美國電塔 (AMT) 2011 Q1 法說會逐字稿

Good morning. My name is Genica. I will be your conference operator today. At this time, I would like to welcome everyone to the American -- Tower first quarter 2011 earnings conference call.

(Operator Instructions)

Good morning, ladies and gentlemen. Thank you for joining the American Tower conference call for the first quarter of 2011. We posted a presentation on our website. It's under the Investors tab. We will refer to these materials throughout the presentation.

Our agenda is as follows. -- I will provide a brief overview of our first quarter results. Tom Bartlett, our Executive Vice President and CFO will review our performance for the quarter and provide an update of our expectations for 2011. Finally, Jim Taiclet, our Chairman, President and CEO will provide closing remarks. After these comments, we will open up the call to questions.

Before I begin, I would like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our 2011 outlook, our pending acquisitions, our consideration to elect Real Estate Investment Trust status, our stock repurchase program, 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 our 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, those set forth in our Form 10-K for the year ended December 31, 2010 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.

With that, please turn to slide 4 of the presentation which provides a summary of our first quarter 2011 results. Highlights from the first quarter included a 23.2% growth in total Rental & Management revenues to $546.7 million. Adjusted EBITDA growth of 21.1% to $377.1 million, operating income growth of 22.1% to $218.3 million and a 4.7% decrease in our income from continuing operations to $92 million or $0.23 per basic and diluted common share. The decrease in net income was primarily due to an increase in the effective tax rate this quarter. During the first quarter of 2010, our tax provision was reduced by approximately $33 million as a result of one-time restructuring activities in Latin America. With that, I would like to turn the call over to Tom Bartlett who will discuss our results in more detail.

Thanks, Garth and good morning everyone. I'm pleased to report that our business produced solid results in the first quarter. If you'll please turn to slide 5, you will see that for the first quarter, our total Rental & Management revenue increased 23.2% to $547 million. Adjusting for the impact of FX, straight-line and a couple of one-time items accumulating to $1.6 million in revenue that occurred during the first quarter, core growth in total Rental & Management revenues was approximately 18.5%.

Turning to slide 6, I thought it would be helpful to highlight some of the specific items that generated the growth in our first quarter versus last year. Contractual escalations accounted for approximately $18 million of incremental revenue or about 4% of the Rental & Management revenue growth for the quarter. The base rents under an MLA were escalated last year when one contract was executed and the annual escalator was moved forward to January of each year. Organic growth in our existing Tower portfolio as a result of new co-location and amendment activity accounted for about $24 million of incremental revenues in the quarter. And between the fourth quarter of 2009 and the end of the first quarter of 2011, we added over 9,900 new sites. New run rate revenue from these sites in the quarter accounted for about $47 million. As expected, our churn was approximately $12 million.

Finally the US dollar has weakened against most of the currencies in the markets in which we operate and our straight-line revenue increased as a result of the new MLA we signed. These factors combined with other items generated a benefit of approximately $26 million. So, around $103 million of incremental revenue in the quarter. I hope that detail was helpful.

Turning to slide 7, continuing with some highlights relative to our domestic Rental & Management segment for the first quarter of 2011, revenue increased 12.9% to just under $418 million. For the first quarter our domestic Rental & Management segment gross margin increased $41.8 million or 14.3% which reflects a year-over-year conversion rate of approximately 88%. Excluding the impact of FX, straight-line, lease accounting and one-time items, our core growth in revenue was 10.1%. As you can see, our profit margin in our domestic segment increased 76%.

Turning to slide 8, as expected, our international Rental & Management segment also produced strong results during the first quarter of 2011 generating year-over-year revenue growth of 75%. Between the fourth quarter of 2009 and the end of the first quarter, we have added over 8,900 Towers to our international site portfolio including 5,320 in India. 2,643 in Latin America and 959 sites in South Africa. The new Tower sites we have added in India, Brazil and South Africa themselves accounted for approximately $35 million at the incremental revenue growth this quarter.

In several of our international markets, as many of you already know, we passed through ground rent and in India and South Africa fuel costs to our customers. Pass-through revenues totaled approximately $19 million and $33 million in the first quarter of 2010 and 2011 respectively, which is an increase of about $14 million. Our international Rental & Management segment gross margin increased 62% year-over-year to $87.9 million which reflects a 68% gross margin. In excluding the impacts of our pass-through revenue, our international segment gross margin would have been 92%. Further, our year-over-year international gross margin conversion rate for the quarter was 61%. Excluding the impact to pass-through revenues, our gross margin conversion rate would have been over 80%. The international sites which we have acquired or constructed typically have from 1 to 1.5 tenants per Tower and as a result have gross margins below those of our domestic segment.

We believe these investments in both our legacy and new international markets provide us with the benefits of diversification as well as opportunities to participate in the higher growth markets. Further, we believe there is tremendous potential as we lease these sites up and become more efficient operationally post start-up to drive future margin growth.

