美國電塔 (AMT) 2005 Q3 法說會逐字稿

Good morning. My name is Bettina. I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Tower third quarter conference call. [OPERATOR INSTRUCTIONS]. I would now like to turn the call over to Michael Powell, Director of Investor Relations. Sir, you may begin.

Thank you. Good morning, and thank you for joining American Tower's conference call regarding our third quarter earnings. We'll begin with comments from Brad Singer, our Chief Financial officer, who will then turn things over to Jim Taiclet, our Chairman and Chief Executive Officer.

We would like to remind thaw this call will contain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include discussions about our fourth quarter 2005 and full year 2006 outlook, our stock repurchase program, statements regarding our goals, beliefs, strategies, objectives, plans, or current expectations, and other statements regarding matters that are not historical facts.

You should be aware certain factors may effect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release and those set forth in our Form 10-Q for the quarter ended June 30, 2005, which was filed with the SEC and other filings with the SEC.

We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call, including these forward-looking statements to reflect subsequently occurring events or circumstances. Our earnings release, which includes information required by Regulation G, was furnished this morning to the SEC on a Form 8-K and is also posted on our website.

Now I'd like to turn things over to Brad Singer.

Thanks, Michael.

American Tower completed several important strategic financial and operational milestones during the third quarter. In August, we closed on our acquisition with SpectraSite, creating the largest tower company in North America. The combined company continued to deliver strong operating performance while simultaneously beginning to thoughtfully integrate the two companies. In addition, we refinanced the American Tower and SpectraSite credit facility, lowering our borrowing costs while increasing liquidity, taking advantage of multiple upgrades from all the credit rating agencies.

As a result of our strong operating performance and financial position, as well as continued belief in the strength of the fundamentals of our business, we have announced the $750 million share repurchase plan that we anticipate completing before the end of 2006. Our third quarter total revenues increased 46% to almost 265 million, and adjusted EBITDA increased 47% to 166 million from the same period in 2004.

Our third quarter performance includes 67 million of revenue and 37 million of adjusted EBITDA from SpectraSite. Excluding these contributions, the American Tower revenues and adjusted EBITDA grew 9% and 14% respectively. Our industry-leading adjusted EBITDA margins were 63% for the third quarter.

In our core rental and management division, our revenues and operating profits increased 49% to 261 million, and 177 million respectively from the third quarter of 2004. Excluding the contributions of the operation of SpectraSite, our tower revenues and operating profits grew 11 and 15% respectively.

The performance of American Tower, excluding the addition of SpectraSite's operations exceed the high end of our outlook. American Tower's operations include 3 million of favorable one-time revenue and operating profit items. Excluding the one-time items, the strong performance was due to continued favorable wireless industry fundamentals, resulting in solid organic revenue growth combined with our consistent disciplined expense control. Please note we have provide a breakout of American Tower's and SpectraSite's respective operating performance as supplemental information in our press release.

In the third quarter, our capital expenditures totaled 22.7 million, with 4.4 million related to SpectraSite. During the quarter, we successfully built 69 sites, primarily in Mexico, with an initial average unlevered return on invested capital of 12% and strong prospects for additional tenant growth.

Year-to-date we have successfully built 184 sites with an average initial unlevered return of 13%, we anticipate completing another 70 to 100 site, including approximately 15 to 20 in-building installations in the fourth quarter of 2005. As a result of our expected 2005 build plan, we anticipate more than quadrupling the number of sites we had built in 2004, while continuing to achieve high initial and expected long-term returns on these investments.

We have increased our tower outlook for the fourth quarter of 2005, raising our revenue and adjusted EBITDA range by approximately 105 million and 62 million respectively, to reflect the addition of SpectraSite's operation and our solid current performance and pipeline. We have also increased our total capital spending to 30 to 35 million to incorporate our larger scale and new tower build plan. On a pro forma basis, we anticipate tower revenue and adjusted EBITDA growth of approximately 11% and 20% respectively, for the fourth quarter compared to the prior year based on the midpoint of our outlook.

