telefonica and Vodafone) and
regulations (allowed tower height, radiation limitations, and required landlord approvals) GD Towers (Deutsche Telekom) are the largest
and country-specific factors have made Europe a heterogeneous market, with some tower operators.

countries more attractive than others. 48,000

In our view, many European markets with low tenancy ratios have significant room for
improvement. Better efficiency can be reached through network sharing agreements
36,000
among mobile operators, joint development of new towers, dismantling redundant
towers, and placing new tenants on a tower. However, operators can struggle to find a
middle ground and understand each other, which has occurred in France.
24,000
Although the potential for efficiencies varies by country, we expect Europe will have
healthier tenancy ratios a decade from now, which should result in higher revenue per
tower and stronger profit margins for tower firms. Among the major European markets,

Number of Towers
Italy and Spain have the highest tenancy ratios, as towercos and network partnerships 12,000
have been a norm for longer. Germany benefits from cheap land and high anchor tenant
fees, while France is by far one of the least efficient markets, although this means it has
more potential to reduce tower redundancies. 0
UK FRA IT SPA GER NL SW PO IRE GR AUS POL SW DK CZ ROMHUNG

Source: Company documents, Morningstar estimates. See Important Disclosures at the end of this report.
OUTLOOK: EUROPE Morningstar Equity Research | 39

Italy: Strong Mobile Competition Results in High Tenancy Ratios and Attractive Tower Returns

Inwit Enjoys a Large Profitability Gap With Cellnex • The intense mobile competitive environment in Italy is favorable for tower
30,000 4,000 Cellnex companies, as mobile operators need to keep expanding their networks to give
Towers
Inwit Towers
service to customers. We expect Inwit and Cellnex’s tenancy ratios to keep
22,500 3,250
Cellnex improving at a pace of 0.05 to 0.10 additional tenants per tower in the next five
Monthly
Rev/Tower(EUR) years.
Inwit
15,000 2,500 Monthly
Rev/Tower(EUR)
• We see efficient scale in the Italian tower market. Vodafone and Telecom Italia
Inwit signed a tower-sharing agreement in 2007, reducing the need to duplicate wireless
Number of Towers

Monthly
infrastructure. The establishment of Inwit as a tower operator in 2015 also helped

EUR per tower

7,500 1,750 EBITDAaL/Tower
(EUR)
0 1,000 Cellnex reduce redundancies (Inwit operates exclusively in Italy).
Monthly
2016 2017 2018 2019 2020 2021 2022 2023 EBITDAaL/Tower • Inwit’s EBITDAaL margins are significantly ahead of Cellnex due to much higher
tenancy ratios. Inwit’s special relationship with Telecom Italia and Vodafone is also
an advantage, as they pay attractive anchor tenant fees. Every new tower deployed
Inwit’s Tenancy Ratio of 2.2 Times Is on Par With US Peers by Inwit has two anchor tenants, which results in attractive internal rates of return.
Inwit EBITDAaL CLNX EBITDAaL Inwit Tenancy Ratio CLNX Tenancy Ratio • Cellnex acquired the towers of both Wind Tre (2015 and 2020) and Iliad (2019), and
700 2.5 it is the main tower provider for these two mobile operators. Cellnex’s tenancy
x ratios are lower than Inwit, given Iliad and Wind Tre are newer mobile operators.
560
We expect Cellnex will improve its tenancy ratio and get closer to 2.0 times in the
420 1.9 next five years.
Tenancy ratio
280 1.6
EUR million

0 1.0
2016 2017 2018 2019 2020 2021 2022 2023

Source: Company documents, Morningstar estimates. EBITDAaL for Cellnex Italy not available. Number of towers reflects the average of current and previous fiscal year. See Important Disclosures at the end of this report.
OUTLOOK: EUROPE Morningstar Equity Research | 40

France Has Much Redundant Infrastructure; Tower Firms’ Returns Only Match Cost of Capital Today

