Crown Castle Inc (CCI) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Crown Castle First Quarter Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, Tuesday, May 6 of 2003. I will now like to turn the conference over to Mr. Steve Gray, manager partner with DRG&E. Please go ahead, sir.

Good morning, everyone. We appreciate your joining us for the Crown Castle call to review quarterly results. We would like also like to welcome our Internet participants listening to the call as it is being simulcast live over the Internet. Before I turn the call over to management I do have the usual housekeeping details to go through.

You could have received a press release via e-mail and/or fax yesterday afternoon after market, but occasionally there are technical difficulties experienced during the distributions. If you did not receive your release or you would like to receive future releases via fax or an e-mail please call our offices at DRG&E. That number is 713-529 - 6600. And we will get one out to you or put you on the appropriate list.

Additionally, there will be a replay of today's call. You can go to the web cast section of www.crowncastle.com and it should be available there in a couple of hours. There will also be the usual telephonic replay available for the next seven day, 24 hours a day. The passcode and access number for that is in the press release.

As you know, this conference call will contain certain forward-looking statement information and statements that are based on manage's belief as well as assumptions made by and information currently available to management. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks and uncertainties and assumptions. Information about the potential factors that could affect the company's financial results are available in the press release and in even greater detail in the risk factor section of the company's filings with the SEC. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially from those expected.

In addition, today's call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA and free cash flow. Tables reconciling such non-GAAP financial measures to comparable GAAP financial measures are available under the investors section of the web site at www.crowncastle.com.

Now I would like to turn the call over to Mr. John Kelly, Crown Castle's President and Chief Executive Officer.

Thank you, Steve. Good morning everyone. We appreciate you joining us for this review of our first quarter results. Sitting next to me on the call today is Ben Moreland, our Chief Financial Officer. And before Ben goes through some of the final results in the first quarter I would like to highlight a few things.

First, we beat our financial targets for this first quarter. Something we're very pleased with you as you can imagine. We are raising our expectations for the full year 2003. We're cautiously optimistic about what we're seeing in the U.S. leasing for the balance of this year. We've eliminated additional cash requirements in the business which allows us greater flexibility in putting some of the cash to work and we believe we will find additional areas in this business to reduce both operating expenses and capital expenditures.

I will fill in a little bit more about my perspective in these five different areas after Ben reviews the financial and operational results but with that I will turn over the call to Ben.

Thanks John and good morning.

For the quarter we generated total revenues of $217 million. Tower and broadcast revenues were $185 million, up 15% from the first quarter of 2002 and above our expectations. That's almost $100 million annually up. Service revenues were 32 million, down 60 million from the first quarter of 2002 and in line with our expectations.

Gross profit from site rental and broadcast transition, defined as net revenues less cost of operations, was $11.6 million, up 13.6% from 98 million in the first quarter of 2002. Gross profit from services was down to 6% of total gross profit, before G&A, from 17% a year ago. This is consistent with the de-emphasis we've placed on the services side of our business.

Free cash flow which is net cash provided by operating activities after capital expenditures during the quarter was a use of cash of 47 million dollars. We would like to remind everyone that our free cash flow guidance for the first quarter was a use of cash of about 115 million as we expected to give back about 40 million of working capital gains, during the quarter, and some prepaid rent we received at the end of the year.

Further, we expected to pay 78 million to British Telecom, for the further installment, the last installment of the acquisition of their sites. In fact working capital reversed far less than we expected and we did not pay 45 of the 78 million to BT. We both believe this will be the final payment to BT, the 33 million we made in the first quarter. As a result, based on the guidance today, we should produce 60 to 100 million of free cash flow for the rest of the year.

During the quarter, we developed 34 sites, only three in the U.S., 31 in the U.K., and none in Australia. All of the sites built in the U.K. were developed under our agreement with British Telecom, bringing the cumulative BT sites to 679.

Capital expenditures during the quarter totaled approximately 53 million. U.S. cap ex was about 6 million. Capital expenditures in the U.K. and Australia totaled 47 million, again including the 33 million payment to BT. Consolidated maintenance cap ex is approximately 40 million per year, or 2% of our contracted recurring revenue stream from broadcast-related maintenance and about 3% from other maintenance.

