Forget the Noise, Here’s How to Invest for Net Neutrality

Net neutrality is here, for now. But instead of debating whether its right or wrong, take advantage of the current opportunity to invest for the
Well, net neutrality is a reality, to the joy of some and the disdain of others. Regardless of which side of the argument you’re on, studious investors should be looking beyond the near-term murkiness to the companies that will be winners in the long-term.
On the surface, content companies like Netflix (NASDAQ: NFLX) will benefit from net neutrality, and the cable companies like Comcast (NASDAQ: CMCSA) will suffer.
That means Comcast will no longer be able to reduce the speeds that Netflix content is streamed. And for a company that accounts for 35% of the Internet traffic in the U.S., that’s definitely a positive for Netflix.
But is all this too shortsighted?
Recall that we brought up the notion of net neutrality implications back in November. Back then we profiled Level 3 Communications (NYSE: LVLT), not because it would be a winner if net neutrality came to fruition, nor for its benefits if net neutrality was steamrolled.
Rather, Level 3, which is a telecommunications infrastructure company, is a winner regardless of net neutrality. The whole purpose of that piece was to shine a light on the state of Internet infrastructure in the U.S., and not to argue whether net neutrality was good or bad.
If net neutrality teaches us anything, it’s that Internet usage is out of control. And that usage will continue to grow as we connect more devices to the Internet grid, with concepts like the “Internet of Things” and connected home products gaining traction.
It’s times like these that Mark Twain’s quote rings true: “When everyone is looking for gold, it’s a good time to be in the pick-and-shovel business.”
Gold right now is the Internet and content.
One “pick and shovel”player is Level 3, which is focused on fiber cable and the like. But other “pick and shovel”companies are the wireless tower operators.
I’m looking our further than just the next couple of years, trying to wrap my head around the idea of complete cord-cutting. I’m talking about being able to use wireless Internet for everything in your connected home, including using wireless as your primarily form of home internet and for cable.
With all this said, here are three top plays on net neutrality:
No. 1 Play on Net Neutrality: American Tower Corp. (NYSE: AMT)
American Tower is the largest player in the space with a near $40 billion market cap. It’s also the largest in terms of wireless towers, operating some 68,000 towers across the globe. Compared to the rest of the industry, the stock has been a relative laggard — with shares up just 1% year-to-date.
But the nice thing about being so large is that American Tower can still capitalize on countries early on in the infrastructure build-out phase, such as Brazil and India. It’s a real estate investment trust (REIT), paying a 1.5% dividend yield. Supporting that dividend is cash flows from leases that last five to 10 years, generally having annual lease escalations of upwards of 5%.
No. 2 Play on Net Neutrality: Crown Castle International (NYSE: CCI)
Crown Castle also makes its money from operating and leasing the wireless towers that it owns. It’s a little smaller than American Tower, with a $28 billion market cap. Nonetheless, it’s still an interesting story given its long-term contracts and recurring revenues.
And it has the best dividend yield in the space.  Crown Castle is also a REIT, having completed the transition at the beginning of 2014. Along those lines, it offers a 3.8% dividend yield.
No. 3 Play on Net Neutrality: SBA Communications (NASDAQ: SBAC)
By market cap, SBA is the smallest of our three tower operators — coming in at $16 billion. Its focus is on the Eastern US and, again, its revenues are primarily generated from leasing its towers.
The typical contact for SBA runs five-plus years and has multiple renewal options. Although it’s one of the smaller players, it does have one of the newest portfolios of towers, which means that repairs and capital expenditures should be minimal for the interim-term.
Just as I did in November, I’m leaving you with the real lesson of net neutrality, and that’s the fact that Internet infrastructure will need an overhaul going forward. The wireless tower operators will continue to benefit from network upgrades and the nationwide transition to LTE. But they’ll also be instrumental to the shift toward wireless Internet everywhere.

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