Totem (Orange) and Cellnex Have Low Tenancy Ratios Of 1.2 Times in France • French carriers have rarely shared their networks historically, which results in a
large number of towers per inhabitant and low tenancy ratios. Cellnex only entered
30,000 3,000 CLNX Towers the market in 2018, and it now owns the tower portfolios of all French MNOs
EUR ORA Towers
AMT Towers
except Orange (Bouygues, SFR, Iliad). Cellnex was forced to divest some assets in
CLNX 2022 due to market concentration issues.
Rev/Tower
ORA
Rev/Tower
• Orange still owns all its towers within Totem, its tower vehicle. We estimate Totem
AMT has more rural sites than Cellnex, which facilitates tower sharing and results in
Rev/Tower
22,500 2,250
CLNX higher potential for tenancy ratios.
EBITDAaL/Tower
ORA • We estimate France’s tenancy ratios could reach 1.55 times in 2033, a slow
EBITDAaL/Tower
improvement compared to the current 1.2 times. Given the limited collaboration
between operators, most of them continue to build new towers rather than look for
15,000 1,500
sharing opportunities. Cellnex is looking to realize efficiencies by convincing
operators to share towers, but Cellnex can only do this in a small part of its portfolio
due to regulations and different operator needs.
• New wireless towers in France are normally deployed at a tenancy ratio of just one
given the low collaboration between operators. Although operators pay higher
7,500 750 anchor tenant fees to tower firms to partially compensate for the lower tenancy
ratio, we estimate returns on invested capital only match cost of capital.
EUR per Month per Tower
Number of Towers

0 0
2021 2022 2023

Source: Company documents, Morningstar estimates. EBITDAaL for Cellnex France not available. Number of towers the average of current and previous fiscal year. See Important Disclosures at the end of this report.
OUTLOOK: EUROPE Morningstar Equity Research | 41

Spain: The Entrance of Digi Will be Accretive for Cellnex and Orange’s Towers

Spain’s Competitive Mobile Market Is Favorable for Tower Firms • The merger of MasMovil and Orange is not a true market consolidation, as the
Cellnex’s tenancy ratio is above 2, while we estimate Orange remains at around 1.8x. European Commission has forced the entrance of Digi as a new mobile network
CLNX Towers operator. Digi’s entrance will be accretive for Totem’s (Orange’s tower firm), as the
12,000 2,500
ORA Towers firms have signed a national roaming agreement. We expect Digi will also need to
AMT Towers place radio equipment in Cellnex’s or American Tower portfolios to complement its
CLNX Monthly network rollout.
Rev/Tower
• Spain enjoys efficient scale characteristics. Vodafone and Orange signed a network-
ORA Rev/Tower
9,000 1,875 sharing agreement in 2006, while Telefonica and Vodafone also signed an
AMT Rev/Tower
agreement in 2009. The establishment of Cellnex as a tower operator in 2015 also
CLNX
EBITDAaL/Tower helped reduce redundancies.
ORA • Cellnex owns a mix of towers from Telefonica, MasMovil, and Orange, with a
EBITDAaL/Tower
healthy tenancy ratio of 2.01 as of September 2024. Cellnex is also growing in Spain
6,000 1,250
by offering additional services such as small cells or rail network connectivity.
• Vodafone and Orange have both spun assets off into tower firms. We estimate both
Vodafone and Orange have tenancy ratios in the 1.80 range, slightly below Cellnex.
The merger of Orange with MasMovil leaves a complex scheme of networks and
EUR per Month per Tower

3,000 625 sharing agreements between operators.

Number of Towers

• American Tower acquired 12,000 sites from Telefonica in 2021 which we estimate
has low tenancy ratios of 1.3 times. However, anchor tenant fees are likely higher
than average.
0 0
2016 2017 2018 2019 2020 2021 2022 2023

Source: Company documents, Morningstar estimates. Data prior to 2020 not available for Totem and Vantage. EBITDAaL for Cellnex Spain not available. Number of towers the average of current and See Important Disclosures at the end of this report.
previous fiscal year.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Outlook: Africa
Africa has the most opportunity for new tower building, network development,
new spectrum deployment, and more users accessing mobile data.
OUTLOOK: AFRICA Morningstar Equity Research | 43