Turning to some of the quarter to quarter changes in the income statement, site rental and broadcast revenue growth, comparing the first quarter of 2003 to the first quarter of 2002, growth was 15% for the consolidated company. U.S. grew 6% year over year. On a GAAP measure. And the U.K. grew 33% year over year.

Since 97% of our sites were in operation on January 1, 2002, total site rental revenue growth is the best proxy for same tower sales in our case, and we have -- not otherwise attempted to reconcile it. Though we've elected to stick with the GAAP reported revenue figures for this proxy, of the same tower sales growth, we will remind you that from time to time we have revenue not associated with the run rate like last quarter, when we received some termination payments, which will introduce some volatility to this measure quarter to quarter. For example if we had normalized for last quarter's onetime payments, the quarter to quarter increase in the U.S. would have been about 8%.

We are very pleased with the largely organic consolidated revenue growth of greater than 15%. Going forward, we believe consolidated GAAP reported revenue growth will be in the range of 10-12% as we've said. Further, the capital spending we are doing, is about $140 million this year, including the BT payment that we did make, for sites not yet developed, we are achieving incremental returns over 35%, if were you just to look at the change in EBITDA year over year.

Cash and investments at the end of the quarter were approximately 555 million. [Senior] bank debt at the ended Q1 totaled $1.1 billion approximately 2.8 times first quarter's analyzed EBITDA or bank debt net of cash is 1.4 times analyzed EBITDA. High yield debt totaled 2.1 billion total debt at the end of the quarter of 3.2 billion and the restricted group debt totaled 2.6 billion. We have the ability to access approximately 296 million under our senior credit line to the end of the quarter, bringing the total liquidity to 851 million dollars. During the first quarter, the leverage ratio covenant in our restricted group facility stepped down from 5 1/2 to 4 1/2 times, with some of the availability in our U.S. restricted group facility was reduced. We are drawing only 3.8 times, the 33103 at the end of the quarter, which is again below the lowest level the covenant ultimately steps down to, which is four times with no expectations for future funding under the facility. Net debt preferred and converts, convertible deferred to Q1 analyzed EBITDA currently stands at nine times and we expect it to be at eight times by the end of the year.

As you can see, we increased our free cash flow guidance for 2003. We certainly believe we will generate substantial free cash flow and also expect that a good portion of the bank amortization ahead will be able to refinanced at conservative levels in the bank market. Given that we are below three times the run rate on our total bank debt today, we're currently at approximately two times in the U.K., I might add. When one factors these factors together, we believe a substantial portion of our liquidity is available to be invested at returns consistent with our hurdle rates.

This is not forecasted in our cash from operating activities guidance. The investment of excess liquidity could accelerate our deleveraging and cash flow generation as we put these funds to work.

Our first bonds mature in 2007. When we expect to have consolidated leverage down in the five times range or below. Said another way, one might expect that the free cash flow from our investing activities could substantially offset the impact of the discount notes concerning cash pay over the next couple of years.

In the last quarter we spent a considerable amount of time, I should say in the last year, we spent a considerable amount of time working to reduce or eliminate contractual commitments as John mentioned at the outset. Yesterday, we announced yet another success we've had eliminating a significant near term cash [call] in our business.

As you are aware Verizon had a right to put their interests in the two joint ventures Crown Castle GT and Crown Castle Atlanta Tacoma us for fair market value pursuant to the terms of the original contracts executed with Verizon. Most expected that this fair market value would be in the range of $125 to 150 million.

As we mentioned on the call last quarter, we initiated a proactive discussion with Verizon, to see if this arrangement could be extended. Verizon has -- was interested in consolidating their ownerships into one joint venture and gaining control of the Crown Castle shares that had been held in the joint ventures for their benefit. You will recall there were approximately 5 million shares in the Crown Castle GT joint venture and approximately 15.5 million shares in the crown Atlantic joint venture. Always held through Verizon's ultimate benefit.

