Matt DiLallo, The Motley Fool
5 min read
SpaceX (NASDAQ:SPCX) could be preparing to shake up the U.S. wireless industry. The company reportedly wants to build a nationwide mobile network to compete with established wireless carriers. While that could be bad news for legacy mobile carriers, it could create a tremendous opportunity for two dividend-paying real estate investment trusts (REITs) that own cell towers: Crown Castle (NYSE:CCI) and American Tower (NYSE:AMT).
Here’s a look at the SpaceX rumors and which infrastructure REIT to buy if they prove to be true.
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SpaceX could supercharge demand for cell towers
Earlier this month, SpaceX agreed to purchase a low-band spectrum portfolio from private equity firm Grain Management for $8 billion. This spectrum improves range and allows signals to penetrate through walls and tree cover. It put the company a step closer to launching a mobile service in the U.S.
Now, the company is reportedly taking another step toward that strategy by seeking to secure space on telecom towers. According to a Bloomberg report, SpaceX is looking for access to 80,000 cell tower sites in the U.S. That report noted it’s in talks with Crown Castle about space on its tower network. The REIT currently owns, operates, and leases about 40,000 sites across the U.S. American Tower is also a leading tower owner with 42,000 sites across the U.S. and Canada (and more than 106,000 properties in other international markets).
The REITs lease space on those towers to the country’s three national mobile carriers (Verizon, AT&T, and T-Mobile) and other customers. Adding a fourth national carrier would create a new source of demand for space on existing towers. That’s noteworthy because tower economics significantly improve with each additional tenant. Due to the high fixed costs of building a tower, the return on investment for a single-tenant lease is low, but increases exponentially with each additional tenant. For example, a sample tower economics model in an American Tower investor presentation shows a 3% return on investment for a single tenant, 13% for two tenants, and 24% for three tenants.
However, there’s no guarantee that SpaceX will sign definitive leasing agreements. According to an estimate by TD Cowen, it would cost more than $80 billion to build out a nationwide network. That’s a massive capital outlay for a company that’s already spending heavily on AI and space. It could partner with an existing carrier, such as T-Mobile.