Finally our international Rental & Management segment increased operating profit by 55% to $70.4 million. Our segment SG&A increased by $8.5 million to $17.5 million as we expanded into our new markets like Chile, Columbia, Ghana, Peru and South Africa as well as expanding our existing operations in India. In Ghana for example, we have had a team in place throughout the first quarter in anticipation of the formation of the joint venture.

Turning to slide 9, our reported adjusted EBITDA growth relative to the first quarter of 2010 was 21.1%. With our core growth for the quarter at 13.5%, on a currency neutral basis, excluding the impact of straight-line lease accounting and one-time items. During the first quarter, our adjusted EBITDA margin was approximately 67% and our adjusted EBITDA conversion rate was about 61% which as we discussed on the last slide included the impacts of international pass-through revenue which negatively impacted our conversion rate by about 8 to 9 percentage points. Excluding the impact of pass-through, our adjusted EBITDA margin would have been just over 71%.

As outlined on slide 10, during the first quarter we continued our disciplined approach to capital allocation. We invested almost $840 million during the quarter. We built 240 sites and acquired over 1,880 sites. The total purchase price for the acquired sites was approximately $769 million of which $617 million was paid to the sellers in Q1. The balance of which will likely be paid in Q2.

The sites we acquired in Brazil are high performing Towers and the multiple paid was in the range of 12 times to 13 times adjusted EBITDA. We invested almost $98 million in CapEx. The discretionary element included $57 million of spending primarily related to the construction of approximately 240 new sites and $21 million paid for land. Finally, consistent with our capital allocation strategy, we repurchased about 2.4 million shares of our common stock for $123 million during the quarter and 2.9 million shares for $147 million year-to-date as of April 22, 2011 pursuant to our Stock Repurchase Program established by our Board of Directors in 2008. As of April 22, of this year, we have repurchased a total of 32.7 million shares of our common stock for an aggregate of $1.3 billion pursuant to the 2008 Buy-Back Program. As you'll recall, in March of this year, our Board approved a new $1.5 billion Stock Buy-Back Program.

Turning to slide 11, we continue to aggressively expand and grow our business both domestically and internationally. Since the fourth quarter of 2009, we've acquired and built over 1,000 sites in the US. Over that period, we have also spent over $100 million acquiring land under our Towers. We believe there continues to be opportunities to invest in and grow this segment of our business.

In Internationally as of Q1, we've acquired and built over 8,900 sites since the fourth quarter of 2009. In the first quarter of this year alone, we've added over 2,000 sites. If we close on the sites under contract that we've included in our guidance and complete our forecasted builds in 2011, we project that we will have close to 18,000 international sites representing approximately 45% of our portfolio by the end of the year.

We have selected the international markets entered because we view them as having relatively stable political environments, growing economies and a wireless market with a sufficient number of operators and spectrum to support an independent Tower industry. However, in many of these markets, we are the only independent Tower operator and we believe that we provide our investors with the unique and diversified opportunity to invest in the growth of international wireless services. Due to the aggressive build program and co-location activity, the total growth in our international segment has out-paced that of our domestic segment and further broadens our growth opportunities. During the first quarter, we closed on an initial 959 sites from Cell C, the third largest carrier in South Africa. We expect to acquire about 400 additional existing Towers and up to 1,800 other sites that are either under construction or will be constructed over the next two years or so.

We had previously announced that we were buying up to 565 sites in Brazil for a purchase price of approximately $420 million subject to post closing adjustments. These are very attractive sites concentrated in and around Sao Paulo. Following our due diligence and review process there were another 62 sites that we agreed to buy bringing the total sites purchased to 627. There may be up to an additional 40 sites under construction that we will acquire over the next several months.

Over the course of the period between the initial negotiations that began nearly a year ago and the actual closing date, the EBITDA on the sites has increased. As a result of the higher number of Towers and greater EBITDA achieved, the aggregate purchase price increased to approximately $553 million. We are in the process of completing the closing on an initial tranche of 400 sites from MTN in Ghana. As announced previously, we have partnered with MTN in Ghana and under the terms of the JV, we will have operational control and own a 51% stake. We currently expect to close on an additional 500 sites from MTN in the third quarter. Our agreement calls for up to a total of 1,876 sites to be purchased.

Having closed on an initial 116 sites in Q1, last week we closed on an additional 171 and we also plan to acquire another 50 to 60 sites associated with our agreements with Telefonica in Chile and Columbia by the end of the third quarter. As we have previously disclosed, we acquired 140 sites from VTR in Chile in the early part of the first quarter.

Turning to slide 12, our investment strategy and capital allocation process continues to drive growth and cash flow in return on invested capital. We have delivered compound in annual growth and recurring free cash flow -- and recurring free cash flow per share of 17% and 19% respectively over the past several years. Our recurring free cash flow per share in the first quarter was $0.62 per share an increase of 12.7%. We have increased our return on invested capital by approximately 165 basis points over this same historical period.