As a result of these negotiations, we have concluded with Verizon the exchange of their interest in Crown Castle GT, for additional interest in Crown Castle Atlantic. Resulting in their interest in Crown Castle Atlantic increasing to 37.2%. And Crown Castle's interest in Crown Castle GT increasing to 100%.

Importantly, Verizon has agreed to extend their right to put the interest in Crown Atlantic, until July 1, 2007. Thus, eliminating could what could have been a significant cash haul in the near term.

Incidental to the agreement with Verizon, we have acquired the 5.1 million Crown Castle shares, held in Crown Castle GT for $6.12 share. And we've distributed the 15.6 million shares previously held in Crown Atlantic to Verizon. We contemplate we will assist Verizon in registering these shares in mid to late summer of this year.

At the end of the day, by entering into this transaction, we have no potential cash call, associated with these ventures until 2007. Further we are very pleased that Verizon has elected to maintain their investment with us, through their ownership in CCA.

Moving to our second quarter and full year 2003 guidance which is included in our press release, we expect site rental and broadcast transmission revenue of between 184 and 188 million next quarter. We expect the second quarter 2003 net cash provided from operating activities to be between 70 and 80 million. We expect total capital expenditures to be between 32 and 40 million in the second quarter. And we expect as a result of this, we will be free cash flow positive for the second quarter between 35 and 45 million.

Implicit in the 2003 and foun 2004 outlook is the transition of the of pick interest of full cash pay by of August, 2004 of our senior discount notes and 12 and three quarter pick preferred note. As I noted before, this measure of free cash flow will not always lend itself to sequential quarter to quarter comparisons as significant fluctuations in accrued interest and sue to the timing of our semi-annual bond payments where changes in working capital will occur, but these fluctuations are largely offset when comparing quarter to quarter or current quarter to the same quarter in the prior year. I would also point out that this measure removes any noncash rent from the equation that would have otherwise been in an EBITDA figure which in our case is about 25 million per year.

For the full year, 2003, we expect that working capital will be a push on the downside and a potential source of cash on the upside of as much as 20 million for the balance of the year. Our current guidance for 2003 projects total net cash provided by operating activities between 160 and 200 million. We expect 2003 capital expenditures to be between 95 and 115 million, excluding the last expected acquisition payment of 33 million that we made in the first quarter to BT. For the full year, we expect free cash flow of between 20 million and 50 million, up significantly from our previous guidance, reflecting the above-mentioned reduced BT payment and other operational progress we've made in the first quarter. More detailed guidance for 2003 and 2004 is contained in the press release.

I believe the guidance we've provided is achievable. Looking at the key driver of our performance, tower and broadcast revenue, in order to hit 758 million in 2003, which is the midpoint of our guidance we would need to add approximately 75% of the leases we've added in 2002. We are currently tracking at this level of leasing in the first and are optimistic it may actually increase in the last half of 2003.

Our guidance implies EBITDA with all of its obvious limitations of approximately 96 to 100 million in the second quarter of 2003. And 385 to 405 million for the full year, 2003. Which implies an increase of 10 million on the low end and 5 million on the high end of our previous views.

With that, I would like to turn the call back over to John Kelly for some further remarks.

Thanks, Ben.

Before I turn the call over to questions, I would like to briefly highlight a few key points Ben made.

As we discussed at the analyst day we held in Pittsburgh on April 9, which a number of you were able to join us at, our focus at Crown Castle was squarely on growing free cash flow, delevering our balance sheet and protecting an enhancing the value of Crown Castle's common shareholder. As such, I'm pleased with our results for the first quarter. Through a continued focus on operating details, we beat our targets for first quarter free cash flow generation, and we're raising our free cash flow outlook for the full year.

We had a great first quarter in the U.K.. This quarter was enhanced by receiving a full quarter of the new Freeview contracted revenue, in addition the significant leasing that we discussed with you over prior calls with Hutchison's Three network is converting into revenue as Three officially launch their network in the U.K. in the first quarter of 2003.