As a result of the continued strength of our core tower operations and the completion of the SpectraSite merger, we increased our free cash flow by 48 million from the third quarter of 2004 to 85 million. Please note that our free cash flow for this third quarter has been reduced by 11 million of Capex related to our investment in new towers. We currently define free cash flow as adjusted EBITDA less total interest and Capex.

As we anticipate completing the repurchase of our accreting 12.25 senior supporting notes no later than 2006, we will convert to a more common free cash definition, consisting of cash provided by operating activities less payment for purchase of property equipment in 2006.

We are introducing our 2006 outlook. Our 2006 tower revenue outlook is based on our anticipated fourth quarter run rate, plus 75 to 85 million of gross organic revenue growth, plus escalators, less our churn and straight line adjustments. We anticipate our growth to absolute revenue growth will be consistent with our prior several years for both American Tower and SpectraSite.

On the expense side, we expect a 3% increase in tower operating expenses to be offset by approximately 15 million of expense synergies related to the merger. On the corporate side, we anticipate similar increases offset by approximately 20 million of merger-related expense synergies . As a result, our anticipated merger-related expenses will be at the high end of our initial 30 to $35 million range. We believe that our integration work will be completed by the end of the second quarter of 2006.

Our overall anticipated pro forma revenue and adjusted EBITDA growth for 2006 is 8% and 16% respectively, when compared to 2005. We continue to invest in our core tower operations. We anticipate building 225 to 275 new towers and 40 to 60 new in-building installations. Our investment in new capital expenditures is expected to range between 50 and 70 million and our augmentation improvements and corporate Capex to range from 45 to 50 million. Based on our outlook, we anticipate producing free cash flow taking into account all capital expenditures of close to 500 million during 2006.

With the completion of our merger with SpectraSite we continue to move towards our long-term capital structure. Our financial objectives remain consistent, four to six times combined leverage, which we believe produces the optimal weighted average cost of capital over a long-term basis, as well as provides us with significant financial and strategic flexibility.

Our strong operations and continued improvement in our capital structure resulted in a meaningful upgrade from each of the three rating industries. The improved credit ratings reduce cost of capital, as well as provides us with the opportunity to obtain longer-term debt financing with significantly improved flexibility and terms. As a result of our improved credit profile, we raised two new credit facilities, totaling 2.45 billion with a current interest rate of LIBOR plus 75 basis points.

The new facility has refinanced 1.44 billion of existing American Tower and SpectraSite loans and increased our undrawn borrowing capacity of up to $1 billion, proving our flexibility while lowering our interest costs. The credit facilities are structured to maintain SpectraSite as an unrestricted facility with 450 million of undrawn borrowing capacity under the new line of credit. The lower pricing on the credit facilities from our existing facilities was a direct result of the improvement in our credit rating.

We anticipate total savings on the drawn portion of the facilities will be over 10 million a year and as we refinance our remaining 330 million amount of our 12.25 notes, we will be saving an additional 20 million annually, which is incorporated into our 2006 expense outlook. Please note we have interest rate swaps covering 550 million of the outstanding borrowings, with the average of the two swaps at 4.3%, plus our 75-basis point LIBOR spread. Including the effect of these swaps, approximately 75% of our long-term debt is effectively fixed.

With the new credit facilities in place and our strengthened financial position, we have announced a 750 million share repurchase program that we expect to complete before the end of 2006. The share repurchases will be funded primarily from approximately 500 million of free cash flow, anticipated to be generated through the end of 2006, our cash on hand, and augmented by borrowings under our new credit facility.

As you will note, even after the completion of our initial share repurchase plan, we anticipate having considerable capacity to further return capital to our shareholders. As we move forward, we will continue to rationalize our existing capital structure, replacing higher costs with more restrictive debt, with more flexible, longer-term capital. Consistent with our prior statements, given the embedded costs of rationalizing the capital structure, also known as tender costs, is a process that will more than likely begin 12 to 18 months in the future, depending on the interest rate environment and in the near term.