Africa’s Wireless Networks Are the World’s Laggards; We Expect Them To Catch Up

Africa Is More Material to American Tower Than SBA African Tower Counts for American Tower and SBA African Network Coverage Trails Other Continents
% of Total Revenue % of Operating Profit Country AMT SBAC 1G or No Coverage 2G 3G 4G 5G
Burkina Faso
20 Ghana 100
% %
Kenya
Niger
% from Africa Towers

Nigeria
50
10 South Africa
Tanzania
Uganda 0
0 0 4,500 9,000 Africa Americas Asia Pacific Europe
AMT SBAC Towers Towers

We think Africa provides significant opportunities for tower companies, as many countries on the continent still do not have well-built 4G networks, much less 5G, and significant
portions of the population in many countries still lack internet connectivity. Government policies, including spectrum auctions within the past year to facilitate further network buildouts,
are in place that should lead to continued gains in internet penetration in many countries. As in other developing countries that lack fixed infrastructure, we expect mobile service will be
the primary mode of connection for most.

Currently, SBA’s presence in Africa is limited to only Tanzania and South Africa, and the firm’s current footprint is too small to make a significant difference in its overall performance.
We still expect Africa will be one of the firm’s primary areas for new tower building and efforts to buy existing tower portfolios from other companies. American Tower has a much
bigger presence on the continent, spread over multiple countries. We expect growth in the firm’s Africa segment to lead other markets and help pull the firm’s growth rate ahead of its
peers.

Source: Company filings; International Telecommunications Union. See Important Disclosures at the end of this report.
OUTLOOK: AFRICA Morningstar Equity Research | 44

Africa Competitive Environment: Results Have Swung With Changing Ownership Structures; Trend Is Looking Up

American Tower Has Added to Its African Portfolio While Simultaneously Better Monetizing Its Average Tower The tower market throughout Africa is disjointed. Many
Africa continues to be a focal point of investment for the firm. carriers still own their own towers, with Tower Xchange
AMT Towers estimating that independent firms own less than half the
32,000 $6,000
IHS Towers towers in Sub-Saharan Africa. The largest independent
Helios Towers tower firms don’t have uniform country footprints.
AMT Monthly
Revenue Per Tower The chart at left shows consolidated African results for the
AMT Monthly biggest independent tower firms. SBA does not disclose
24,000 4,500 EBITDA Per Tower
Africa-specific metrics despite its sizable presence there.
IHS Monthly
Revenue Per Tower
IHS Monthly There is some competition among independent firms in a
EBITDA Per Tower few countries. In American Tower’s biggest market,
16,000 3,000 Helios Monthly Nigeria, it competes primarily with IHS. Helios is SBA’s

Monthly Revenue and EBITDA per Tower

Revenue Per Tower biggest competitor in Tanzania, while the South African
Helios Monthly market primarily includes American Tower, SBA, and IHS.
EBITDA Per Tower

Africa has been a great region for American Tower, with

8,000 1,500 both tower counts and sales and profits per tower rising.
While we expect potential tower acquisitions from the
carriers and new tower construction could make per-tower
results volatile in any shorter time period, we think
Towers

0 0 significant network investment needs will keep results on

2018 2019 2020 2021 2022 2023 a long-term uptrend.

Source: Company disclosures. See Important Disclosures at the end of this report.
OUTLOOK: AFRICA Morningstar Equity Research | 45

In Most African Countries, 4G Is Not Ubiquitous, and Therefore Internet Penetration Is Low

Boosting 4G and 5G Accessibility Will Spur Huge Demand for Mobile Data Capacity Based on a report from Mobile World Live and the Global System for Mobile
Proportion of Population with 4G Access or Better Telecommunications Association, only 58% of Africa’s population lived in areas covered
by 4G networks in 2022, while initial 5G buildouts were in their infancy. Apart from
60
% whether a 4G network or better was available, large percentages of the populations in
countries where our tower company coverage has footprints don’t have at least 4G
access, which is the threshold that the Alliance for Affordable Internet deems
30 “meaningful connectivity” and is the key mobile technology to enable a robust
broadband experience. The combination of further network buildouts and the capacity
0 needed as more subscribers use these networks should lead to an extended runway of
Ghana Kenya Nigeria South Africa Tanzania Uganda high tower spending.