On the U.S. side we're cautiously optimistic about leasing for 2003. Thus far, leasing is tracking our expectations. However, more carriers are signaling that they will be increasing their network investments in the second half of this year. Where as our outlook for this year is still predicated on new leasing running at about 75% of last year's levels, if the carriers follow through on their forecasted capital expenditures, we could see some pickup ahead.

As Ben indicated, we ended the quarter with approximately $555 million in cash and investments. Despite this fact, our outlook for cash from operating activities for 2003 does not incorporate the effect of putting this cash to work. We're confident however that this liquidity is available for investment as we spent the last nine months substantially eliminating mandatory capital calls on the company.

As we reported in the past, through mutual agreement we terminated all the contractual build to suit operations that the company had. In addition as we discussed in the last earnings call and Ben briefly mentioned we have been engaged in a very fruitful dialogue with British Telecom surrounding the last installment payment for BT sites. Those discussions resulted in Crown Castle paying just 33 million of the 78 million dollars expected in the first quarter. And we're optimistic that this will be our last payment.

Finally, as Ben mentioned, we're very pleased with the outcome of our discussions with Verizon. Many of you were concerned that if Verizon were to exercise their contractual right to put their joint venture interests to Crown Castle we would have had a significant call on our capital. Verizon's willingness to maintain a consolidated investment in Crown Castle Atlantic until July, 2007, eliminates that concern. Equally important to me, is the fact that Crown Castle will remain very close to a valued and very substantial customer.

Given that we've successfully eliminated potentially cash calls on the company's liquidity, you should expect that we will now deploy some of the cash in ways that should advance the value to the common shareholder. We demonstrated this to you in the past by buying 400 million in face value of our debt securities for 200 million dollars in the fall of 2002. As well as having purchased 20 million shares of common stock, from a number of parties, including France Telecom, the Verizon shares that Ben mentioned, the ones coming out of Crown Castle GT, and quarterly amounts to display the dividends on the convertible preferreds, we've been buying those over the last ten months at an average price of $3.56.

Finally I would like to point out that we believe strongly in this tower model. We believe this business is scalable beyond current levels. And we continue to work diligently at reducing operating and capital costs in all of our operating units. This neverending effort, when coupled with the long-term contracted revenue characteristics of our business, present the opportunity for significant growth in free cash flow, which as I mentioned at the outset, is our prime directive. With those comments, I'm pleased to turn the call over for questions at this point. Operator, I'll let you organize those.

Thank you, sir. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press the star followed by the one on your push button phone. If you would like to decline from the polling process press the star followed by the two. You will hear a three tone prompt acknowledging your selection.

Please ask one question and one follow-up question and requeue for additional questions. If you are using speaker equipment you will need to lift the hand set before pressing the numbers. One moment please for the first question.

The first question is from Rick Prentice. Please state your company name followed by your question.

Good morning. It is Rick Prentice, Raymond James, good morning, guys.

Good morning.

I'll ask one quick question and then one maybe a little more involved. Ben, you mentioned on the free cash flow guidance, and you gave us the implied EBITDA for the second quarter and the full year '03. Can you give us the implied EBITDA for the full year '04, and does that include or exclude those noncash, I guess primarily one to one rents that you mentioned?

Well, if I were using the term EBITDA it would include the noncash amounts.

Okay.

We use cash provided from operating activities, obviously that is normalized and backed out. And it would include the difference between GAAP and cash on a FAS 13 treatment, straight lining of rents as well, an all inclusive number.

For 2004, Rick, we haven't studied it that carefully. We still have the guidance out there that shows 50 to 80 million in free cash flow again next year, again without the assumption of any further, you know, working -- or balance sheet optimization type activities, so we really haven't studied that further and probably at this point, wouldn't have a different view than that on next year.

Okay. We'll run it through our models and see what it's about.

Okay.

