美國電塔 (AMT) 2007 Q2 法說會逐字稿

Good morning. My name is Adrianne and I will be your conference operator today. At this time I would like to welcome everyone to the American Tower second quarter 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a Question and Answer Session. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to Mr. Michael Powell, Director of Investor Relations. Mr. Powell, you hey begin your conference.

Thank you. Good morning and thank you for joining American Tower's conference call regarding our second quarter 2007 results. We will 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. Before we begin, I would like to remind you 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 2007 outlook, our stock repurchase program, future financing activities, the Verestar bankruptcy proceedings 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. Such factors include the risk factors set forth in this morning's press release and those set forth in pur form 10-Q for the quarter ended March 31, 2007, and our 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 on this call to reflect subsequently occurring events or circumstances. Please note that our earnings release was furnished this morning to the SEC in a Form 8-K and is also posted our website. And now I'd like to turn things over to Brad Singer.

Thanks, Michael. American Tower continued its track record of consistently delivering strong revenue, adjusted EBITDA, and free cash flow growth in the second quarter. In our core rental and management division, our revenues and gross margins increased 10% and 12% to almost $351 million and approximately $269 million respectively from the second quarter in 2006. On a sequential basis rental and management revenues increased approximately $5 million. On our first quarter earnings call, we stated that we expected our non-cash straight line revenue to decrease sequentially from the first quarter to the second quarter by approximately $4 million. Due to a non-cash adjustment in the second quarter non-cash straight line revenue only he decreased $2.5 million. Adjusting for the non-cash revenue decrease Tower revenues grew $7.5 million sequentially from the first quarter. Our total selling, general, administrative and development expense was $42.1 million, including $11.5 million of non-cash stock-based compensation expense. Our selling, general, administrative and development expenses also included $1.8 million of costs associated with the stock option review and related matters. Including the costs associated with the stock option related matters our adjusted EBITDA increased 12% at $241.4 million and our adjusted EBITDA margin was 67%. Our operating income for the quarter increased to $93 million, and our income from continuing operations was $12 million including a pre-tax loss on our retirement of debt of $28.9 million, which was partially offset by other income of $14 million related to the termination of interest rates, swap hedges, on our prior credit facility and the sale of a portion of remaining Fiber Tower stock.

As previously disclosed, we received $80 million of net proceeds from the IRS related to the refund claims we filed during 2003. These proceeds did not have an impact on our second quarter income from continuing operations but improved our working capital and increased cash provided by operating activities. Our cash provided by operating activities was negatively impacted this quarter as we classified the cash held by the trustee of our securitization assets as restricted cash. The net impact to cash provided by operating activities was approximately $22 million. Our capital expenditures totaled $36 million. During the quarter we completed the construction of 22 towers and five in-building installations. The average unlevered day one return on new towers and in-building projects was approximately 13% with strong prospects for additional tenants further increasing our future returns on invested capital. We anticipate completing 175 new towers and 25 in-building sites by the end of the year.

In addition, we continue to increase our land repurchase activity from the prior year acquiring over $10 million of land in the second quarter with the goal of completing $40 million by the end of the year. With our strong revenue growth, cost control, disciplined capital spending and a boost from our tax refund offset by the restricted cash adjustment, we produced $175 million of free cash flow for the quarter. We define free cash flow as cash provided by operations less all capital expenditures. Please note that the free cash flow calculation includes approximately $2 million of costs related to our stock option review as well as approximately $15 million of discretionary capital spending on new site construction and land acquisition.

