美國電塔 (AMT) 2010 Q1 法說會逐字稿

Good morning. My name is Kinesha and I will be your conference operator today. At this time I would like to welcome everyone to the American Tower 1Q 2010 earnings conference call. (Operator Instructions) I would like to turn the conference over to Ms. [Leah Stern], Director of Investor Relations. Please go ahead, Ma'am.

Thank you Kinesha and good morning and thank you for joining American Tower's conference call regarding our first quarter 2010 financial results. Please note that we have posted a brief presentation to accompany this morning's call on our website, www.americantower.com. If you haven't already done so you may want to download the presentation as we will refer to the at various times throughout our prepared remarks.

The agenda for this morning's call will be as follows. I will provide a brief introduction and highlight certain key metrics from our first quarter 2010, financial results. Following this Tom Bartlett, our Executive Vice President and Chief Financial Officer, will go over our financial results and provide an overview of our expectations for 2010. Finally, Jim Taiclet, our Chairman, President, and Chief Executive Officer will give closing remarks including his current thoughts on key industry trends.

After these comments we will open up the call for your questions. To maximize participation during the Q&A portion of the call we kindly ask that you limit your questions to no more than two parts. If you do have more than two questions or if you think of additional questions, feel free to line up again in the queue, and we will do our best to answer as many questions as possible in our allotted time.

Before I 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 statements regarding our 2010 outlook, our stock repurchase program, our pending acquisition of SR Telecom infrastructure private limited, and any other statement regarding matters that are not historical fact. 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 our Form 10-K for the year ended December 31, 2009. And in 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 in this call to reflect subsequent events or circumstances.

And with that, I will begin the call with some highlights from our first quarter 2010 results. Please turn to slide four of the presentation which provides the summary of our first quarter, 2010 results compared against the year ago period. We reported total revenue of approximately $454 million reflecting growth of 11.2% from the year-ago period. Tom will provide additional color on the core growth of the Rental and Management segment which excludes the impact of foreign currency fluctuations and straight-line lease accounting. Our adjusted EBITDA for the quarter was approximately $312 million which is a 10.8% increase from the prior year period. Additionally, our operating income for the quarter increased 19% to nearly $179 million.

Income from continuing operations was approximately $96 million or $0.24 per basic and diluted common share attributable to American Tower Corporation. During the quarter our effective tax rate was 22.7% which reflects a year-over-year decline of over 17% and was primarily the result of the implementation of one of our tax planning initiatives in Latin America which was discrete for the quarter. For the full year 2010 we anticipate our effective tax rate will be approximately 40%. Now I would like to turn the call over to Tom who will discuss our results in more detail.

Thanks, Lee, and good morning, everyone. I'm pleased to report that our first quarter 2010 results came in right on plan as we continued to execute on our strategic priorities for the year. Please turn to slide five, and I would like to begin with some highlights from our Rental and Management segment. Overall we reported Rental and Management segment revenue growth of 12.1% excluding the impact of foreign currency fluctuations and straight line lease accounting our core growth was 9.2% relative to the first quarter 2009.

Our reported revenue was negatively impacted by approximately 1.8% as a result of three discrete items which we discussed last quarter, including first incremental churn resulting from the sunset of some analog broadcast services, second the wind-down in the fourth quarter of 2009 of a take-or-pay agreement with one of our customers, and lastly, the completion of the amortization of a customer settlement which wrapped up at the end of last year. Excluding the impact of these items our core growth would have been over 11%.

In the US, core growth for Tower revenue was 8.8% excluding the impact of these discrete items. We experienced a strong leasing environment during the quarter with signed new business up by nearly 40% from the same quarter of 2009. Our leasing demand was led by customers like Clear Wire, AT&T and Verizon who continue to invest in their networks as demand for data services grows. Our solid performance in the US was complimented by over a 25% core growth in revenues from our international markets.

This is a result of our recent investments we've made in both Brazil and India plus the organic growth which our international portfolios are experiencing. For example, as of the first quarter, the average tenancy on our sites in India nearly all of which have been acquired or constructed over the past 18 months was approximately 1.5 tenants per tower. This rate illustrates the strong lease-up demand we are experiencing in India which in fact are about two times our other served markets. And finally, as I previously highlighted on our year end earnings call, we successfully completed a contract extension with one of our major US customers. This extension was the primary driver of the $3.7 million increase in straight-line revenue from the year-ago period, and a $6 million increase on a sequential basis from the fourth quarter 2009.