Second question, just touching on the lease assumption I think both of you guys hit on the fact that your official guidance is -- the assumption is 75% of the lease activity happens in '03 of what you saw in '02. We're starting to hear good signs from the U.S. wireless operators that we follow. Given the time frames of when they ask for search rings and when they start making lease application, when will you guys have the firmness in the U.S. leasing activity to feel comfortable that the second half is or is not starting to pick up? Kind of when would should we think that that visibility hits to you get -- is the second half really going to be picking up?

Rick, I think we will have a much clearer perspective on the second half when we kind of wrap up this second quarter and discuss the results of that quarter with you. Sometime in the middle part of the summer.

I mean to be -- to be fair, the leasing activity, the search rings, applications, have already picked up. We're seeing that in our second quarter at this juncture. The reason why my statement suggested caution optimism is that doesn't necessarily immediately translate then into a fully-deployed site on which we're going to derive rental income.

The carriers are in fact focused on some increased activity in the second half and that is already beginning to take place. But the question that is still outstanding is will there be a pull-back in the actual deployment of the electronics at these sites, there by delaying the time frames in which these sites actually become active sites and start to generate rent. And that's the item that I'm not 100% certain about at this juncture and the reason for my statement about caution optimism. But we should get a better sense of that by the end of this quarter and we'll share that with you as we get that feeling of comfort.

That's good. Because that's the sense we had, that if the activity was picking up, you should actually be seeing it already and you are, it's just you're being cautious as far as putting it into the guidance.

That's exactly right.

And the final quick question; at your analyst day last month, you talked about the south point project, how were you addressing not just the supply side of the equation that you have a good portfolio of towers but the demand side, approaching carriers proactively, about where you think their -- your sites could fit hold, can you update us, as far as that process? You said were you approaching carriers. Can you tell us how many of them or who you have approached and what your status is with them?

At this juncture, Rick, our U.S. sales team has had the opportunity to visit with most of the major big six carriers in the U.S. And I think our timing clearly works pretty well.

As we discussed at the analyst day, the genesis of that particular project, South Point, as we call it, the demand analysis tool that we were working on, was in effect to both help us from the selling effort but also to give us better visibility as to the number of new leases that we could expect to be generated on our existing site, given the carrier's current technologies and current quality of service metrics. And after having gone through that detailed analysis, we were able to come away from that with a feeling of comfort that there is still just based on today's technology, not contemplating, you know, higher speed data services, and new technologies and things of that sort, but just on today's technologies, that there was still substantial leasing that we could enjoy on our facilities as it exists.

The benefit from the selling side of the equation is that our customers in their continuing attempt to become more efficient have in fact reduced their staffs around the area of site provisioning. And as such, when we have been able to sit down with these carriers and review with them on our portfolio those sites that could be of specific interest to them, as opposed to reviewing the entire portfolio of sites and having the carrier work through the process of what of our 10,700 sites in the U.S. might be of interest we are able to go in with that targeted discussion.

Geographically targeted, in fact very specifically targeted as we reviewed with a number of you at the analyst day, and that is in fact helping, because when the carriers are able to overlay with what we believe could be of interest which what they internally determined are sites on their portfolio that could be of interest we're finding that there is significant overlap, that the data does in fact agree. And as such, the carriers, I believe, all of the indications that we've received from those that we've met with at this point, and as I said, it's the large majority of the major carriers in the U.S., are pleased that they can in fact work with us as an outsourcing partner for co-locations, and we're pleased with that dynamic. What we're primarily interested in is making their process more efficient, thereby generating some additional co-location leasing on our sites.

So you're active, you've been getting with the big six guys and you're optimistic about what the potential might be.

That is a good summary of that more long-winded answer that I gave you there, Rick. Thank you.

Good luck, guys and I guess the last time I heard about the prime directive I think it was a Star Trek episode, so good luck, guys.

Thank you. Our next question comes from Jonathan Atkin, please state your company name followed by your question.

Yes this is John Atkin with RBC Capital Markets. Wondering how much of your growth in site leasing in the U.S. as well as in the U.K. is coming from leases with new customers as opposed to augmentations of existing leases, if you can kind of break out, what's it looking like in the U.S. versus the U.K.. And then who do you see as the largest contributors to lease up on your wireless towers, again in the U.S. versus the U.K..