As indicated in our press release, we are refining our 2007 outlook. At the low end of our outlook we are raising our tower revenues, gross margin, and adjusted EBITDA by $5 million. We continue to anticipate 2007 levels of commenced new business to be slightly below 2006 levels without any significant commenced leasing activity from the AWS and auction licensees. Consistent with our prior expectations our level of leasing activity has increased over the past several months, and we believe our level signed new business will be at or above 2006 levels as we look forward to the AWS auction licensing securing sites for deployment in late 2007 and into 2008. As we previously reported, we agreed in December 2006 to mediate the bankruptcy proceedings of the company's Verestar (inaudible), which filed for protection under the federal bankruptcy laws in December 2003. In late July 2007 we participated in mediation with the creditors committee and the parties reached an agreement on terms for a proposed settlement in which the company would pay $32 million and the parties would agree to a mutual release of all claims existing prior to the execution of the settlement agreement. The company is in the process of finalizing the settlement agreement which then must be presented at bankruptcy court for approval. Although the bankruptcy court is not required to approve the proposed settlement, the company expects the bankruptcy court will approve the settlement during the quarter ending September 30th. As a result, the company has recorded an estimated liability associated with the Verestar bankruptcy proceedings in amount equal to the proposed settlement amount which reflected in the loss of discontinued operations.

Our financial position remains solid due to the strength of our operations and the fundamentals of the wireless industry. During the second quarter we began the process of recapitalizing our balance sheet to extend our maturities at a reasonable cost while maintaining an appropriate level of financial flexibility. In May we successfully issued 1.75 billion of mortgage pass-through certificates for approximately 5,300 of our sites representing approximately 25% of the entire portfolio. The certificates have an initial maturity of seven years and a weighted average interest rate of 5.61%. We also refinanced our 1.6 billion senior secured credit facility with a new 1.25 billion unsecured revolving credit facility providing additional flexibility with the new unsecured structure. As we look forward to the future we will thoughtfully seek to improve with additional sources of liquidity as well as longer-term debt. During the second quarter we repurchased approximately 10.2 million of our shares for approximately $414 million with an additional 2.7 million shares for $119 million subsequent to the end of the quarter as of July 26th. As a result, we have repurchased over the past year-and-a-half a total of 1.428 billion representing 38.5 million shares with 822 million remaining on our plan. We intend to finance the remaining share repurchase plan with the cash from the securitization, cash generated from operations, our existing credit facilities and new financing. With the baseball season well past the midway point the Red Sox are still comfortably in first place with the best record in the majors. So, now I will turn things over to the Chairman and CEO of American Tower, Jim Taiclet.

Thanks Brad. Good morning everybody. As demonstrated by our strong financial results the leasing environment and our served markets remains robust. Our new signed lease business continues to be generated from a broad range of sources, and in the second quarter approximately 80% of our new business was for new cell site installations on our towers and 20% was for augmentations to existing installations. As is typical, a significant proportion of our new business in Q2 came from the national full service carriers. Verizon wireless maintained its program of capacity and coverage enhancement during the quarter including the improvement of its 1.9 band coverage and legacy 850 band areas. Sprint Nextel continued to strengthen its networks by deploying CDMA equipment on numerous legacy (inaudible) end sites among other initiatives. We also saw a continued level of activity from AT&T mobility as it works to further deploy UMTS technology across many sites and multiple markets, and we started the process applications with T-Mobile as they focus on deploying their UMTS 3-G overlay towards the end of this year. During the second quarter the emerging unlimited usage carriers, Leap Wireless and Metro PCS were again another valued source of new lease business. Leap was active with us in both enriching the coverage in their existing markets to meet new subscriber growth and in preparing key auction 66 markets for launch. With Metro PCS we have supported their L.A. launch plan for later this year as well as preparing for potential auction 66 launch markets in the Northeast and other areas. In the category of next generation data and entertainment providers, Clearwire was an important source of new leasing business in Q2 as that company deployed numerous sites in support of its growth plan. In addition, we worked with Sprint Nextel in their WiMAX trial markets of Chicago and Washington, D.C.

