It looks like Elon Musk changed his mind...

In REITs for Dummies, I explain why cell towers are some of my favorite essential infrastructure plays.

For one thing, demand is high. For another, it’s diverse. Regardless of whether people recognize it or not, we all rely on cell towers to:

And demand will only increase from here considering the continuing rise of artificial intelligence (AI), connected vehicles, the internet of things, mobile broadband, and smart devices.

While cell towers provide absolutely none of that in and of themselves, they do provide air-up-there places for actual wireless carriers to operate. They own or lease the necessary land and structures, then rent out space to companies like Verizon (VZ) and AT&T (T).

Those providers then handle everything else from there: equipment, installation, and maintenance. As such, cell tower real estate investment trusts (REITs) themselves get to run pretty capital-efficient businesses with steady rental revenue.

Part of this is because each tower can typically accommodate three or four wireless carriers at a time. Another part is because of the competition, or lack thereof.

Cell towers might not look like much as structures go: just relatively thin, tall masses of metal. Yet there’s actually a lot of detail that go into them, from navigating zoning restrictions to obtaining permits and connecting utilities…

To dealing with community opposition. There can be significant pushback about constructing new towers, with residents preferring to use them from someone else’s backyard.

That distaste might not be as blatant as what we’re seeing with data centers these days. But it’s still significant enough to make existing infrastructure more valuable still.

The markets seemed to have forgotten all that for a time. However, that disfavor gradually faded away this year.

And then last week happened.

On October 8, privately held global investment firm Grain Management agreed to sell its nationwide 800 MHz spectrum portfolio to SpaceX (SPCX).

The FCC still needs to approve the deal, mind you. But it’s likely nonetheless.

Mere months ago, SpaceX owner Elon Musk said his operations would eliminate cell towers. But that’s old news now, as he’s clearly realizing he might need them after all.

The reason Musk wants the portfolio, you see, is to help SpaceX expand Starlink Mobile – its satellite-to-cellular network – through terrestrial wireless infrastructure. That way, it can deliver connectivity from both outer space and the world.

The news sent shares of competing entities Verizon, AT&T, and T-Mobile (TMUS) down sharply last Friday. But cell tower REITs rallied on the possibility of even more demand.

If they can gain business from SpaceX, that enthusiasm makes sense.

It also makes sense considering the numbers involved here, starting with T-Mobile. In August, that carrier sold its nationwide 800 MHz spectrum portfolio to Grain Management for $2.9 billion in cash alongside Grain’s 600 MHz spectrum licenses.

It’s only been two months since then. Yet Grain will be getting a whopping $8 billion from SpaceX for the trade.

Admittedly, there’s no spectrum licensing involved this time around to even out the sale. And T-Mobile might actually get a cut from Grain’s side of the deal, diminishing its profits further.

Even so, it does go to show you how important these networks are.

For years, investors have wondered and even worried about cell tower REITs’ tenant concentration since there are only three major carriers. If something happened to one of them, it could be devastating for its landlords as well.

On the one hand, that risk isn’t very high considering how significantly sized and necessary the major wireless carriers are. On the other, cell towers did feel the effects after T-Mobile acquired Sprint in 2020, cancelling leases in the consolidation.

And then the initial wave of 5G-induced growth moderated, dampening investor enthusiasm further.

But if SpaceX becomes a fourth major customer, that would almost certainly be a game changer. One positive possible outcome is that it would need tens of thousands of land-based locations amounting to tens of billions of dollars in network investment.

Those numbers are based on certain industry estimates, mind you. SpaceX itself hasn’t publicly commented on important details such as how much it will rely on existing third-party towers.

It could, instead, either build out its own infrastructure – though that would be enormously expensive and time-consuming – or, more realistically, partner with existing carriers.

In short, investors shouldn't assume every dollar SpaceX spends will go into cell tower REITs’ pockets. At the same time, I understand why Crown Castle especially gained as much as it did last week.

It’s the only U.S.-focused tower pure-play among the three major publicly traded tower REITs, for starters. American Tower and SBA Communications own substantial international portfolios along with their national holdings.

But more importantly, Crown Castle's concentration in major U.S. metropolitan markets could give it a competitive advantage as SpaceX builds out its terrestrial wireless network.

It already has an extensive satellite constellation capable of providing connectivity in rural and underserved areas. So its greatest need for additional ground-based infrastructure may be in densely populated cities and suburbs, where higher data consumption and network congestion make terrestrial towers especially valuable.

If SpaceX prioritizes those markets, Crown Castle's existing tower locations could position it to capture a meaningful share of the new leasing demand.

Of course, that depends on Musk’s ultimate network design, which has yet to be disclosed.

To understand exactly how substantial the opportunity is, consider an illustrative monthly rental rate of $2,000 per tower. In that case, every 1,000 additional leases would generate about $24 million in annual rental revenue across the sector.

That’s roughly 20 basis points (bps) of American Tower, Crown Castle, and SBA Communications’ combined projected 2026 U.S. property revenue.

And don’t forget that some – perhaps much – of this could be implemented with little to no effort or expenditure by cell tower companies. Just as long as they have the infrastructure in place and available – and Musk wants them – they would get automatic higher property-level cash flow right.

Anyone interested in capitalizing on this newest cell tower development should keep a few risks in mind. The biggest ones, as we’ve largely noted already, include:

So as usual, I’m not chasing the news, exciting though it might be. All we know right now is that Musk is in the game somehow, someway.

I want more details first before I make any investment decisions.

At Wide Moat Research, we’re looking for opportunities involving essential assets that come complete with durable competitive advantages, recurring cash flows, and long-term shareholder value potential.

Right now, I’m convinced there’s something worth trading. It’s just a matter of figuring out exactly what it is.

As soon as I do, I’ll make sure to let you know!

Happy SWAN investing!

Brad Thomas