ATN International Inc (ATNI) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ATN International Q2 2017 Earnings Conference Call. (Operator Instructions)

I would now like to introduce your host for today's conference, Mr. Justin Benincasa, Chief Financial Officer. Sir, you may begin.

Great, thank you, operator. Good morning, everyone, and thank you for joining us on our call to review the second quarter 2017 results. With me here is Michael Prior, ATN's President and Chief Executive Officer. During the call, I'll be covering the relevant financial information, and Michael will be providing an update on the business and outlook.

Before I turn the call over to Michael for his comments, I'd like to point out that this call and our press release contain forward-looking statements concerning our current expectations, objectives, underlying assumptions regarding our future operating results and are subject to risks and uncertainties that could cause the actual results to differ materially from those described. Also, in an effort to provide useful information to investors, our comments today include non-GAAP financial measures. For details of these measures and reconciliations to comparable GAAP measures and for information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at atni.com to the 8-K filing provided to the SEC.

And with that, I'll turn the call over to Michael for his comments.

All right. Thank you, Justin, and a little bit earlier good morning to everybody on the call. So overall operating results for the quarter were strong, with growth in both revenues and across all profitability measures as we benefited from the investments made last year in expanding our International Telecom properties and the absence of some high transactional integration and similarly unusual expenses that were incurred last year in second quarter.

International Telecom was a bright spot with improvements coming from 3 different areas: recent investments and expansion; growth and profitability measures and existing businesses and markets; and little less important but still important overall, finding exits for smaller nonstrategic businesses. U.S. Telecom declined slightly, but more important, of course, are the changes in the good looking environment for that business, which I will cover in more details shortly. Renewable Energy was similar to the first quarter, but down on the year because of the reductions in U.S. solar incentive payments and the impact of our India build-out, which is still in a pre-revenue stage. Outside the existing segments and businesses, the first half of the year has been quiet from the perspective of additional expansion investments, which is fine for the moment as we have plenty to do relating to last year's transactions.

And now I'll turn to some more specifics, starting with International Telecom. So the second quarter was similar to the first, in that the main driver of year-on-year growth was the 2 investments we closed last year. Though in the 2016 second quarter, we did have a fairly sizable partial contribution from our Bermuda expansion, roughly 2/3 of the quarter. The third quarter will be the first apples-to-apples quarter, excluding some of the smaller dispositions we have made in between, which reduces revenue but not EBITDA. Organically, we saw a number of positive movements led by continued growth in high-speed data subscribers and the benefit of cost-cutting measures in selected markets. Wireless subscribers and ARPU each grew at an annual rate of just under 3% despite the maturity of many of our markets. And we ended the quarter with approximately 303,000 subscribers for the segment and a blended ARPU of $19.72, which is heavily weighted by the large number of prepaid customers in Guyana in that number.

Blended churn was 2.7%, which is a good number, especially considering the number of prepaid subs. Data subscribers totaled about 102,000 at the end of the period, but comparisons aren't really meaningful because of the subscribers coming from the addition of Virgin Islands market in early July. However, on a pro forma basis, we estimate data subs to be up approximately 20% organically. Video subscribers totaled about 53,000 for the end of the quarter with comparisons to the prior year, not meaningful for the same reason I just mentioned. But again, here we estimate that on a pro forma basis, video subscribers would be down by about 5% over the year as cord cutting, cord shaving and transition activities had negative impacts. In addition, as with other providers, the large investments and improvements we've made over the past year in our high-speed data network in a number of areas helps accelerate the substitution of over-the-top video solutions for standard cable TV offerings and so contributes to the video losses. But on the other hand, much of the acquired TV systems were in particularly bad shape and we have made or in the process -- or are in the process of making a number of improvements in the service quality and reliability that should help alleviate that in the future.

Speaking of improvements, we are basically on track in terms of cost and timing for most of our major wireless and wireline network expansion plans and upgrades. The lion's share of those activities will be completed in 2017, with some of the fiber expansion and video upgrade plans continuing into 2018.