As usual, the wireless industry doesn't stand still for very long, and we experienced a number of news worthy events over the past couple of months. The much awaited iPhone was launched and as impressive as the initial interest level and sales numbers were, we believe that this product launch may be the inflection point of a very important systemic change in the wireless industry. That is, the entry of leading consumer product and content companies into prominent roles in the wireless space. The result over time should be expanded choice and reduced costs for consumers and consequently the accelerated adoption of high speed data and entertainment applications. In turn, these services will require more robust networks to deliver the higher bandwidth signal needed to competitively carry these applications to a much more numerous customer base. T-Mobile USA also initiated the commercial launch of its hot spot at home product. The key component of the product is a dual mode handset that switches between T-Mobile's TSM network and affiliated Wi-Fi hot spots. T-Mobile is the first to launch commercial service similar to some others being tested on a trial basis by other carriers. Given the need to replace existing handsets and purchase new home bay stations it may take the hot spot at home or alternative hybrid products, a fairly long lead time to garner substantial market share. However, these products may accelerate trends such as wireline displacement and reduce costs for data services which could increase wireless voice and data penetration further as well as usage and thereby potentially benefit the tower industry. Another event was that Sprint Nextel and Clearwire announced a collaborative effort for the rollout of advanced 4-G WiMAX services across the United States. We view this from a long-term perspective as a positive development for the tower industry and that it significantly improves the financial profile and time line of the first national rollout of 4-G. Which over time may become the competitive standard for wireless data and entertainment services. Additionally, Sprint Nextel and Clearwire have indicated, through the announcement of Fiber Tower as a major supplier, that wireless backhaul will be an important component of future 4-G networks, which adds to the demand for tower space. In the short-term there may be some redesign and reprioritization of markets between the Sprint Nextel and Clearwire efforts which could result in the deferral of some leases in the earliest phase of the deployment.

Another event was that Dobson Wireless and Rural Cellular are being acquired by AT&T mobility and Verizon wireless respectively. Both acquisitions we view as relatively neutral events. Both indicate an interest among national carriers to reduce reliance on roaming, and if as part of this the national carriers introduced advanced higher speed technologies into these geographies, we expect that we may benefit. Lastly, 700 mHz spectrum auction rules are being more clearly defined by the FCC. The rules seem to be characterized by one word. Diversification. The lower band appears to be structured somewhat traditionally with relatively small territories and a lack of special conditions. The upper band combines a number of attributes that includes large regional territories, mandated open access to devices and applications, and a role for a combined public safety and commercial provider. The likely outcome of this auction may be at least one new entrant to the industry, especially in the upper band, which would be a very positive development for tower operators. Also, given the characteristics of the spectrum it could be utilized by industry incumbents for 4-G service launches. The leases for winners in the 700 mHz auction would add to our long-term growth in 2009 and beyond.

These wireless industry developments and the continued strong operating performance of the wireless carriers we believe will help lengthen and strengthen the demand for tower space at levels similar to what the industry has enjoyed over the past few years. These recent news items we believe complement and/or confirm the three basic trends in the wireless industry that support tower demand. The first is a continuing enhancement of existing networks to deliver ever-better voice quality and coverage. The second is the geographic expansion of the emerging carriers, primarily, but also the national carriers. The third is the ongoing deployment of new technologies that provides the signal, strength and speed to deliver bandwidth hungry wireless data and entertainment applications. Within this positive industry environment our strategic goals have been to maximize the performance of the assets in our company and to seek new high quality assets to add to our portfolio at reasonable prices. We are actually coming up on the second anniversary of the closing of our merger with Spectra Site, which we believe was the ground-breaking transaction in the tower industry. Since then our appetite for adding to go our asset base has remained robust and since the Spectra Site merger we've been laying the ground work for future expansion both in the US and internationally. For example, we have maintained lower financial leverage in our publicly traded peers in order to retain the flexibility to act, should financial markets or asset values change. We've also spent considerable management resources and the assessment, prioritization and cultivation of international opportunities.

I spent much of last month in Asia for the purpose of announcing our opening of a regional headquarters in India, meeting with the key wireless and industry leaders in the area with investors and government officials, and also laying out plans that should enable our initiative in India to get off to a solid start. We see a real opportunity to play a positive role in creating a commercial co-location environment in India and perhaps other countries in the region. Establishing our presence and securing one or more transactions in that part of the world may take time and patience, and we are prepared for that. My prior experience in doing business in Asia suggests that real local presence and respected local leadership is important for success. We are taking those steps and making the relatively modest investment of putting the local team in place that will demonstrate our seriousness to our potential customers and partners. As we evaluate opportunities both in the US and overseas, American Tower will continue to apply its rigorous assessment methodologies and valuation discipline as we have always done. I remain excited about this industry and this company and look forward to sustaining our solid organic growth and I look forward to the prospect of adding additional quality assets to our company over time. Operator, now let's open up the call to questions please. Operator? Adrianne are you there?