The reason Africa presents such a big opportunity, in our view, is that mobile broadband
penetration is low. Internet penetration (whether via mobile or fixed connections) in
Internet Penetration in Africa Trails Others Where American Tower and SBA Serve most African countries is significantly lower than in developed markets. Because these
Internet Penetration (%)
.
Ghana markets often lack fixed infrastructure, mobile broadband is the easiest and most
Kenya common way for residents to connect. We believe higher internet penetration is a key
Nigeria
South Africa factor in these countries continuing to develop, and we expect governments to promote
Tanzania
Uganda policies that encourage mobile broadband accessibility. Numerous studies—including
Argentina
Australia from the World Bank and McKinsey—have shown that increasing broadband
Brazil penetration leads to significant incremental growth in GDP and job creation.
France
Germany
Spain
United Kingdom
United States
0 25 50 75 100

Source: World Bank; Government disclosures. See Important Disclosures at the end of this report.
OUTLOOK: AFRICA Morningstar Equity Research | 46

Government Spectrum Allotment and Market Share Characteristics Also Bode Well for African Tower Growth

Spectrum Assigned Since the Beginning of 2022 To allow for 5G network rollouts and generally enhance wireless networks overall,
Amount of Bandwidth Allocated (MHz) Proceeds ($mm) African countries are making more spectrum available. Since the beginning of 2022, all
six of the African countries where our covered companies have a presence have issued
1,000
new spectrum licenses or scheduled auctions.
750
In some countries, carriers have already received new spectrum rights and have begun
500 putting them to use. The first 5G networks went live in some of these countries in 2022
as a result. We expect the deployment of the recently received spectrum to provide an
0 additional boost to higher tower spending in many countries over the next few years.
Kenya Nigeria South Africa Tanzania

Market Share: Most Markets Are or Will Be Composed of Three Primary Carriers Over the long term, we don’t see a significant risk of consolidation in the countries
Other #6 #5 #4 #3 #2 #1 where SBA and American Tower are present because market share in each of these
countries is mostly concentrated in three carriers or fewer.
100
%
In the shorter term, however, there will still be some lingering churn elevation from
consolidation or network shutdowns that have occurred in the recent past. The fourth
50 carrier in South Africa has chosen to operate as a mobile virtual network operator on
another carrier’s network while shutting down its own. In Ghana, the government took
0 over the third carrier and is canceling some tower contracts.
Ghana Kenya Nigeria South Africa Tanzania Uganda

Source: Government disclosures, GSMA: Developing Telecoms; Connecting Africa; MyBroadband. See Important Disclosures at the end of this report.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Outlook: Latin America

We see less opportunity in most Latin American countries than in other
developing markets.
OUTLOOK: LATIN AMERICA Morningstar Equity Research | 48

Latin America: 5G Network Buildouts Will Drive Growth, but Other Regions Are More Compelling

SBA and AMT: ex-US, Latin America Is Biggest Region Towers in Latin America Latin American Customer Concentration (% of Rev.)
% of Total Revenue % of Operating Profit Country AMT SBAC SBAC: To Be Acquired Oi America Movil Telefonica TIM Misc.
Argentina
Brazil
30 100
% from Latin American Towers

Chile
% Colombia %
Costa Rica
22 Ecuador
El Salvador
Guatemala
15 Mexico 50
Nicaragua
Panama
Paraguay
0 Peru 0
Honduras
AMT SBAC 0 17,000 34,000 AMT Pre-Oi AMT Q2 24 SBA Pre-Oi SBA Q2 24

The status of network buildouts, wireless penetration, carrier dynamics, and opportunities for the tower companies we cover vary widely by countries in Latin America. We expect
growth in the region to still be higher than in the US over the next few years because there’s more runway for 5G buildouts and new spectrum deployment. Brazil is the most
consequential country in Latin America for the companies we cover. For SBA, Brazil makes up more than half of all international site leasing revenue, but the firm continues to pursue
growth in the region. SBA recently announced a deal with Millicom to purchase a 7,000-tower portfolio across multiple countries in Central America, bolstering its position as a leading
tower provider in Guatemala, Honduras, Panama, El Salvador, and Nicaragua. For American Tower, both Brazil and Mexico, where AT&T is a major customer, are sizable contributors.
The firm also has enough of a presence in Columbia, Chile, and Peru that conditions in those countries are worth considering.

