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f f

HeadquartersoftheUS$585.4millionSiteSharingvaluationfirm,Brazil

.

WerateAmericanTowerCorp.(NYSE:AMT)aStrongSellandvalueitat$44.57pershare,

representingdownsideof40%.AMThasseriouschallengesdomesticallyandinternationallythathavenotbeenfactoredintothestockprice.Ithasengagedinavaluedestroyinginvestmentbingeoverseas,andwehaveidentifiedasignificantmaterialmisstatementintheCompanysaccountsthatcouldamounttofraud.

ThereisanapproximatelyUS$250milliondiscrepancybetweenwhatAMTclaimstohavepaidfortheacquisitionoftowersinBrazil,andtheactualsellingprice.AMTclaimedtohavepaidUS$585.4millionforthetowers,buttherealpricewasclosetoUS$300million.IfAMTisawareofthisdiscrepancy,it would amount to fraud. We have provided our

Company:AmericanTowerCorp

Ticker:AMTIndustry:WirelessTelecom

Services/REITThesis:StrongSellReportDate:July17,2013TargetPrice:$44.57StockPrice:$74.71

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FROTHYMARKETSMAYPROMOTENEFARIOUSCOMPETITIONANDINTERNALDEFECTIONS ...............72MACRO-ECONOMICRISKS:COSTS,COSTS,ANDMORERISINGCOSTS ........................................................ 73

Q:HOWDOYOUKNOWWHENWALLSTREETISSETTINGINVESTORSUPFORAFALL?A:WHENANALYSTSMODELSDISAGREEONEVERYTHING,EXCEPTTARGETPRICE. . 74

CANTMODEL6%TO8%REVENUEGROWTHINTHEUSGOINGFORWARD?JUSTTAKETHECOMPANYSWORDFORIT. ................................................................................................................................... 75

APPENDIXA.1:VALUATION....... ....... ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ..... 77

EXHIBITA.2:CONSOLIDATEDHISTORICALANDPROJECTEDFINANCIALSTATEMENTS................................................................................................................................................................... 86

EXHIBITA.3:COMBINEDANDREGIONALHISTORICALANDPROJECTEDSEGMENTEBITA ...................................................................................................................................................... 91

EXHIBITA.4:DETAILEDREGIONALEBITDAHISTORICALANDPROJECTEDFINANCIALDATA ....................................................................................................................................................... 95

APPENDIXA.5:COSTOFCAPITAL...... ....... ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ........108

APPENDIXA.6:AFFO ....... ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ........ ....... ........112

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INTRODUCTION

Investors seeking to own a REIT that is going to rapidly grow its AFFO and dividend foras far as the eye can see should not own AMT.

American Tower Corp. (NYSE: AMT) is a great story. However, it is not a greatcompany. Investors think that because wireless data usage in the US is growing rapidly,

AMT will continue to deliver strong domestic growth year after year. The growth storyis enhanced by AMTs rapid expansion into emerging and frontier markets, supposedlypositioned to capitalize on the oft-heralded newly moneyed middle classes of India,South America, and Africa. REIT investors see a company with plenty of headroom togrow its dividend.

The reality is disappointing.

The best days of the tower business are now behind it. Unlike traditional real estate, thismodel is susceptible to disruptive technologies. These technologies are not theoretical in fact, the single largest replacement for the cellular tower is a technology we have allused for years: Wi-Fi. Mark our words, in five years you will be downloading data toyour PDA or tablet in far greater quantities than today; however, the antennae to whichyou are connecting will seldom be on a cellular tower. Although tower operators oncedrove efficiency, they have now become rent-seekers. Carriers cannot afford this model,

and towers will soon be the most expensive option of last resort.

AMT could have conserved its cash and prepared for a slow growth future withcompressing margins. But that is not what it chose to do. It has embarked on an asset

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There is a potentially unseemly underbelly to AMTs overseas activities. As we show inthis report, there is approximately US$250 million missing from a transaction in which

AMT bought towers in Brazil. There are therefore material misstatements in AMTsfinancials. (We are providing our research on this matter to the SEC.) We also noteindications that there could have been similar problems with transactions years earlier.Regardless of what the explanations for these issues ultimately turn out to be, therecertainly are reasons to question the ethics of senior management. At the least, we notethat chairman and CEO James Taiclet is an avid seller of AMTs shares, disposing ofapproximately 90% of the stock he receives from option exercises. He appears to beleaving investors holding the bag.

Summary

We rate American Tower Corp. (NYSE: AMT) a Strong Sell and value it at $44.57 pershare, representing a downside of 40.3%. AMT has serious challenges domestically andinternationally that have not been factored into the stock price. It has engaged in a valuedestroying investment binge overseas and we have identified a significant materialmisstatement in the Companys accounts that could amount to fraud.

There is an approximately US$250 million discrepancy between what AMT claims tohave paid for the acquisition of towers in Brazil, and the actual selling price. AMTclaimed to have paid US$585.4 million for the towers, but the real price was close toUS$300 million. Our analysis is based on financial statements of the company AMTacquired, Central Bank of Brazil records, and six industry sources, including two whohad direct knowledge of the closed transaction. If AMT is aware of this discrepancy, itwould amount to fraud. We have provided our research to the SEC.

There are reasons to question the ethics of AMTs management. In addition to Chairmanand CEO James Taiclet having led the company during some of its admitted optionb kd i h i h di bi i h h hi l

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growth is to feed the beast and make more and more (often value destructive)acquisitions. This model of growth is impossible to sustain.

AMTs international business is also part carry trade and part levered directional currencybet. AMTs model is to fund in US dollars and invest in high yielding countries, wherehigh local interest rates cause rent yields to be higher than in the US. However, AMToften underperforms local government bonds. Considering that AMT has substantialexecution risk layered on top of the high local rates, and it is invested in illiquid assets,investors are faring poorly. AMT does not hedge its exposure to the myriad emergingand frontier market currencies to which it is exposed, making it also a levered directional

currency bet. This bet has resoundingly gone south this year.

AMTs international IRRs are generally poor, and far below the cost of capital. Weobtained granular data on all of AMTs operations and found that the internationalbusinesses have a much higher risk profile than the US operations. We analyzed theIRRs for four countries: India, Brazil, Ghana, and Germany. In the case of the first three,AMTs IRRs are no greater than those of the local currency government bonds. AMT isoutperforming German government bonds, but is only generating a 4% IRR.

While wireless data usage will grow, much of this growth will circumvent cellulartowers. Tower operators have gone from drivers of efficiency to rent-seekers, andcarriers, with compressing margins, cannot afford the status quo. Going forward weexpect domestic growth to slow and international markets to remain volatile withincreasing headwinds to growth. Wi-Fi and more recently introduced technologies aremaking towers the most expensive option of last resort. AMT faces rising ground rents in

the US due to the ground rent market becoming more efficient due to the internet and theubiquity of cellular phones.

US tower industry growth has peaked, and we expect limited revenue per tenant growth

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cash flow. Crown Castle, Inc. (NYSE: CCI) notably states that the REIT structure isincompatible with emerging market tower operations.

AMT is operating in challenging markets, and without sufficient risk management. Poorquality due diligence (i.e., only inspecting 10% of towers before closing purchases) haslikely led to model-busting capital expenditures. More stringent tower regulations arealso expected to increase costs and negatively impact margins. Capricious governmentsare always a wild card that AMT faces in emerging and frontier markets.

Wall Street is setting investors up for a fall in AMT. We have reviewed five analyst

models, and it is clear that they do not understand the company or know how to model it.They use widely varying assumptions, but (surprise!) seem to largely agree on the value.Investors should be particularly wary given that we are in a REIT bubble, as evidencedby investors day-to-day fortunes being tied to the words of Federal Reserve chairmanBen Bernanke.

US$250MILLION DISCREPANCY IN AMTS US$585.4MILLION

TOWERACQUISITION IN BRAZIL. THE MATERIAL

MISSTATEMENT COULD AMOUNT TO FRAUD.

There is a US$250 million material misstatement in AMTs accounting for a purportedlyUS$585.4 million tower acquisition in Brazil. It is difficult to see how the Companywould be unaware of this misstatement; and, if AMT is in fact aware of the discrepancy,it would amount to fraud. AMT disclosed paying US$585.4 million for 666 towers in

Brazil in 2011. It is highly probable that the real consideration for the towers was onlyapproximately US$335 million. However, AMTs accounts reflect the US$585.4 millionpurchase consideration. We have provided our findings to the SEC, and we call uponAMT b d t th hl d t tl i ti t thi t ti

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US$420 million to US$585.4 million, purportedly starting with 565 sites and ultimatelybecoming 666 sites.

