美國電塔 (AMT) 2006 Q3 法說會逐字稿

Good morning, my name is Laurie, and I will be your conference operator today.

At this time I would like to welcome everyone to the American Tower Company third quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the call over to Michael Powell, Director of Investor Relations. Mr. Powell, you may begin your conference.

Thanks, Laurie. Good morning. Thank you very much, everyone, for joining us.

Before we begin, I would like to point out that on this call that we will be discussing certain historical and current financial information. And as previously reported and stated in this morning's press release, American Tower will be restating its historical financial results in connection with its internal stock option review. Until we finalize the impact of the stock option review on our financial statements and complete the restatement, we are unable to provide detailed GAAP or non-GAAP financial statements for the quarter ended September 30th, 2006.

The Company believes that the selective financial results presented in this morning's press release would not be affected by the results of the stock option review with the exception of the Company's selling, general, administrative and development expense, otherwise known as SG&A, which should be considered preliminary until the Company files the Form 10-Q for the quarter ended September 30th, 2006.

We therefore kindly ask you to keep questions on financial results to selective financial results presented in this morning's press release. We'd also like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include but are not limited to statements regarding our full-year 2006 and full-year 2007 outlook, the stock option review, the restatement of our previously issued financial statement, and the timing of our filings with the SEC, our stock repurchase program and any other statements regarding our goals, beliefs, strategies, objectives, plans or current expectations, and any other statements regarding matters that are not historical facts.

You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Risk factors include the risk factors set forth in this morning's press release and those set forth in our Form 10-K for the year ended December 30th, 2005 and our other SEC filings. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call including any forward-statement to reflect subsequently occuring events or circumstances.

Our earnings release, which could include information required by Regulation G, was furnished this morning to the SEC in a form 8-K and is also posted on our website.

And now I'd like to finally turn things over to Jim Taiclet.

Good morning, everybody. I'd like to open today's call by thanking our investors for their patience during our review of historical stock option practices at the Company.

As outlined in this morning's press release, the special committee of American Tower Board of Directors reported its findings to the full board this past Monday, November 6th. Based on these findings, we are now in the process of completing our full financial statements for the third quarter of 2006 as well as the relevant prior period financial restatements. We expect to have all of the documentation and appropriate internal and external reviews of these statements completed during the next few weeks, at which time the statements will be filed with the SEC.

Subsequent to the filings, we expect to expeditiously discuss with our board the lifting of the suspension on our share repurchase program and reconsider the magnitude and pace of these repurchases and how they should occur going forward into 2007. During the period of the stock option review, our management and employees throughout the Company continue to drive the business forward.

I would also like to recognize and thank our employees for their efforts in accomplishing our third quarter 2006 results that Brad will now share with you.

Thanks, Jim.

As a result of the current status of the stock option review, we have not released full financial statements for the third quarter and results discussed on the call are not final. The Company has provided selective financial information that reflects a portion of the operating results for the third quarter.

American Tower continued to demonstrate its ability to deliver consistently strong operating results during the third quarter. Our top line revenue growth, Gross Margins and free cash flow met or exceeded our expectations. Marking the 19th consecutive quarter, that's just short of 5 years that American Tower has met or exceeded its tower revenue Gross Margin or operating profit outlook. Our third quarter total revenues increased 26% to over 333 million. Now when compared to pro forma results for the third quarter of 2005, the combined Company increased total revenues 12%.

Substantially all of American Tower's performance on a pro forma basis was derived from organic revenue growth. In our core Rental and Management Division, our revenues and Gross Margins increased 25 and 26% to 326 million and 245 million respectively from the third quarter in 2005. On a pro forma basis, our third quarter Tower revenues and Gross Margins increased 11% and 14% respectively.

Our performance for the quarter was notable for the continued high levels of new business commencements, excluding [Inaudible] insurance which ran at an annualized rate of over 90 million and new business -- for new business signed in the quarter which ran at an annualized rate of 85 million.

Our total selling, general, administrative expense was 42.4 million, including 10.7 million of non-cash compensation expense. Our SG&A expense also includes over 8 million of additional costs associated with the stock option investigation. Please note that our non-cash compensation expense may be adjusted based on the outcome of the stock option review.

In the third quarter, our capital expenditures totalled slightly under 34 million. During the quarter, we successfully completed the construction of 38 towers, primarily in Mexico and Brazil and three in-building installations. The average unlevered day one return on new towers and in-building projects was only 15% with strong prospects for additional tenants further increasing our future returns on invested capital.

We also increased our land repurchase activity, acquiring over $4 million of land in the -- in the third quarter with a goal of closing approximately 13 million by year end. We anticipate completing approximately 210 towers and 25 in-building sites in 2006. In addition to our construction activities, we acquired 19 towers with an average initial return exceeding 20%, as well as further strengthening our relationship with MGM Mirage by providing wireless carriers access to in-building distributed antenna systems for 6 of their Las Vegas resorts and convention facilities including Mandalay Bay, Excalibur, Monte Carlo, and Luxor.