We anticipate seeking longer term capital as we refinance our remaining high cost of debt. Overall, our $0.06 per share loss from continuing operations was within our outlook from the third quarter, excluding the loss on retirements of long-term obligations, also had been approximately $0.03 per share.

I'll hand things over to Jim Taiclet, who, in addition to serving as American Tower's Chairman and CEO, may be part of the search committee to replace [Leo Epstein].

Thanks, Brad, and good morning to everyone on the call.

As demonstrated by our very strong third quarter operating results, demand for tower space remains robust. Moreover, our managers and employees across the combined organization proved they can deliver outstanding revenue growth and cost control, while bringing the Company's operations together for a merger integration program. The combination of a favorable leasing environment and tight operational execution resulted in same-tower growth of 10% and same-tower cash flow growth of 14% in the third quarter.

This double-digit same-tower revenue growth was driven by a number of factors. First, U.S. national wireless carriers continue to strive to meet the demands of expanding subscriber and minutes of use growth. Third quarter year-over-year subscriber growth is estimated at approximately 14% in the U.S., and total minutes of use continue to expand as wireless carriers continue to market rate plans that include substantial amounts of peak minutes, augmented by such features as unlimited nights and weekends, free long distance, rollover minutes, free wireless to wireless calls, free incoming calls, et cetera. It all drives demand on the network.

Second, carriers are also continuing to battle churn with both marketing messages and network investments. While carriers have improved their customer retention, third quarter monthly churn rates range between 1.3% and 3% among U.S. carriers, driving a continued competitive focus on network coverage and capacity.

Third, Verizon, Cingular, Sprint-Nextel and a number of other carriers are following through with the deployment of broadband data services to their customers. Each of these national carriers has a tangible target for their 3G rollouts by year end '05, with Verizon planning for 170 markets to be covered with CDMA/EVDO, Cingular with 15 to 20 markets to be served with UMTS and Sprint with 130 million to be covered with CDMA/EVDO by year end. Each has plans to extend 3G coverage further in 2006.

Fourth, while the four national U.S. carriers drove 61% of American Tower's same-tower commencing business in the third quarter, smaller and emerging carriers in the U.S. are also defining their coverage and network quality objectives and investing to attain them. Among our top new business customers in the third quarter in this category were Metro PCS and Clearwire, both of which are in the process of adding new markets.

During the third quarter, our sales force continued to demonstrate its effectiveness in addressing all these growth opportunities. Our third quarter signed new business was the highest it's been in the past several years in any given quarter. On the cost side of the equation, the post-merger American Tower maintained our long-standing position as the most efficient provider in the industry with our operating margins at 63%.

Our field operations, lease processing and finance teams continue to work together to see cost reduction opportunities for our merger integration initiatives and our process improvement programs. In sum, Q3 was a quarter in which the company delivered strong sales and operating performance, all in the midst of integrating the two companies.

In May, we announced the merger between American Tower and SpectraSite, as the creation of the industry's premier tower operator. We outlined the expected benefits of this transformational combination in three areas: strategic scale and focus, operational effectiveness, and capital structure. We closed the transaction in early August and based on our experience in the past three months operating as a combined company, we believe we're on track to deliver the expected benefits in all three of these areas.

First, we have most certainly met our goal of achieving clear scale leadership in the tower industry. We remain at twice the size of our nearest competitors and we're beginning to gain traction with our customers, to achieve the mutual benefits of this scale position. We have formally signed our first combined massive lease agreement with a major U.S. wireless carrier and have initiated discussions with other customers as well. We anticipate that these volume-based agreements will contribute to sustaining a healthy growth rate in tower leasing at AMT as we move into the future.

With respect to operational effectiveness, we already are improving our U.S. operations with the best practices and people from both companies. Quickly after the closing in August, we designated all leadership and management positions across the U.S. operations and moved right into integrating teams and initiating systems and process conversion. We've already combined the two former company's sales forces and have been operating with a single face to the customer. We've done the same with our field operation teams so that our U.S. tower assets are now managed by a single, more effective and efficient organization.