One key difference relative to the more exciting opportunities we see in Africa is that many Latin American countries have good fixed-line infrastructure, so wireless networks don’t often
represent the best means for connecting populations to the internet, minimizing one potential driver. Instead, the need or desire for wireless broadband mobility specifically will be the
main driver for bringing more people to these networks.

Source: Company filings; Morningstar estimates, AMT, SBAC. Data as of June. 30, 2024. See Important Disclosures at the end of this report.
OUTLOOK: LATIN AMERICA Morningstar Equity Research | 49

Brazil Competitive Environment: Carriers’ Tower Spinoffs and Entrance of HIS Resulted in More Independent Firms

American Tower and SBA Have the Most Towers and Longest Histories as Independent Tower Firms in Brazil Competition for American Tower and SBA from
independent tower providers in Brazil has picked up in the
AMT Towers last few years. IHS entered the market in 2020 with the
30,000 $3,100
IHS Towers acquisition of the small, independent firm Cell Site
SITIOS Towers Solutions. In 2022, America Movil, the largest wireless
SBAC Towers carrier across Latin America, spun off its tower sites in
AMT Monthly several countries, including Brazil, to create the
22,500 2,325
Revenue Per Tower independent firm Sitios Latinoamerica.
AMT Monthly
EBITDA Per Tower
American Tower still has the biggest presence in the
IHS Monthly
Revenue Per Tower
region by a wide margin, and its sales and profits per
IHS Monthly tower remain on an uptrend. The dip in 2021 coincided
15,000 1,550 EBITDA Per Tower with the purchase of the Telxius Towers portfolio, which

Monthly Revenue and EBITDA Per Tower

SITIOS Monthly included several thousand sites in Brazil, and the dip in
Revenue Per Tower 2022 stemmed from Nextel churn. Neither dip was related
SITIOS Monthly to competition, and we expect American Tower’s scale—
EBITDA Per Tower
with coverage across Brazil—will keep it ahead of peers.
SBAC Monthly
7,500 775 Revenue Per Tower
SBA does not disclose profitability in Brazil, but revenue
per tower has been on a very similar uptrend as American
Tower over the last several years. Given how entrenched
Towers

0 0 its towers are in Brazil and its contracts with carriers, we

2020 2021 2022 2023 2024 expect its performance to also remain solid.

Source: Company disclosures. See Important Disclosures at the end of this report.
OUTLOOK: LATIN AMERICA Morningstar Equity Research | 50

Brazil: A Recent Spectrum Auction and 5G Buildout Will Drive Investment, but Churn Headwind Exists Near Term

At the End of 2023, Major Carriers’ 5G Network Coverage Had a Long Way To Go We see a mixed outlook for Brazil. Growth from the deployment of 5G networks will
% of Population Covered With 4G % of Population Covered With 5G likely be muted by elevated churn over the next few years. Also, Brazil’s 4G networks
already cover nearly the entire population, and smartphone penetration is the highest of
100
% all Latin American countries we cover.

In 2022, the fourth-biggest carrier in the country, Oi, liquidated its wireless business and
50 split its assets among the three bigger incumbents, America Movil, Telefonica, and TIM
Brasil. Oi also sold its portfolio of about 8,000 towers to a subsidiary of Digital Bridge,
0 which is now the third-largest tower owner behind American Tower and SBA. We
Claro Vivo TIM expect many of the Oi tower contracts to be canceled as they expire. Further carrier
consolidation risk is minimal, however, and regional carriers are starting to pop up in the
country. Dozens of firms have built fiber networks in Brazil and some are starting to
leverage these networks and customer bases to enter the wireless business.
Population Coverage Timeline for Brazil’s 5G Spectrum Winners