With our strong revenue growth and disciplined capital spending and cost control, we produced 149 million of free cash flow in the third quarter. An increase of over 105% over the same period in 2005. Please note that the third quarter cash from operations benefited from a 14 million favorable working capital adjustment related to interest payable.

Excluding our investment in new towers and in-building projects, our free cash flow was approximately 165 million for the third quarter, equivalent to over a 650 million annualized run rate. We define free cash flow as cash provided by operations less all capital expenditures.

As indicated in our press release, we are refining our 2006 outlook and introducing our 2007 outlook. At the midpoint of our 2006 outlook, we anticipate tower revenue exceeding 1.29 billion and tower Gross Margins of approximately 973 million. As we look to 2007, we anticipate levels of commenced new business slightly below 2006 levels without any significant commence leasing activity from AWS Auction licensees. We do expect the level of signed new business to be at or above 2006 level, as we look forward to the AWS Auction licensees securing sites for deployment in late '07 and into 2008. As a result, we anticipate tower revenue growth ranging from 8 to 10% and tower Gross Margins increasing 9 to 12%.

We anticipate a slight increase in expense as we continue our initiatives to improve our customer service and quality of our infrastructure, but still anticipate delivering approximately 90% of incremental revenue to Gross Margin in our tower operations. We anticipate similar levels of capital expenditures relating to improvements and augmentation in 2007. We also anticipate comparable levels of new build capital expenditures with approximately 200 new towers constructed and 25 new in-building systems. We expect to increase our land acquisition activities and are targeting investing $30 million.

Our financial position continues to improve due to the strength of our operation and the temporary cessation of our share repurchase program. Our net debt declined to 3.36 billion from 5.353 billion in the third quarter of 2005. As previously announced, the Company has temporarily suspended repurchase under its share repurchase program while the review of its stock option grant practice is ongoing. The Company's board of directors had approved the repurchase of up to 750 million of the Company's Class A common stock in November 2005.

Prior to the suspension of the stock option repurchase program, the Company had repurchased a total of 11.8 million shares for approximately 358 million. Given the strength of our financial position, we would anticipate discussing with our board of directors the resumption of our share repurchase program and the potential to expand or to accelerate the historic rate subsequent to an appropriate resolution of the stock option inquiry and the filing of our Form 10-Qs and restated financial statement.

In summary, we believe our results demonstrate the strength of the combined Company and the quality of our portfolio of assets as we continue to deliver strong performance.

I will now turn the call back over to Jim.

Thanks, Brad.

American Tower's 11% increase in proforma tower revenue confirms a continued strong demand for tower space in off served markets. As we look ahead to the balance of 2006 and into 2007 and beyond, we believe that there are at least three key sources of continued demand for tower space that will drive top line growth in the US wireless market and ultimately in our international markets.

These key sources of tower demand include the major established full-feature wireless carriers, fast-growing unlimited usage service providers, and high-band width wireless data and entertainment providers.

The first of these key sources of demand for tower space are the existing full-feature wireless carriers. These carriers share the attributes of embedded legacy networks, full-feature type service that includes nationwide and even international roaming, 2.5 to 3G wireless data options, and national or at least major regional coverage areas. So these full-feature carriers in our mind include Cingular, Sprint-Nextel, Verizon Wireless and T-Mobile USA on the national side and those such as Alltel, US Cellular, and Dobson on the regional side.

The four full-feature national wireless carriers have been our largest source of new lease-up business. For the first three quarters of 2006, the four national carriers contributed approximately 50% -- 56% of our new signed lease value. As we look ahead, we expect this trend of the four national carriers generating the majority of our new business opportunities to continue.

First, as a group, these carriers are competing aggressively on a number of fronts, many of which require further network development. As we have discussed in past calls, the imperative for all of the national carriers is a continually enhanced network coverage and capacities to improve their customers' experience and minimize churn. In addition, the national carriers have collectively made a viable 3G offering simply table space to succeed in this category. If 3G networks and high-speed mobility services increase in subscribers and usage, each of the national carriers' network densities will need to increase to remain competitive.

In other words, now that 3G has taken hold as a necessary service offering among national carriers, cell site densities should increase over time. As we look into 2007, we expect the following types of activity from each of the national carriers. Sprint-Nextel should continue its rejuvenated program of augmenting CDMA sites with iDEN equipment and augmenting iDEN sites with CDMA equipment as well as building thousands of new cell sites for capacity and coverage need.