On February 28, 2011, AMT announced that it was acquiring 100% of the shares of acompany that owned 565 sites in Brazil for approximately US$420 million.

2The

acquisition was to close on March 1, 2011 (the day after this filing), and achieve financialclose on June 1, 2011.3 The per tower price would have been US$743,000, which alsowould have been by far the most AMT had ever paid for towers overseas.

Barely two months later, AMT announced that on March 1, 2011 literally the day after

it filed its 2010 10-K that cited the aforementioned deal terms AMT had closed theacquisition, but for a larger amount of towers and money. In the new filing, AMTdisclosed that on March 1, 2011, it had acquired 627 sites for approximately US$553million, which was a per tower valuation of US$882,000.4 On a conference call held thesame day, AMT CEO and chairman James Taiclet explained that AMT upsized the dealby 62 towers after completing its due diligence, and that There may be up to anadditional 40 sites under construction that [AMT] will acquire over the next severalmonths.5 When AMT filed its 2011 10-K in 2012, we learned that the transaction had

been purportedly upsized again to 666 towers for US$585.4 million.6 This works out to aper tower price of US$879,000.

Muddy Waters became interested in this transaction at first because the per towervaluation was so high. The price of US$879,000 is high even by US tower pricestandards, which is approximately US$656,000 in recent years. The disparity is evengreater when compared to other international transactions, which often have purchaseprices inflated by AMTs de facto lending business. Below is a graph setting out AMTsper tower purchase prices for international acquisitions. Many of these transactionsreflect the de facto lending businesss purchase price inflation effects.7 We would not besurprised if there are similar problems with other transactions we researched in depth

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To identify the seller, we searched AMTs Brazilian corporate documents through anonline government portal, and saw that on March 3, 2011, AMT resolved to buy theshares of Site Sharing NE S.A.8

We then obtained financial statements for Site Sharing NE and the parent from which itwas spun out, Site Sharing do Brasil Empreendimentos em Telecomunicaes S.A. (Site

Sharing Brazil, and together with Site Sharing NE, Site Sharing). It is commonpractice for privately-held companies in Brazil to file their financial statements publicly.

9

0

100

200

300

400

500

600

700

800

900

1000

1998 2000 2002 2004 2006 2008 2010 2012 2014

Avg.

$/Site($'000)

Announcement Date

International Acquisitions

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AMT discloses (to this day) that it paid 12x to 13x EBITDA for Site Sharing. GivingAMT every benefit of the doubt,

11the EBITDA of Site Sharing should have been at least

BRL 70 million, yet in the year ended December 31, 2010 it was no more than BRL 45.5million. 12 We are left wondering what Mr. Taiclet knew and did not know. He made thefollowing statements about the transaction on the May 3, 2011 conference call:

James Taiclet: The sites we acquired in Brazil are high performing towers andthe multiple pay was in the range of 12x to 13x adjusted EBITDA.

Philip Cusick, Macquarie: This is Richard Choe for Phil. Going into the Brazildeal, I guess it was upsized a little bit and you said you paid 12x to 13x cash flow.Was that because the incremental sites were higher or was this kind of lookingback and kind of re-upping the price for the sites?...James Taiclet, Executive Chairman, Chief Executive Officer and President:Richard, it's Jim Taiclet. Basically, what happened with our Brazil transaction isthe purchase prices adjusted for the actual cash flows that were occurring up thetowers new and existing in the deal. But the bulk of it was driven by the newtowers that were completed and ready to transfer. So those both contributed

The EBITDA AMT was implying for Site Sharing at that time was at least 53.5% higherthan Site Sharings actual EBITDA. We combined the income statements of Site SharingNE with those of Site Sharing Brazil to analyze whether their EBITDA jibed with AMTsdisclosures. Site Sharing NE was a subsidiary of Site Sharing Brazil. Site Sharing NE

SA was incorporated on March 3, 2008, likely in preparation for a sale of the towers.Site Sharing Brazil transferred all assets into Site Sharing NE by September 10, 2010.The transferred assets included up to 687 rooftop and tower sites.13 We combined thetwo sets of financials in order to calculate the maximum EBITDA that Site Sharing NE

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AMTs initial purchase price allocation for the acquisition confirms Site Sharingscombined financial statements. AMT initially allocated US$33.2 million to PP&E.

14Per

the Brazilian financial statements, the book value of Site Sharings combined PP&E as ofDecember 31, 2010 was US$32.3 million (BRL 53.6 million). It appears as though AMTinitially allocated to PP&E based on Site Sharings PP&E carrying value, with the slightUS$ difference due to currency fluctuations. Thus, AMTs disclosure confirms theBrazilian financial statements of Site Sharing Brazil and Site Sharing NE. (Note that theEBITDA margin is so high because of Site Sharings abnormally high rents, which wereapparently up to 3.0x market on some towers.)

At 12.0x to 13.0x EBITDA, AMT would have paid US$327.6 million to US$354.9

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month was only US$7.0 million, which was when its Brazil business was much youngerand presumably free cash flow negative.

17

The graph below shows AMTs USD injections to its Brazil subsidiaries by quarterbetween Q1 2006 and Q2 2011, and the deltas to acquisition consideration.

-

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

Q1

06

Q2

06

Q3

06

Q4

06

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11USD Injections Consideration Delta

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transaction.19 AMT made no other tower purchases in Brazil in 2011. This amount isenormously more than AMT would have needed for its operations, particularly

considering it appears to have been free cash flow positive in Brazil for at least two years,judging by the absence of other injections.

The Q2 2011 disclosure is more egregious:

On March 1, 2011, the Company acquired 100% of the outstanding shares of acompany that owned 650 communications sites in Brazil for $583.7 million, ofwhich $543.3 million was paid using cash on hand during the six months ended

June 30, 2011.20

Regarding the extremely remote chance that AMT paid an additional US$250 million tothe selling shareholders offshore (and the Site Sharing financials are wrong, the sixsources are all wrong, and the Q1 2011 US$419.2 million disclosure never happened),AMT would have been taking a significant risk. Even though the parties could attempt tocall such a payment something other than tower purchase consideration (e.g., consultingfees), AMT would be at risk of abetting the selling shareholders, who are Brazilian, in

committing tax fraud. This is not something that multinationals with approximatelyUS$1 billion invested in Brazil would usually do.

Going further into Fantasyland, if the reason AMT wanted US$335 million cash in Brazilin May 2011 had nothing to do with the Site Sharing NE purchase, AMT would have lostsubstantial money by converting the currency in May 2011 and leaving it on deposit.AMT executed its next Brazil transaction (i.e., its next major use of cash) on March 30,2012.21 In May 2011, the average exchange rate was 1.614, which was close to its alltime high. On March 30, 2012, the rate was 1.823, which would have been a loss of11.5%. That alone would have been a US$41.0 million drawdown, which would be afiring offense in most companies that could afford to lose that kind of money without

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We obtained the name of AMTs appraisal firm, Econap Organizaao Contabil Ltda.,from minutes of a shareholder meeting of AMT Brazil.

22The purpose of the meeting was

to formalize the Site Sharing NE acquisition. The minutes list the accounting firmsaddress as Rua Dom Joaquim de Oliveira 126, So Paulo, SP.23 Numerous onlinedirectories confirm this address.

The appraiser on a purportedly US$585.4 million transaction is located in the house tothe left, next to the wall with the bullet holes.

Source: Google Maps Street View

This neighborhood appears not to be a central business district.

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Something to Keep in Mind

One bit of information that caught our attention, and might be relevant to the discrepancyare forum postings by someone calling himself Enki Ea. Without further evidence, thefollowing should be discounted, but kept in mind. The posting, appearing in thecomment section of articles or videos on numerous financial websites, including ZeroHedge, Max Keiser, and Bloomberg, is a posting titled CRIME/TERROR/WEAPONSBank in South America... The post discusses a small Brazilian bank that purportedly isin the center of money laundering for narco-traffickers, corrupt Brazilian politicians, andeven someone linked to Hezbollah. The post then names seven individuals whom it

alleges are the main culprits. One of the individuals named is Flavio Guimaraes.24

Flvio Ognibene Guimares was the majority shareholder of Site Sharing Brazil via hiscompany Ltda Sestri Empreendimentos e Participaes Ltda. Mr. Guimares also ownedshares in his own name in Site Sharing NE when it was sold to AMT.25 We contactedand spoke with the author of these posts to query whether he is referring to Mr.Guimares of Site Sharing. The poster, whose real identity we do not know, stated thathe is familiar with Site Sharing Brazil, and that Site Sharings Mr. Guimares is indeedthe same individual to whom he is referring.

