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Femtocells Come Of Age....

|Includes:American Tower Corporation (AMT), CCI, SBAC

Very interesting stuff coming out of the Mobile World Congress in Barcelona, a host of market-ready femtocell products being marketed to carriers around the world.

Do a google news search on "mobile world congress femtocell" and you'll see what I mean.....check out my earlier articles for links to deeper discussion of my opinion of these.

Looking forward to reading the upcoming 10-K from American Tower (NYSE:AMT), the devil is likely in the details.

It strikes me as odd how the cell tower industry has much equity value at all

  • Technology development is squarely at odds with the longevity of this industry. Today at MWC Freescale Semiconductor unveiled a "MacroCell-on-a-chip".
  • There is an enormous financial incentive for engineers to develop a means of getting more capacity out of existing spectrum. The answer they have developed is cell-splitting, i.e. putting more antennae between existing cells, this means femtocells.
  • Towers were a great business when they had networks who needed them and carriers needed tower companies with scale. This is no longer the case. There is very little barrier to entry in the cell tower business. This is evident in AMT's margins. Now there are inexpensive antennas that can be deployed easily..
So why do people pay a high valuation for a debt-laden company with obsolete assets? I don't know. Wall St analysts do silly things like publish "Target Prices" because it is good for business. AMT does enormous business with Wall St banks. There is no better client of a bank than an acquisitive debt-issuer with foreign subsidiaries.....there is no fatter punter than AMT so it is only natural to expect these "analysts" to do what is good for their pockets, not yours.

Several analysts this week have raised their "Target Price" of AMT while at the same time cutting earnings estimates. All it takes is a small adjustment to the DCF WACC, and poof....whatever price you want becomes seemingly justified.

We'll see what the 10-K says soon......TD

Disclosure: I am short AMT.

Stocks: AMT, CCI, SBAC