SBA Communications: Slowing Capital Spending Will Drive Free Cash Flow and Debt Repayment

SBA is a geographically diversified operator of nearly 40,000 cellular towers across 15 different countries. We maintain our narrow moat rating on SBA Communications, stemming from efficient scale and switching cost. The tower industry is driven by high operating leverage and the ability to locate multiple tenants on a single structure. Financial returns on a tower often only become attractive once a tower adds a second or third tenant, challenging the ability of a competitor to build a new tower and compete for the business. Switching costs are also prevalent for American Tower, as carriers are responsible for all costs associated with adding or removing equipment on a tower. Additionally, carriers sign long-term leases, often 10 years or more.