Turning to slide six, I would like to highlight the current distribution of our Rental and Management segment revenue as well as our expectations regarding our sources of new business for 2010. We continue to generate approximately 83% of our Rental and Management segment revenue in the US with the remaining 17% from our international markets. Pro forma for our pending transaction in India, revenue from our international markets will increase to about 21%. We continue to expect that the sources of our new business in 2010 will be balanced across our diverse site portfolio. Specifically, our customers in the US continue to invest in their 3G networks while planning for or deploying their initial 4 G network overlays.

This activity will also be complimented by Clear Wire's aggressive rollout of WiMAX. Our international markets provide additional diversification with demand in 2010 coming from carriers such as [Vodafone], Telefonica, Nextel International and [Tata]. Further, we expect that as spectrum auctions are completed in our international markets, many of our customers will further seek to invest in expanding their footprints as well as deploying 3G across their existing networks. These trends support our conviction that the leasing environment will be solid in 2010 as our international strategy continues to provide us with a complimentary source of growth.

Turning to slide seven, our reported adjusted EBITDA growth from the first quarter of 2009 was 10.8% with core growth of 8% on a currency neutral basis and excluding the impacts of straight line lease accounting. In addition, the impact of our discrete 2010 items, which I mentioned earlier, negatively impacted adjusted EBITDA growth by 2.6%. Excluding these items adjusted EBITDA core growth would have been well over 10%. During the quarter, we maintained our adjusted EBITDA margins of 69%.

We experienced a lower adjusted EBITDA conversion rate which was a direct result of the following. First, the impact of pass-through revenue expense related to our international markets reduced our conversion rate by about 10%. Additionally, since the beginning of the first quarter of 2009, we've added nearly 4,000 new sites to our portfolio, with currently upped gross margins of approximately 57% due to their average tenancy of approximately 1.3. Of these new sites, approximately one-third were added in the US and Latin America with the remainder related to our launch of operations in India.

As we continue to increase the utilization of these sites, we expect their margin to approach our legacy portfolio levels. In addition, during 2010, we continue to make selective investments in our regional overhead, systems, and corporate functions including professional services to provide guidance as we explore potential conversion to a restructure. We believe that these investments will position us well to help us scale and support our objective for generating significant sustainable value for our shareholders. As outlined in slide eight, during the first quarter we continued our disciplined approach to capital allocation.

Specifically, we spent a total of $55 million on total capital expenditures, including $32 million of spending on discretionary capital projects, primarily related to the completion of 236 new sites and approximately $9 million on land purchases. We completed the acquisition of 164 sites in the United States for approximately $89 million, and we spent approximately $52 million to repurchase 1.2 million shares during the first quarter. For the remainder of 2010, we expect to continue to ramp up new site investment in the United States and our existing international markets. Additionally, we continue to seek expansion opportunities in new markets where we can exceed our risk adjusted hurdle rates.

As a baseline, the location must meet our international operational risk criteria including favorable macroeconomic and political characteristics and there must be a vibrant and competitive wireless market where colocation can add value to the deployment of wireless networks. Internationally, our risk-adjusted return hurdle rates have been in the low to mid teens. Turning to slide nine, we delivered approximately 17% growth in both recurring free cash flow and recurring free cash flow per share in the quarter versus the year-ago period. This growth was primarily driven by the following. our core growth in adjusted EBITDA, lower capital expenditures, which were primarily a result of an international site augmentation project, which was substantially completed in the first quarter of 2009, and the impact of our recent refinancing activities which have lowered our interest expense and overall cost of debt.

We are optimistic about our ability to capitalize on growth opportunities, deliver consistent operational results, and reduce our diluted share count, all of which we believe will continue to drive recurring free cash flow and recurring free cash flow per share growth. These trends, along with our recent investments and attractive discretionary projects, including the acquisitions we've made over the past five quarters, where we have targeted near 10% IRRs in the US, and low to mid teen IRRs in our international markets, have resulted in the consistent improvement in our return on invested capital, which today stands at 11%.

Turning to slide 10, as a result of our performance to plan in the first quarter of 2010, we are reaffirming our 2010 outlook. This includes full-year Rental and Management segment revenue of $1.81 billion to $1.84 billion which represents year-over-year growth of approximately 9% to 10%, adjusted EBITDA of $1.26 billion to $1.29 billion which represents year-over-year growth of 7% to 9%, and cash provided by operating activities of $950 million to $980 million, representing an increase of 13% to 17% over 2009. Please note that until we he close our acquisition of SR Telecom infrastructure in India, we will not include the impact of these new sites in our outlook. But I will provide some details on our expectations for the portfolio in a few minutes.