Moving to U.S. Telecom. The important thing to discuss here is the forward guidance we gave in the press release, so I'll start with that. Longtime followers of ATN know that we resist forward guidance outside situations of acquisitions, dispositions or fundamental change. In U.S. Telecom, we feel that we are in the latter situation, which was what concerned us when we noted last quarter that this business was facing headwinds. The best way to look at things is that over the past few years, in particular, we faced an environment of continual repricing, which lowered revenue per megabyte or minute, but at the same time, was offset by growth in megabytes resulting from higher consumer usage and major capital investments in capacity and technology served. The pricing pressure was also offset by growth in our geographic footprint as we continued to build new cell sites throughout this period.

Now we have the impact of all the repricing that's been done, but we will not have the benefit of growing volume or footprint as the carriers seek to cap their cost of covering rural areas in the midst of falling ARPUs and increased costs in their core strategic markets. Adding to the pricing pressure and revenue impacts is the timing of one of our customers' exercise of the purchase option of 100 sites. Although we've discussed this option arrangement in the past, in revenues, we'll feel the impact of these sales and it's important to recognize that we benefited from this arrangement in the form of roaming revenues received over the last 5 years. And I -- lastly, I'd note that this is the last such option arrangement that we have with carrier customers.

So we still believe that the shared infrastructure solution for nonstrategic areas that we offer has an excellent value proposition, particularly in the current environment. But despite that, we do not know when or even if we will have the opportunity to take that core model further. In the meantime, with the build requirements essentially taken out of the business, we will see much lower capital expense and we will also look to reduce operating expense below current levels. On the revenue side, we are working on our strategy and looking in a number of tangential areas as well for growth opportunities, but there's nothing right now to point to as likely having a significant near-term impact.

Moving to Renewable Energy. The quarter was similar to the first quarter. U.S. solar revenues were down on a year-over-year basis because of expiring state solar subsidy payments in California and because India revenues have not yet started. In India, we made progress on completing additional power plants and synchronizing with the grid, but unfortunately, we are still waiting for regulatory approvals in order to begin billing our commercial customers and to determine the value of previously banked power.

As is often the case with new projects, construction and approval delays have put us behind where we had expected to be at this point, but we don't have any fundamental concerns about receiving the regulatory approvals, about the quality of the plants or the demand for the power being generated. Also slow in part due to the construction delays is the placement of project head on the initial India projects. It hasn't impacted our Phase 1 builds, but it is slowing us down on commencing the next stage of expansion as we want to have greater clarity on debt terms and availability before spending much more equity capital. As a result of all of this, we are not likely to see significant revenue from India until 2018, which means we are a quarter or more behind where we thought we would be when we last discussed the timetable.

So just to summarize, our International Telecom operations are proceeding as expected and we are pleased with the overall progress we're seeing there. In U.S. Telecom, we expect to see similar revenue performance in the third quarter compared with this year's second quarter, followed by a lower fourth quarter, reflecting typical seasonality and an even more significant shortfall in 2018. We will try to mitigate a small part of the impact in U.S. Telecom by lowering operating expenses. In addition, we will pare back our 2018 capital spending in this segment, which will add to the increased operating cash flow that we expect to achieve in our International Telecom operations since we will have completed many of the large network investments there. In the meantime, we continue to explore opportunities to invest our balance sheet around our expertise and experience in infrastructure services and related areas.

And now I'll turn it back over to Justin.

Great. Thank you, Michael. For the second quarter, total consolidated revenues were $123.2 million, up 23% from $100 million in the prior year, while consolidated adjusted EBITDA increased 11% to $38.2 million, representing a 31% margin.

Reviewing results by segment. Our U.S. Telecom revenues were $37 million, down from $43.9 million in the prior year, and adjusted EBITDA was $19.4 million, down from $21.5 million in 2016. These results include a $3.7 million year-on-year decline in wireline revenue that was mainly related to the sale of our Northeast wireline business, which closed in the first quarter. The EBITDA impact from that sale was negligible. The $3.2 million decrease in domestic wireless revenues reflect the impact of the new contractual rates and revenue caps that we discussed last quarter and Michael just mentioned, further details in our second quarter earnings release. This revenue reduction was also the main reason for the decline in adjusted EBITDA.

As Michael mentioned, the situation will affect our second half revenue performance and will be more visible in our 2018 as we expect the only remaining site purchase option to be exercised earlier in the year. The sales of 100 sites together with the impact of the reduced rates and revenue caps is expected to result in 2018 revenues for the U.S. Telecom segment of between $105 million and $115 million. We do expect to record a gain on the sale of these sites but additional cash proceeds from the sale will be minimal. Operating expenses in the segment are tied to the operating -- multiple technologies and high traffic volumes. And while we're already found the easier savings, we're looking for ways to further reduce our operating expenses. And as Michael noted earlier, we also expect the capital expenditures in that segment will be significantly less going forward, benefiting overall free cash flow.