Turning to slide 13, there has been a lot of discussion in the market about the impact on the Tower sector from carrier consolidation. We have previously provided specific metrics on the AT&T/T-Mobile transaction like the fact that T-Mobile comprised 8% of total 2010 revenues and after approximately 3,100 sites where T-Mobile is co-located on a Tower on with AT&T on our Towers. As we have stated, the total revenue from T-Mobile on those 3,100 sites was about 4% of our 2010 revenues of approximately $2 billion. And after weighted remaining contracted length, that's the period until the carrier can elect to terminate the contracts, is about 5 to 6 years for T-Mobile and 9 to 10 years for AT&T. In our view the AT&T/T-Mobile transaction needs to be looked at in the broader context of the demand wireless carriers continues to face from their customers.

Slide 13 shows some estimates provided to us by wireless industry experts. New devices in smartphones, tablets and other wireless enabled devices combined with bandwidth intensive new applications are driving exponential growth in network traffic as AT&T and Verizon themselves have pointed out in the recent calls with investors. Over the next three years alone, the number of smartphone users are expected to double. The carriers are in the process of deploring new 4G equipment to service this demand. However, in our opinion, the latest generation of equipment, while offering substantial improvements in meeting capacity needs cannot meet all future wireless demands. As a result, we believe the carriers will have to deploy more Towers and equipment over time to meet this demand.

In our view, the US market can support 3 to 4 nationwide wireless networks. The combined AT&T/T- Mobile entity will have the financial wherewithal and spectrum position to enable it to deploy a dense and robust 4G network. As a result, we believe there will continue to be strong demand for our Towers and that any non-renewal of existing contracts in future years will be offset by incremental lease-up and amendment activity as AT&T works to support customer demand.

Turning to slide 14, we are adjusting our outlook for Rental & Management revenue growth for 2011 to reflect two Tower acquisitions and revisions to our forecasted FX rates. As noted earlier, we closed on 627 sites in Brazil during the quarter and we plan to close soon on 400 sites in Ghana under our 51% owned JV. We expect to close on an additional 500 sites with MTN in the third quarter. As a result, we are raising our forecasted 2011 revenues by approximately $100 million. This includes about $47 million of incremental pass-through revenues related to our new sites in Brazil and Ghana. In Ghana, although we only plan to close on initially 400 sites, we have agreed to manage the entire remaining portfolio for MTN prior to adding those Towers to the joint venture and will recognize pass-through revenuein expense across the entire portfolio.

We've also adjusted the FX rates in our outlook as the US dollars continue to decline against the currencies in several of the markets in which we operate. In addition and as a result, we are raising our outlook for 2011 adjusted EBIDTA by $40 million. Consequently, our Rental & Management revenues and adjusted EBITDA are forecasted to grow about 20% and 15% respectively year-over-year. Let me point out that the pass-through revenue is now expected to increase $83 million in 2011 versus 2010, to a total of about $182 million which represents about 4% of the 2011 revenue growth. At the adjusted EBITDA level, without pass-through the margin would be about 70% to 71% consistent with prior years calculated on the same basis.

We continue to estimate that our domestic Rental & Management segment will grow by roughly 8% to 9% year-over-year, the vast majority of which will come from organic growth. We expect that our international segment will continue to generate solid organic growth while also experiencing strong contributions from our recent expansion activities and anticipated acquisitions. As a result, we are currently projecting our international segment to contribute just over a 0.25 of our total Rental & Management revenue for the full year with segment revenue growth of about 70%.

Turning to slide 15, let me walk you through our current view of our 2011 investment profile. We started the year with over $880 million of cash on the balance sheet. We estimate based on our revised outlook that our cash from operations will be just under $1.1 billion. Assuming we maintained our net leverage based on a net debt-to-EBITDA target of 3.5 times, we could raise an additional $220 million of incremental debt. We would then have about $2.2 billion to invest over the course of 2011. On the use side, our plan calls for CapEx of $400 million to $450 million.

Based on our completed and committed acquisitions that we've included in our outlook, we have funding commitments of about $900 million and as I already mentioned as of April 22, we have bought back $147 million of our stock this year pursuant to our 2008 approved Stock Repurchase Program. Netting all these items out, we would have up to $700 million of incremental capital to deploy.

In addition, during the quarter, we have executed a new $860 million 5-year revolving unsecured supplemental credit facility which may be increased to up to $1 billion dollars. Our existing $1.25 billion credit facilities which had $175 million drawn at the end of the first quarter and $325 million term loan facility, which are still both in place, mature in June of 2012.

Turning to slide 16, before I close, I also wanted to highlight some important REIT updates. First, we are very pleased to announce that we have received a favorable private letter ruling from the IRS with respect to the application of certain significant re-qualification tests to our assets and operations. Our tax team has worked very hard to obtain this ruling but is only one element of the tax due diligence that we continue to work through.