In the areas of the most significant systems, documents, data and process transitions, these are lease administration accounting, we plan to have the entire consolidation completed in early 2006. In addition, as of this month, we've made significant progress in consolidating our corporate functions into Boston. Based on these time lines, we currently expect to achieve approximately 35 million of cost synergies in 2006, which is at the high end of the 30 to $35 million range communicated during the announcement of the merger.

And third, regarding capital structure, a financial leverage, as Brad said, is now at the heart of our desired range of four to six times, due to the relatively lower leverage of SpectraSite and the continued growth in our core operations. The reduced leverage combined with the consistent operating performance and the scale and diversification benefits of the merger in turn led the company to be upgraded several notches by all three of the credit rating agencies.

Importantly this upgrade cycle included investment grade ratings for our senior secured debt. These upgrades set the stage for the bank refinancing that Brad described earlier. Using new found access to investment grade bank market, we're able to achieve roughly similar economics and financial flexibility as offered by the securitization markets, but with much lower setup costs and greater refinancing flexibility.

Finally, we indicated that the merger with SpectraSite would enable the company to more quickly and substantially return cash to shareholders . We're delivering on that promise with our $750 million share repurchase program that we have announced today. As we set our sights on 2006 and the future, we maintain our confidence in the sustained favorable environment for the tower leasing business, and in our company's ability to deliver industry-leading margins and value to shareholders.

Our 2006 guidance is based on similar levels of growth in new business that American Tower and SpectraSite have experienced during the past few years. We believe that the macro trends in the industry support this level of growth and that they are solid. The continued migration of wireless communication-- wire communications and the entertainment to wireless is one factor. The increasing coverage, capacity and bandwidth that will be required in the financial capacity of wireless carriers to support the necessary network investment all contribute to this favorable lease-up environment.

In addition, we see no visible technology threat to our business model. U.S. carriers have over $175 billion in cumulative investments in their cellular-based wireless networks. These cellular-based networks require elevation for the antenna that transmits signals to mobile devices and we believe that tower-based infrastructure will continue to be the primary means of deployment on these networks.

The wireless industry's both well financed and grounded in the cellular framework and it is also competitive. The major carriers, we believe, will continue to compete on network quality and increasingly on content and features that will require more bandwidth and more consistent signal coverage.

In addition, as new business opportunities in Spectra become available, more entrants may enter the wireless arena, potentially bolstering further the demand for tower space over time. We intend to be the obvious first choice for existing and new customers based on our superior scale position and investments in people, processes and systems to continual improve our tower leasing business. There's no business model like the tower business model and our goal is simply to be the biggest and the best. In closing, I'd like to acknowledge the tremendous efforts of our managers, and employees across the country in delivering the strong financial results of the third quarter, while simultaneously executing our merger integration plan.

At this time, we would be happy to take your questions.

[OPERATOR INSTRUCTIONS]. Your first question comes from Jonathan Atkins, RBC Capital Markets.

Good morning. Wondered if you could talk a little bit about Mexico and Brazil, the operating environment there versus the U.S. And then with respect to your new tower construction targets, what's the rough mix between U.S. and international, and within your U.S. new investments in building versus new towers, where is the bulk of that effort going to be from the dollars?

Sure, John. It's Brad. I'll turn over the in-building and new build to Jim. With regard to Nextel in Brazil, the growth in terms of new business was modestly less proportional than the U.S. And just slightly so this quarter.

For the year to date, it's been slightly ahead. So as we said earlier, they were going to have a stronger first half of the year and the U.S. would have a stronger second half of the year. That's playing itself out.

In terms of new builds, the vast majority of our new builds are in Mexico right now and in terms of the number of towers we have guided at 2006, the significant majority of the new builds, not counting in-building would be also in Mexico and Brazil.

Does that make the bulk of your U.S. investments in-building in nature?

That's right, Jon. The majority will be in-building, 40, 50, 60 new projects in 2006, and dozens of towers, but it's going to be more heavily weighted towards in-building at this point.