In the International Telecom segment, revenues were up significantly again this quarter, reflecting the impact of our Bermuda and USVI acquisitions, increasing $31 million or 62% from the previous year. And adjusted EBITDA increased 55% to $23.9 million.

In the Renewable Energy segment, revenue was even with the first quarter, but decreased 14% to $4.9 million from the similar period last year. And adjusted EBIT (sic) [EBITDA] was down $1.1 million to $2.7 million year-on-year. As Michael noted earlier, much of this is from the expired energy credits that -- and we also saw a slightly weaker energy production this quarter due to the not-so-great weather conditions here in the Northeast compared to last year. Operating expenses were up again in this quarter, and several projects became operational in India ahead of the ability to recognize revenues.

Consolidated company operating income for the quarter was $15.8 million, which included $22.3 million of depreciation and amortization expense. And also included in operating expenses for the quarter were $2.1 million of noncash stock-based compensation expense. Similar to the first quarter, we had a 19% effective tax rate for the quarter and a 20% effective rate year-to-date as we benefit from having multiple -- having profitable operations in 0 tax jurisdictions along with anticipated tax benefits from the sale of our wireline business in the first quarter.

Looking at the balance sheet. At June 30, we ended the period with cash and short-term investments of $239 million. For the 6 months ended June, cash provided by operations was $65.4 million, and we ended the quarter with total debt outstanding of $159.7 million, which is up slightly following the refinancing of our Bermuda operations.

Capital expenditures for the quarter totaled $32.8 million, of which approximately $6.6 million was incurred by our U.S. Telecom operations, $21.3 million by our International Telecom segment and $3.7 million in renewable -- in the Renewable Energy segment. Year-to-date, capital expenditures were $78.5 million, of which $49.8 million was incurred by the telecom segments and $25.5 million was related to construction of solar projects. As we mentioned previously, these spending levels in telecom reflect major network expansion upgrades in multiple markets and should be significantly less in 2018.

And with that, operator, we'd like to open the call up to questions.

(Operator Instructions) And our first question comes from Ric Prentiss from Raymond James.

So first couple questions on the U.S. Telecom side. I think, Justin, you just mentioned the cash proceeds will be small from the sale. Is that correct? Is that because you guys basically had like a 5-year contract to receive all the money that is coming to an end? Just trying to understand the process.

Yes, it was really the structure of the deal was that most of the cash and purchase price received over 5-year contract, and so it's kind of deferred on our balance sheet right now.

It was received as roaming revenue then, is that...

Yes, it was access over roaming. So it hasn't gone -- I think with the way to explain it, it hasn't gone -- a piece of it that's identified as the access hasn't run through the P&L yet.

Right.

But the cash has been received.

Yes, it was received over the contract period.

And so there's still some money flowing through the income statement and that's why then -- part of the reason we see a drop-down in 2018?

That's right. I mean, basically, all of it, we are focused -- all of it will go away in 2018, right, so...

Right. So there was revenue on those 100 sites that we recorded along with deferred purchase price and all of that. So the deferred purchase price will be the proceeds from the sale and the revenue goes away.

And will come in below the line, right, so won't affect that number we gave on revenues.

The cash proceeds will be minimal?

That's correct.

And that's because they've been received already.

Right. Okay. And the guidance of -- I mean, you hate giving it. In 2018, $105 million to $115 million, did you say that was for U.S. Wireless or that's for U.S. Telecom?

U.S. Telecom.

Okay. So that would include the remaining kind of small portion of fixed that's in there?

Yes, yes, which is pretty small, but yes.

And then as we think about that business, it's got kind of 50-plus percent margins. How fast do the costs go away? I assume very quickly because any backhaul or electric costs would go with it. So is that kind of the frame we should be using?

I -- what I would say is it's difficult to pinpoint as we look for ways to kind of reduce costs, but there's a certain amount of the cost structure that's fixed because it's either based on supporting the technologies or it's supporting the volume of traffic. So we are anticipating you're going to see a fairly significant compression in the margins because there's only so much of that fixed cost we can get rid of. The fixed cost remains, but there's only so much variable costs remaining to work on.