60 Portion of The most exciting opportunity in Brazil, in our view, is an accelerating 5G network
% Population Each buildout. At the end of 2021, the Brazilian government auctioned off roughly 500 MHz of
Carrier Must Cover
midband spectrum and 3,200 MHz of millimeter-wave spectrum. Currently, even the best
with 5G
Average 5G 5G network covers barely more than one quarter of the population. Carriers’ 5G
30 Coverage of the Big networks are required to reach all cities with at least 500,000 people by 2025, with
Three Carriers requirements for cities of 200,000, 100,000, and 30,000 in each of the following three
years, respectively. We estimate average 5G coverage is ahead of schedule per the June
0 2025 requirement, but further investment is needed and will drive carrier spending on
Dec-23 Jul-25 Jul-26 Jul-27 towers.

Source: Company filings; ZDNET; City population, based on city as of 2022 census. See Important Disclosures at the end of this report.
OUTLOOK: LATIN AMERICA Morningstar Equity Research | 51

Mexico Competitive Environment: Lukewarm Progress but Trend Shows Little Change to Peers’ Relative Strength

Only Two Public, Independent Tower Firms Are in Mexico; the Next Biggest Competitor Is Much Smaller The competitive environment in Mexico over the last three
American Tower and Telesites dominate the Mexican tower market. and a half years has also been relatively stable. We
AMT Towers suspect different accounting standards used by American
30,000 7,000
SITES Towers Tower and Telesites, the other major independent tower
AMT Monthly firm, lead to skewed per-tower comparisons between the
Revenue Per Tower two. However, we see that each firm’s multiyear trend
AMT Monthly shows no sign of a changing competitive landscape. The
EBITDA Per Tower
22,500 5,250
next biggest independent tower provider is Mexico Tower
SITES Monthly
Revenue Per Tower
Partners, or MTP, a private firm in which Digital Bridge has
SITES Monthly
a 50% stake. MTP does not disclose financial metrics but
EBITDA Per Tower currently owns 3,000 towers in Mexico, making its portfolio
a fraction of the size of American Tower’s.
15,000 3,500

Monthly Revenue and EBITDA per Tower

American Tower’s revenue spike at the end of 2022 is
attributable to settlement payments from Telefonica,
which canceled its tower contracts after ceasing to
operate as a facilities-based carrier in Mexico. American
7,500 1,750 Tower received settlement payments into 2023 in
exchange for allowing the immediate cancellation of these
contracts. American Tower has returned to improving
tower metrics with this churn behind it.
Towers

0 0
2020 2021 2022 2023 2024

Source: Company disclosures. See Important Disclosures at the end of this report.
Note: We deducted estimated sales and profits from American Tower’s Mexican fiber business from our calculations in relevant quarters.
OUTLOOK: LATIN AMERICA Morningstar Equity Research | 52

Wireless Dynamics in Mexico Mirror Brazil: 5G Network Buildout Opportunity but Near-Term Churn Elevation

Only Two Major Facilities-Based Wireless Carriers Remain in Mexico Dynamics in Mexico are similar to those in Brazil. The country is more developed than
% of Population Covered with 4G % of Population Covered with 5G many Latin American countries and has pretty good 4G coverage and smartphone
100
penetration—about 70% based on estimates from the GSMA and Newzoo. There is,
% however, significant building to do on 5G networks.

For American Tower—the only tower firm we cover with a presence in Mexico—tower
50 churn in Mexico should remain high over the next year and then drop to a very low level.
Telefonica shut down its own network in 2022 and is now using AT&T’s infrastructure to
0 serve its customers. AT&T is now American Tower’s most important customer in Mexico
Telcel AT&T and will likely account for about two thirds its of revenue in the country after the
Telefonica lease termination payments conclude.