And then on the share buyback, just curious how you determine the size of the program and what might determine any willingness to possibly upsize it as we move into '06?

Yeah, there's a couple inputs to that, John. One was that the benefits we thought to the share buyback program, including tax efficiency, the flexibility to operate it over the period of time that we designated, and enabling our existing shareholders to compound the returns more rapidly were the baseline reasons we chose the size because of the typical range of share buybacks in the 5 to 10% range of outstanding shares, and we'll reevaluate that as we move through 2006 and how the program goes forward and how the environment looks.

And, John, what you see is we still have plenty of capacity so if we go through the 750 million and you can calculate where our leverage ratios will be, we'll still be well within the mid or even modestly less than the midpoint in terms of our financial capacity, if we were to think of greater size. But we would evaluate it if and when we complete the 750 million share repurchase.

Thank you very much.

Your next question comes from Michael Rollins of Citigroup.

Hi, good morning. Just a couple questions. First, what's an-- what's the update on the integration costs that you're expecting from the merger, and how is that reflected in the guidance? And then secondly, just going back to the earlier question regarding the potential for buybacks and leverage, when you enter into the program that was described in the press release, do you have any control over the pace of the share repurchase program? Is there some portion of that that ends up being discretionary versus in that program, and how do you think about leverage in the context of where interest rates are today within that range that you've set up previously?

Sure, Mike. I think the first one was integration costs. With regard to the integration costs, there's still similar to what we outlined in the initial merger announcement, which was approximately $70 million of integration costs. Of that 70 million, approximately 45 million has been spent. 20 million to 25 million has spent by SpectraSite prior to American Tower buying it. So for in terms of fees for their advisors and some smaller costs, those have been spent and put through their income statement.

Subsequent to that, the cost that we spent for our advisors, as well as some contractual severance arrangements, those, for the vast majority of those, they are capitalized as part of the purchase price itself, so youdon't see them come through the income statement, and so what you'll see come through the income statement are really the expenses related to costs incurred for services rendered subsequent to the acquisition.

And that number is going be relatively modest. It's going through a separate line item and it will probably be of that 70 million, 5 to 10 million over an 18-month period, which will be bled in. And that's how you'll see the acquisition costs come through.

Great. Thanks.

In terms of the pace of the share repurchase, we are-- we did announce that we've been offered to do a 10 B 51 plan, so it could be a consistent plan to repurchase the shares through a typical blackout window. Setting up that plan in terms of the parameters is at the complete discretion of Management and our board. And that is what I would disclose at this time, how we go about doing it.

And in terms of leverage, your question on the interest rate environment is, looks like currently interest rates are moving just in one direction lately, which generally tends to have a negative effect in terms of the amount of leverage ultimately, but we think we set up our balance sheet in a way that even in a four to six times range gives you plenty of flexibility in a variety of interest rates environment and for the-- and since 75% or so of our interest rate costs are fixed for the five-year period, we felt pretty good about where we're at and comfortable with the ranges we have given.

Thanks.

Your next question comes from Ric Prentiss of Raymond James.

Yes, good morning, guys. I share Jim's enthusiasm. I'm just glad he didn't show into Broadway tunes about how the tower business is the best business. The question I've got, and I'm going to piggyback on some of the earlier questions, we've looked at the four-step process of delevering, refinancing, buying back stock and paying dividends.

You talked a little bit about delevering, but what would be your thought about getting towards the higher end of that leverage, though, and given the environment we're in, and also looking at the REIT industry, while not 100% comparable, they have definitely been trending up. REIT leverage about 7%, whereas historically they were more like in the 5 to 7 range. Then as you look at the buyback, appreciate the color on this is the initial buyback. What's your thoughts as far as when you start thinking about dividends?

Sure. Ric, I think Brad answered your first question already. Four to six is a wide range when you're looking at $825 million of EBITDA. So we can work within that range in a wide variety of environments. It does appear to be a rising interest rate environment, but also a good economic macro environment, too.