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q & A roster. Your first question comes from the line of Jonathan Atkin with RBC Capital Market.

Yes, good morning. A couple of questions. On the strategic front I wondered if you had any revised thoughts on the distributed antenna system business in an outdoor environment? I know you've kind of evaluated that in the past and given your indoor expertise. I wondered whether you plan on maybe giving that another look in extending that to an outdoor environment? And then with respect to ground repurchases, can you give us, also, an update on lease extensions and what typically your run rate is in terms of extending ground leases?

Sure, John, I will take the first one. It is Jim. We do believe that (inaudible) systems indoor certainly and outdoor have a role in deployment of wireless networks and so far it has still been a limited role, but we are interested in the space. We're evaluating some options as to add that capability to what we offer our customers, and we'll continue to do that. We haven't made a formal decision yet as to exactly how to enter the space, though.

John, it is Brad. With regard to ground leases, we have a program in place that every lease that comes up for renewal in the next ten years, we basically either buy the land or extend that lease, and we've made significant progress. It is about, I think at little -- up -- between 12% and 13% of all our leases come up in the next ten years, and that's what we've been working through. And each quarter we make more progress and the program is very straightforward and methodical in how we approach it.

And then finally on the pricing environment on new leases, since a lot of the new business is coming on at new frequencies other than just PCS and cellular. Curious whether -- whether the new leases include any kind of flexibility for future augmentations or people pre-paying some of the amendment revenues, if you will, or are the leases structured pretty much the as same as they have historically?

Yes, John, as you know we don't comment on specific customer agreements, but the parameters of our pricing structure essentially remain the same. It is location first and then it is equipment and ground space that's needed second, and within those general parameters, [weakened] structure, individual contracts, that we end up believing are mutually beneficial for us and that specific customer. So, I don't think the fundamentals have changed. Our flexibility, I don't think, hasn't changed and I think from the new business you're seeing we've got a good value proposition for our customers.

Thanks.

Your next question comes from the line of David Barden with Banc of America.

Hello, guys, good morning.

Hi.

Two questions if I could. One is, Jim, you were talking about the flexibility that, you know, kind of the balance sheet leverage currently provides you. Obviously the buyback continues, but at its current pace and you know, how the business is developing and in reality the balance sheet is really idling right now with lots and lots of capacity available, you know, maybe a couple billion dollars of investment capacity. We've been sitting here kind of at these debt levels for awhile now waiting for the options issue to kind of unfold, and then we got past that and now it is kind of August, the second half of 2007. Can you kind of get a little bit more specific on time tables now? How long do we have to wait for India to develop before we're either going to pull the trigger or not? Are we -- you know, are you waiting around for the T-Mobile towers to kind of get done? Are you really focused on the US acquisition or -- you know, when are we going to get to at least the mid-pointed of this leverage ratio because it's been awhile? And the second, just Brad, on the smaller issue on the options expenses. Is this kind of a recurring number that's going to be called out every quarter or is this kind of the last quarter we're going to have this kind of special number in the adjusted EBITDA? Thanks.

Okay, David, it's Jim. I will go ahead and take the first one again. As far as our balance sheet flexibility, that's a purposeful strategy the company has and we -- as we've said in the past, run this company for the long-term. We can't necessarily force the timing of strategic transactions whether they're domestic or international, and so it is extremely difficult to give you a deadline by which if a deal isn't done then, yo know, we're going to change direction. So, I am not going to do that. But I will tell you that we've analyzed how value is created at the tower industry, and our conclusion is that while share repurchases are a valuable way to conduct yourself when you have the kind of performance that we have, that at the end of the day for the long run adding assets at reasonable prices of enough scale to make a difference in the performance and size of the company, is the highest value-added the management team can add. And so that's really what we are focused. And I'm not going to put a deadline on it because we can't force the timing.