We wouldn’t be surprised if AT&T eventually exits Mexico to further increase its focus
Potential Spectrum Available for Auction in 2025 Will Underpin Rural Buildout on the US broadband and wireless markets. We expect it would sell the business to one
Estimated Amount (MHz) of the major fixed-line network operators, though not to America Movil given it already
110 holds around 60% share of the Mexican wireless market. A cable company like Televisa
MHz or Megacable could be interested, though raising capital could be a challenge given the
competitive pressures facing both firms.
55
Mexico is a bit behind Brazil in bringing 5G networks online, and much of the spectrum
0 the government hopes will be used for 5G has not yet been auctioned. The telecom
600 800 2500 L-Band AWS PCS regulator in Mexico, IFT, intends to auction spectrum in 2025, but the administration of
Spectrum Band (MHz) new president Claudia Sheinbaum could put that effort on hold.

Source: Morningstar estimates; company filings; Open Signal; World Population Review. Comms Update; RCR Wireless. See Important Disclosures at the end of this report.
OUTLOOK: LATIN AMERICA Morningstar Equity Research | 53

Most Other Latin American Countries Are Also on the Cusp of 5G Network Buildouts

Many 4G Latin American Networks Are Well Developed; 5G Is in Its Infancy Outside of Brazil and Mexico, we think the buildout of 5G networks will also be the most
significant performance driver. In the other Latin American countries where the
companies we follow have a large presence, 4G networks are generally well developed
but performance is often suboptimal. 5G networks are in their infancy.

Carriers in some countries have begun building 5G networks, but only Chile has made
additional spectrum available for 5G networks. Big 5G auctions have or will occur in
2023 in many of these countries. Even in Chile, there’s a long runway of 5G spending
ahead. As with 4G networks, we expect the buildout to lag North America but catch up
over the next five-10 years, meaning we expect a bump from 5G network spending for
the better part of the next decade.

On the downside, most of these countries have four carriers sharing most of the market.
Many Latin American Countries Are Making Spectrum Available for 5G Networks In multiple countries, we’ve seen regulators approving of three-primary-player markets,
Country Date Frequency Bands at Auction (Amount of Bandwidth) and risk of network sharing between two competitors also exists. Regionally, we
Occurred anticipate consolidation will remain a material risk in these countries, so it’s likely churn
Chile 2024 3.5 GHz (50 MHz)
will experience periods of elevation.
Colombia 2023 2500 MHz (80MHz), 3500 MHz (320 MHz) No other bids.
Peru 2023 1700 MHz and 2300 MHz (90 MHz total)
Pending
Peru 2025 3300-3400 MHz and 3600-3800 MHZ (300 MHz total), 26GHz (800 MHz)
Bolivia 2025 3300-3500 MHz (unknown quantity)
Costa Rica 2024 Delayed: 700 Mhz (90 MHz); 2300 MHz (100 MHz); 3500 MHz (125 MHz)

Source: Ookla; Government disclosures; Comms Update; Developing Telecoms; RCR Wireless; 5G Observatory. See Important Disclosures at the end of this report.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

ESG Snapshot
ESG SNAPSHOT Morningstar Equity Research | 55

Summary of Sustainalytics ESG Exposure Ratings

Sustainalytics assigns negligible or low ESG Risk Ratings to wireless tower firms, as Distribution of ESG Risk Ratings for Wireless Towers and All Industries
opposed to the remainder of sectors across Morningstar’s Equity Research Coverage, Wireless Towers All Sectors
where low or medium risk is the norm. Wireless tower firms are perceived as having low 100
risk from an ESG point of view as they are not exposed to environmental issues, manage %
human capital acceptably, and have transparent governance. Some risk exposures are
lack of skilled labor, indirect carbon emissions, and data privacy, although none of them
is considered relevant. Sustainalytics also assigns strong management of ESG risks to 50

most of the wireless tower firms in our coverage. None of the five wireless tower firms
we cover has had any material ESG issue. 0
Negligible Low Medium High Severe

Sustainalytics assigns a human capital risk to four out of five wireless tower firms under Top ESG Risk Rating Scores by Material ESG Issue
our coverage, but the average risk is below the all-sector average and not considered Wireless Towers All Sectors
relevant (1.8 versus 2.7 in the chart). Risk mainly comes from finding skilled employees 5
with enough qualifications.
4