Further more, we anticipate Sprint deploying a WI-MAX network in a few select cities by the end of next year which will require both adding new cell sites and upgrading existing ones. Thus providing new revenue opportunities for us in 2007 and 2008.

Cingular should continue to rollout its UMTS, HSDPA 3G service in many markets though on a lesser scale than in 2006. And we expect that Cingular will add selected sites to improve coverage and capacity across the nation while continuing with its network integration effort.

We also expect Verizon Wireless to continue to expand its network to accommodate its strong net -- subscriber growth and support its CDMA EVDO product. And we anticipate that a similar pace of activity will continue into 2007 with Verizon.

T-Mobile USA should also sustain a robust new site deployment program into '07. And we also anticipate that we will begin to see substantial numbers of lease augmentations the T-Mobile [Inaudible] 3G transition, most of which will occur in late 2007 or early 2008 as a result of a need to clear the recently acquired AWS Spectrum Band.

In addition to the full service national carriers, regional carriers with existing networks will also be an ongoing source of additional lease up as they overlay 3G technology in their respective regions, integrate acquired networks and add technologies, such as the case with the combined Alltel, Western Wireless, Midwest Wireless portfolio. And they'll also be filling in selected sites to enhance their network quality, as well.

American Tower has historically been successful in capturing a substantial share of co-location business from full service wireless carriers with embedded networks. Among our key factors of success with these carriers are long-standing customer relationships from the CEO or network president level to the line real estate and network managers and the many subcontractors that are engaged in the carriers' network deployment.

Also our established master lease agreements we have with each carrier that make for consistent terms and conditions on our sites and the opportunity for augmentation on sites acquired from these carriers is another source of new revenue.

As a reminder, American Tower now owns significant numbers of sites acquired from Cingular, Verizon Wireless, Sprint-Nextel and Alltel. On average, among the four national carriers plus Alltel, American Tower sites host approximately 20% of all their cell sites on both acquired and built towers.

The second major category of forward lease up demand is the fast-growing, unlimited usage providers. Namely Leap Wireless and Metro PCS. These two carriers alone delivered a combined 16% of our new lease business during the first three quarters of 2006. Leap and Metro PCS have generated new business with American Tower in both initial market launches and in the subsequent enhancement of each new market with additional cell sites as subscribers and minutes of use grow. As many of you on the call are well aware, both Leap and Metro PCS have acquired substantial Spectrum in the recent AWS Auction 66.

In addition, both companies have successfully been raising capital for both the Spectrum acquisition and network buildout. We're impressed by how both of these companies are performing in their current markets under their respective business models as their low-cost unlimited usage services appear to be attractive to their targeted demographic segments. More over, a significant proportion of customers of both Leap and Metro view their product as a wireline substitute and only have the unlimited use wireless service and no land-line phone.

With both of these valued customers, American Tower has achieved a significant share of new leasing opportunities, especially during the launch phases of new markets. Our key factors of success in working with Leap and Metro PCS include collaborative preplanning for new markets and an investment on our part in free lease preparation of documentation and sites for these two carriers.

The third major source of demand for tower space is high band width, wireless data, and entertainment providers. Currently Clearwire and QUALCOMM's MediaFLO unit are in operational and or deployment mode. In the future we also anticipate that Sprint-Nextel's announced 4G product will be rolled out nationally using Intel's WI- MAX technology. In addition, both Cingular and Verizon Wireless purchased a substantial amount of Spectrum in Auction 66 that could ultimately be used for competing 4G offerings in the future.

Moreover the cable television consortium also purchased Spectrum in the auction that could also be used for future wireless data applications. And additionally, numerous satellite communication companies currently own Spectrum rights that include a terrestrial communications component. One or more of these companies could be a logical partner for satellite TV providers EchoStar and DIRECTV should these satellite companies decide to launch a wireless internet product.

Over the first three quarters of 2006, high band width wireless data and entertainment providers combined have contributed approximately 5% of our new lease business. With both Clearwire and MediaFLO funded for further deployment and the announced trials of Sprint-Nextel's 4G service in the Chicago and Washington markets next year, there is the additional potential for new business in 2007 and even more so beyond -- in years beyond from this category. And given all of the potential high-band width 4G service and numerous well-funded players involved in this space, we believe there's long-term opportunity in this high-band width wireless data and entertainment category.

It'll be interesting to see which of the emerging 4G business models such as DSL replacement, mobile broadcast TV, online gaming, mobile music, video sharing, et cetera, gain traction during the next few years. We currently have solid customer relationships and interactions with those companies deploying today and are in close communications with many of the companies that may deploy these types of technologies in the future.

In order to capture as much of the future business as possible from all of these categories of customers, American Tower is pursuing a number of operational initiatives. We are very focused on using the Web as a central business tool to connect with our customers and conduct the lease processing activity needed to get signed contracts.