Second, we have further refined our estimates such that we believe our accumulated earnings and profits or E&P should be no more than $200 million by the end of 2011. This number could vary if our actual 2011 earnings and profits generated differs from our estimates. The actual form, amount and timing of a special distribution, if any, related to E&P will be determined by our Board of Directors. We continue to actively evaluate making an election to a REIT and continue to believe they did the optimal tax strategy for our operations given the nature of our assets and business.

Our goal in 2011 continues to be to position ourselves to qualify as a REIT commencing January 1, 2012. We are continuing to finalize our tax due diligence and we are also working to ensure that our systems and processes are REIT ready as of year-end. Please note, there is no guarantee that we will ultimately elect REIT status. Any election is subject to Board approval and finally, any determination to elect REIT status will not be made until late in the second half of 2011.

Turning to slide 17 and in conclusion, we have had a very successful first quarter and believe we have built a strong foundation for the rest of the year. With respect to our balance sheet, our net leverage remains at the low-end of our target range and at the end of the first quarter we had about $1 billion of liquidity available under our old credit facility and almost $360 million of cash and cash equivalence on hand. As I mentioned, we also have full availability under our new supplemental credit facility and we expect that we will continue to opportunistically seek access to the capital markets to further ladder and extend our maturities. With that, I would like to turn the call over to Jim.

Thanks, Tom. Good morning to everyone on the call. With over 23% Tower revenue growth and over 21% adjusted EBITDA growth in the first quarter, American Tower demonstrated that our strategy as executed by our people can deliver truly compelling results. These results also reinforce the attractiveness of our unique position as a leading player in both the US and international arenas.

In the first quarter our international markets contributed 24% of the Company's Rental & Management segment revenue but an impressive 40% of the combined segments growth in operating profit. By taking advantage of opportunities in both the domestic US and select global wireless markets, we believe that we are maximizing our two key metrics to drive shareholder value. Tom showed them, and they are first increasing recurring free cash flow per share at a robust rate while continuing to expand our return on invested capital. We also believe that we will continue to demonstrate ongoing improvement in both recurring free cash flow and return on invested capital due to the strength of the Tower business model in combination with consumers increasing appetite for mobile broadband data and entertainment services in both the US and around the world.

It's also our strongly held view that the physics and the engineering fundamentals of radio frequency based communications will require additional transmission equipment within a more dense network of locations over time. Therefore, we view the increase in penetration of smartphones, tablets and similar broadband devices, and the monthly volume of bandwidth drawn by each device, as the two most important indicators of future further demand for Tower space in any given market. As Tom's chart on Tower demand drivers showed, we expect smartphone penetration to more than double in the US to nearly 200 million by 2013. In the meantime, we also expect tablet and other connected device penetration to nearly double in the US every year from now until 2013.

Moreover, monthly data usage per device continues to expand with capacity hungry mobile video as the leading contributor. The multiplier effect of increasing penetration and increasing usage will create tremendous requirements for wireless network capacity over many years. Improved technology and additional spectrum will absorb some of these capacity increases but as Tom said also, additional transmission equipment and more dense arrays of cell sites will also play a major role. To address the opportunities presented by consumers' desire for wireless data and entertainment as well as the challenges, our wireless carrier customers are taking necessary and prudent actions.

I will focus most of the rest of my prepared remarks addressing head on the major industry developments going on in the US that are on everyone's mind today and describe how we believe they will affect American Towers future prospects. These industry developments include Sprint Nextel's Network Vision initiative, the efforts of Clearwire and LightSquared to provide 4G network coverage and the proposed acquisition of T-Mobile USA by AT&T. I will address each of these in the context of three essential factors for the deployment of a viable 4G network. First spectrum, second funding and third the OEM and handset supplier base. Finally for each case, I will summarize the anticipated implications for our Company regarding each of the three major industry developments.

Overall American Tower's position is that if an industry development is likely to increase the penetration of high bandwidth devices at a faster rate to consumers, then that development will benefit American Tower over time and therefore our Company's goal is to be supportive of those efforts. So, let's first then consider Sprint's Network Vision program in light of the three essential success factors of a 4G deployment. The program as we understand it will enable more effective use of Sprint's spectrum, specifically in the 800 megahertz band. They could use it then for high speed 3G and potentially 4G services. From a funding perspective, the program is designed to add ethernet and fiber back haul capabilities to Sprint's core network which would then reduce the cost of providing true broadband service.

The project would bring in more advanced OEM base station equipment and enable more broadband handsets and tablets to be supported. As to implications for the Tower business, we anticipate in the early years of this project that amendment revenue from Sprint would increase due to additional antennas, lines and frequencies needed for the transition. We would then conversely and as Tom pointed out likely experience some churn from legacy iDEN overlap sites. This might begin in the 2015 timeframe and take a number of years to be completed. In the meantime, we'd also expect that since by then Sprint Nextel should have many more smartphone and tablet subscribers that they would also need to be increasing cell-site density and equipment installation broadly across this footprint. We would also expect that Sprint would monitor iDEN subscriber churn as Network Vision is being implemented and to modify the pacing if needed.