So our range, we think, is the right one and as we move through our $750 million share buyback program, and again, 2006, we'll reevaluate what exact targeted leverage we'l'l want within that range and then we'll act appropriately.

I think, to highlight the REIT industry, you're well aware, now I guess are differences and I think what you see are leverage creeping up for several types of reasons and they go through, I don't want to say a wider range of leverage, but it's very specific and based almost solely on cap rates and what they pay for the purchases of the assets to generate certain equity returns, and so you do have a difference just from the initial setup of what's going on in those industries.

And then on the potential conversion of our program from share repurchases to dividends, again, initially out of the gate as we enter the arena of the investment grade credit market, being able to repurchase or do dividends with the scale that we're talking works we felt that the tax benefit, the flexibility it offers us and the compounding returns of our existing shareholders really do argue toward initially a share repurchase program.

As time goes on in our free cash flow gross and we demonstrate an ability and track record of being able to do this consistently, we would consider moving toward a dividend program at some point, Rick, and that would potentially be helpful in broadening the shareholder base as well. But that's not something we're looking at immediately.

And, Rick, I think one of the important things concerning any type of different descend sustainability and percentage payout. Those are really the key ways that investors evaluate a dividend, so you want to make it a size that's important and also one that's sustainable and growing over time.

Clearly this business has very nice visibility into the future.

It certainly does.

On the M&A front, Jim, you touched on the point that you guys have set the leadership on scale now. Is there a need for more scale and what are you seeing out in the M&A environment in the tower space?

I think there's room to grow this company as time goes on, Ric. We are not necessarily done, but we're also prudent about how we structure and what we're willing to pay for assets. I think you've seen our track record over the last few years has been very balanced in that way. At the moment we're not seeking or in discussions with another acquisition candidate at this time, and others, you would have to ask them directly, Ric.

Okay, and one final one, on the decommissioning Cingular, have you seen any to date?

To answer your specific question, we have not seen any decommissionings to date, nor have our U.S. operational folks experienced even a termination of a lease at its -- at its term conclusion. But what you can expect is there will be some of those decommissionings over time and we have said in the past publicly and we'll say it again today, we don't expect a material impact on our business or our operations due to any decommissioning program that might be out there.

But we do expect that those merging carriers may want to drive some efficiencies and some of that may include decommissioning sites. We also expect that that may be done in the normal course of terminals. So as leases come up for renewal rather than sort of paying the lease out up front and doing a full-up decommissioning -- taking down antennas and lines and taking equipment off the site, that carry years may opt instead to leave some or all the equipment in place, designate it as a potential turndown site and then run the term out and then make a decision at the end of the term period.

So fair to say you've reflected that kind of process into your '06 guidance?

Yeah, I think normal churn is-- the churn levels that are in our '06 guidance is around 2%.

Okay. Great. Good luck, guys.

Thanks.

Your next question is from Jim Ballan of Bear Stearns.

Thanks a lot. Couple things. One is, Jim, you mentioned in the master lease agreements that these were volume-based agreements. Are you getting commitments for minimum volume numbers out of the carriers for next year?

That's a principle, Jim, of the way we look at master lease agreements, and it has been a principal of ours for the last few years. What is benefiting us is regard to the combination of SpectraSite is we've got so many more sites to offer that carriers have been more comfortable signing up for a larger number, that's the theory behind the negotiation program that we have, and it's actually a mutually beneficial situation for the carrier and for us.

They have got more of a single supplier, single major supplier in American Tower, reduces their administrative complex tee and improves their speed to market and for us, it helps drive volume. So that's the concept. And also, we've been extending the initial lease term as well as we go through these discussions upwards of ten years in many cases so. That's a benefit to us as well.

Got it. Are you offering any kind of price breaks for volume commitments in any way?

I wouldn't call them price breaks. We look at the total revenue opportunity in timing and duration and we structured the overall package of those four or five variables, including the escalator to give us a fair return on our investment in our work with the carriers and also to provide them a reasonable program for deploying lots and lots of sites with us, so it's balanced.