Last year we initiated this effort with our Fast Track site identification systems, which enables our customers or our own account managers on the customers' behalf to use the Web to identify qualified sites based on location whether they be from American Tower or other suppliers.

For American Tower sites that emerge as viable candidates, we then evaluate the site's characteristic proactively based on the customer's needs and provide the customer the requisite information through the fast-track Web portal. This program in the portal provides the customer with a second order of information he or she must have to choose with confidence the American Tower site and get the application process started. Our goal with Fast Track is to provide the customers a high quality data needed to make a buying decision on our site faster than any other tower provider can do.

Our next objective is to create a Web-based E-commerce lease application process for our customers and our employees that will deliver greater speed and ease of use for both. And while we're building the future systems and processes for our E-commerce based order-to-cash process, we're also continuing to invest in our employees and systems to get the very best possible from our tower assets.

For example, we continue to standardize our Six Sigma based continuous improvement methodology across the Company and we're nearing 100% completion of the introductory yellow-belt training among our employee base both in the US and internationally.

Our managers and employees are using this methodology and other tools to identify process improvements to further benefit our customers and to maximize the financial performance of each of our 22,300 sites. An example of an important Six Sigma project that we're now in the process of launching is an automated job dispatch optimization system for our field operations, which will result in faster customer response in the field and improved efficiency for American Tower.

Finally, we are eager to apply our operational initiatives and management experience to even a larger number of towers and are constantly seeking opportunities to grow the Company both in the US and internationally. As we seek these opportunities, we continue to apply the effort and rigor to value tower assets appropriately and the discipline to pay only for assets of value to commensurate with our analysis.

On the international front, our team has been vigorously evaluating potential markets for possible entry by American Tower. Our regions of focus have been primarily Southeast Asia, South Asia, and Latin America. A number of these countries in these regions meet our general criteria for investment. At this time, however we do not have any specific transactions consummated but we are continuing to evaluate and cultivate a number of opportunities.

In summary, we're pleased with the performance of our business, expect a healthy environment for the tower industry in the US going forward, and are exploring ways to add to our portfolio towers in a meaningful way, including new international market entry should the right opportunity be cultivated.

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

Laurie, you can open up the call for questions.

[OPERATOR INSTRUCTIONS]

Your first question comes from Tim Horan with CIBC.

Good Morning. Great quarter, guys. Two questions. One, it seems like the AWS Spectrum might be built out a little quicker than I think your guiding to at this point. I know T-Mobile has been doing a lot of pre engineering work is being fairly aggressive on their buildout. Just your thoughts there.

And then secondly, I'm not sure you can comment on the stock option issues, but there was a comment there that some of the current management kind of knew what was going on. Could you maybe elaborate on that a little bit? Thanks very much.

Yes. Hey, Tim, it's Jim Taiclet.

First of all, there is preplanning going on with T-Mobile. We're involved with that, others may be too. There does have to be the clearing of the Spectrum accomplished before you can actually put service air. However, a lot of advanced work can be done, leases can be found, commencements could even be started before you're ready to flip the switch on to live service. So that indeed is going on with T-Mobile and I think that they're probably out ahead of their planning process.

And I would say that similarly for Metro PCS and Leap there there's significant planning going on. The are already engaged in the Spectrum clearing process, and we'd love to see all of these carriers start commencing leases earlier rather than later in 2007, but we want to be realistic, as well.

On the question of the stock option issues and our press release we've outlined the findings of the special committee. It was an independent committee. We were not heavily involved in its deliberations with the exception of providing them information. And so the results that you see elaborated in the press release are really all we can speak to.

So you should read it carefully, not read into it, things that it doesn't say. And I think take it at face value as what's printed on the page.

Thank you.

Sure.

Your next question comes from David with Banc of America Securities.

Hey, guys. Thanks a lot. Just a couple questions.

First, just of the 8 million options expense you saw in the quarter. Maybe could you take a stab at what incremental expense might be left over in the fourth quarter and speak to that would be the end of it?

The second thing would be on the time line for the restatement, I know we've made some guesses about when that restatement was going to come in the past. I guess now that the review's over and it's in your control, your comfort level's pretty high with the end November. But maybe you could speak to that and whatever SEC incremental issues might be outstanding.

And then just last, in the week or so -- last two weeks we've gotten a lot of reports out of India about American Tower as being already involved, sort of involved, maybe going to be involved. Can you speak to your Indian market opportunity? and if you can't really talk about any specific opportunity, could you talk about the Indian market and how it fits into your thinking in general?

Hey, David, it's Brad. I'll take the first three and I'll turn it over to Jim for any discussion on the Indian market.

With regard to the expenses related to the stock option inquiry. We did incur over $8 million this quarter. It's difficult to project the expenses.