But to add to that, I mean, as I think, Ric, you're pointing to on the 100 sites, yes, the fixed costs with those 100 sites go away, but the bigger impact is the combination of the impact there. But the other impact is what I talked about, which is you have no offsetting growth against flowing through the price cuts. So that's still going to result in a significant impact down the line from the revenue drop.

Right, okay. And like you said, I think no thoughts of footprint expansion either right now?

No. No, I think the carriers, for the most part, unless it's somehow strategic or related to something else that they are doing or are not really looking to add to costs without a real clear add to revenue, which is what, for the most part, is happening right now with adding to remote rural coverage.

And particularly with the first net rollout, it looks like there'll be some plans for them to expand areas themselves.

Yes, they have to think about -- if you're talking about AT&T, sure, that's in the mix of how they think about the future and how much they partner with players like us and how much they do and what (inaudible) of that is.

But you guys also had participated in the 600 megahertz auction. Is that then something you might monetize then, if you're kind of looking at cutting CapEx in the area that was a capital purchase for a long-term asset that maybe you're not going to get much of a return on them?

Yes, I think we examined that. I mean, you're right, that's a consideration. I would say that's always the way we think about it. We think about the benefit of monetization now versus monetization later. You can do that in strategic transactions sooner or you can do it much later. It's really based on your thinking through the future. And then there's the in between aspect of using directly in the business. And I think there'll be definitely some of that. A good chunk of what we bought, I think, has value in the business, but there's maybe a piece that we could look to monetize sooner or later, and it really depends on perceptions of value.

Have you guys looked at all -- obviously, there's a lot of buzz about 5G and small cells and fiber. Update us on kind of what your thoughts are, maybe doesn't fit very well into more rural, shared infrastructure mode, but just kind of what your thoughts are?

We think -- I mean, we think shared infrastructure period in small cells and backhaul are all part of that, will grow. We absolutely -- we think whether you think of sort of passive sharing to active sharing, it will grow. I think the trick is what's the business model around it? What are the assumptions? Because those -- a lot of those businesses do have pricing risk in the long term because of the customer concentration. And the carriers are understandably very cautious about entering into a situation again like they did with the towers companies, where they feel that they've got cost base rising way beyond their growth rate. So as long as you're, I think, realistic about all that in assessing the risk, there's opportunity. I think the carriers absolutely need third parties to help build that infrastructure, and that ultimately, it's more efficient. So we are actively, as with many others, looking at those areas. There's some, like some of the pure backhaul plays, I feel that are -- and I can completely be wrong are overvalued for the risk down the line of repricing. You've seen movements like Verizon announcing the purchase of a lot of fiber in order to make sure that they have a stick and a carrot in their hand, I think, on backhaul contracts. So it's just -- that's just an important consideration.

And our next question comes from Barry Sine from Drexel Hamilton.

Let me follow up on Ric's comments on the domestic wireless and the option. Do you have the date that they have to give you notification to exercise that option? I'm assuming there has to be an SEC license transfer for that, so that would delay it. And that it's probably not beginning of the year, it's probably sometime midyear, if they did exercise, that we would see that close?

No. I think the process of closing and the way we've -- this is the last of a series of those we've done. And I think both the carrier and we have gotten pretty smooth in working that. And part of the way we did that, we structured the spectrum as a lease so that those clearances don't really matter. So it's much more about clearing the cell sites and the documentation and all that, but it was set up to go pretty smoothly. And we will make every effort to make sure it does. I mean, that's part of our relationship promise.

And clarity on the exercise date and the close date?

Yes, just early 2018. But the important part is we don't think there are really any economics in that in 2018, that's what we're saying. Not significant.

Yes.

Okay. Shifting over to international, on the U.S. Virgin Islands and the Bermuda properties, where you made the investments last year. I appreciate the update you gave on what you're doing with network capital spending. Could you talk about where you are in terms of your marketing? Are you -- where you want to be in terms of the offers that are in the marketplace? Are you delaying that until you get network upgrades done? And then where are you on the back-office part of the changes in order to drive margin improvements in those markets?