Turning to slide 11, I'd like to reiterate our expectations for revenue growth in our Rental and Management segment for 2010. We expect our Rental and Management segment to produce about $140 million to $170 million of incremental revenue in 2010, which reflect our contractual lease escalations, a stronger site leasing environment in 2009, the full year contribution of new sites added in 2009, as well as approximately 1200 to 1600 new sites which we expect to construct during 2010.

The impact of customer churn is expected to be approximately 80 basis points higher than normal in 2010, which is specifically attributable to broadcast customers. We expect in the majority of this activity will be completed during the first half of 2010, and that our churn will return to historical levels within the range of 1.5% to 2% annually going forward. We have two additional discrete items as I mentioned previously including the take or pay agreement and customer settlement, which combined are negatively impacting our revenue growth in 2010 by approximately 1.1%.

Finally, we continue to expect an overall increase in straight line revenue for the year of $14 million compared to 2009, which is primarily the result of the customer lease extension we completed in the first quarter in the United States. With respect to foreign exchange, our outlook reflects stronger currencies in Mexico, Brazil and India relative to their 2009 average levels.

Turning to slide 12 we expect to generate about $80 million to $110 million of incremental adjusted EBITDA in 2010 which reflects a lower adjusted EBITDA conversion ratio than 2009, primarily attributable to the costs and related pass-through revenue related to more than the 3500 new sites we added to our Rental and Management segment portfolio in 2009 as well as the construction of 1200 to 1600 new sites in 2010. Additionally, we are making selective investments in SG&A which we believe will better support our strategic, operational, and financial initiatives.

These investments include staffing our India operations and DAS sales team in the United States, hiring select administrative functions to ensure we have the scale and breadth to pursue our growth initiatives, implementing common IT systems globally, and finally, we are incurring costs related to the diligence work pertaining to our exploration of a REIT structure. Turning to slide 13, I would like to highlight our investment profile for 2010. Through the combination of our outlook for cash provided by operations and anticipated incremental borrowing during the year, we will have access to nearly $1.5 billion of capital to deploy in 2010. Consistent with our capital allocation strategy, we will first seek to invest this cash back into our current portfolio through our annual capital plan, which is currently expected to be between $300 million to $350 million.

This includes the expected construction of between 1200 and 1600 new sites. In addition to CapEx, we will seek to add new assets to our portfolio by pursuing select acquisitions which year-to-date account for approximately $519 million. This includes the $89 million spent in the first quarter for the 164 towers purchased in the United States as well as our pending acquisition in India. Finally, we expect to return our excess capital to shareholders via our stock repurchase program. During the first quarter we repurchased approximately 1.2 million shares for $52 million. We expect to increase the pacing of our share of buybacks during the second quarter.

Turning to slide 14, and in conclusion, I would like to summarize a few key take-aways for the quarter. First, our first quarter results were on plan with total signed new business increasing approximately 40% from the year-ago period. Second, we remain disciplined and consistent with our investments and capital allocation strategy.

In the first quarter we added 400 sites to our portfolio, primarily in the US and India, our current new build pipeline is robust and we expect it to ramp up towards the second half 2010. Third, we are current progressing through the regulatory review process for our acquisition of the SR Telecom towers. The transaction will support our strategy in India, and we expect an IRR in line with our mid-teen target hurdle rates. Pro forma for the transaction, approximately 6% of our Rental and Management segment revenue will be attributable to our presence in India. Assuming a mid-year close, subject to the completion of customary closing conditions and regulatory approvals, the portfolio would add approximately $40 million to $45 million in revenues, $20 million to $25 million in Tower cash flows, and $15 million to $20 million in adjusted EBITDA to our 2010 results. Our key focus in India post-closing will be to integrate the organization and drive strong organic growth on our existing tower sites. Fourth, we continue to seek opportunities to expand our presence, including those in markets which we currently serve. Our first priority is to invest in the United States. However, we also have teams in various geographies, including Latin America, Asia, and EMEA who are working with counter parties to explore acquisitions or build to suit opportunities. Fifth, with respect to our balance sheet, we currently have approximately $975 million of liquidity. As a result, we expect we will begin to utilize a portion of our current financial capacity to increase the pacing of our share repurchases. And finally, we will continue to monitor the capital markets to seek opportunistic transactions that lower our cost of debt and ladder and extend our maturities. With that I would like to turn the call over to Jim.