As we move forward fourth quarter or beyond, you'd like to think that third quarter was the high water market, but we are still incurring costs, legal fees and accounting fees as this is getting wrapped up. And it may be ongoing with further inquiries because we still -- there still is an SEC open informal inquiry as well as just Justice Department information we provide. So while we aren't forecasting the future, I think we feel the third quarter hopefully is the high mark, but it's difficult to say.

With regard to time line of the statements, you are right that we've had time lines in the past. This process has been uncertain -- it is something that is really deliberate and takes the appropriate time that it takes. And from this, one of the key items was completing the independent committee's report. They have done that. And so now it's resolving the financial statements which some work with them currently obviously with what was going on.

But that is also supposed to put out internally and externally with our auditors and making sure that the appropriate reviews were done as well as with the appropriate legal teams. We have a good faith estimate at the end of November. And we put it out there in consultation with all of relevant parties involved.

Okay. Looking at the India market, David. Let me just reiterate our criteria for any international country as a possibility for market entry.

The first screen we use is the overall political economic environment in that country. I think everyone's quite comfortable that India presents fairly favorable environment as far as political stability,currency stability, rule of law, et cetera.

The second major screening criteria for us then is the state of the wireless market in each country. And India's a vibrant wireless market. It's got low penetration, it's got a number of national carriers augmented by quite a few regional carriers. There's a lot of vibrancy, a lot of potential customers for us. And it's early stages in how the tower industry will develop in the country. So, it has a lot of positive attributes from a country level and from a wireless industry perspective.

The third and perhaps toughest of the hurdles to get through, though is to find one or more counter-parties that you can actually strike a tower, sale a lease back or build to suit or combination with that's meaningful enough in size to merit market entry and also provide the kind of economics that are risk adjusted for that country that we would be comfortable with.

So as far as India goes specifically, I think you can feel comfortable that we feel the first two attributes are positive, that is the country and the wireless market. And we are seeking, but have not concluded any agreements or arrangements with any specific carrier.

That's great, thanks so much, guys.

Your next question comes from Michael with CitiGroup.

Hi, good morning. Just a couple quick questions.

First on the cost side. It looked like on a -- if you normalized the stock option expense out of the numbers -- or the expenses associated with that I should say, the inquiry. The incremental margin look very strong year-over-year. And I'm wondering if you're seeing either a greater level of cost cutting associated with the SpectraSite merger or if you're just seeing more scale in certain aspects of the way you operate the business.

Michael, it's Brad. With regard to our scale and our efforts to contain costs, I think we have been -- had good success at really driving incremental revenue straight down to the Gross Margin and free cash flow line item.

We anticipate continuing to do that, but we do guide for next year that we will have, it won't be in 100% flow through, it will be 90% or thereabouts of the incremental revenue coming through. As we continue to hopefully invest in our business and invest in our processes and make our Company be able to deliver the quality of service that I think would benefit our customers in long-term the Company itself.

Great, thank you.

Your next question comes from the line of Thomas Lee.

[OPERATOR INSTRUCTIONS]

Good morning, guys. Let's see. I have a couple questions.

First, I just wanted to clarify -- Jim, when you gave those numbers for sort of the big three largest source of incremental business and it was 56% for the full-featured carriers, 16% from the unlimiteds, was that a revenue number?

That's new lease -- Tom, that's the value of new leases signed in the first three quarters of 2006.

Okay. Got ya.

And could you give us an idea, though, within the full-featured carriers specifically, compared to 2006 verses 2005 has there been a change in terms of the type of locations these carriers are using? Are you seeing an increase in multiple tenants -- multiple of the same tenants per site? Are you seeing an increase in some sites that were formally seeing no lease-up activity, seeing lease ups or are your heavily lease sites greater lease ups?

And then, kind of just give us the flavor for like as you look into '07, again like an idea of the type of sites that the carrier is seeking, especially if you think that the business might be shifting towards these distributed antenna systems or something like that, thanks.

Tom, it's Jim. Our best sites as far as current revenue value are our most attractive sites traditionally for new lease up. And that's been consistent '05 , '06. And so major metro areas, that's probably the first category there. And then your second and third tier locations come next.

And it's preproportional to again the value of the revenue on the site tends to make an attractive site and those are the sites that get the most proportional leases over time. I think as you see new technologies roll out, they tend to roll out in city cores first, then the near urban next, suburb and then out into the inner connecting highways and such.

And so, again, each carrier's on its own deployment schedule for its called 3G technology, for example. So, Verizon was first, Sprint-Nextel, Cingular, and now T-Mobile. Again, you'll see a lot of demand I think across the portfolio for cell sites among those four carriers because they're on simply different deployment schedule of technology.

But, I think the rule of thumb is the best located sites with the highest revenue tend to get the most new lease action.