If you look at the rates, Jim, in absolute terms, it would not be a significant difference from where they had been running.

Okay, great. One other thing, it looks like, and correct me if I'm wrong here, but it looks like you're accelerating the amount of in-building sites that your planning on doing next year versus what SpectraSite had done previous to that. Are you-- are you-- do you have good visibility into your ability to build out that many and are you seeing more and more acceptance of sort of that in-building model?

I wouldn't necessarily say it's an acceleration, Jim. It's more of the pipeline is a long lead time type of project typically for an in-building site. And the time lines are coming to their closure here in the next couple of quarters for a number of sites that have been worked on for months and months. And so it's more of just the timing and schedule to pipeline in getting these projects done than a sort of conscientious upgrade in the numbers that we've been seeking.

Great. Thanks a lot, guys.

Your next question is from Vance Edelson of Morgan Stanley.

Hi. Thanks, guys. Could you provide an update on the nontraditional carriers such as Clearwire, which you mentioned, and, or any of the wi-max-like providers, what type of activity are you seeing on that front? Is it growing quickly? Thanks.

Well, really there's three categories, Vance that, are active right now. One would be sort of the wire line replacement business model carrier, so it's the Metro PCS, resurgent leads. They are out building markets and enhancing markets. So that's one avenue of new business for us that's significant.

Then a second would be the DSL/cable/high speed internet competitors like Clearwire and tower stream. We saw a significant amount of business this year from Clearwire. We're working with them on building new markets and enhancing the ones that are already in pretty good relationship there.

And then the third would be the mobile TV initiatives of Qualcomm and we're actually working with Comcast to lease up some sites. Those are the three avenues and they are both interesting and providing lease-up for us.

Okay. Great. And it would appear that you prefer to build versus buy, at least overall when it comes to conventional towers, not sure if that's the case in the U.S. But what are you seeing in terms of market prices for existing towers, kind of the mom and pop-type sellers? Have prices been going up and that's why you're building more than buying, or what are you seeing there?

Well, Vance, you could consider the SpectraSite merger as doubling down in tower acquisitions in the U.S. I think out of the gate. We thought that the exchange ratio and the derivative price from that was the right one for us. Based on our inaction in picking up some of the smaller portfolios, you can conclude that the, -- our price discipline and what's being requested for those portfolios don't match.

Okay. Thanks a lot.

Sure.

Your next question is from Clayton Moran of Stanford Group.

Good morning. This is Clay Moran from Stanford Group.

Hi, Clay.

I have a couple questions, actually three questions. Have you bought any stock back yet? Second question, you talked about M&A. Just curious if you could share with us if there's been any change in private market values and what those values are roughly today? And also, you just talked about Clearwire, just interested if you thought with service providers like that that are building out networks initially here, if you have an advantage in terms of scale with them specifically.

I'll take the first and I'll turn the other two over to Jim. In terms of buying shares back, Clay, we have not bought back shares prior to this announcement. You should anticipate us to move with alacrity to do so after this announcement, following our Q, which will put our programs in place.

I think on the M&A question, Jim's answered that on a prior question in terms of private market values, which continue to be fairly robust to private market values and we have not participated in the smaller carrier acquisitions, but there is a decent amount of activity. I think Crown has picked up turn Trimtel there's been several other ones that you can note. I'll turn it over to Jim on Clearwire.

The short answer is yes. I mean when you've got over 20,000 towers to choose from and someone's putting a new market in, we're tending to get the first look. Other tower companies are getting their opportunities, too, but I do feel we have an initial advantage, especially on new build opportunities because of the scale, and the relationships we have, the business relationships we have with the Metros and the Clearwires, I think support that.

Your next question comes from David Janazzo.

Good morning. I'm with Merrill Lynch. Can you provide your thoughts on the in-building business? Looks like it's part of your build plan. What are your thoughts on the economics?

They are actually similar to a tower build. We like to see above 10% initial returns cash on cash out of the gate with a project and in-buildings tend to deliver that. And also bring on, brings on second and third carriers at a pretty good rate. So we monitor very closely each and every project.