Yes, those are all good questions and the kind of things we're heavily focused on. We're still working through all that. So we've made progress on -- we've rebranded in both Bermuda and the Virgin Islands. But in terms of -- and we've been happy with the quality of that effort. But there are pieces of the bundle, if you will, that still need improvement. So the biggest and most obvious one is in the Virgin Islands. We are still working off our old wireless network and doing a complete upgrade that we expect to finish at the end of this quarter and then really launch in the fourth quarter. So that one's to come. And similarly, in the Bermuda market, the cable TV product needed a lot of work, right. It had been under invested in and we've gotten a lot of things improved in terms of the network, but there's still more to be done to improve the customer experience and really have the kind of positioning and customer satisfaction where we want to have it.

Okay. And then staying on international. If you could give us an update on some of the competitive trends in the Guyana market, and then obviously, there's been some regulatory issues that you've talked about in the past. If you could update us on where that market stands.

Yes. In that market, the competitive dynamics are -- we are building and have invested in the last 2 years very significantly in the wireline network, in the broadband network, which also benefits the wireless network. And we've also invested there. So we think the offerings are really coming together. Probably more important is we've also done a lot of work internally with team and positioning, and that's starting to show some fruits. But on the wireless side, we still have a ways to go to have the kind of competitive stance we want. And you've seen signs that maybe we've certainly come back from the bottom, but you haven't seen signs that we've become a leader yet. But we think, we're well positioned to be -- to really improve there, make sure our competitor will continue to try to respond as well. But -- and in terms of regulatory, there's regulatory issues in really all markets. The Guyana market is different in that there's been a lot -- there's been discussions on-again, off-again between us and the government for years about opening up the wireline sector more and real reforming the whole telecom sector, which we're in favor of. And the government's acknowledged that publicly. I mean, it's really a question of government resources more than anything else in terms of the timing of getting that done. And we've predicted the timing of that in the past and we've always been wrong, so we just decided we'll just forebear and we'll stick to our knitting and keep improving the business.

Okay. And then to tie that all together on the International Telecom segment, if I look at your revenue EBITDA numbers, sequentially versus 1Q, and I appreciate the fact you're giving more and more operating metrics on that business, maybe I'm reading too much into this, but it looks like we're seeing early signs of improvement. Are you -- would you agree with that? Are you happy with the early signals that you're seeing coming out of those markets? Are you -- where you expect to be?

Yes. We always expect to be a little bit farther along, I think, but yes, we are pleased. We are seeing signs of that improvement, for sure. We have a lot of confidence in the leadership teams and what they're doing right now. And so we feel good about that. But there are things that we would like to go faster. Our approach, as we’ve said before, has been get the customer experience right first; and second, work on other efficiencies. So that's been the way we prioritize it. But the second part, especially with Justin right here, it really matters, right. So he's -- he wants to see that happen to, to improve margins and things. But I think the first stage has gone well.

I'm with Justin on that.

We all are.

Last question, turning to the India renewables business. A little bit of a surprise in your remarks today, and you called out some regulatory delays. That's a country that has been known to have regulatory problems and there -- what assurances can you give us this is not going to spiral to quarters or years or just not get approvals? You still sound relatively confident that this is a minor delay, but whenever you hear regulatory challenges and the word India in the same sentence, your hackles go up.

Yes, fair enough. I clearly can't make a guarantee, but I can say that there's nothing we see today that makes us feel that these delays are anything unusual or anything indicative of a change in policy approach and the like. I mean India, for the most part, both federal and state governments have been pushing hard to get additional power generation into the mix, and so we think the fundamentals continue to be strong. The governments continue to be behind it. And it's really a question of bureaucracy, some slowness and it's not 100% always the local regulators. We might miss a timing on a little bit of a sequence and then kind of pay for that because of the process. So it is laborious in India, as anyone knows. Even when you have absolutely no problem, government license going on, the amount of steps you have to go through and the personal submitting of papers and continuing to meet just makes it slow. And we knew that was a part of the business going in and it's just been a little bit slower. Some of which, as I noted in my remarks, is because of our construction delays and some of it is on the regulator side. And so I still –sorry, just to sum it up, so you're right, we still feel that there's nothing fundamental there and we still feel that, that will get done.

Okay. And also the last question on the renewables business. If I look at CapEx in 2Q in that segment versus 1Q, obviously, a big step down. So are you kind of holding off on CapEx until you get a bit more visibility on these delays? And what should we expect for capital spending in the second half of the year on the renewables segment?