And, David, I think the only thing I would add to that is that having financial flexibility, especially as markets get uneven, and the -- that's when asset values usually get more reasonable, and so maintaining that flexibility is one of the things that Jim mentioned, and can lead to a more value creation. With regard to the stock option expense, it has trended down I think in the -- the top tick was about $6 million in the third quarter. It has gone from I guess in the first quarter it was 2.8. It's 1.8 million this quarter. It may continue. We do have various lawsuits that we work on, but I think from a modeling perspective it's very difficult to forecast, but it's -- I don't think it will go to zero in the near future, but is 2 million a good run rate? It's probably not a bad one but as I said it is very difficult to forecast.

And Brad, I appreciate it. Thanks for the comments, and I know this this kind of credit environment is just the environment you guys have set yourself up for from a leverage standpoint. But, you know, why doesn't it make sense to be at the midpoint of the leverage range and then to stretch to do deals that make sense rather than kind of sit at the bottom of the range and give yourself so much cushion that you know it calls into question what the point of that is?

Yes, David, like I would look at long-term and where capital markets have been the last two years, and where comfortable (inaudible) leverage has been the last two years. It may not be the same in the future, and so rather than try to guess at that and then have to stretch to do the key strategic transactions, and potentially be shut out from that if the Capital Markets are somewhat close, we would rather not put ourselves and paint ourselves in that corner. So, thats really -- you basically illuminated why we tend to leave our leverage at the lower end of the range.

All right, guys. Thanks.

Yep.

Your next question comes from the line of Anthony Klarman with Deutsche Bank.

Thank you. Jim, I was hoping you could flush out more about the market in India. Obviously, now you're putting kind of concrete terms around it in the sense of you're committing to some sort of regional presence there. Could you just discuss a little bit, the underlying dynamics of the market? I think we all know how many subs there are and how low the penetration is, but could you talk a little bit about more the factors behind that, things like zoning and some of the other factors that you think might be what drive the market significantly higher there for wireless infrastructure?

Yes, I think there is very positive attributes in India and potentially other Asian markets. And it's -- in India specifically, a matter of the size of the country, the population, which gives you kind of two good elements even at this point, a sizable wireless subscriber presence today, upwards of almost 200 million subs, and fairly low penetration. Now, the other side of the coin is you have fairly low ARPU and ultimately all 1.2 billion people probably can't afford a -- a cell phone at the end of the day, but still the numbers are just tremendous as far as sub-growth, revenue growth for our wireless carrier customers and the need for infrastructure, so there is a tremendous need for tower space in the country. What we found during our visits and reinforced in my trip last month was that there really isn't, in my view, a commercial co-location marketplace in that country right now. Most towers are built by the carriers for their use on their network topology plan. There is some sharing that is sort of encouraged by the government but there is a lot of friction in that, sort of, barter market. And I think the thing that we see as an opportunity in some way, to be the market maker for commercial, meaning cashed, rental based, co-location in the country, and that's the biggest opportunity we see. To complement that, there are a number of carriers. There is national carriers, there are regional carriers, a range of financing needs and size and scale among those, but we think that many of them will be successful, and so we have the attributes that we think in the country, really, you know, provide an opportunity for us and on the other hand we know it is new, it is a different part of the world, and we're going to be patient and try to work a value-added way into the market.

It may be really early to ask this question but I'll ask it anyway. I mean, is it safe to assume that your potential entry into this market would signal that there is -- that the hurdle rates that you think you can achieve there are at least as good as what you see in the US, Mexico and Brazil?

I think, Anthony, any time we put money to work, you should anticipate that we do risk adjust it and compare it to other opportunities we have in terms of making investments whether it is in the US, Mexico, Brazil, or any other country.

Okay. Brad, for you, previously you guys completed the securitization, and then you did a unsecured revolver at the hold co., and you'd kind of indicated in the past that you know, the revolver obviously would probably be accompanied at some point by additional either term debt or something that looked like term debt and maybe the corporate bond market. Credit spreads have widened a lot over the last ,you know, three or four weeks in the corporate market, and I was wondering if in fact that was sort of leading to you to reassess what the strategy might be in laying out the AMT side of the balance sheet going forward?