We want to be clear that we have been unable to document these allegations by "Enki Ea"and have no indication at all that AMT has any involvement in any activities of Mr.Guimares other than purchasing a company of which Mr. Guimares was the controllingshareholder. However, given the irregularities surrounding the purchase of this Braziliansubsidiary, we are of the definite view that any independent investigation or interested

regulator should examine the involvement of Mr. Guimares in the transaction.

IS UNETHICAL (EVEN ILLEGAL)BEHAVIOR IN AMTS

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discrepancies in the past between the way the two companies disclose their sides of pasttransactions with each other. Industry sources speculate that AMT and NIHD are close to

completing another transaction, which would likely range from US$500 million to US$1billion in value.

AMTs Poor Corporate Governance DNA

In 2006, AMT settled a stock option backdating class action lawsuit for $14 million afteradmitting that it did in fact illegally backdate options.26 According to a 2006 Center for

Financial Research and Analysis report, AMT was one of the more egregious backdaterof options.27 Several senior AMT executives and board members departed in the wake ofthe scandal; others did not.

The plaintiff with whom AMT settled alleged that the backdating continued into 2005.28Jim Taiclet became president of the Company in September, 2001; CEO in October,2003; and, chairman in February, 2004. In addition to holding positions of authorityduring the time that AMT was backdating options, Mr. Taiclet was alleged in the class

action complaint to have received backdated options.29 Yet, he remained at theCompany. We wonder why there was not a more thorough housecleaning; and, wewonder whether those who escaped relatively unscathed took away the wrong lessonsfrom the episode.

However, our concern is more acute with William Hal Hess, who had been AMTsgeneral counsel from 2002 until 2007. This covers much of the period when thebackdating occurred. In addition to being an attorney, he previously practiced as a CPA.

It would be hard to find somebody who would seem to know more about propercorporate governance than he. Mr. Hess is now AMTs executive vice president ofinternational operations and president of Latin America, and is one of Mr. Taiclets fivedi

30

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and AMT bought the shares back from him after very short holding periods, and atvaluations far greater than what he had paid.

Mr. Hesss transactions were disclosed in footnotes to the proxy statements. However,this type of arrangement had the effect of keeping Mr. Hesss full compensation out ofthe compensation table portion of the proxy statement, which possibly caused a largenumber of shareholders to be unaware of his total compensation. While all corporateexecutives owe a fiduciary duty to the shareholders, we find it particularly troublingwhen a general counsel engages in such aggressive practices. General counsels are(theoretically) part of the controls that protect shareholders.

We also have concerns regarding the overlapping board memberships of Carolyn Katz,who presently chairs the audit committees for both AMT and NIHD. Ms. Katz joinedAMTs board and audit committee in 2004.32 She became chairwoman of AMTs auditcommittee in 2007.33 Ms. Katz was also a defendant in the backdated options classaction lawsuit discussed above, although the Amended Complaint appears to allege onlythat she colluded in the practice and not that she personally received backdated options.She has been a member of NIHDs board since 2002,34 and has chaired NIHDs audit

committee since as early as 2004.35 The problem is that both NIHD and AMT carry ontheir balance sheets towers than AMT purchased in 2003 through 2008.36 Moreover, thetwo companies do not agree on the number of towers purchased, and in possibleforeshadowing to the Site Sharing US$250 million discrepancy, AMT has consistentlyreported purchasing 34 more towers than NIHD reports selling. This differential hastranslated into AMT booking consideration payments to NIHD that are higher than whatNIHD has recognized by US$6 million to US$7 million.37

AMT states that as of December 31, 2003, it had acquired 665 towers from NIHD forUS$112.4 million. During this same period NIHD reports it sold only 631 towers forUS$106.4 million.38 Note that AMT claims to have acquired 34 more towers than NIHD

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Also strangely, both companies are presently carrying these towers on their balancesheets. We believe that NIHDs accounting is erroneous in this instance, rather than

AMTs; however, Ms. Katz has been on both boards and audit committees around thetime of the transactions and during the companies ongoing reporting. We do not knowhow to interpret these facts, but we have yet to think of an explanation that gives uscomfort.

NIHDs annual disclosures on this transaction repeatedly report this sale and leaseback asa financing transaction wherein NIHD maintains these tower assets on its balance sheet.The below excerpt is from NIHDs 2004 10-K:

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NII has been disclosing its retention of the towers on its balance sheet every year since

2002, and in subsequent years NII has expanded the level of detail and increased thethoroughness of the description.45

If AMT has not yet finalized its expected purchase of approximately 4,500 towers inBrazil and Mexico from NIHD,46 we encourage the independent, disinterested directorsto take a critical look at this transaction.47 Our industry contacts in Brazil informed usthat NIHD has been informally shopping this portfolio as a sale and lease-back in anattempt to entice buyers to join the formal which bidding began in January.48 NIHD is in

weak financial shape. 49 Apparently many potential bidders are reluctant to take the creditrisk particularly given that there is a real chance NIHD will be acquired by anothercarrier and eventually consolidate infrastructure. This tower sale would likely be in therange of US$500 million to US1.0 billion. Not only should investors keep in mind theaforementioned overlapping board and reporting issues, but they should note that AMTscompensation structure (not unlike pre-financial crisis banks) incentivizes AMT to makeacquisitions, regardless of whether they create or destroy value.

AMTs Compensation Incentivizes Value Destruction; CCI is More Prudent

Regardless of controls and culture, AMTs compensation structure goes a long waytoward explaining why it is destroying value through poor quality and risky internationalacquisitions. Both Mr. Taiclet and Mr. Hess were compensated in part for growing thetower base through acquisitions.50 We understand that other AMT internationalmanagers are also incentivized to buy towers. As we detail throughout this report, AMT

places much more emphasis on quantity than quality.

It is inappropriate that AMT adjusts managements financial performance goals forfl i

51A d il i f AMT i i l b i d l i

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We believe that the financial targets should however be adjusted to exclude the impact of

AMTs de facto lending business, in which it books loan repayments as revenue, therebyartificially boosting EBITDA margins and other operating metrics (see AMTs De FactoLending Business Explained).

We are inclined to take a skeptical view of any company whose CEO sells substantiallyall of the shares he acquires from option exercises. CEOs ideally think about the shareprice years down the road, and manage accordingly. CEOs who are big sellers of sharestend to be overly-focused on the short-term. In todays world of lackluster growth, high

leverage, and stretched valuations, trading the future for the present has more deleteriousconsequences than ever. We have the impression that many of AMTs emerging andfrontier markets investments are driven more by a desire to have a story than asustainable business. (We have a similar opinion of AMTs decision to convert to aREIT, which we see as being incompatible with its geographic scope). The toweroperators halcyon days are at an end, and AMT would have been far better servedinvesting its cash in other ways.

We see the specific causes of AMTs overseas value destruction as being CEO and seniormanagement compensation tied to international tower acquisitions, including sale andleaseback lending transactions,52 and CEO compensation tied to stock priceperformance.53 To exacerbate this, AMT CEO Jim Taiclet sells approximately 90% ofthe shares he receives from option exercises, as shown in the table below. Substantiallyall buys are from option exercises.

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AMTS INTERNATIONAL BUSINESS IS A DE FACTO LENDING

BUSINESS, AND ARTIFICIALLY BOOSTS AMTS REVENUE,

EBITDA, AND PROFIT,WHILE SHARPLY CURTAILING GROWTH

PROSPECTS.

AMTs international business is part tower operator and part lender to its anchor tenants.This presents several significant issues. Because AMT books these loan repayments (i.e.return legs of financial round trips) as rent revenue, the repayments artificially inflateAMTs revenue, gross profit, EBITDA, and AFFO. AMT guides investors to forecast

annual international revenue growth of 10% to 12%; but, because rents from anchortenants are often partly loan repayments, adding tenants to the towers generates relativelylittle growth. Thus, AMT is forced to spend more money and make more loans in orderto meet these expectations in other words, it has to keep feeding the beast. The biggestgrowth issue though is that when the initial leaseback terms end, the anchor tenants rentsusually reset much lower, and growth becomes significantly negative. AMTscounterparties can be risky credits, and these de facto loans significantly increase

counterparty risk. These loans are part of the reason why AMT often generates IRRslower than government bonds in three of the four markets we analyzed, and these loansserve only to exacerbate the value destruction. There might be adverse tax effects of thisbusiness that further depress IRRs.