Okay. But has that -- has that changed -- have the best locations remained the best locations? And, is there a change in the type of height that that these carriers are looking for? Are they looking for taller structures, shorter? Are they building higher, lower, et cetera?

Over time as cell site densities increase, preferred could become lower, but you can also downtail the antennas still meaning your existing site is not obsolete because you've increased the density. So there's really no common easy theme to say what's an attractive site. It's the location, first of all. Specific to that market, and then you can roll across the carrier's deployment plans and technology through, again urban, suburban, markets in that order, and you'll create your demand that way.

Obviously, Tom, we've got 22,300 sites. Half of them drive 80% of the revenue, and I think that metric will probably hold up over time. On the distributed side, which you mentioned that, we've polled the carrier side of the industry a couple of times to figure out if the time is right for outdoor distributing antenna systems to be a major factor in the deployment plans. And we don't believe that the time is right based on what we're hearing and it's still a macro-cell based deployment once you get outside of roof tops and urban city floors.

Got ya. Thank you, guys.

Sure.

Your next question comes from Jim Ballan Bear Stearns.

Thanks a lot. Couple things. One is I, Brad, didn't quite follow you on the guidance. Did you say that there's no AWS Spectrum build out or the Sprint 4G build out in those numbers? Or and so therefore it could be higher if you do see that, is that what you saw?

Tim, what I said is we anticipate not a large contribution 2007 from the AWS Auction licensees.

Okay. But you are including the Sprint 4G? What you think you might get from that?

The Sprint 4G is in very selective markets and it would be towards the second half of the year. It would not again have a significant impact in the '07.

The other part of the comment was, we expect our activity levels of signed new business to be very -- to be at least commensurate with '06 because a lot of the planning and a lot of the leases that will be signed will be rolling into late '07 or early '08. If that -- if licenses are -- or if Spectrum is cleared earlier, if networks are deployed earlier, that would be beneficial, but that's how we're looking at our numbers.

Got it. Got it.

And just one other thing. Assuming that you get the -- that you get your statements filed as you said, can you talk about the timing of when you would -- of when you could start buying back stock?

Also talk about refinancing on the debt side and I assume you'd be adding to your debt as you bought back stock. And your thoughts on accelerating the pace over what you've done prior to this whole option thing.

Yeah, Jim, I think you've heard many times our intention, which is to return cash to shareholders, maintain appropriate leverage in our view. And over the long-term, the math just will be compelling based on the free cash flow that we generate that we would have to add debt, absolute debt over time to maintain the 4 to 6 times leverage target that we have and return the balance to shareholders in cash after we make the investments we want to in our business.

So that long-term strategy for our financial structure hasn't changed. Over the next couple of weeks, we've got a live board meeting, we should filing these restatements, we'll have a good chance to talk to our board about the repurchase opportunities in '07. And by the end of November, early December, I think we'll -- we should be in a position assuming the board agrees with our perspective to make public announcements about '07.

But again that's all contingent on board discussion and ultimately approval.

Has any debt refinancing been delayed because of the fact that you didn't have statements?

I think, Jim, our plans, while we're working forward on some of the ground work to do financing is very difficult to actually issue new securities when you don't have financial statements. And so that part we have to make sure we have appropriate financial statements filed. Once that happens, then we go about executing our long-term capital strategy.

And that really is just to have a flexible capital structure at the lowest cost. And that's -- you should expect this will be rolled out over the next several months.

Okay. Great. Thanks a lot, guys.

Your next question comes from Vance Edelson with Morgan Stanley.

Thanks. Jim, you did a good job enumerating the many growth drivers on the horizon 3G, 4G and so forth. Could you talk about backhaul and how that plays into it? Whether there are going to be any capacity restraints whether backhaul could become a bottleneck and maybe give us an update on how fiber tower fits into this?

Sure, Vance. I don't necessarily see backhaul as a physical constraint on carriers deploying 3 and 4G networks. It's an economic constraint that they're going to have to deal with one way the other. Today most backhaul is done through space T1 and they're alternatives to that such as microwaves, such as Fiber Tower.

We have Fiber Tower as a customer, they've been a significant new business customer for us in 2006. And we expect that, that type of service whether it's owned by the carrier or provided by a third party like Fiber Tower, that microwave backhaul is going to have place as band width increases.

It's hard for us to judge what portion of that will be, Vance, it's probably a carrier question, but we think it'll be meaningful. And for two reasons. One is it's a competitive type service, which will perhaps help keep costs under control for the industry. And secondly, it's a redundancy factor for maintaining quality of service. If you have some microwave links plus land line based T1s should one go out, you've got the other one usually up and running.

For redundancy purposes and cost management purposes, I think that microwave backhaul has a future of either owned or third party.

Okay. Thanks.

You bet.