I think, Anthony, we are cognizant of the marketplace and what's happened over the last few weeks. I think long-term we still would like to put longer term capital into the -- into the balance sheet and the capital structure. We are fairly opportunistic in how we view that. And so, we may still mix the various segments or elements of debt that we can tap with the securitization, the bank market or the bond market depending on what's most appropriate and gives us the best rate is really the straightforward way to answer that. I think all markets with maybe the exception of the bank market, and we are not in the leverage loan market in terms of how we finance, we are in the the relationship bank market. It provides -- they all have their challenges right now, but given that, we are continually looking to extend our balance sheet, get additionally liquidity, and we'll do that when it makes sense without having the pressure to do that.

So you -- but you still think that it makes sense to have kind of a hybrid mix of securities that would allow you to stagger maturities and exposure to fixed versus floating and all of the other elements that you've talked about in the past?

That -- that's right. We don't believe that when you have long-term assets you should have a short-term balance sheet in terms of liabilities and matching those would make the most sense to us.

Okay. Final question on the stock buyback, if you look at what you're run rating in terms of repurchases, yield -- I think theoretically be through that remaining $800 million long before February. I was just wondering, I'm assuming this is something the board addresses probably regularly at the board meetings. You know, when do you plan to present perhaps the next phase of shareholder value return to the board for consideration in a new program?

Anthony, you know, let us get through or continue to make progress on our current whare repurchase plan and what we've done in the past is updates you as we get to -- near the end of one, and we view the conditions at that point and then weigh our opportunities versus the size of any additional plan that we may undertake. That's the best way or the framework in which we view how we get to a size and the repatriation of capital.

Thanks.

Your next question comes from the line of Ric Prentiss with Raymond James.

Hello, guys.

Hello, Ric.

I want to address the leverage questions and the other ones maybe a different way. Brad, can you update us on what you think the right range of leverage is? Is it still the 4 to 6 kind of zone, and if it is, how you compare to some of your compatriots who think more like 5 to 7 or even up towards 8 or 9 as appropriate?

I think we do -- we still do think it's 4 to 6, and this is something we revisit quite often to make sure that we're thinking about the right way. I think you can take different perspectives on it whether it is 5 to 7 or 6 to 8. The -- the way it's being financed was you get higher up in those leverage ranges, with shorter term debt, which by implication requires higher financial risk. Given the current credit -- or past credit markets the last couple years, that has not been a, you know, the financial risk hasn't been a great element in those [capitalization] of weighted average cost of capital. A markets may normalize or even get uneven, financial risk becomes more apparent, and so we look at things over a long-term view, and what makes sense from not just a point in time perspective but a long-term perspective, and why do you want financial flexibility, how do you make investments, and how do you finance yourself with a set of a balance sheet that has nor durability and doesn't rely on any single point in time financing. And that's really the way we look at it, Ric.

I'm going to take the opposite track from David. I was around when this thing boomed and had then busted, so I am much more interested in somebody keeping the dry powder and being very disciplined on acquisitions so we don't see people over paying for assets. In that regard, some of the press reports that we've seen out of India (inaudible) had some -- some very high valuation per towers, and what I would like to kind understand, Jim, is since you've spent the last month in I India and Asia and getting to know those markets, what do you view as -- if you could get to a commercial co-location kind of market, what sort of rents would be willing to be paid in a lower ARPU environment? How good is zoning as far as protection from a stand point of feeling comfortable that you're not going to get power company-B across the street building a tower and reducing the potential return? So, just kind of speak to the Indian market maybe and a little bit of, you know, how you look at value per tower? Obviously you're also going to look at value per cash flow. I'll admit to being pretty ignorant still as far as what the Indian market commercial model might like like.