Thanks, Tom, and good morning to everyone on the call. American Tower got off to a strong start in 2010, achieving our objectives for revenue, adjusted EBITDA and recurring free cash flow growth for the first quarter. We also continued to drive opportunities to add new assets that we believe will meet our return on investment criteria. We added 400 new sites in Q1 which increased the size of our portfolio to nearly 28,000. As you can surmise from our actions, we strongly believe in the future of the tower leasing business and are continuing to seek attractive opportunities to further expand our asset base, both in the US, where we completed our most recent transactions, and in select international markets, as Tom said. At American Tower we're confident that the advancement of wireless communication and now entertainment to the next major stage is fully in progress.

Processes at this stage of the wireless industry's development can be measured in three dimensions. First what are the effective transmission rates of wireless devices. Second, how many of those devices are in service and over what period of time are they being adopted. And third, in which markets are these devices being deployed. As for the first question, device average transmission rates on the down link are inexorably increasing from roughly 500 kilo bits a second at 2.5G, to one megabit per second at 3G, to about 3 megabits per second for upgraded 3G and on to 5 to 10 megabits per second at 4G As to the second question of device penetration, deployment of these advanced handsets in the US is increasing rapidly. Our research indicates in the range of about 30% basic 3G or better smartphone penetration currently.

And that's going to be growing to the range of 60% we think over the next three years. In addition, network demand generated by these smartphones will be further augmented with the growing adoption of faster mobile computing devices such as USB modems, embedded chip modems, and tablet-type devices. I just got my 3G iPad yesterday. As to the third question of geography the US and other developed markets are in the midst of this technology migration today. With the US being perhaps the most vibrant developed market for shared wireless infrastructure providers like us.

More over, we also believe that many emerging markets are at earlier stages of a similar deployment curve that we're seeing in the US now. Consequently, we expect to see similar developments in advanced wireless communications and entertainment in countries such as Mexico, Brazil and India, and these will be beginning to ramp up during the next few years. Given the trends in device speeds, the rapidly expanding number of these high-speed devices, and the global geographic pattern of their deployment, we're taking an active approach to capturing as much of the related infrastructure demand as we can. While at the same time we're maintaining our disciplined return on investment criteria. So to capture the optimal amount of growth opportunities while simultaneously enhancing returns, we're taking a balanced approach on a number of dimensions.

For example, we seek to balance out our customer lease duration so that we extend renewal dates into the future and limit the proportion of renewals that occur at any given year. These lease extensions often come with an increase in straight-line revenue which we explicitly identify for you each quarter. We also seek to balance out our underlying ground leases by either extending their termination dates well into the future or by buying the land outright. Within that we further balance our land management program by applying our return on investment discipline to land purchased decisions versus capital leases. We also have a balanced approach to investments in new assets. We're very active in pursuing M&A opportunities in both the US and overseas.

For example, we are expanding the resources and management time dedicated to pursuing small acquisitions in the US, along with any large portfolios if and when they become available here. Similarly, we've put in place regionally based teams and are committing management time also to evaluate and pursue additional assets in both our existing and potentially new international markets. We believe that this opens up a much wider horizon of investment opportunities from which we can choose the most attractive, based on our risk-adjusted return criteria. I would offer that American Tower has developed a capability to assess, negotiate, and integrate wireless infrastructure assets on a global basis as a true core competency of our Company. Our balanced approach to growth and returns is reflected in our recent allocations of capital.

In 2009, we deployed over $750 million on behalf of you, our shareholders. About 40% was invested in acquisitions, about 33% through our capital expense program, and the balance was returned to our investors via our share repurchase program. Similarly, in the first quarter of 2010, we deployed nearly $200 million. About 45% for acquisitions, 28% for CapEx, and about 27% for buybacks. Optimal capital allocation is a top priority for Tom and I, and we continually adjust the balance to achieve what we calculate to deliver the best long-term results for the Company and for our investors. And so in order to accomplish this we also take a balanced approach to our capital structure.

We strive to maintain efficient access to capital to fund our aspirations for asset growth while also providing attractive returns on equity for our investors. We believe that our target financial leverage range of three to five times net debt to adjusted EBITDA provides this balance. We seek to further reduce financial risk by actively extending debt maturities and by laddering these maturities over time. Within our capital structure, we also take a balanced approach to the types of financial instruments that we employ.