AMTs De Facto Lending Business Explained

When AMT purchases a tower from a carrier and leases it back, both parties have theopportunity to structure the transaction in a way that improves the optics of theirfinancials. If AMT pays an amount above market for the tower in exchange for thecarrier paying an above market rent, it confers the following (investor unfriendly)

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If AMT is buying a tower from a carrier, two other major factors come into play: the age

of the tower, and its construction quality. Both of these will determine whether AMTneeds to spend money, and how much, in order to co-locate tenants on the tower.

Assume for the sake of simplicity that Carrier A owns a single tenant tower in otherwords, it is the only tenant. After making allowances for any maintenance cap ex, AMTdetermines that it is willing to pay US$100,000 for the tower with a market rent back ofUS$1,000 per month with CPI escalators. If Carrier A realizes that AMT is a deep-pocketed aggressive company with low funding costs, it might tell AMT that it wants

$150,000 for the tower. AMT might very well pay that inflated price, but in exchange itwould receive inflated rent.

How Lending Distorts AMTs Income Statement

Using the simple example above, assume that AMT and Carrier A agree that there arethree options:

US$100,000 market purchase, 10-year market leaseback at US$1,000 per month. US$125,000 purchase, 10-year leaseback at US$1,250 per month. US$150,000 purchase, 10-year leaseback at US$1,500 per month.

We will use a 3% annual rent and expense escalator, and will assume that monthly cashoperating expenses are US$400. As shown below, by increasing the price it pays for thetower, AMT increases its EBITDA margin from 60.0% to 73.3%.

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AMT is able to depreciate or amortize the entire amount of the asset purchaseover 10 years. This ensures that we are assuming these transactions are tax

neutral. In reality, AMT might be paying additional local tax due to thesetransactions (see Potentially Adverse Tax Treatment Due to Booking PrincipalRepayments As Revenue infra).

We assumed a local corporate tax rate of 25%. Assumes no co-locations we are only modeling the anchor tenant economics. We assumed no maintenance cap ex or expenses other than US$400 per month,

and we have allocated no corporate SG&A. At the termination of the 10-year leases, Carrier As rent reverts to market, which

we have assumed increased by 3% per year from the commencement of the lease. To calculate terminal value, we assumed a WACC of 9.5% (which we believe is

conservative, as we explain in Appendix A.5: Cost of Capital) and a long-termgrowth rate of 3%. Neither of these assumptions affect whether IRR decreasesthrough lending.

One of the issues for investors trying to understand this business model is that rents donot necessarily move in a linear fashion with above market multiples. There are

qualitative factors that affect tower operators decision making process with respect tothese negotiations with carriers, so it is very difficult for investors to understand whatIRRs AMT generates on these transactions. The Company has stated internal IRRhurdles, but as we detail infra in this report, AMTs stated IRR hurdle rates are too lowfor the markets in which they operate, and our models show that AMT will likely notachieve its IRR hurdles for most of these markets.

Lending Model is Inherently Lower Growth

When AMT lends money to a carrier as part of a sale and leaseback, it creates twoi di f h Fi l i d h dl h

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the YOY changes in Year 11 revenue and EBITDA, assuming in Year 11, the tenants pertower ratio grows by 0.1 (to 2.0).

AMT will likely respond to the foregoing by pointing out that its leasebacks provide forrenewal rates at the above market rates. We understand that it is rare that a carrier renewsabove market. The carriers understand that they have repaid the loan, and are reluctant topay more than market.

Overseas, the leverage is firmly on the carriers side. This is an important point for US

investors to understand not only in the context of the de facto lending business, but in allaspects of the international business. The third party tower operator came into being inthe US right at the transition from analog to digital, and before the cell phone becameubiquitous. The transition to independent operators happened quickly, and in their haste,the US carriers ceded too much leverage to the tower operators. As we discuss infra, thispendulum is now finally swinging back the other way. However, we believe that foreigncarriers have learned valuable lessons at the expense of the US carriers about how towork with the tower operators and not lose the advantage. Jay Brown of Crown Castle,Inc. (NYSE: CCI) hit the nail on the head when he talked about overseas moats:

as we look at emerging markets, we just have not gotten comfortable that the

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consumers will end up paying out of their pockets. As a foreign company with littlepolitical clout, AMT has to be very careful about threatening to take carrier equipment

off the towers few of its host governments would tolerate disruption of a public utilityfor the sake of AMTs profits.

How Prevalent is Lending?

To illustrate how much of AMTs international business consists of financing revenue(i.e. return of principal and interest), the below graphs by region of carrier sale and

leaseback transactions make several points clear.

Algar

TelefTelef Telef

VTRMovil

Telef Telef

Telef Vivo

Telef Axtel

Movil

$0

$50

$100

$150

$200

$250

$300

$350

3Q09 2Q10 3Q10 4Q10 1Q11 3Q11 4Q11 4Q11 1Q12 3Q12 4Q12 1Q13 1Q13

Avg.$

/Site($'000)

LatAm Ex. SS Acquisitons

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It appears as at least one of AMTs three purchases in Africa could be a lendingtransaction, based on intangible assets to PP&E. This transaction would be the Cell Csale and leaseback announced in November 2010.

Lending Businesss Effect on EBITDA

We conservatively estimate that a total of US$162 million of EBITDA is coming fromsuch over market contracts (on average). The present value of above market contracts is

Cell C

MTN

MTN

$0

$50

$100

$150

$200

$250

$300

4Q10 4Q10 4Q11

Avg.$

/Site($'000)

Date Announced

Africa Acquisitions

PP&E $ / Tower Cust. Relationship $ / Tower

Network Location $ / Tower Goodwill $ / Tower

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In Brazil, the entire tower asset would likely be recorded as PP&E (unless AMT

is acquiring a concession, rather than fee simple ownership of the tower). A newtower is depreciated over 25 years, and a used tower is depreciated either overhalf of its useful new life (i.e. 12.5 years) or over the residual of its useful life.Brazil therefore could provide for a serious mismatch between revenue andoffsetting expenses. Income is taxed at 25% for the corporate income tax and anadditional 9% for the social contribution tax.

In Mexico, AMT may depreciate its tangible assets over 10 years, meaning that itis likely able to fully offset the income tax effect. The corporate income tax in

Mexico is currently 30%, but will be 29% in 2014 and 28% in 2015.

Conclusion

AMTs de facto international lending business serves to mislead investors about AMTsoverseas profitability, while incentivizing AMT to enter into even more such transactionsin order to feed the beast. As we detail infra, AMTs international business is often

destroying value, and in some cases earning returns lower than those of local governmentbonds and usually below the required return for the market. The de facto lendingbusiness exacerbates these problems.

AMTS INTERNATIONAL BUSINESS IS PART CARRY TRADE AND

PART LEVERED DIRECTIONAL CURRENCY BET.

AMTs international business is also effectively part emerging / frontier market carrytrade, and part levered directional currency bet. AMT is largely funding in the US byborrowing US$8.85 billion, which is up from US$3.5 billion in 2002. It invests this

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It is crucial for investors to understand that AMT does not hedge its currency exposure,which puts its investments and cash flows at risk. AMT states that it does not hedge its

currency exposure because hedges for these currencies are expensive. We estimate thatAMT has exposure to emerging and frontier market currencies of approximately US$4.2billion, or 36% of its long-lived asset base. The chart below shows the performance since2010 of four of the EM currencies to which AMT has directional exposure, the BrazilianReal, Indian Rupee, Ghana Cedis, and the South African Rand a hedge fund usingleverage for this trade would have been unhappy.

Source: Bloomberg

None of the five sell-side analyst models we have reviewed have FX forecasts.58 Yet, intwo of AMTs major currencies, Indian Rupees and Brazilian Reals, exchange rates havealready moved substantially from prior year numbers.

The table below compares the ask prices for one-year non-deliverable forwards onAMTs currencies versus the USD.

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It is clear from the table above that it is expensive to hedge all the currencies in which

AMT does business, except for the EUR. However, the hedging costs are functions ofcurrency volatility. The more expensive it is to hedge a given currency, the more likely itis that currency movements will impact asset valuations. This is one more reason whythe perception that AMTs cash flow is stable is incorrect.