Sure, Rick. Low ARPU economies tend to also be low cost economies. So Mexico and Brazil, lower ARPU's traditionally than in the US, very similar. The cost to build a tower is lower in those countries typically than the US, and when you can match those kinds of economic factors up, you can still get a good risk adjusted return as we have in Mexico and Brazil. We're going to use the same approach in India or in other countries in Asia as we used in the US, Mexico and Brazil, and it is take the cost of the asset, the rate of, you know, lease pricing that you can get, the cost of operations, roll that all together and make sure you get a risk adjusted return that makes sense for this company. That's exactly how we're going to do it over there. I would caution you not to believe everything you read in the paper. You can believe what you read in our press releases because that will be the company's position, but other than that, speculation you know may occur in the the future and it has in the past with regards to our company and we haven't confirmed it. So, I think you just look at our future actions and the context of our past actions, and that's price discipline, you know, a good thorough assessment of the assets that we bring into the Company, and that's how we'll operate in India as well.

How about the zoning item?

Yes, it will develop as in Mexico and Brazil's early days, and even in the US, zoning became tougher as time went on. In the cities, it starts first and then it will roll out to the countryside. So, I think that there is not a disruptive zoning environment in India that will develop.

Okay, and then Brad, on the discontinued op charge this quarter for satellite [biz], any thoughts of what that might do? Obviously reported net income is negative but reported from continuing operations is a positive EPS. Any thought of how like an SMP would look at -- are you still considered a profitable company given the discontinued op charge?

The way SMP looks at the income requirement is from income from continuing operations. So, it does not -- if you have a loss in discontinued operations that doesn't count towards the requirement, but let me again caution you, we have nothing to do with how SMP ultimately decides or figures out who is in their index and who isn't in this 500 index. So, but it is -- but it does -- it is -- it is excluded from their analysis.

Right. I just wanted to make sure it didn't put you in a penalty box as they look at stuff.

Thats -- all we know is the regulations that are out there and what they publish on their websites.

Great, good luck, guys.

Thanks.

Your next question comes from the the the line of Michael Rollins with Citigroup.

Hello, good morning.

Good morning.

I guess just another question about India. As you weigh how to make investments in that country or other countries in the region, can you help us on how you're weighing organic builds versus an acquisition? Especially with respect to the potential dilution to actually get an operation up and running and if you can just help us think about -- is there a significant period of dilution or are the returns on capital very immediate? And the I just have a couple other little questions afterwards. Thanks.

Yes, Mike, it's Jim. I mean sort of past this [pro-log] again, entry into Brazil, entry into Mexico and almost of our international transactions in the past have been combined sale leaseback either joint venture or 100% ownership on that piece, plus a build to suit that ran parallel with that. So, you know, we are going to get immediate returns at some level out of a launch and in any country, including India if it happens, and that risk adjusted return hurdle will meet over time that we have, so it may be diluted partly due to you know just start-up and scale ramifications, but we'll build it up over time because of this, you know, again purchase and build -- building of towers that is done in parallel, which, you know, gets you towards returns that you want.

And then just in terms of a couple other details, what percent of revenue growth in the quarter came from upgrades, and then just following, Brad, on your comments in your opening, you said that you expected the sequential decline in the non-cash change in leasing revenue would be about $4 million sequentially, and it was only about $2.5 million. Does that suggest there is a $1.5 million to come out in the third quarter or is now the drop 2.5 the right run rate to begin that for the third quarter? Thanks.

Mike, with regard to the straight line question, we do expect about a $1.5 million drop from the second to the third quarter. So, hopefully that answers that question.

And then upgrades, Mike, as I mentioned was about 20% of the new business that was done in that quarter, the second quarter.

Thank you.

Yep.

Your next question comes from the line of Vance Edelson with Morgan Stanley.

Hello. Thanks for taking the question. If investment opportunities abroad or domestically prove superior to your current expectations, would you under any circumstances, be willing to reduce the size of the share buyback in order to take advantage? And a related question regarding those opportunities, you mentioned you can't nail down the timing of say the T-Mobile tower bidding, but could you tell us what the current status is, what point you're at in reviewing the merits of that portfolio? Thanks.