Of our $4.2 billion in debt, approximately 42% is securitized today, 25% is unsecured bank debt at the holding company level, and 33% is in the form of unsecured bonds, also at the holding company. And as we take this active approach to optimizing our capital allocation and capital structure, we also place great emphasis on getting the best performance we can out of our existing assets. For example, we continue to work with each of our major customers on how we can better synchronize our operational processes with theirs, and how to best invest our capital to support their strategic objectives, thereby improving our revenue growth prospects.

We're also enhancing things like IT systems that can enable direct customer visibility via the web into our lease processing pipeline, and to provide on-line site applications on the Internet to name just one other of our operational focus areas. To do all this requires a great team of people, and I'm fortunate to be working with a terrific management team and motivated enthusiastic folks throughout our organization, many of whom will be enjoying the upcoming Red Sox sweep of the Yankees this weekend. So thanks to everyone for joining the call today and operator you can now open the line for questions at this time.

(Operator Instructions) Your first question comes from Tim Horan from Oppenheimer

Good morning guys. Thanks, and a great quarter. Tom, can you give us a little more color on your international? I know you gave revenues are going to be 21% of revenues. What is the EBITDA as a percentage of revenues? I know you gave some stats there on the EBITDA margins for India, but is there any reason over time that it couldn't be the same a US margins? Lastly, on India, could you give us more insight what's going on, in the competitive market over there? I think there was talk of the carriers creating consortium to be able to own and run their own towers. Thanks

Okay, Tim, I will do the first one, Jim can do the second. With respect to the acquisition in SR, we would expect that the margins in 2010 would be kind of in the 40, 45% range but I don't think there's any reason that we wouldn't expect them to get up to and approach the levels that we're seeing on a consolidated basis. We still have the impact of some of the past due. But, the good news is that given the tenancy of the 1.8 we would fully expect to be able to ramp that back up, particularly with the explosion and growth in the marketplace.

Tim, on the competitive side in India, for a number of years now there have been a couple of major carrier consortia that operate mainly a cautionary basis for their infrastructure, but they also lease it out as well. There have also been a couple of companies on the carrier side that have gone alone, mainly to drive their own network but leasing some of the towers in addition to that.

That's typical and we see it in all markets. The consortium is the one thing that might be a bit different. We've operated within that environment successfully in the last two years, and now we're the second largest truly independent operator so I think we've proven that we can be very successful in that Indian environment.

Just a percentage of revenues and EBITDA or -- I know it's 21% of revenues on international but what's the percentage of EBITDA international?

About the same. Right about the same levels. The revenues -- I also want to make one point, Tim, just in terms of the EBITDA margins, while the margins below where our consolidated is we're excited about it because it really -- even within about 24 months time, the about 100 basis points of growth to overall consolidated EBITDA growth rates. So that's really what's driving the value and what's driving our excitement about some of these international markets.

Agreed, thank you.

Your next question comes from Jason Armstrong.

Thanks, good morning. Maybe first on the 2010 guidance. US published a strong quarter. You left the guidance where it is but said new business activity up 40% year-over-year. That matches sort of what others have said about the exit trends from 1Q.

Just wondering why that doesn't push you higher here, and if you can offer any more granularity around the up 40%, what's contributing to that. Second question, on the capital allocation story, a lot more was sort of pointed towards India tower, builds and US tower purchases. If you look at the purchase multiples in the US, at this point well over 500,000 per tower. Given that sort of entry point why doesn't that actually push you more towards share repurchases or buying land on your towers in the US?

Hey, Jason, it's Tom. With regards to kind of the first quarter it's really what we expected. We did just give guidance a month and a half ago so we have have pretty good visibility in terms of what the first quarter was going to be, so I don't think it's unexpected in terms of what the signed was, or even what the commenced was, 15 to 20% with new builds.

With regards to the transaction in India that will add the $40 million to $45 million and the incremental EBITDA so from that standpoint, although we're not including in guidance, because we haven't concluded the deal as of yet, we would consider that expected assuming that we do close the deal for the balance of the year. With regards to kind of the capital allocation, the way we're looking at this allocation has been consistent for a number of years now. Our tower builds we believe average in the 14% to 16% IRR ranges.

The acquisition that we're doing IRRs in the low teens, the US. they're around a 10% range but offshore they're in the 14% to 15% range. So I think we feel really good about the kind of IRRs that he we're able to generate there. In terms of some of the multiples, you may see some of the larger multiples on some of the larger deals but there are a number of other transactions that you may not have as much visibility into, where the multiples aren't quite as high.

As we produce more cash than we're able to reinvest back into the business, we feel it is best to return to the shareholders, via our buyback program, as our leverage ratios are optimized. We're going to stay right down the middle in terms of what our allocation program is. We feel good about the IRRs we're generating, both in the builds, as well as on the acquisitions.