We kind of – Barry, it's Justin. We updated the guidance on that, and a lot of it is around the financing timing too. So that's why it's a little bit of a push out and it might be more of a push into '18, then in the second half because we've kind of done this, I think as Michael noted, the first phase was kind of down with the equity capital. And now we're refinancing. So we've got to get the refinancing done and then reinvest it. So it's a little bit more of a push out. So I think you'll see much lower in the second half unless things kind of accelerate along a little quicker, so it's kind of teetering between end of '17 and '18.

Yes.

And I'm assuming regulatory approvals are key to getting that financing.

Yes, they are. I mean, they help with the bigger financing, yes, for sure, because then your -- it's a lot easier when they're all operational and the revenue is flowing.

And our next question comes from Allen Klee from Sidoti.

Just going back to U.S. Telecom segment, I just wanted to understand your comments on margins for '18. You're losing some profitable -- very profitable business, but you're going to try to cut costs. How do we think about the net impact on margins there?

You will see -- I mean, the nature of the business, as I mentioned, is there's a certain amount of profit that are just fixed. So there will be some fairly significant margin compression in '18, which just has to be, because we're still going to be running traffic, but we won't be getting the revenue on it.

Or as much.

As much, right.

Okay. And then in international, for similar on, how do you think about the path towards -- you have -- I think your EBITDA margin was around 29% in the quarter in terms of timing to try to get to kind of where you think is more optimal.

Yes. I think we would hope to start to see progress in those margins as we go through 2018. We don't think they'll be major -- it'll be major initially. And there are 2 components. There is the revenue growth side, including -- we hope, with wireless in the Virgin Islands and some of the other areas; and then there is the hard work of working through making the organizations more efficient. And again, given our sequence that it's, first, catch the ball, if you will, and then run. And the catch the ball is get the offerings right, and then we'll go to the next sequence. So I think -- I don't think you'll see major improvements, but we'll -- if we're successful, they'll start to gather a little bit. You'll start to see in the next 4 to 6 quarters, to be frank.

Yes, let me speak about it. I think the thing you'd keep in mind is that as we move through launching these networks and repackaging wireless will have higher, and should have higher marketing expense to kind of get these things launched. And somewhat offsetting that will be things we're doing in the back office to reduce cost, but you won't see it necessarily coming through on a consolidated, but it's shifting on where we're spending the money.

In the near term.

Yes, in the near term.

Yes. Does that make sense, Allen? Do you have a follow-up?

Yes. Then a smaller question but just so I can maybe help understand your business a little better. In International Telecom, equipment revenue, these past 2 quarters, it was a higher rate than last 2 quarters of '16 and now it's kind of at a lower rate. Maybe if I could just understand what's going on there and how you think about that going forward.

Yes, that's just the underlying ebb and flow of different marketing offerings and...

The holiday season.

The gross ad pays.

Yes.

There's nothing -- I don't think there's any significant change in trends there to talk to. I mean, there are times where we'll have promotions around launches and that's, for example, Justin talk about with the initial launch in the Virgin Islands, and you expect to see equipment expense really go up. And there are other markets where we may, from time to time, use that. And we really think of that as a piece of the marketing budget and one of the tools in the toolbox there, but there is nothing kind of fundamental.

Our next question comes from Sergey Dluzhevskiy from Gabelli & Company.

A couple questions. First one just, I guess, a broad question on the opportunities that you see to diversify your portfolio. Obviously, you still have a lot of cash on the balance sheet and capacity to pursue various acquisitions. So where do see most attractive opportunities right now? And what precludes you from pulling the trigger, let's say?

Yes, we see actually a number of areas we're exploring. I think we see it in some of the fairly obvious telecom infrastructure plays, shared infrastructure side that we spoke about earlier in the call in response to the question from Ric Prentiss. We see that in U.S. and non-U. S. markets as having some potential. And we see some tangential things. We have -- we really are -- telecom markets are well behind more advanced high -- growth markets in terms of the some of the add-on offerings in tangential areas, some of the managed services backed and things like that. And we think there is potential there in smaller markets. And then we also continue to believe the Renewal Energy sector is going to continue to grow. In some ways, it's growing faster than we would like in that capital's flowing very quickly. Markets go very quickly to a high capital inflow into the sector, which brings down potential returns and sometimes to a point where we don't find them attractive from a risk-reward basis. But we still think, as India gets going, we have additional mind share for looking for opportunities to further expand that.