I think, Vance, any capital required for opportunities we would weigh at the time of when that opportunity comes up, so it is difficult to answer any type of hypothetical when you're saying what would you do with your share repurchase. So, I think the best way for you to think about it, if we have opportunities we would think about them as an alternative or in conjunction with share repurchases. With regard to any other strategic activity, and you mentioned T-Mobile, we don't comment on ongoing strategic activity. Most processes when they are being run usually have nondisclosure agreements and so we can't, even if we were involved, comment on them. So, not to be evasive, but that's just the nature of these --.

Okay, thanks And, Jim, you referenced Sprint putting it's CDMA equipment on the Legacy IDEN sites. Could you provide some color on whether that means swapping ought the IDEN equipment, which would be potentially be revenue neutral for you or is it more a matter of adding new equipment which would have positive implications?

Yes, tends to be augmentations, Vance, so they're adding another set per sector line and antenna typically on the sites that they're going after.

Thanks, guys.

Sure.

Your next question comes from the line of Brett Feldman with Lehman Brothers.

Hello, yes, thanks for taking the question. Could you give us an update on your business mix right now between US and Latin America both in aggregate and the mix of new revenue in the quarter?

In terms of the aggregate revenue, it is about 87% US and 13% international. In terms of new business, the new business has been a little bit stronger in the US. so call it 90/10, not dramatically different, but it was -- we had a little bit stronger in the US.

Okay. And then just another question, as Jim mentioned you're doing a lot of work with the AWS licensees as they prep for their network builds. Some of those licensees have expressed a little bit of frustration that the pace of clearing the spectrum with the government hasn't progressed quite as efficiently as they had hoped. I am just wondering if we've gotten to the point where any of them have begun slowing or augmenting their deployment plans based on feedback they've gotten from the government?

I would say, Brett, there is no necessarily across the board slow down in AWS deployment. Each of these is very complex for the carrier, and they'll tend to move resources around various markets based on how they're progressing, but I would say across the the board there is not necessarily a big slowdown happening.

Okay, great. Thank you.

I think we have time for one more question.

Today's final question comes from the the line of Jason Amrstrong with Goldman Sachs.

Thanks, guys, in under the wire. So, one, I guess, just a follow-up question on the one just asked. You said no sort of broad slowdowns in AWS type opportunities. If you look at the guidance here, you know, you're sort of implying a steady uptick over the course of the year rather than any, sort of, lumpy increases coming in, in 3Q or 4Q, so, you know, just maybe some comments here? It actually does seem like some of the AWS stuff is slipping into early '08, or almost all of it is slipping into early '08, so just further comments there. And then, second just more of a data point. You've reduced the new tower build guidance from 200 down to 175. Just reasons for the decrease and then corresponding to that why doesn't capital spending guidance go down as well?

Hello, Jason, with regard to the forecasted third quarter and fourth quarter revenue activity, we've been pretty consistent on this when we gave our initial guidance even back I believe in November of '06 for this year, which is we thought that there would not be an incremental impact from AWS in any meaningful kind of way. And so our guidance as incorporated the levels of activity that we thought would happen from most of the carriers deploying not just -- not new spectrum but on their existing spectrum and for the new services. And that's -- for the third and fourth quarter is playing out how we thought. The the activity levels are very busy, and we may have, you know, a little bit of bump potentially if things get a little -- if things are deployed a little bit faster in the fourth quarter, but it has never been in our numbers, and we haven't really changed the outlook at all. Jim, I don't know if you want to commented.

Yes, and I was just going to say that there is a difference between the [signings], which is the activity Brad is referring to. Very active planning stage, lease processing, applications, all of that. And then commencements is the actual billing, at which point we then book revenue and again we've always said that we expected that really to -- the commencements to say happen in early of 2008. And with regards to the capital spending and the towers going from 200 to 175, we've been a little slower than what we had anticipated internationally. The 25 towers represent $5 million of capital spending roughly, you know in rough justice. And so I don't think that moves our guidance really in one direction or another because we could be spending in construction and in progress for the next year that -- those levels of spending and so that's why it was unchanged.

Okay. Great. Thanks.

Thanks, guys. And we appreciate everyone being on the call.

Yep.

There are no further questions. This concludes today's conference. You may now disconnect.