Jason this is Jim. On the signed new business for the first quarter, as Tom said, signed to commence is right on our expectation in Q1. That's baked into the guidance we have. And so the reasons for that is that the first quarter of '09 was coming out of the financial crisis. Carriers weren't spending that much. Now we have, in addition to that recovery, a broader landscape as I suggested in prepared remarks, we're operating in now four major markets, and we can see growth in places like India this year that we didn't even after chance to capture last year.

Makes sense. Thanks.

Next question comes from Jonathan Atkin

Good morning. I wonder if you could comment on international spectrum auctions overseas and what kind of outcome you expect from that,in terms of your leasing business. Maybe not this year but in the years ahead.

Sure, Jonathan. Spectrum auctions historically, wherever they've been accomplished, have led to usually one or both of the following, which are either new entrants coming in and building networks, or existing carriers adding technologies and faster speeds to what the networks already have. We think that's going to happen in Mexico, Brazil and India because they're 3G designated bands of spectrum being auctioned in all three countries this year. Auctions tend to take longer than everyone thinks.

We expect that there will be spectrum awarded in 2010 in all three markets and processes are ongoing as you know on a couple of those already. And by the end of this year there will be lots of network planning going on. The winners of the auctions will know who they are. Those that didn't win will know who they are, and they will be planning for deployments in 2011, which is a time frame we think we'll see material commencements of leases that hit our revenue based on these auctions.

Then overseas, do you find the site density in general for the trust on networks as comparable to the US in terms of either POPs per size or subscribers per site?

It tends to be comparable when two variables coalesce. One is what spectrum band is being utilized. The higher spectrum bands, of course, require denser networks. Then how many higher speed devices or broadband users do you have on that network. And as those things begin to approach US levels, the physics are essentially the same no matter where in the world you are. You are going to have densities get there as well.

And then finally as Tom mentioned the guidance given a short number of weeks ago, and you're pretty much on target but if you look at the different moving parts are there any particular types of deployment activity by the carries that are more active than you originally anticipated, and are there any that are less active? If you could maybe provide a little bit of color into the moving parts that would be interesting.

Without necessarily naming individual carriers, 3G adoption on touch screen smartphones is taking off pretty nicely. Our counterparts at the networks at our carrier customers I think are addressing that actively for those carriers that have a fair amount of those kind of touch screen phones out there and plan to do more. I would say that's the most important thing going on right now.

Thanks a lot.

Your next question comes from Brett Feldman.

Thanks for taking the question. I though you guys don't get into the nitty-gritty of quarter by quarter guidance but to help to avoid some surprises, one of your peers add very nice improvement in their outlook for the year although it was very back end loaded with maybe a more stable trend into 2Q. . I know everyone's business is a bit different but is there any color you can give us in terms of how you think demand is going to load throughout

Hey, Brett, this is Tom. As we said previously, we would expect a stronger second half of the year than we did first half, which is typical in 2009 and what I've seen in years past, which lines up, I think pretty accurately with how the capital gets spent by the carriers. So I would expect that kind of similar types of growth. And from a commenced standpoint, I would expect a natural growth of a commenced new revenue on a quarter by quarter basis, which I think would again step up in the second half of the year. I think with regards to capital, I think probably two-thirds of our capital on new towers will be spent in the second half of the year, which is both a function of growth in the United States as well as growth in our international markets, particularly India.

Then just from a spending standpoint, is there anything seasonal going on? We did see that at least one other operator had a relatively low repair and maintenance expense in the first quarter because of the weather. Was that similar for your business, and should we expect a seasonal uptick as we go into the summer?

You're right, we expected kind of a lower OpEx, which I think is pretty traditional given some of the weather issues. We expected it. It was in our guidance. I'm sure we will see a bit of an up tick in tower OpEx, if you will, going forward, throughout the balance of the year, which is also baked into our outlook.

Brett this is Jim. Just to add one item, speaking of teams working hard and getting things done, our team that handles property tax in the US actually did some really good work and was able to get a reduction in the first quarter which is something we're taking now and won't be repeated necessarily in the next couple quarters.

One last point here. You talked about the increase in the SG&A spend and why you went ahead and did that. Are we kind of at the new run rate now or there any reason why that might change as we go into the rest of the year?

It may take up a little as we continue to bring on more sales people and continue to develop it, but not significantly.

We're going to be adding enough staff to handle 4500 new towers in India as well so that will contribute a bit.

Absolutely.