Your next question comes from Ric Prentiss with Raymond James.

Yes, good morning, guys.

Hi, Ric.

Couple follow on questions. First in regards to the stock option. I know there's not a lot you can share with us, but I wanted to ask some theoretical questions. Brad, you're always good at theory.

What are you thoughts as far as special dividends, accelerated stock buy backs? Just kind of alternate mechanisms compared to what you guys have done historically?

And then the second question on the option is, Jim, a couple times you seem to make a point about the '07 opportunity, make a public announcement for '07 time frame. Does that mean we should not expect to see any kind of resumption of the buy back program in '06? And then I'll have international question for you after that.

Hey, Ric, with regard to your theoretical questions, I think we're approaching fairly common sense. And the special dividend or any other type of way to accelerate the amount of capital you give back are viable options. We've tended to be incrementalists as a Company. Which means it's better just to accelerate the pace of repurchases rather than having a one-time big event. And that let you really go through as the market moves up and down. You kind of average your way through it. I think all of those are viable ways to return capital and we don't rule any of them out as we consider ways to return capital.

With regard to the timing or the resumption of the share repurchase, I think it's what Jim said. The first thing that has to happen is the financial statements have to be complete. Then it's really based on the facts and circumstances and how the board evaluates what's going on. That could be an '06 event. But I think -- until the first gating on the financial statements are complete, you're not going to have the second, which is discussion at the board level of seeing what makes sense and what are the facts and circumstances to resume or increase or whatever is determined at that point.

And that's not to say that any action in calendar 2006 is procolluded, Ric. It's just being -- common sense and maybe 30 to 40 days left in the year. We may get some repurchases done over that time span, but our real more strategic conversations, what's the pace in 2007? And the starting gun may go off before year end but really going to holistically looking at this into the next 13, 14 months.

That makes sense.

On the international front, you did a good job of laying out kind of how you look at markets and your three criteria. Can you talk a little bit about how you look at the required returns? Remind us about what your required returns are that you're seeing in Mexico and Brazil.

And then also how important is a path to consolidation for you guys if you were to do a minority position on that obviously would not show back up on the consolidated numbers. It might be a little more problematic to get the value recognized back in the US.

Hey, Ric, it's Brad, I'll take the return one and start on the path to consolidation and Jim can jump in.

With regard to return. We look at returns based each -- any country that we deploy the capital in. And so, if you have dollar denominated returns that eliminates certain currency risks, but then you have to mark up for a country risk. And so, whether it's Mexico may be several hundred basis points above our benchmark or Brazil where we have denominated leases, then you have to also incorporate the currency aspect, which may be several hundred more basis points or even further above that.

So, we try to take an approach of the country as well as what type of currency risk we are taking on when we put money to work, and that's where those benchmarks return should come out.

With regard to a hypothetical, if you take minority stakes versus majority stakes, we have taken -- the only time we've deployed capital in other countries have been with significant majority stakes and [Indiscernible] is actually 100% stakes in those entities. We would anticipate that or the way we think about, that's our preferred methodology to go.

We're always flexible in our thinking. And once again, you'll here use the phrase common sense. We try take a common sense approach to any investment you make you should be able to realize those returns on that investment in appropriate fashion without a lot of brain damage to get to that point over time.

And so that's how we think about any type of structure that we would enter into.

Yes. Ric, what's worked for American Tower Mexico and Brazil is operational control over decision making, deployment, how we run the business, how we invest capital, whether it's buying and or building sites in those particular countries. That's the kind of model of success that we would anticipate deploying in additional countries too. So I would keep in mind our history and how we've been successful and we probably want to stay close to that in new opportunities.

Okay. And if any carriers wanted free rent that would obviously, I guess, factor into the value of whatever got contributed into a sale lease back or a joint venture?

Fair assumption.

Great. Good luck, guys.

We're going to get our -- we won't enter a country if we don't have high confidence is the risk adjusted return getting delivered to shareholders.

That's good news.

Your next question comes from Anthony Klarman with Deutsche Bank.

Couple of questions. First, what are the additional costs on customer service and customer quality improvements actually being spent on, i.e., what are the areas that you've identified you think you can make some investments in the '07 period that will kind of pay these dividends back on a longer-term basis?

Two areas, Anthony, that are directly customer facing. One is a field sales organization and the national sales team that we put in place. What we evolved to, and we're going to add a little more resource here next year, is to make sure we've got those local real estate managers, RF managers, and subcontractors literally market by market while covered by our folks locally at that level.

But also we've added at the national level and we're increasing essentially one major -- one resource team to each major carrier to make sure that the national staff level of the carriers that we've got good contractual relationships. we're solving problems, we're getting AR taken care of efficiently and quickly. Things like that. So we're bolstering the sales and marketing organization.