AMT has a small amount of local currency debt that is a very partial offset to itsexposures. It has US$144 million in Colombia, out of US$351.8 million invested; and,US$90 million in South Africa, out of US$249.5 million invested. On July 1, 2013,

AMT announced that it had entered into a multi-currency credit facility with rates linkedto LIBOR rates. This facility appears not to hedge AMTs currency exposures, save forthat to EUR. There are no LIBOR rates for any of AMTs other currencies (besidedollars).

AMTs use of inflation-linked escalators in its overseas businesses is a poor hedgeagainst currency fluctuations. Further, we believe that AMTs business in its largestoverseas market by towers, India, operates with fixed escalators, rather than those linked

to CPI. Even though market practice in Brazil is to use inflation-linked escalators,AMTs average rents have been dropping year-over-year since 2008, despite the countrygenerally experiencing inflation approximating 6%.

CPI escalators are poor substitutes for currency hedges because the movements are nothighly inversely correlated. This year, Brazils official CPI has been 6.2%. However,the Brazilian Real has weakened 9.8%. South Africas CPI has been 5.8% YTD, yet theRand has weakened to 16.3%. In India, the relationship has actually been more direct,

with CPI at 9.3% and the Rupee only weakening 9.1% YTD.

Currencies do not necessarily move in an inverse correlation to inflation. Currency

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Even though AMT should be using inflation-linked escalators in Brazil, which accounts

for 13.8% of AMTs international tower base, its average rents are declining in localcurrency terms. Our calculations below illustrate the paradox.

POORINTERNATIONAL IRRAND NECESSARY IMPAIRMENTS

Overstated International Growth and Value Destruction

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We estimate that international entities generate a consolidated segment EBITDA ofUS$482 million as of the latest twelve month period ending March 31, 2013. The market

multiple for the Company as a whole is 21x EBITDA. Our analysis shows the markettrends, revenue growth, profitability, return on investment, and risk factors do not supportanywhere near a 21x EBITDA multiple for the international business. The cash flowgenerating capacity is just not there, and we caution dont believe everything you hearfrom management.

India

Relative to India, you have to be careful about what you read out of all the press and all

the things that are going on in India. But stepping back, we view, as we've always viewedIndia, is a very, very important market, a market that fits nicely within a diversified

portfolio in American Tower. Tom Bartlett, ATL, CFO, EVP American Tower Corp at REITWeek: NAREIT'sInvestor Forum Chicago June 6, 2013

Only US investors would buy [Bharti Infratel, an Indian tower company going public]at this price.Indian Telecom Analyst

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Company and Street estimates for the international portfolio are far too optimistic and itappears there is a significant disconnect between how these international markets are

viewed from the US and how they are seen by locals, India being a prime example ofthis. This disconnect can even be seen by the stock price performance of Bharti Infratel(BHIN:IN), a pure play Indian tower company, since its IPO in December 2012. BHINIPOd at INR220 but it is now trading at INR157.05, a fall of 28.6%. Local analystsstrongly believed at the time that the stock was well overpriced because US investorspushed the IPO value up on the assumption that the Indian tower market would replicatethe US tower markets performance. As is the case with AMT, US investors mistakenlyassumed the tower model can flourish elsewhere without understanding the local issues.

We also fundamentally disagree with Mr. Bartletts assertion that shareholders have tobe careful about what you read out of all the press and all the things that are going on inIndia. We have performed deep due diligence in India and have found a market withsignificant head winds and regulatory uncertainty that will have a substantial impact onATLs future operations on the market. Shareholders should not take managementsword, but should instead read and evaluate all the information in the local press and cometo their own conclusions.

Marten Pieters, MD & CEO ofVodafone India, said recently in an interview with TheTimes of India regarding the telecom market in India The worst is over for thisindustry. That doesn't mean that we are there and the future is rosy.

60Mr. Pieters was

referring to the carriers, however, based on the issues below it appears that the problemsfor the smaller tower companies are just starting.

Revenue Growth is Not What It Seems and Is Well Below CPI

ATLs problems in India arose from its very first steps in the country. The contractescalators it negotiated with the telecom carriers were set at 3%, compared to CPI of 9%.

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The insubstantial rent escalators are also causing ATLs margins to be squeezed because

they are growing at CPI or higher, for example we understand from local sources thatwages are growing at 15% per annum and there are significant security costs for many ofthe greenfield sites which are rising with every new tower build.

Currency risk

The below graph depicts the performance of the Indian Rupee against the US Dollar sinceAMT started investing in India. As can be seen the INR has deprecated significantly

against the US Dollar and highlights the risk of investing in foreign jurisdictions withouthedging the currency exchange which AMT has not.

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anchor tenants will be the smaller carriers with higher counterparty risk. With Indus andBharti Infratel having substantial access to the three largest carriers (62% market share) it

means that smaller tower companies, such as AMT, may be more reliant on smalleroperators that have greater counterparty risk.

We understand from local industry sources that there is talk the tower companies mayalso face increased competition from power transmission operators, such as Power GridCorporation of India Limited, which might let its existing infrastructure be utilized bywireless telecommunications service providers for installation of their activetelecommunications equipment.

Another issue facing smaller tower companies is the lack of stringent zoning laws inIndia. Tower companies are free to build towers close to a competitors tower, which hasled to a large number of towers being situated in close proximity to each other. As aresult, the carrier has stronger pricing power as it can move towers without a materialeffect on its network. Additionally, one can see a number of towers that have no tenants.We understand that some of these are AMT towers.

There are also significant rent abatements in India, that come into effect when anadditional tenant co-locates to a tower. We understand that a carrier can save up to 15% ifthere is one other tenant on the tower and this discount will increase with any additionaltenants. This means that even when additional tenants co-locate to an AMT tower, thereis a heavy discount on the rent, and revenue growth is not linear with tenant growth.

We understand from Bharti Infratels management that it offers additional discounts ontop of this rent abatement in order to attract more tenants. We do not believe that ATL,

with only 10,000 towers, can compete with Bharti and Indus, which own approximately150,000 towers between them.

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obtaining necessary permission from the competent authority. The hearings are currentlyin process and we are not able to assess the potential impact, however, this could be

significant if the Tribunal require towers to be pulled down.

The Indian government has recently approved the Telecom Regulatory Authority ofIndias recent suggestions to reduce the carbon footprint of the telecom sector bymandating the reduction of dependence on diesel.64 We understand from local sourcesthat Indus is expecting that it will cost INR1 million per 5KW tower to come in line withgovernment expectations. Based on this and assuming that AMT have a 50:50 splitbetween rural and urban towers, we believe that the India operation will have additional

capital expenditures of approximately $128m over the next ten years. It should be notedthat this expenditure will not improve ATLs margins as energy costs are all passedthrough to carriers who will solely benefit from this expenditure.

Carrier Effects on Growth and Pricing

Carriers are suffering from margin squeezes and have been looking to decrease the rentsthey pay on towers. We have heard from a number of local industry experts that the rents

in some of the contracts coming up for renegotiation are as low as half of what they useto be pre the 2011 crisis. This has not come through in ATLs revenue yet as leases havenot come up for renewal yet but once they do they will find significant pressures on rentalprices received.

Our local sources also insisted that cost saving pressures coming from carriers is one ofthe main threats facing tower companies in India. From 2007 to 2012, ARPUs in Indiahave fallen at a 13% CAGR and there has been intense competition in a market that is

oversaturated with carriers. These sources have informed us, that to combat fallingmargins carriers are starting to pressure tower companies to cut the costs that are passedthrough to them, fuel being the main component. We understand that carriers are willing

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We also understand that Reliance will be paying INR15k per month compared to AMT

and Bharti Infratels INR30-35k per month, which demonstrates the effect of pricingpressure. 66

It does not appear that the 3G roll out has had any substantial impact on revenues as hasbeen the case with Bharti Infratels revenue per tenant per tower and as such we believethat the 3G roll out is unlikely to provide any significant benefit to ATL. 67 The high costof using 3G data has seen a slower uptake than expected and this could also impact the4G roll out.68 If carriers decide to lower rates in order to increase the 3G take up then this

could lead them to further squeeze tower companies. Some analysts also believe that theslowdown in the subscriber numbers and maturity of the 2G segment have put a questionmark on some of the growth assumptions.69

The Indian government sold license to too many carriers for the market size which hasled to fierce competition with a number of carriers being loss making. As such it isexpected that there will be further consolidation of carriers in the market, which willimpact the number of tenants and could have a disproportionate effect on the smaller

tower companies such as ATL.