As to Clearwire and LightSquared, both hold extremely valuable resources in the form of their spectrum. We fully expect that this spectrum will be put to work in some manner over the next few years. Both companies are seeking to enhance their position regarding the three essential factors for 4G. Of course they both already have the spectrum, but both need reliable sources of medium to long-term funding. They are both also continuing to seek suppliers that will provide the kinds of efficiently priced base-station equipment and those iconic type devices to run on their respective technologies and frequency bands.

In the end, we fully expect that both Clearwire and LightSquared will find a way to bring their valuable spectrum to bear on a national basis, either through independent network deployments or in some sort of collaboration with an existing carrier. While a well funded national network deployment by both Clearwire and LightSquared would be the optimal outcome for the Tower industry, we also view any arrangement that accelerates either or both of these companies launching 4G service and thereby accelerating penetration of 4G devices in the US is very positive.

The most recent major new development in the US wireless industry was AT&T's announcement of it's proposed acquisition of T-Mobile USA. In view of the three essential elements for 4G, this combination would bring some major benefits. Our internal analysis suggests that the spectrum position of T-Mobile would enhance AT&T's current position by approximately 60% on a weighted average basis. Regarding funding and OEM and handset supply base, AT&T would bring its substantial financial resources and its robust supplier base including Apple iPhones and iPads to T-Mobile's 30 million plus subscribers. Consequently we expect that the combined company would increase the adoption rate of next generation broadband mobile devices more rapidly to a larger number of people. In our experience as a major wireless network infrastructure provider, we have seen three previous examples of wireless carrier mergers that were immediately followed by strategic initiatives by those newly combined carriers to launch or accelerate next generation technology deployments.

The first of these examples and the closest precedent to the proposed AT&T/T-Mobile transaction was the 2004 combination of Cingular and AT&T Wireless. Post merger the larger and financially stronger company deployed 3G then at a faster pace than we believe Cingular and AT&T Wireless would have done independently. In addition the combined company launched the iPhone ushering in a new chapter and a sophistication and attractiveness of wireless handsets to consumers. The second example was the merger of Sprint and Nextel in 2005. After that transaction, the combined company initiated the first national carrier 4G launch in the US and then forming an alliance with and providing funding for Clearwire.

The third precedent was the acquisition of Alltel by Verizon in 2009 following which the larger business then began an aggressive nationwide 4G rollout. We have also reviewed our revenue trend data with respect to these three previous national wireless carrier mergers. Our assessment of the data supports our conclusion that the combined companies grew their network investments and consequently their leasing of Tower space. In each case, we compared our revenue from the combined carrier two years after the merger's closed versus the total revenue from the original independent carriers the year prior to the closing.

In the case of both Cingular-AT&T Wireless, and Verizon-Alltel our post merger Tower revenue two years later was approximately 30% higher than pre-merger levels. In the case of Sprint-Nextel revenue was approximately 40% higher. In other words, accelerated technology deployments and other network improvements were in excess of any short term churn. So, in keeping with our prior experience and analysis as outlined above, we have been historically and are currently supportive of our customers' strategic initiatives that are designed to improve their network performance and accelerate the deployment of advanced technologies. This position also applies to the pending acquisition of T-Mobile USA by AT&T as we found similar combinations beneficial to the subscriber base through faster technology rollouts and thereby to our business as well.

Now, you may have seen a few weeks ago in the press a contrary view attributed to our Company. This report misrepresented the position of American Tower and relevant facts were taken out of context. We requested that a correction be made but we just wanted to take this opportunity to set the record straight for our investors.

In summary, we believe that the demand for Tower space in the US will support continued strong growth. Moreover, we are highly confident that similar dynamics around wireless data and entertainmented option will occur in our international markets. We feel that American Tower has a unique combination of experience and intellectual property that our people have developed over our many years of operation in both the US and in Mexico and Brazil that can be directly applied to build further value for our shareholders globally. We have bolstered both our Senior Executive and our Regional Management teams with the talent needed to expand our business to four continents. We are also partnering with some of the world's leading global telecommunication companies to bring the Tower leasing business model to new countries. These include Telefonica in Latin America and MTN in Africa.

Again, we are confident that our growing international operations will lengthen and strengthen our Company's growth potential. So, we believe that American Tower offers you a unique and compelling investment pieces, significant exposure to the mobile data and entertainment phenomena in the US and in attractive international markets, as we also track towards the potential REIT conversion which is targeted for January 1, 2012. Finally, we are also pleased here in Boston to see that the Red Sox's new lull them to sleep early strategy seems to be working. By losing the first six games in a row and quietly hiding out in last place in the AL East, the Sox are perfectly positioned for their shock and awe assault to the play-offs. Thanks, everyone and operator we can now open it up for questions.

(Operator Instructions) Rick Prentiss, Raymond James.