Okay. In terms of CapEx, could you help us, I guess, size potential declines in CapEx or discuss some of the things that, obviously, are still going to be there in 2018 versus 2017 in terms of CapEx?

Yes. I mean, I think the main one to talk about is the International Telecom segment. You want to talk about that, Justin?

Yes. I mean, I think we're not done fully baking in '18 yet, but I think if you are just to kind of apply industry standard kind of spend metrics or levels, you'd probably put it at about half of what we forecast for this year.

Okay. And last question, in your international markets, if you could talk a little bit about your spectrum position, whether you think it's sufficient given the rise of data and demand for data as those markets transition to 4G and eventually 5G and whether there are any options that could be meaningful coming up in some of your markets.

Yes, Justin wanted me to say it's huge, tremendous. But I think in most markets, it's -- we're quite comfortable with where we are today in terms of our spectrum availability. In place like the Virgin Islands, we have a really great spectrum position. In places like Bermuda, it's enough for where we want to be today. In Guyana, it's skinnier and I -- but I mentioned in both Bermuda and Guyana, our competitor is in the same situation. So it's really about getting the governments to see that it helps everybody to release more spectrum for the players. And that will be needed if they want the wireless data infrastructure to continue to grow without having it be cost prohibitive to the users.

And our next question comes from Hamed Khorsand from BWS Financial.

Just a simple question here. Are you able to charge the customers in India that are set up for renewables, but you just can't bill them?

We are producing the power that -- and we can't bill them until we have what's called the open access certifications done, which the regulator needs to do. And when I refer to banked power, there is an ability which we can't just estimate in exact number, so we can't really put anything through the P&L. But there is an ability to then sell to your customer or potentially to the grid generally the power we're producing today and catch up to it, but it's not a huge number at this point.

Okay. Is there any intention to keep growing the customer base even though you can't bill them right now?

No, absolutely, I mean, I think we're -- I think in terms of the -- what is built and operational, we have the customers we need. But we have built up a pipeline of both customers and grid connections going forward and land to build. And so we're really -- we're staged to be ready, but it really depends upon the sequence of events we talk about, get this first one, first phase operational billing and get the debt in place so that we know how that will affect the economics for us going forward and then continue.

Okay. And then could you clarify, I know you said 100 sites for U.S. Telecom. What does that 100 sites equate to as far as base stations because it seems like it's a very lopsided as far as the revenue rolling off for 2018.

I'm not sure how many base stations are on that, but...

It's 100. It's more or less the same number. So it's -- go ahead, Justin.

Some of that, though, Hamed, it's the combination of the rates, the caps and the sale, so.

You're giving us -- the press release, I think, was like a 1,000 base stations or 100 sites. There are 100 base stations, about 10%, but the revenue roll-off is quite a bit more.

Right. But that includes, like I said, the rates -- that includes rate reductions, caps plus the sale, so it's not all that's related to the sale.

Right. Plus the sale. Plus that sale, as we talked about before, had an element in it of -- to make -- generate returns from it. You could argue it's a little higher. But the main point is the one I made earlier and Justin just made, which is you've got the impact across the existing base stations that are left at the same time.

And we have a follow-up question from the line of Ric Prentiss.

A couple other extra ones on renewables. When you talk about the regulatory approval process in India, do you need to get that regulatory approval process each time you work on a site? Is it per jurisdiction? Or is it just, hey, once I get this regulatory approval, I can ramp the bill schedule you were talking about?

There is a layer of it and it's kind of complicated, but what I refer to as the open access certification, I hope I get this right, is that you can get it -- you can get the certification for multiple customers at the same time in a whole plant if they're ready or you can do in piece parts, by customer, by piece of the plant. And in some cases, it makes sense for us to do the latter, and in some cases, the former. So it's really the way to think about it. It is all the megawatts that you're selling off to people through this method, which is all of what we're building, need approval under the open access certification.

So then each time you're going to open up one of the plants and have more megawatts, you are going to need to go through the process?

That's right. And the process has been established, it's been around for quite a long time because it's not limited to renewables. And so a lot of industrial customers and the like we build, diesel gen sets and do it, so the process is fairly well understood. It's just a question of did you get into the cycle at the right time? And now you have to -- if you didn't, you now have to wait for sort of bureaucratic delay more than if there's any fundamental question.