Thanks for the question.

Sure.

Next question comes from Mike McCormack.

Hey, guys, thanks. I know it's sort of early days on the LTE build but could you give us some thoughts around what you are seeing the carriers do there? We've heard various things about swapping radios out, extending lease terms. I know we've had discussions in the past whether these will be amendments or new leases, just some thoughts on the early days on that. Then maybe sort of attached to that as well, is the discussion around this phased approach. I know Verizon discussed it out at CTIA, whether or not there's some sort of delay between phases, just your thoughts around that process. Thanks..

Mike, hi, it's Jim Just to start off the conversation again, the vast majority of this touch-screen phone and new tablets, et cetera, is going to be carried by necessity on 3G networks for the next few years. In advance of next trend of growth, you are right, LTE is starting to be deployed, certainly by one national carrier in trial, and a little bit beyond that by second national carrier.

When you talk about LTE you do need to round out Sprint Nextel's play here which is just a different chip technology that Clear Wire is deploying on their behalf. So let me take those in two pieces. Traditional LTE deployment, again, getting to your phased approach, is going to happen in generally three phases, the first one, Mike that we've talked about in the past is there will be certain markets that a signal will be put in place to cover that territory. That signal is not necessarily designed to carry much, if any, traffic.

Once Phase I is completed then handsets and devices can be sold in those markets. Trends go up, of course, in usage and penetration, and then you get into Phase II, which is sort of filling in the coverage holes and meeting the demand, and then once you get large numbers of penetration of these technology devices you are going to have to handle a lot better coverage quality, and you are going to have to handle a lot more capacity. So as you sort of suggested, Verizon we think, and they've said is most of the way through phase one in certain markets of the country. So they're going to have a multiyear deployment plan.

It's going to definitely be included in their CapEx spending for the next few years, at an increasing level, I would imagine, vis-a-vis 3G, and then AT&T based on the schedule they've announced, will follow along after that. That of course, Clear Wire, right now is one of the largest spenders on network deployments in the country, and they're in full swing. You could probably consider them in sort of a Phase II program because of the schedule they have. So hopefully that helped a little bit. But we think this is going to be, again, another set of demands that feather in over the next few years for tower space.

Jim, when we think about the Clear Wire build, I know you don't want to put any parameters around a particular customer, but how should we be thinking about 2011? Is there a meaningful change in growth rate if they build out to the 100 million POPs, and then it slows down from there? (inaudible) we should think about it.

Assuming that financing is put in place they will add more markets in sort of their Phase I/II, we hope they're successful in gaining subscribers. When they do that they are going to need to do a more robust Phase II into Phase III in the existing markets. So that's how I think it will play out. We hope they do great in their deployment and in their gain of subscribers that support that.

Great, thanks, guys.

Next question comes from Rick Prentiss from Raymond James.

Good morning, guys Don't forget the Devil Rays, or the Rays these days. One quick question on guidance. You left it unchanged, should we assume that the foreign currency assumptions are also unchanged? I think that was the Reai at 1.8 and the Peso at 13.25

That's right, Rick.

Then on the real estate, REIT diligence that you guys are going through, can you update us on your NOLs and when you think you might burn those up? Have you thought about structuring? Do you need to separate domestic from international on the wreath potential?

Okay, just a couple thoughts on the REIT. As we came into the beginning of this year we had $1.3 billion of NOLs. Current course and speed we would expect to utilize all the NOLs probably by the middle of 2012. Hopefully we'll beat that and accelerate more quickly. But right now current course is to be looking at middle of 2012. We're continually moving down the path on a number of different fronts within the evaluation of the REIT.

The first thing is we're about ready to apply for a private letter ruling from the IRS which will connect all the Is and Ts And while we think that our tower assets are right down the middle in terms of what qualifies as a REIT, we want to make sure . Secondly, we are now in the middle of our earnings and profits evaluation and E&P study that we need to do to determine if there will be any purging dividend if you will right prior to us moving to a REIT We continue to move through all the due diligence work internally looking at all of our MOAs and all of our assets to be well positioned to move into a REIT. And we continue to move through all the due diligence work internally looking at all of our MLAs and all of our assets to be well positioned to move into a REIT.