And then, behind the wall, we've actually taken on a SpectraSite model of how to process these applications where there is a hand off from that outside resource to an inside resource project manager that then shepherds that application all the way through our lease application process including structural analysis, real estate issues, et cetera. So we've really got an advocate, if you will, for each application inside our Company making sure it's tracked as quickly as possible.

Along with that, we've set up some separate, you could call them swim lanes almost, for big projects like Cingular's UMPS project, we have an external, internal dedicated process to get those augmentation applications in through quickly and the same team working on those every day.

Those are the kind of customer phasing things that we're putting a little more investment to.

So, I guess, regardless of how you kind of slice it up, that's still capital that's being deployed. So do you think of deploying the capital and those investments the same way you would think about whether you would use that money to buy land under towers or build new sites, and do you expect the same type of return on that? Or is this a different type of assessment in your view?

I think conceptionally you're right, but we've got the customer service and quality aspect towards this ongoing business. When we put a tower in the ground, we've got two leases signed up front, we know what that return's going to be. We add five more sales closed, it's a little tougher to do that the MPV spread sheet on that. But we feel it's absolutely the right thing to do, and we will get more leases over time, win more of the ties when they happen and deepen our customer relationship by adding a few resources.

And, Anthony, just to clarify, we do productivity benchmarks in various elements of our operations including per capita as a head as well as when we make new investments in systems or software and that money being spent is done along the lines of what you said is what the expected IRRs would be of those kinds of capitals.

So, it's a combination, as Jim said. There is some quantitative, but there is some qualitative aspects whenever you increase your cost structure if it's modest or more. And that's how we really look at it.

Okay. Couple of portfolio questions. You gave a lot of what are going to appear to be longer term drivers for growth in the business. They're almost all in the US, but certainly a significant portion of your focus, clearly on the new build side has been in international and there's obviously been some questions on this call about other markets internationally that you might evaluate getting into.

I'm trying to marry -- we've heard from a lot of the other tower operators about this significant demand that's coming on the heels of Auction 58, Auction 66 and all of these other things. And I guess I'm wondering why -- are you at the point of diminishing returns in terms of getting significantly larger in the US only serves to cannibalize your existing portfolio given you have a fairly dominant position in the top 100 markets in the capital for a risk adjusted return on capital basis is better spent elsewhere despite all the drivers that we're hearing on this call and other calls about what the growth may look like over the next couple of years?

Well, the brilliant comment that was in our press release that we had on growth, Anthony, was that are we're continuing to actively explore opportunities to meaningfully expand our tower portfolio both in the US, which was first mentioned and in international markets. So we are quite optimistic about our ability Should we be able to I acquire a meaningful number of new towers to be able to deliver the kinds of returns that you're seeing from other actions we've done such as the SpectraSite acquisition and the Tower Build Program we've had in the past.

We have absolutely no concern with cannibalization should we add a significantly additive tower portfolio to our Company, to our 20,000 towers in the US No issue there at all. We want to look everywhere because, again, we believe by our management experience and our operational processes and expertise to new towers in the US or international markets is going to be something that can create value for shareholders if we can buy them at the right price.

Okay. Brad, the question I guess was asked and maybe I missed the analysis or the answer behind it. But obviously you've been on the sidelines, you made a couple of repurchases of other debt or debt-like instruments like the out-of- the money convert during the quarter.

Any new thoughts on what the appropriate leverage ranges are? the other public tower companies are all indicating comfort operating in a total leverage or net leverage range significantly higher than where you are today regardless of what you might use those proceeds for. Do you kind of share that comfort based upon what you're seeing in the market?

I think overall we're very optimistic about our business. I don't want that to be construed in any way of how we think of leverage. We have targeted 4 to 6 times. Our current leverage is significantly below our peers if you look at it about 4 times which is just kind of our current leverage ratio of net debt to EBITDA. We'd like to be closer to the middle of that range.

You should anticipate us moving over time to the middle of that range and using that capital efficiently whether it's to repurchase shares or to put that into other markets. And our goals are really to have a sensible capital structure which is one with financial flexibility. Even if you have an unaccommodating market right now that you've done work in. To have a reasonable cost of capital, and it's also to have a set of maturities that is hopefully laddered out so you don't have everything due within a 5-year period, which a lot of the current structures have moved towards in the industry.

So I think you'll see us work towards all those goals over the next call it 6 to 18 months. And that should be the expectation.

Okay. Thank you.

And we also, Anthony, want to maintain our flexibility should one of these opportunities come up again US or internationally to make a substantial investment in new tower assets. We want the flexibility to do that.

Thanks.

You bet.

At this time, I would like to turn the call back over to management.

We want to thank everyone for participating in the call. Bye bye.

This concludes today's American Tower Company third quarter 2006 earnings conference call.

You may now disconnect.