Yeah, John I will take the first piece of that. In the U.S. it is about 40% still running about 40% augmentations just like last quarter. And the U.K., it is a little less than, that more in the 30% range. So that really hasn't changed. In terms of our composition of new leasing, it is really, you know, it is the big six carriers, in the U.S., and it's the big five in the U.K. If you will. Just like it has been. John may want to comment I don't think we want to get into a lot of specifics around who is doing a what in what market and what stage, we think some of that is proprietary to our customers, but otherwise, really unchanged from prior quarters.

Yeah, I mean, John, as Ben pointed out, some 80% of the U.S. leasing was big six carriers, and everyone on the call at this juncture I think knows the names of the companies, the Verizon, the Cingulairs, the AT&T wireless, T mobile, Sprint, Nextel, the other 20% are effectively coming from the other broadband carriers, which are the Alltels and U.S. Cellulars and the like. Nominal.

I mean in essence just about zero leasing from the kind of nontraditional sources that we talked about in prior years, narrow band customers and things of that sort. In the U.K., 91% of our leasing is coming from the big five. Wireless carriers. And British Telecom, with their BT air wave network that's being deployed in the U.K. at this point. And what I wanted to do, John, was really kind of stay away from specifically answering which of these carriers is increasing their site activity, with us, versus declining, I just -- as I started to reflect on that, in preparation for this call, you know, it seems to me that that is an element of these carriers' strategies that I would prefer to not discuss. It is certainly something that I know a number of you discuss with the carriers directly.

But rather than indicating what carrier is increasing their demand for new tower space versus which carriers is declining, we prefer that you talk with them directly about that, because we don't really want to telegraph what their coverage strategies are.

Fair enough. Thanks very much.

Sure.

Thank you. Our next question comes from Jim Ballan, please state your company name followed by your question.

Thanks, it's Jim Ballan from Bear Stearns. A few quick questions. With the lowering of the BT exchange payment, the elimination of the payment, you can tell us how many -- how many additional BT exchange sites you expect to build out and what the differential is if you don't eliminate that last payment? Second thing is, it seems that the debt availability this quarter has come down some. If you could just give us an explanation on. That and then just one housekeeping thing. With the new arrangement with Verizon, and the CCA, JV, is the way you would figure it out the way you would ultimately figure out that JV, the calculation on the valuation the same or has that changed, thanks.

Let me see if I can run on those. On the BT side, BT payment I want to make it clear to everyone on the call, we have taken out that 45 million payment because it is our best belief today that is that payment will ultimately not be made, it is remaining a contractual equipment and the letter will remain in place. We expect it will be resolved by June 30.

In the event we are successful in that regard, we do believe that we will continue developing sites under the BT arrangement that will be modified. And you know, the payments that we've made, remember, we've paid two of those installments already, in 2001 and '02, so we have already paid for, if you will, a 1,000 sites and we have accessed 679 as I mentioned in my remarks. We've still got a substantial amount to go through. Plus the amounts you would associate with this 33 million dollar payment. So we've still got a pretty long runway of sites yet to be developed. That we've, quote, paid for, in terms of any future -- we believe that we will have a continuing relationship with BT beyond that, but I really don't want to get into the specifics of that until we get that completely nailed down but I would say that our relationship with BT is one that is very constructive and cooperative right now. And we're very pleased, we're able to work out something.

I think that works for both parties. Obviously they are very interested in driving revenue growth on their rooftop sites and are very instrumental in facilitating that with us. So I think it is going to be a very good outcome for both parties, at the end of the day.

So again, as we went and sat down to do our guidance, we put out what we expect and believe, which I think is our responsibility. But that -- that commitment remains as we sit here today.

Probably enough on that.

On the debt availability, you know, our J.P. Morgan Chase -- our facility in restricted group, Crown Castle Operating Company, we have the revolver there that we've never funded of 500 million and don't expect to ever fund. That -- we have two term loans that are outstanding, a total of 700 million. By contracted covenant step down in the first quarter to 4 1/2 times from 5 1/2 times, and it's that cost us about 200 million in availability is a step down, about 200 million run rate or so in that that restricted subsidiary, CCOC, so that's what you saw there, that step-down.