Is it fair to say that you'll build that process in bureaucracy layers into your next considerations of expansion then as far as timing of the capital?

Yes. Yes, absolutely. I think we're learning in terms of sequencing. I think we'll also get smoother at it, so shorter times. But we're learning from sequencing and all that. But you always do have a bureaucratic delay risk because at some point in time, you can get in a situation where it's pushing on a wet noodle. It's not really -- it should be straightforward, but you're just waiting for it to get into the list of priorities.

And are you looking -- with your balance sheet capacity, are you looking at markets outside of India as well for renewable?

Yes, we are. It's a higher bar. The bar gets lower as we move along and the India group gets fully operational. So it's a prioritization approach. And when we look at other markets, if they're new markets to us, there's a number of hurdles for that both in terms of returns, and do we have the right partners in the market? Do we feel we adequately understand the risks? And we do -- yes, sorry, go ahead.

Can you narrow down kind of what regions of the world you might be looking at?

I can't really. I mean, I think because we have looked at things in a variety of different regions, so I -- no, I can't really narrow it down. But the farther afield it is or the smaller the place or the trickier the political situation or -- the less likely we are to go there, where it is. So you could kind of go, if you look at the sector, you can go through and see the markets that are -- where the governments and the utilities have set up an environment where investment is more straightforward into the sector and those are the -- those tend to be the ones we look at, unless we otherwise have somebody with great knowledge of the market.

Then as you get the project financing and refinancing in place, you've mentioned that you'll be able to give us a more clarity on kind of the CapEx, revenue, expense, return drivers. So hopefully, that's still on track. And then as you look at other countries, how replicable is the India model or how different might it be?

The -- I think most of them are a bit different than the India model. The -- a lot of countries are more connected with paying into the grid company itself as your customer or the state. And what we liked about the India model, it's similar to our U.S. and it's similar to kind of a net metering arrangement in the U.S. for the commercial industrial customers. But this is pretty fluid. I mean, our team with no better than I but I think that there are governments looking at implementing new policies to encourage that foreign direct investment in the sector really across the place. And to go back to your return thing, you're right, I mean, I think it's too uncertain now. I mean, right, if you think about the capital end and the delay to revenue, well, that's a negative on returns to date, right? So today, if you stop the music today, we're below where we want it to be. But there are things that could happen that we could do, that could put us right back to where we expected to be and getting the debt in place, obviously, is a key component to figuring out what your equity returns are.

And then, I think you mentioned or called out something about some renewable [benefits] expiring. Was that some new ones expiring in the quarter? Or is that just on the year-over-year comparison?

That was just the year-on-year this first quarter.

Right, so it's nothing new that came out?

No.

And there's nothing further that you expect as any other renewals expiring going forward?

There are -- it's several years out that the kind of the Northeast kind of – the (inaudible) programs expired, but it's several years out.

Okay, all right. And then last question. I appreciate the time. In the international market, a lot more focus on bundling, I think, you mentioned that. How do you view bundling going forward? Does it work? Does it reduce churn? Kind of how you're thinking about bundling? Because we've not seen a lot of bundling in the U.S.

Yes, I think it's very different environment in these markets. I -- the closest proxy in the U.S. would be a specialized small kind of contained rural or regional market. But like a Shentel, right, is probably the best example. I think we have never believed that the one bill really matters all that much, but I do think -- the way we think of it is we can provide -- we can be kind of agnostic and provide the connectivity the market needs in whichever way is most attractive to the consumer and most efficient for us economically. And I think consumers do -- there is some benefit to them if it's done right to having the relationships pull together. So and your -- you can determine what the thing is that they care more about that you have a competitive advantage on and use that in your pricing of the bundle to help. So we think it does have value and it does work. But if any piece of your bundle is not competitive with the other offerings, it's got to be close or it doesn't really work. Does that make sense, Ric, or do you have a follow-up? I think we lost him.

(Operator Instructions) And at this moment, I'm showing no further questions.

Okay. That's all we have, folks. Thank you, everyone. We'll see you in a few months.

Ladies and gentlemen, thank you for your participation in today's conference. And this does conclude the program, and you may all disconnect. Everyone, have a great day.