Turn for the Worst

The tower market in Indian is in the worst shape in years. The market peaked in late2010 / early 2011 and since then the market for tower companies has collapsed. Weunderstand from India media sources that a local tower operator called TowerVision,which has a comparable portfolio to ATL, has been up for sale for some time with only

AMT appearing to be a potential buyer.70 Based on a recent article, AMT value thetransaction at US$50,000 to US$58,000 per tower,71 which compares to tower values ofUS$100,000 to US$120,000 at the peak of the market before 2011. This shows how far

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Threat of Low-Cost Towers

Low cost towers may change the dynamics of the industry even further. RelianceIndustries are said to have developed a tower that would cost merely US$2,000 andChinese companies are said to have developed a tower to be used in India forUS$10,000.72 This may put further pressure on tower operators to reduce prices andcosts.

Value Destruction

As a result of the above, we performed a calculation to assess ATLs investments in thecountry. We estimate that AMT has made acquisitions totaling US$763 million andthose investments are now worth US$399 million. We believe the market conditions andthe outlook for ATLs business prospects will remain very weak and that AMT should beforced to impair its intangible assets and/or goodwill in India by US$364 million, or 48%of the combined acquisition prices . We project that ATLs existing Indian investmentswill only generate an IRR of 7% which is equivalent to the Indian government bonds

yield at 7%, and are rated BBB with negative outlook.

We use a WACC of 15.5% India, and an exit multiple of 10x EBITDA. Such discountrates might sound high to US investors, but, again, the Indian government 10-year bondyield is 7%, and inflation is at 9%. The volatility of the India equity market is also highat 20%. Equity market volatility is the potential percentage change in the pricemovement in the stock market index (up and down) and is somewhat of a proxy for themyriad risks a Western company takes when entering an emerging market.

The table below summarizes the results of our analysis.

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market is looking for in India and this includes the benefits of the additional capitalexpenditures that are unlikely to provide a meaningful return to shareholders. As per Mr.

Martens quote above, the worst is over for Indian carriers, however, based on research,we have found that expectations on the ground in India are far below the loftyexpectations in Boston.

Brazil

"The strategy among our leadership team at the moment is to sort of consolidate and

integrate and heavy up in the countries that we are at today. And so in Brazil, forexample, Hal and his team accomplished 600 plus Tower acquisition. Grew the portfolio

by over 1/3 in a country that we are already in this year"Jim Taiclet, JPMorgan Technology, Media and Telecom Conference 16-May-11

We believe that AMT has placed such an extreme emphasis on growth that they went forquantity over quality and this is evident in acquisitions such as Vivo in 2012. AMT arealso guilty of using flawed models to justify other acquisitions, as in the case of the Site

Sharing acquisition in 2011. These mistakes have led AMT to overstating growth anddestroying shareholder value in Brazil. ATLs Brazil is really just a story of twoacquisitions.

Site Sharing

Aside from the mystery of "the missing $250 million" discussed supra, we believe thisacquisition is plagued with further issues, which will hamper further growth. From our

discussions with local industry sources with firsthand knowledge of this transaction,AMT were far from happy with the outcome of this transaction but attempted to onlyshow the positives to investors.

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Market rent abatements will mean that any additional tenants on the Site Sharing towers

may not add any discernible revenue growth. Firstly, a new tenant would most definitelynot be paying the over market rent that Oi or TIM are, otherwise they would find adifferent tower. A working example would be, if the anchor tenant was paying US$5,000and a new tenant was added paying US$2,000, then the anchor tenants rent would bereduced to US$3,500, so the additional tenant is adding little growth. We should also notethat it would take at least five years for a new tenant to be added on to every tower.

Based on the problematic Site Sharing portfolio, we believe that the above market rent

that AMT is currently receiving, which amounts to 43% of operating revenue, isunsustainable and any average rent metrics based off this will be overstated.

Infrastructure Sharing Is a Threat To Growth

Earlier this year, four of Brazil's largest carriers announced infrastructure sharingagreements, which could severely impact the future growth of tower companies inBrazil73.

Oi and TIM announced their agreement to share infrastructure (towers and equipment)for LTE networks in the 2.5 GHz spectrum band deployments. The move was approvedearlier this year, on April 19, 2013, by ANATEL, The Brazilian TelecommunicationsAuthority. ANATEL voted to allow Oi and TIM to share towers, transmission equipmentand broadcast stations. ANATEL further stressed that its intention is to reduce costs forcarriers so that benefits can feed through to the consumer.74

Vivo and Claro announced in March of this year that they had signed a memorandum ofunderstanding to share telecom infrastructure, such as cell sites, backbone and backhauland even their 3G networks. CADE, Brazil antitrust regulator, has already approved

75

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With the new technology enabling antennas to handle multiple carriers signals this threatis now a reality.

Poor Acquisitions Mean That Growth Will Require Significant Additional CapEx

We understand from local sources that the poor condition and quality of the 1,692 towersacquired in the 2012 Vivo acquisitions, will require AMT to invest substantial capitalexpenditure to strengthen the towers so that they can add more tenants. From our duediligence of this acquisition, we suspect that these towers were largely older towers thatwere constructed in the early stages of Brazils tower deployment, with a large

percentage of these towers not having a permit (we note this a wider spread problem inBrazil), and many not even having site plans, which would have made it extremelydifficult for AMT to determine whether the towers are able to support any additionaltenants and plan their CapEx accordingly. Without this most basic information, AMT ishaving hard time signing new contracts with collocating tenants, without knowing whichtowers can actually support colocation. Thus, we believe this supports what heard fromsources we deem reliable that AMT is not satisfied with this acquisition, having modeledit based on estimations that are not materializing. The post-acquisition work on each

tower to assess it structural strength will also delay tenancy growth.

Based on local knowledge we gathered, we estimate that the redevelopment of these siteswill cost US$30,000 to US$40,000 per tower. If only 50% of the Vivo towers areultimately redeveloped to handle more than one tenant per tower, the result would be anadditional capital expenditure of US$31 million. Our expectation is that a larger numberof the Brazilian towers will need to be redeveloped in order to add more tenants to towersand that the total cost will be approximately US$100 million. If alternative energy

regulations are implemented and/or carriers push more of the total cost of operating atower onto tower companies, additional capital expenditures would be needed to remaincompetitive.

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Value Destruction

As a result of the above, we performed a calculation to assess ATLs investments in thecountry. We estimate that AMT has made acquisitions totaling US$988 million andthose investments are now worth US$713 million. The material overpayment for theBrazil assets relative to their profitability and risks lead us to believe that AMT should beforced to impair its intangible assets and/or goodwill by US$274 million, or 28% of thecombined amounts paid for acquisitions. We project that ATLs existing Brazilinvestments will only generate an IRR of 11%. Brazil government bonds yield 11%, and

are rated BBB with a negative outlook.

We use a WACC of 17.5% for Brazil, and an exit multiple of 8.0x EBITDA. Such

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Our View of ATLs Operations in Brazil

AMT have shown little regard for shareholder value when investing in the Brazilianmarket, its two main investments appear to be classic cases of knee jerk acquisitions withno regard to potential risks and minimal due diligence. We are not surprised to hear fromlocal sources that AMT are looking to potentially acquire a Brazil and Mexico towerportfolio from NII Holdings (NASDAQ: NIHD). Our industry contacts have advised usthat few tower operators are willing to take credit risk on NIHD at anywhere near thecurrent asking price. With substantial head winds from infrastructure sharing and carriers

looking to cut costs, we do not believe that AMT should be gambling any more money inthe market place based on their poor track record.

Ghana

Growth Ceiling

We understand both from sources operating in Ghana and from an AT Kearny article onTower Xchange77 that the tower companies in Ghana and Africa in general should onlyexpect to achieve a maximum of two tenants per tower.

This contention is based on the following:

a. In Ghana there are three main carriers, AMT have a deal with the largest,MTN whilst the other two have deals with Eaton Towers and Helios

Towers, which means there is less chance of collocation.

b. We also understand that new tower companies are entering the Ghanak hi h i i i i i d ill l d f h dil i f

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investing in a US$517.7 million joint venture it is surprising that it is loss making.

Cash Drain

We understand from industry experts in Ghana that a significant amount of capitalexpenditure is required in Ghana. Whilst, they did not have direct information regardingATL/MTN joint venture in Ghana, they have looked at newer tower portfolios and havefound that at least 25% of towers built by local carriers were only strong enough for onecarrier, another 15% needed refurbishment and a further 10% needed to be fully replaced.We believe that as the MTNs tower portfolio is older, it is likely to minimally require

this amount of capital expenditure.