You know, you would otherwise say that is a significant step-down but if you never expected to need to draw the revolver which we don't under any scenario we can model, given the cash that we have and remember, we are going to generate -- that 5.55, you know, will generate, ought to be close to 6 and a quarter, 6.50 by the end of the year based on this guidance.

But for additional debt reductions we made in the unrestricted subsidiaries like Crown Atlantic and the U.K., where as we generate free cash flow we have no over use to it other than pay down the respected credit facilities and saw us do some of that this last quarter. But for that use of cash which he we would obviously do that rather than sit there at 1%, just on a quarter over quarter to an end of the quarter, end of the year, it would be 625 to 650 so anyway that step down in availability is what it is. It steps down ultimately to four times and we are at 3.8 times today based on current run rates and again with no expectation of needing it -- needing to draw.

And then finally your last question on Crown Atlantic, the mechanism for valuation in 2007 is unchanged from before. Which is a fair market value, valuation, between the two parties. And ultimately if not able to agree, then you go to a third party appraisal process. So it is really unchanged and wouldn't expect that to be an issue in 2007.

Thanks a lot, Ben.

Thank you. Our next question comes from Steven Flynn, please state your company name followed by your question.

Good morning. It is Steve Flynn from Morgan Stanley. A couple of questions. The purchase of 5.1 million shares that were with CCGT, can you compare why you decided to purchase the shares yet you decided to distribute the 5.6 million at Crown Castle Atlantic. Can you talk about in one case why purchasing and the other why distributing?

I think it is a good question. You have to draw the line somewhere unfortunately. We thought it was instrumental and convenient, there was -- and the block was available. It was convenient to have that get ground up from GT, you know, we would own 100% of the interest going forward and those shares were a nice block that we thought we could pick up.

I don't believe that, you know, writing a check for 20 million shares, you know, $120 million or so was probably in the cards for us today and so that is certainly not something we entertained seriously. But we thought it was a bite-sized chunk we could reasonably take on that would then result in, really cleaning up that whole GT side of the equation and Crown Atlantic goes forward, as we described and we distributed 15.6 million shares to Verizon and it's really theirs to decide what they want to do with the shares long term. But you know, they're continued investment with us in Crown Atlantic, that represents about 6% of our overall company's revenue in EBITDA so that is not in significant to lock up for more than four years going forward. So we found that to be a great vote of confidence and we really do appreciate the relationship on that side.

Okay. And with regard to the put, it is exercisable right now, though, if Verizon technically wanted to do it?

It was. Up until Friday when we signed the agreement.

So now it is not exercisable until July '07?

That is the key point which I want to make sure everybody gets on the call the overhang of that put has been eliminated or deferred to July 1, 2007 and what was effectively a cashless transaction, meaning they exchanged their interest, their 11% interest in GT for a 13% interest in Crown Atlantic so they went down from 11 to zero in GT and again, net of the shares being distributed in Crown Atlantic they went up -- they went down from 43 to 24 with the distribution of the shares, and then up 13 with rolling of the interest from GT, over into Crown Atlantic. So that piece was cashless so they went from 24 to 37 on the Crown Atlantic side.

Okay. Great.

That's probably confusing for some. I apologize. We're trying to make it simple and we followed an 8-K that goes through some detail there.

Great. Last questions just on the U.K.. You can give us an update on -- there's been a lot of noise out of the U.K. on two things, number one, on Hutch's current financial standing in the U.K., what you think their funding status is with regard to -- their funding status if they're around to continue to pay you guys and also there's been some talk in the U.K. about 3G network sharing by the carriers, can you give us any color on that, will it have any impact on your contracts with MMO2 or Hutch? Thanks.

With respect to Hutch, I think everything we read and we read the same thing you do and obviously we have a little more insight because of our close relationship with them, I think it is consistent with what you would see in a new launch of a new network and new technology but I'm not sure in our experience or maybe John, we've seen anyone make as strong a commitment to new technology and what is effectively a proprietary network in the U.K..