We are willing, a little bit more, to take a one-carrier in-building project because the lease-up on those has been pretty robust over the last few quarters from SpectraSite's experience and we'll keep making those prudent risks and we'll keep monitoring the lease-up on the in-building sites. Roughly equivalent is the way I would summarize it as far as returns.

I think we look at it, David it, is a nice opportunity to grow, but it's not an enormous market on the other hand, either. So each of those sites, while roughly a little bit, probably 50% more than what a typical tower would build, would have a commensurate return ultimately is how we see this business and it provides a very good service for our customers, too, so it's complementary to the towers in a similar economic model.

Got it. And on the regulatory side of it, the approval side of it, local and otherwise, it's obviously factored into your '06 outlook, but any changes or trends there that we should be aware of?

Zoning gets incrementally tougher across the board. In-building is actually a simpler zoning problem. Once you get the agreement with the property owner, there really isn't a visual issue with the community on an in-building system.

So-- but on an outdoor tower, you know, zoning gets incrementally tougher as time goes on and we feel we're the best at getting through those zoning issues and building the towers that we want to build, and it's also, you know, an enhancement of our existing portfolio 20 sites in the U.S. It's tougher and tougher to replicate even a portion of that kind of portfolio, given that regulatory environment.

Thank you.

Sure.

Your next question comes from [Sam Martine] of Cobalt Capital.

Hi, guys. I just got done looking up alacrity, Brad. I think that's an impressive word to use: eagerness, enthusiasm, quickness, I learned a new word.

On the sites, I got on late, 12% on return, could you split that out domestically and internationally first and secondly, if-- could you just talk about that opportunity in terms of how big could that be in '06, if you really wanted to ramp up the capital cash flows come in as you said, you have a lot of capacity underneath the leverage bands that you've set forward. Even if you wanted to increase the buyback, you should still have a lot of spending ability.

How big do you think the tower builds could be, or could you at least just talk about the size of that opportunity next year?

I think, Sam, one something we do not feel capital constraints, so you should think, when you talk about ramping up, that we are spending as much as we can when we find the right return opportunities. So whether it's 225, 275 or 350 next year, it really is a function of are these going be good investments that generate the returns that we're looking for, and our returns for the most part over the last 18 months, I don't want to highlight any one quarter, has been fairly uniform between Mexico and the U.S.

Now, Brazil has a higher level of return for obvious reasons and that is how we design those kind of investments, but we really try in the U.S. and Mexico to at least have somewhere double-digit returns or a clear path to that with the mid-teens in the U.S. ultimately over time and a couple hundred basis points higher than that in Mexico.

And so you shouldn't think of us-- we don't think of our build in new investment as capital constrained. It's really can we put this money to work and get the returns we want, and that's how we've conducted ourselves really for the last 18 months in terms of building new sites.

Now we've developed a pretty good pipeline to continuous to do that and it looks like that pace is several hundred towers a year or 1% of the portfolio.

And it is important to put that in context. We're talking about 1 to 2% of portfolio additions a year for capital investment in new towers and in-building projects, but we do seek them.

So put differently, your Capex encompasses the opportunity that you see?

That's right.

Above the hurdle return level of, call it 12% unlevered?

That's what we say 10% is the initial hurdle, plus the path to get there. Things will sometimes be below, things will sometimes be well above, but that is really how we think of that investment program and we were-- we understated that case when we began 2005 and we upped the number of new builds every quarter because we've been able to find opportunity. And so that's-- we feel somewhat encouraged by that and we'll keep working on trying to find good opportunities to do that.

Nothing wrong with 10 to 12% unlevered with four times leverage. That's great return.

Five times leverage, five times.

I'll believe it when I see it.

That's where we're at today. Come on.

And at this time, you have no further questions.

We want to thank everyone for participating in the call.

Have a great weekend, everybody. Bye, now.

This concludes today's American Tower Company conference call. You may now disconnect.