This raises questions over the level of due diligence that AMT have put into assessingtheir acquisitions, at a significant cost to shareholders. This cash drain also raisesquestions over the value of the transaction itself.

Purchase Price Anomalies

On December 6, 2010 AMT had entered into a definitive agreement with MTN in Ghanato form a joint venture to buy 1,876 towers for approximately $430m. Once the finaltranche of towers were transferred on December 23, 2011, the joint venture paid $518mfor 1,856 towers. No reason has been provided for the increase in purchase price.

In MTNs 2011 accounts, it seems that ATLs share of the cost remained at US$219million but this only 42% of the final purchase price, it should be noted that the amountAMT paid does not appear in MTNs 2012 accounts.

This anomaly raises a number of questions, not least as to what is the true value of theassets? Why would MTN sell AMT 51% of the assets for just 42% of the value, it does

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US investors, but, again, the Ghana, again, the government 10-yeaer bond yield is 17 %,and inflation is at 11%. The Ghana market is also very illiquid and the capital markets

are still emerging.

Our View ATLs operations in Ghana

The Ghanaian investment appears to be overvalued particularly when compared to theirdiscounted cash flow model valuation and the unjustified increased purchase price.Unfortunately, the acquisition is another example of AMT not performing enough due

diligence, at the outset it should have had a better handle on the purchase price and givenguidance on the amount of capital expenditure that was require in order to increase itstenancy ratio.

Germany

AMT bought 2,031 towers in the end of 2012 from KPN/E-Plus for $500m, KPN have

since claimed that these towers are not core assets. KPNs 2012 financial statements seemto indicate the parties have signed a 15 year lease. E-Plus, the tenant on the towers, is thethird largest mobile operator in Germany with a market share of 21% and is owned byD t h KPN hi h i id d l i th l t d f th ll l k t

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limited growth for AMT in Germany.

Threats of Carrier Consolidation

A major risk for AMT is the possibility of a merger between E-Plus and Telefnica. Thismerger has been rumored many times before and KPN has also tried to sell E-Plus toraise funds to fight a takeover attempt by Carlos Slim.78 We note that there are otherexamples of KPN and Telefnica working together such as a network sharing pilot in theNetherlands.79

A merger might happen in order to save on costs80

and would likely need to thedecommissioning of sites as both companies have coverage of all of Germany and bothcompanies use the same technology.

Value Destruction

As a result of the above, we performed a calculation to assess ATLs investments in thecountry. We estimate that AMT has made acquisitions totaling US$526 million and

those investments are now worth US$419 million. We believe the market conditions andthe outlook for ATLs business prospects in Germany are weak with increasing risksfrom carrier consolidation, a low quality tower portfolio, and stagnant new tenant growthprospects. Given the decline in value relative to the amount paid for acquisitions, webelieve that AMT should be forced to impair its intangible assets and/or goodwill byUS$107 million, or by 20% of the original acquisition price. We project that ATLsexisting German investments will only generate an IRR of 4%. German governmentbonds yield 2%, and are rated AAA with stable outlook. We use a WACC of 7% in

Germany , and an exit multiple of 14.0x EBITDA.

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Our View of ATLs Operations in Germany

ATLs assets in rural Germany have low growth prospects but yet there is a risk of carrierconsolidation. There does not appear to be any apparent reason for this acquisition and itappears to be expansion for expansion sake.

CELLULARTOWERS ARE SOON TO BECOME THE MOST

EXPENSIVE OPTION OF LAST RESORT; THE HALCYON DAYS

ARE OVER.

Fiber and Cell Towers: Is History Repeating Itself?

In 1998, investors were bullish on fiber optic cable owners, because internet traffic wasprojected to grow 15x over the next five years.81 At the time, investors were drawn to thelogical conclusion that a major increase in traffic meant the need for an equal amount of

new fiber optic cable.

Internet traffic met those expectations, but demand for fiber barely grew becauseimproved laser transmission and copper-bonding technologies increased the data capacityof a single strand of fiber to the point where it and existing distribution could absorb theincrease in demand without much need for additional fiber.

A similar phenomenon is happening right now in the tower industry. AMT is scouring the

globe, purchasing tower assets from other operators. Given the projected increase inglobal demand for mobile data, investors are lauding its efforts.82 But are towers the onlyway to relieve the congestion of global data traffic. Just as in the past, there are othert h l i t th th t i it f th i ti t t k i l di

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Since carriers built and operated their own networks, radio frequency engineers hadprecise information about their networks capabilities and performance. Because thecarrier controlled all aspects of their private network, these systems were termedHomogeneous networks.

Carriers building private networks used electromagnetic spectrum purchased fromgovernment auctions to replace the copper wires of a fixed network. Once their privatenetworks were complete, carriers began offering consumers access by selling packages of

voice minutes, and eventually access to SMS and data access packages. TheTelecommunications Act of 1996 introduced a new regulatory scheme where entrantscould pay wholesale prices to access carrier networks. This legislation, in conjunction

83

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Growing Data Demand Will Largely Bypass AMT

The AMT bull case is that data demand is surging and AMT will benefit. However, thenext generation data delivery network is here already, and makes towers optional andcomparatively expensive. Wi-Fi data delivery already greatly exceeds cellular datadelivery, and a new generation of equipment, network sharing, government regulation,and competitors will combine to marginalize tower operators, leaving their networks asthe highest cost data delivery option of last resort.

Myopic AMT Management Does Not Grasp the Challenges Ahead

AMT CEO James Taiclet stated in 2012 that 95% of our towers are outside of urban andnear-urban environments.84 In its June 2013 overview, AMT stated it is "well positionedto capture incremental demand from network densification as a result of the rapid growthin wireless data consumption."85 However, only 10% of cell sites (including macrotowers) handle almost 90% of cellular data traffic.86 We question how AMTs towers can

be positioned to capture incremental growth when, according to their President, CEO,and Chairman, the vast majority of their towers are not located where the peoplegenerating the increased demand are.

Carrier Upgrade Completions Will Reduce AMT Amendment Revenue

AMT generates revenue from its tower network by charging carriers rents. AMT chargesfor the amount of equipment carriers place on the tower, and for changes to the

equipment already on the tower, a fee known as amendments. In the US, the towerindustry has already captured much of the growth it will see from high-speed datanetwork build outs; therefore, amendments will generate much less revenue than they

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Technology and network sharing will reduce amendment revenue

Industry observers note that the development of wireless communications usually occursin two phases. During the first coverage phase, carriers seek to establish a minimalamount of coverage in their service areas. This coverage is often described as a mile

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and configuration changes will be handled via the cloud at the software and firmwarelevel, and carriers will not have to replace equipment as often.Technological advancements reduce AMTs tower utility

JDS Uniphase estimates that network capacity can be increased by 1,000 times in thenext ten years without adding much equipment to macro towers through a multipliereffect of adding spectrum, carrying voice over LTE (VoLTE), and relying on small cells.If carriers spectrum increases by three times, then LTE can multiply the spectralefficiency by another six times, and small cells can increase the spatial efficiency by 56x,creating a total gain of 1,000x.87 This gain can be achieved without much reliance on

towers.

We believe that Wi-Fi will increase the spectrum availability by more than three timesand this combination of technologies greatly threatens rents of the towers themselves.

Wi-Fi is a Grave Threat to AMTs Business Model

By nature of its ubiquity, improving Quality of Service (QoS), and very low total cost of

ownership (TCO), Wi-Fi represents the single biggest threat to the tower industry. It is amature technology with widespread adoption and as the Cisco VNI data meter shows, itis already used to deliver more data worldwide than the cellular network. Approximately80% of data traffic is from indoor users.88 As a communications technology, Wi-Fi hasseveral major advantages over traditional cellular. First, and perhaps most important, Wi-Fi is near-free for the carriers and it is unlicensed, meaning carriers can use it withouthaving to pay license fees in the billions of dollars, and there is no authority to grant,revoke permission or regulate its usage.

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Wi-Fi presently delivers more smartphone data than cellular. We direct interested readersto the Cisco VNI data meter website for additional regional and tablet data consumptiongraphs: http://www.ciscovni.com/data-meter/index.html.

In addition to being free, Wi-Fi can deliver significantly more data than 4G. Dependingon configuration, the recent version of Wi-Fi, 802.11ac has a theoretical peak rate of1.3 GBPS while the 4G theoretical peak rate is 1 GBPS. Realistically speaking, radiointerference, distance to antennae, ground speed, backhaul constraints and other factorslimit both 4G and Wi-Fi, resulting in 4G data delivery rates in the 10-16 MBPS range andWi-Fi delivery in the 331 MBPS89, an advantage of twenty times.