Rays had the similar strategy. A couple questions for you if I could. First, appreciate very much that head on addressing of the key industry items. That was great. A couple of follow ons with that. In your guidance right now, what are your thoughts as far as the 3 to 4 nationwide networks in the US. How are those reflected in your 2011 guidance and then as you think forward to 2012, how is the growth in 2011 versus 2010 look versus what might be the growth in 2012 versus 2011.

Rick, it's Jim. Our guidance supplies, as you know only the 2011. Within that time period, which there's only 7 months left in the year, 7.5 months, it's a big shift to turn for the carriers. They're going to stay on the tracks that they are on today. T-Mobile's still doing some work on its network even though it's in a merger discussion. Less than we probably would have hoped at this point but they're still going to continue to press on. They have got an approval process that will be 1 year to 1.5 years so they're going to have to keep the network up and running. So probably not a lot of major changes to any of the networks this year versus current course and speed. In 2012, we're going to -- towards the end of the year, do our bottom's up review as we always do with our management team, we'll talk to our customers then. They will probably have some budgets lined out. It's too early to tell how this will all effect 2012, Rick.

Is it safe to say that you have not seen a lot of Clearwire or LightSquared in the 2011 progress so far and that if they were to solve that funding I think you talked about that, that would lead to probably a better 2012.

That is absolutely right. I mean, we had $0 Tower leasing revenue in our plan for LightSquared. A modest amount for Clearwire versus prior year assuming again, no new markets for them. So positive developments there would be additional opportunity for us. But, now, let me just caveat that for a second. Again, there is only 6 months -- 6 to 7 months effectively left in the year now. Any announcements would probably end up in leases in probably the fourth quarter of the year and then lead into 2012.

Makes sense. Then one for Tom, maybe, on the international side, I think I understood you to say that you're going to manage the MTN Ghana assets and that is probably why we see a higher revenue in the guidance than EBITDA in the guidance. Could you just quantify if that is correct, how much of that increase was from the Ghana side?

That is exactly right, Rick, as a part of the arrangement that we have with MTN. While we're going to be closing on an initial 400 sites then picking up 500 probably in the third quarter, we've agreed to manage the entire portfolio so that there is approximately $47 million of total pass-through that is included in the guidance and probably 0.667 of that is related to the transaction with MTN.

Simon Flannery, Morgan Stanley.

Going back to the helpful discussion on the impact of Network Vision versus the iDEN shutdown and timing there, are you expecting -- I think Sprint talked about 8 markets being turned on this year. Perhaps you can just talk about any contribution from some of those extra facilities and where you are in that contract negotiation or amendment activity. Then on the REIT conversion, on the dividend side perhaps you could talk about timing of the purging dividend and any current thoughts on pairs given some of the work you have done so far. Thanks.

Simon, it's Jim. I will take the first question then Tom will address the REIT question. To our understanding, Sprint Nextel is in the planning stages as you indicated of initiating the Network Vision program. From our prospective, it is the planning stages. In other words, we are not necessarily seeing applications on sites quite yet. We are looking forward to that. But given the early days of the program, and I think you understand that we don't put things into our guidance or attempt to quantify them until we get applications, it's not included at this moment.

Simon, on the REIT question as I outlined, our accumulated earnings and profits that we estimate at the end of this year will be up to $200 million. The actual dividend that might be related to this earnings and profits distribution would be perhaps in the second half of the year, kind of the timing that we're thinking about. But that's really up to the Board of Directors, and the actual amount will actually be up to the Board of Directors as well.

What about the overall ongoing dividend for -- once you became a REIT?

Yes, those kinds of discussions are going on with our Board and that's really for them to determine. We will be able to talk more about that perhaps later in the year or early next year. But the Board is still deliberating through all the concepts associated with dividend policy.

Simon, just generally, the intent of the Company is very easy to summarize in two words, growth plus yield. We're going to move into a position over the course of the second half as Tom said and into next year, where that we do provide that additional element of yield at some level in a predictable fashion and a smooth entry to our investors.

Phil Cusick, JPMorgan.

This is Richard [Shane] for Phil. Going into the Brazil deal, I guess it was upsized a little bit and you said you paid 12 to 13 times cash flow. Was that because the incremental sites were higher or was this looking back and re-upping the price for the other sites? Then going forward, it seems like Brazil is doing very well and it's an area that you want to focus on. Are there more deals -- should we accept more deals from Brazil for the rest of the year?

Richard, it's Jim Taiclet. Basically what happened with our Brazil transaction is the purchase price was adjusted for the actual cash flows that were occurring off the Towers new and existing in the deal. But the bulk of it was driven by the new Towers that were completed and ready to transfer. So, those both contributed. Brazil generally is, we think a very attractive market. There was a Spectrum auction last year that -- and I ended up winning a fair amount of Spectrum for them to roll out a 3G network and we partnered with them extensively in the past, expect to in the future. So for that and other reasons general to my prior discussion, the rollout of data and entertainment in Brazil is going to be an exciting next few years.