So while we have a year and a half, if will you, before we run out of our NOLs, we want to make sure that we're doing all of our homework right up-front. With regards to the international assets, the way we're thinking about that is that most of our international assets, if not all would fall into the taxable REIT subsidiary status. There are asset tests and income tests as you well know, in a REIT structure and we think our international assets would fit nicely within the TRS structure as well as other services we're doing within the United States that may not qualify as qualified

It's been interesting this last quarter. The towers are now trading at a discount to the typical REIT which has been a pretty solid floor for the last six years so it's a little bit of a disconnect there on growth companies like the tower companies versus where REITs are trading today. Most of the work that I've been doing over the last six months is ensuring that this is a check the box type of an event for us and that nothing gets in the way of our fundamental operating model.

That's Jim and my mantra. To the extent with ever thought it would we would not go down this path. To date, we don't think it will. We're confident we will be able to generate the kinds of cash flow to reinvest as well as dividend out 90% to 100% of the pretax income.

Yes, Rick I think you're hitting on something important which is should we elect to go towards a REIT structure. we think we'll be a pretty unique opportunity for investors there to our size as to our growth, and as to our sort of global exposure in certain key markets that most REITs don't offer. So, it should be a really interesting event potentially for investors if we go there.

A large percentage of your revenues and EBITDA come from some pretty big name customers. Nice concentration to some big names. Right thanks, guys.

Thanks, Rick

Your next question comes from David Barden from Bank of America.

Thanks for taking the question. Hey, Tom. I guess the first question would be, you talked about this major customer and the lease extension that you did there. Could you give us just some more color around that? Was that something that was just part of the natural evolution of the contract? What was the tenure of the new transaction, that sort of thing, would be helpful.

Also, second, love to get, maybe Jim, your color or perspective on whether you think that Sky Terra is real and could become kind of out of the blue this incremental new network. Obvious you don't have funding yet but it's getting a lot more attention. Wonder if you're seeing anything in the background that might lead to you believe that they're serious potential new source of demand. Thanks.

Sure, David. This is Jim. As to the lease extension, we want to position ourselves as a trusted partner with our customers, and as a result of that we don't discuss individual either transactions or extensions, but it's something we do in the normal course of our discussions which are on ongoing with each of our customers. We want to do a few things with them. As I said, we want to line up strategically our investments and we have the capacity to do that with what they need. We want to make sure that we extend the relationship as long as we can and don't have any towers of lease termination that might happen in any given year. Et cetera.

So those are constant discussions going on. We try to align all the interests and make adjustments to our master lease agreements when is the rate time to do that. Secondly, to Sky Terra, it is certainly real. It's got a financial backer and it's got spectrum. When we expect to get a commenced lease depends on four things. One is, the spectrum being available. The second is, not only the investor, but the full funding, as you said, needs to be in place.

The third thing is continues plan that other investors can believe in over time, and that is credible, which we're anticipating seeing hopefully from Sky Terra remarks but haven't necessarily yet in complete form. And then finally, you've got to have, as a carrier, OEM and device selections, handsets, and suppliers that are willing support the spectrum you have and the business model that you are talking about. So when those four things in place we will expect commenced leases. In advance of that we're going to help customers like Sky Terra plan their networks in hopes of them being successful.

And if I could just follow that us. Are you helping them plan that today?

Again, don't want to talk about specific customers, but someone with spectrum and business plan aspirations and potential funding I think in any case you would expect that our people would be making the time to work with them.

Thanks, guys.

Sure.

And your final question comes from Michael Rollins from Citi.

Thanks for taking the he question. Just had a couple of clarifications to follow up on. First, with respect to the cancellations and take-and-pay settlements that you guys highlighted on the revenue bar chart, can you give us a sense of timing, whether all of that impact is fully in the first quarter in terms of the -- what would be unusually large in terms of churn that you're experiencing? And then the second thing, if you look out to 2011, what's the normalized level of cancellations American Tower should expect in any given year versus this year where you have, I think, a few transitory things going on? Thanks.

Michael, this is Tom. Good questions. I think with regards to the cancellations they're principally done in the first quarter. There will be a little bit more in the second quarter, and that's why in my remarks I said will be completed within the first half on the broadcast cancellations.

And I think also what I remarked was that you would expect to the get back down into the 1.5 to the 2.0, which is what we've been experiencing over the last several years so I think that's what you should expect going forward, and even into the latter half of the year. With regards to the other discrete items in the quarter, I think would you expect them to be pretty well spread out throughout the year, a little bit more in the first half of the year and then winding down into the third quarter and into the fourth quarter. But pretty well evenly spread throughout the year.

Great, thanks very much.

Sure.

There are no further questions. Do you have any closing remarks?

Great, everybody. I really appreciate you being here with us this morning. If you have any follow-on questions, please give us a call, and have a great day. Thanks.

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