Source: RootMetrics

It is difficult to overstate the threat Wi-Fi and small cell pose to AMTs economic model.

Wi-Fi gives carriers and consumers a low cost alternative to the current mobile economicmodel. Although carriers have millions of subscribers, their margins are thin and eroding(as we explain in Carriers Under Pressure infra). This erosion is accelerated whensubscribers switch to smart phones because smart phone users generate an enormous

0

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in 2012

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again when they are in range of the network. 9091 Smart phones simplify the process bynotifying customers whenever they are in range of a free or previously accessed network.Carriers that originally invested in towers to support their network are now investing inWi-Fi and small cells. To that end, AT&T now offers over 20,000 hotspots to its mobilesubscribers and there are no usage fees.

92Boingo (WIFI) claims a global network of over

700,000 hotspots available to consumers for US$8 per month.93 The next evolutionarystep will be integration of Wi-Fi access and the core cellular networks.

Additional technical developments include remote tilting antennas to minimizeinterference which have the most direct impact on coverage and interference

parameters.

94

A technique called transrating can reduce cellular network bandwidthrequirements for streaming video by 30% to 50%.95

Local content caching is enablingcarriers to manage video traffic better by enabling them to store high demand video (e.g.,viral YouTube videos) at central locations, or cache video at the small cell itself.

AMT would like investors to believe it is positioned to significantly benefit from thegrowth in data demand. If AMT investors expect 15-20% growth they will bedisappointed. Wi-Fi traffic already exceeds cellular traffic. As technology evolves,

cellular tower industry growth will slow considerably. We believe that tower companieshalcyon days of 74%gross margins from US carriers are numbered. 96 We expect thatfew, if any, international markets will ever offer tower companies the economics thathave been generated in the US. (As we explain supra, ATLs international gross marginsare artificially inflated by its de facto lending business.)

AMT is at a dangerous crossroads in its business: its customers margins arecompressing, yet carriers have ample room on the balance sheet to invest in the high

value, low cost alternatives being offered by existing vendors, as well as by newly-formed companies. The data delivered over these alternate delivery routes alreadyexceeds the data delivered on the cellular network, and their continued development and

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enable carriers to place them anywhere extended network coverage is needed, and can bemanaged in the cloud.

Source: Money.CNN.com

These devices are power efficient and can handle multiple spectrums simultaneously,enabling carriers to share network equipment the next step in an evolution that beganwith sharing towers. Small cells are designed for, and excel at providing inexpensive

additional capacity in metro areas. In metro areas carriers have advantages not availableon towers such as access to previously built public infrastructure, including electricalpower and data backhaul on fixed line networks, often controlled by the carriers.

Multifunction small cell manufacturing is a growing industry segment. Others producingsimilar equipment include traditional manufacturers such as Ericsson, Nokia Siemens,Cisco, and Texas Instruments and young guns such as BelAir Networks, RuckusWireless, IP.Access, and SpiderCloud. Carriers deploying small cells include Verizon97and AT&T98

In November 2012 the number of small cells deployed surpassed the number of macro

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100

Network Sharing Is Caring

Carriers have long understood if they could share infrastructure, they can reduceoperating expense and increase profitability, which was the impetus for divesting towerassets in the first place. AMT may have sown the seeds of its own destruction with theinitial success of its business model. Carriers are loath to allow tower companies tocontinue to reap outsize margins when theirs are compressing. Technology now makes itpossible for carriers to share as much of their network as they want, and is swinging thebalance of power back to carriers. Foreign governments in some of AMTs markets, suchas Brazil and Colombia, are legislating network sharing because it maximizes scarceresources, minimizes environmental degradation, saves fuel, and is more efficienteconomically.

Equipment sharing is a natural evolution from sharing towers.

Site

Sharing

Mast

Sharing

RAN

Sharing

Network

Roaming

Core

Sharing

Core and

Platform

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If You Cant Beat em, Join em

Carriers have begun to realize that they cannot service the data demands of theircustomers over cellular networks and have taken a if you cant beat em, join emapproach. They have already begun deploying and promoting Wi-Fi networks as analternative. For example, AT&T and the NYC mayors office are collaborating to deliverfree AT&T branded Wi-Fi to 26 parks around the five boroughs. Cities now offering freeWi-Fi stretch from Silicon Valley to Ponca City, Oklahoma to Ocean City, Maryland.101

Carrier Checkbook Fatigue: Data Demand Creates Systemic Problems

Source: Unstring Insider: Feb, 2007

The problem facing carriers is systemic: revenue growth is outpaced by the cost ofd li i d d i i i h d bl h k

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Carriers are responding by deleveraging and raising cash by selling underperformingassets, such as cell towers at emerging market bubble prices to willing buyers, such asAMT. These deals usually take the form of sale and leaseback transactions whereinAMT purchases the towers from the carrier and the carrier agrees to pay rents to AMT forthe length of the contract. The section of this report detailing AMTs SiteSharing deal

supra takes a look under the hood at such transactions.

IP Based Softphones Threaten Carriers and Towers

Softphones are software versions of phones. They have a telephone number, can makeand receive calls, they have voicemail, and they can send and receive SMS messages.The main difference between a softphone and a standard phone is that a softphone is

designed to run on VOIP (voice over internet protocol), a standard that is supported onany current device that can connect to the internet. Softphone pricing plans are a fractionof traditional mobile phone plans, and can be as low as $99 per year. Consumers living in

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met the need by conducting auctions. In the US, those auctions lasted as many as 276rounds and resulted in fees as high as US 18.9 billion for a single band of spectrum.

103

This time around carriers have the luxury of being able to pick and choose from a varietyof technologies that reduce their dependence on paid spectrum, while simultaneouslyincreasing their ability to deliver increasing amounts of data to consumers.

In some countries, such as Peru carriers are not paying the governments for spectrumthey agreed to buy.104 In India, the government appears to have difficulties deciding onwhat spectrum allocation regime they want to implement after their recent allocationscandals, and in Brazil, as well as other countries including the US, the government

mandates carriers provide coverage in unprofitable rural areas.

105

Carriers, sovereigns, and citizen consumers all desire ubiquitous, affordable high-speedmobile communications at the lowest cost possible. Wi-Fi enables this goal and theproliferation of Wi-Fi will continue to expose towers as the high cost data delivery optionof last resort.

If you Can Beat Em, Beat Em

AMTs margins are too attractive to go unnoticed. Aside from carriers looking to reducetheir dependence on towers, cable companies have now set their sights on the towerindustry and are leveraging their Last mile advantage.

A recent June 2013 Jeffries report estimates that cable operators actually carry moreconsumer wireless data on their networks than mobile carriers, yet cable generates $0directly attributable revenue from wireless. Jeffries also notes that the CableWiFi

confederation has tripled its hotspot count to more than 150,000, from 50,000 in the 12months since the initiative launched, that technologies are being developed to facilitateauthentication between contiguous hotspots for mobile users, and that all network gear

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specific use of the customer while the other signal will broadcast and open, unsecuredguest signal to be used by passersby.

One of the primary intended uses of this free neighborhood network is support for abranded softphone application,

107Voice2Go, that would enable its customers to make

free web-based phone calls and send SMS messages without it counting against theirwireless account. 108 Since the network is Wi-Fi based, consumers can use other VOIPsoftphone apps such as Skype (acquired by MSFT in 2011 for $USD 8.5 billion),Vonage, or Google Voice. This development could significantly reduce the need forcellular or broadband data transmitted between macro cells, particularly in densely

populated areas.

VZ and SpectrumCo are awaiting FCC approval for Verizons purchase of 122 spectrumlicenses for US 3.6 billion. Comcast (NASDAQ: CMCSA) CFO Michael Angelakisframed the move during the UBS Global Media and Communications Conference, Wedont have to invest in building a wireless network. We arent going to acquire a wirelessnetwork. Its quite a significant transaction. If youre a Comcast customer, this meansthat you will eventually be able to purchase cable television, Internet service, home

phone service, and cell phone service, all through your cable company."109

If this sale isapproved, investors may see a global wave of similar deals, all of which are bad for thetower industry and AMT investors.

Wi-Fi is a free public technology that empowers competitors who seek to develop lowcost high availability networks. Wi-Fi is a global threat to the private cellular networkthat AMT provides infrastructure for. AMTs customers are collaboratin