Several wireless tower firms also have exposure to product governance risks, as they 3

have to maintain reliable and fast networks and respond to customer concerns on this 2
matter. Sustainalytics assigns data privacy and security risks to two out of five wireless 0
tower firms under our coverage as firms related to the telecommunications industry
Human Capital Product ESG Integration Data Privacy Carbon - Own
manage sensitive data and are subject to cyberattacks. Governance - Financials and Security Operations

Source: Morningstar Sustainalytics See Important Disclosures at the end of this report.
ESG SNAPSHOT Morningstar Equity Research | 56

Some Tower Firms Retain Better Than Others; American Tower Has Higher Emissions per Tower

Employee turnover rates are highly variable across our wireless tower coverage. Firms Employee Turnover Rates Vary From 5% to Almost 20% Among Tower Firms
like Cellnex and American Tower show turnover rates in the 5% to 8% range (average Cellnex Inwit American Tower Corp SBA Communications
tenure of an employee between 12 and 20 years) while others like Inwit and SBA 30.00
Communications are in the 12%-20% range (average employee tenure of five to eight
years). Wireless tower firms run in-house talent acquisition programs to try to retain key 22.50
employees, while offering benefits such as health and welfare programs, employee
share purchase programs, or remote working, among others. 15.00

0.00
2019 2020 2021 2022 2023

In the last three years, tower firms have significantly increased the percentage of The Percentage of Electricity Sourced From Renewable Energy Keeps Increasing
electricity they source from renewable energy, with European tower firms Cellnex and Cellnex Inwit Crown Castle SBA
Inwit ahead of US firms. We believe this is partially explained by the higher proportion 100.0
of renewable electricity generation in Europe compared with the US %

American Tower has the highest carbon emissions per tower (direct and indirect
emissions, Scope 3 of GHG standards), with 16.1 metric tons of CO2 equivalent per 50.0

tower. Cellnex, Inwit, and SBA Communications have 4.4, 3.6, and 3.1, respectively. In
our view, American Tower’s higher emissions are explained by its exposure to emerging 0.0
countries in Africa, Asia, and Latin America, where the prevalence of fossil fuel energy is 2020 2021 2022 2023
higher.

Source: Company Documents See Important Disclosures at the end of this report.
INDUSTRY LANDSCAPE l TOWER INDUSTRY

Glossary
GLOSSARY Morningstar Equity Research | 58

Glossary

Terms Used as Synonyms in this Presentation Definitions (continued)

• Mobile / Wireless Frequency band (spectrum band):
• Service Provider / Carrier / Operator / Provider A portion of the electromagnetic spectrum that is made up of a range of frequencies.

• Spectrum / Wireless Spectrum / Radio Spectrum (see definition) Gigahertz (GHz):

One thousand megahertz; e.g. 2.5 GHz = 2500 MHz, and it is common to see either used.
Definitions
Hertz (Hz):
Backhaul:
The transport of data between the tower and the core network, typically through a fixed- The unit of measure for frequencies within the electromagnetic spectrum.
line fiber connection. Megahertz (MHz):
Bandwidth: One million hertz; mobile communications spectrum is measured in MHz or GHz.
Size of the spectrum band (difference between upper end and lower end of the range). MVNO (mobile virtual network operator):
Electromagnetic Spectrum: A wireless carrier that does not own its own network or equipment and instead offers
Infinite range of frequencies at which electrical energy waves can travel through the air. service by reselling network capacity that it has leased from a facilities-based operator.

Facilities-based carrier: Radio spectrum:

A telecommunications provider that owns its own equipment and network; a facilities- The subset of the electromagnetic spectrum that contains frequencies useful for mobile
based wireless carrier is the opposite of an MVNO. communications; wireless service providers secure licenses that allow them to use a
specified portion (small ranges) of this spectrum to carry data on their wireless
Frequency: networks.
Literally refers to the number of waves travelling per second, related to wavelength;
Radio wave:
varying frequencies distinguish one signal from another in the electromagnetic
spectrum. Type of electromagnetic wave over which sound can travel; NASA def: 3 Hz-300 GHz.

See Important Disclosures at the end of this report.

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