Great. I guess a follow-up on the M&A side, in terms of US prices, have you seen any changes in the market? Or are people expecting reasonable private market prices still?

Our consistent public statement is we don't speak to specific pricing on US transactions prospectively. Each of those transactions is unique as was site-sharing in Brazil frankly based on the counter parties, the tenants, the capacity of the sites and a number of other factors. So it's not a one size fits all multiple. That is how we consistently like to discuss it.

Jason Armstrong, Goldman Sachs.

Great news on the IRS private letter ruling. I'm just wondering if you can you help us think through international activity from here as it relates to the asset test associated with the REIT structure, just what's you're theoretical limit on what you can do there? Then second question, we focused a lot of the comments on addressing the deal, addressing Sprint's trajectory from here. But if you look at where a lot of the incremental momentum has surfaced in the quarter for the carriers, I'd say it's companies like metroPCS, this morning producing a record net ad result weighted towards smartphones. Leap's pre-announcing decent numbers, so that seems to be where we are getting a lot of the incremental inflexions in the wireless industry. Why wouldn't these type of companies start to show up more meaningfully on fill-ins on existing city networks especially given their Spectrum constraints? Thanks.

Maybe I'll take, Jason, the first question on the asset test. We don't expect expansion the US or international to be impacted by our decision to move to a Real Estate Investment Trust. There are a lot of -- there's flexibility within the IRS guidelines in terms of leverage that can be used, there's also a flexibility in terms of being able to move those assets which would qualify as readable assets into our QRS. So we think that we have a lot of flexibility within the guidelines to be able to continue, as Jim mentioned before and continue to be a high growth, good yielding Real Estate Investment Trust asset.

Okay. When you think about leverage, is the concept to raise debt sort of core to tier then transition down to international properties or would you start raising more debt in local markets?

Jason, it's kind of a combination of the two. We are still very committed to our existing range of leverage. We are not talking about on a consolidated basis, changing our leverage ratios at all. But we can and have started to raise debt at local markets. For example in South Africa, part of the financing for that particular transaction was debt that we raised locally and/or we can do it through inter-Company loans which was one of the elements of the PLR to make sure that we can do that. In fact do that and that would actually assist us in terms of being able to meet the asset tests.

Going back to the regional carriers including metro and Leap, Jason, they were in our plan and in our guidance as well in the US at a fairly modest level as compared to some of the nationals. We expect that, that guidance is going to be fulfilled over the course of the year. We are pleased to hear both companies outperforming because that should help them fund additional network investments if they believe that's in their best interest. So that is great news for us.

David Barden, Bank of America.

Maybe a just couple more detail questions or thoughts on the REIT conversion process, Tom. Number one, what is your appetite and what have your conversations been like about potential REIT index inclusion as you think about converting to REIT? Is that important to you? If so, how are those conversations going? Also with respect to your S&P 500 inclusion, would you become a REIT for all intensive purposes or would you stay a telecom Company? Then my last one, maybe Jim, if you could just opine a little bit as we have in the past on where the Public Safety Network fits into your thinking as a potential up side opportunity for presumably next year. It's in the budget. We're coming up on the 10th anniversary of 9-11. Presumably this was done in order to have something to say as we got towards the end of the year here on Public Safety and federally funded networks. If you could give us your latest thoughts on that, it'd be great. Thanks.

Hi Dave, it's Tom. Let me take the come of the REIT questions first. Clearly what has been driving us to contemplate moving to a REIT has been the ability to pass that cash flow on to shareholders, right? That's the biggest benefit, it's really part of our global tax strategy. Relative to the index in terms of the inclusion, we have had discussions with [nay]REIT but it's very difficult to say exactly how they may consider us. There are some precedents that you can look at that have recently concerted from a C Corp into a REIT. And that might give you some sense at least of perhaps how we're thinking of it. But clearly from an investor perspective, I think it is very important to be included in as many indexes as we possibly can. With regard to the S&P, we believe that the S&P 500, simply because of the waiting would be the same but it's unclear as to the telecom index and whether that would in fact -- we would move out of telecom index and we're more into real estate or a REIT type of index. So not a lot of crispness, if you will in terms of a lot of the indexes because a lot of that is determined behind closed doors. So, I'm sure we will have more clarity on that going throughout the next 12 months or so. But it is very important to us but that wasn't the principle driver clearly in terms of what we are doing here.

On the Public Safety side, David, that has been a program that our Company and me personally have tried to advocate in Washington for. It's great to see that it's getting some traction. If you go back to the prepared remarks, before we see a lease commence, the carrier or the customer needs to have three or four things in place. One is Spectrum, second is funding, third is a business plan that the owner believes in and the fourth is OEM equipment and handsets. There is starting to be progress on the first two which is great. The D Block Spectrum seems to have been at least informally assigned for this purpose. Secondly the funding has been touched on and quantified and thirdly, there is some momentum inside the government to proceed with this. What hasn't been announced is a schedule of deployment, a network design, vendors which could be large scale vendors or even down to the suppliers of handsets. None of those have been identified or announced yet to our knowledge. So, those things are all going to have to come into play before we see leases. Having said that, it makes a lot of sense, we hope it will happen, but there is probably a little more bit more of a timeline to it, certainly as you suggest beyond the end of 2011 before we see some commenced leases.

Michael Rollins, Citi Investment.

Thanks for taking the questions really two. First is, if you look at I think slide 6 it was, which is a great slide, it showed the different pieces of where revenue came from and some of the churn. The churn calculated out to be about a 2.7% on last year's base of revenue. Is that a more normalized rate of churn that we should expect going forward or is there room for that to come down further? Then second question I had is, if you were just to look at your 2011 guidance, and as you're doing all the prep work for the REIT, what would be to qualify as a REIT, based on your 2011 guidance, what would be the minimum amount you would have to pay in a dividend basis to retain your qualification? Thanks.

Well, let me take the first one, Michael. On the churn, the 2.7%, the answer is, no, that's not our -- going to be our run rate. As a matter of fact, for 2011, if you take a look at our guidance, it's about 2% what you actually see happening in the first quarter of this year -- in beginning in the second quarter we actually restructured a contract with a large carrier down in Mexico. So, that artificially overstates, if you will, what the churn is from a run rate perspective in the first quarter of 2011 for us. Relative to your second question, the easiest way, 90% of our taxable income needs to be distributed to be qualified as a REIT. I think that was your question.

Is there, I mean, because we can't see exactly what is taxable at a high level. Can you give us a sense of what that number would shake out to be?

Well if I recall, looking about 2010, if our GAAP taxable income was in the $500 million general per range, assuming that all of that income was actually generated by the REIT, which it's not going to be, correct? Because part of that income will be generated as part of the taxable REIT subsidiary makeup but 90% of that GAAP income would be distributed. Now, keep in mind, there is timing differences with regards to taxable depreciation which is generally around and has been historically about $100 million. So if you look at the GAAP taxable income or pretax income of $500 million and you take $100 million away, which is really the timing associated with accelerated depreciation because we depreciate in that over 15 years versus 20 years for book, you'd be talking about $400 million. 90% of the $400 million would be $360 million. But, again, that reflects 100% of all of the income being generated within the business being and would be considered part of a QRS and right now, again, I'm throwing a lot of numbers out here and you have to pull them together. But right now, if you take a look at our international assets, they represent 15% to 20% of kind of our total base so you can consider that as being that part of the total consolidated business that would be part of the taxable REIT subsidiary makeup.

That is helpful. Just one other question, you guys are getting ready to do all the prep work on the final steps for the REIT, and if you look at your financial leverage ratios, you compare it whether it's to your Tower peers or some of the REITs that you might be compared to in the [MNOI], sort of subindex of the REIT category. Your leverage seems to be at the very low end of that Spectrum of ranges. Is there any consideration as you're moving forward to look at whether 3.5 times is the right target leverage ratio in the future?

Mike, it's Jim. I just want to begin to reply to that question with the two words I talked about earlier, growth plus yield. The growth part of those terms is first on purpose because we intend to maintain our position as a growth Company through this whole REIT transition and maintain our strategic direction. Therefore, that is the main issue when it comes to our leverage. We want to be able to keep growing. In fact, I would argue that our ability to add 10,000 or so Towers in the last year or so is directly a function of our capital structure through the financial crisis downturn cycle. We were able to keep investing in our business when others could not and we were able to get transactions done at prices that weren't available to us before and may not be available to anyone after. We're going to keep our financial policy around leverage similar. It may be at the low end of certain ranges but we are maintaining our growth strategy both domestically and internationally and you can expect us to continue to do so.

Operator, this is [Mercantile]. We have time for one more question.

James Ratcliffe, Barclays Capital.

Just one quick one if I could. Regarding international, just going forward, do you see any future JV structures and beyond simply the benefits of having you managing the Towers, how do you think about JVs in terms of usage of equity capital? Thanks.

James, it's Jim. Our preference in most markets is to own 100% of the asset and manage it in a way unilaterally. However, when the situation of either the customer and often the counter-party to a deal has an interest in staying involved, we are certainly going to entertain that and also the further afield from our traditional markets we may go, there is a risk management aspect to sometimes having a local partner that is beneficial. Those will be the two factors that would be under consideration in the future. We don't have any other specific joint ventures to talk to you about today.

I think our use of equity capital would be the same whether it's a joint venture or not. We would look to continue to leverage up some of those local assets, it's a better way to mitigate some cash taxes out in those particular markets and hedge cash flows and to the extent that the market is open for us to be able to borrow in, at attractive rates, that works well for us on a number of different fronts.

Would it be safe to assume that certainly the strong preference on any JV would be for one where you have a majority stake?

Absolutely.

Thank you very much for calling in this morning. Operator you can close the call.

Thank you for participating in today's conference call. You may now disconnect.