So, and from where we sit, nothing that they are doing would suggest that they are backing off of that. I think what you are seeing is normal sort of the pains of launching a new service, a new technology and we are very comfortable it will be worked out over time.

But from where we sit, they remain extremely committed. They received the new funding amount that they required, I think their parent companies put that in with one exception. And we think that that continues to be strong. We talk to them often about their remaining site needs. They will take in a significant amount of sites going forward from us. So we've got, you know, plenty of business yet to come with Hutch.

We also see signs that others would indicate that they are going to launch a competing network by perhaps the end of this year, first Alf of next year, obviously that is probably somewhat dependent upon the market acceptance of the technology and from where we sit, all of that is positive.

Steve, to your second question, about the sharing of 3G, I think what you are referring to is the most EC ruling of MMO2 and T-Mobile's desire to share their third generate network buildout. The ruling was consistent with what we had contemplated originally because this is something that has been going through a process for the better part of 18 months or so. And the EC came out with an affirmative decision on it, but with limitations and those limitations were as we contemplated would be -- would be extracted on this particular arrangement. Most significant of which is that the two companies cannot share their 3G networks in the major cities in the U.K.. This is something that is limited to the more rural parts of the U.K. and it's something that quite frankly you see occurring in this country as well between some of the carriers.

Now, our particular sense on it is that this is beneficial from our standpoint. Because if the carriers are unable to find an economic way forward in the deployment of new technology, clearly they're going to react the way I think they ought to, which is not to make the deployment decisions. Where they otherwise rationalize the approach to deploying their network which in this case would be sharing in the more rural areas of the U.K., but going on their own in the more urban areas, we think that that's beneficial because it will more than likely stimulate action on their part soon are than would have otherwise been the case had they been prevented from any sharing throughout the U.K..

As such, I think net, it is good. We are finding the same thing as mentioned in the U.S., where there were some rural corridors, where heretofore there was no development on the part of the wireless carriers but by virtue of their decisions to share some of those rural corridors you are beginning to see development in those places that we hadn't seen leases coming from either of the two carriers they were sharing, so I think it is a net positive to the tower industry and a net positive to Crown Castle.

Great. Thank you.

Thank you, our next question comes from Joe Faltarano, please state your company name followed by your question.

Morgan Joseph. Good morning. I was wondering if you could help us determine, you know, what are you doing about the service EBITDA of negative eight. So I know you are de-emphasizing it but should we expect that to be negative for the rest of the year? How do we look at that and what is going on there?

Thanks for that question. It's almost something we ought to put in every public discussion we have just to make sure everybody gets the point.

We manage the business on a consolidated G&A prospective so in my remarks, I talked about the fact that the gross profit contribution has come down to about 6 million a quarter, about 6% of total amount, total gross profit, that's the way we look at it. That G&A that you see below it, we manage the company on a sort of aggregated G&A level.

Now, we've initially back prior to the IPO, initial -- started with an allocation methodology around allocating that G&A between tower and service. Clearly, there is G&A that we -- that we incorporate for services that we undertake for -- to be in the services business.

I'm not certain it is exactly representative quarter to quarter. On the methodology that we originally constructed.

Again, some, you know, five six years ago, we've elected to just be consistent in the application of that allocation, and then just explain to everyone, because as we sit here at these levels, it makes folks like yourself look at this and say it looks like you are a losing a lot of money in that business from a G&A perspective. Again, G&A we look at it on a quarter to quarter year over year basis and a total aggregation that and number is actually coming down as we've had reductions in costs in the company. So I would encourage those that want to follow the progress of the service side to focus on the gross margin contribution which has come down about a factor of three over the last year and that G&A amount, look at the total G&A, and then watch us attempt to manage that number down lower over time.

We said on prior calls and probably remains to be said again, we do believe there is a value in retaining a certain level of capability in the service side of our business. We think it facilitates work with customers, we think it facilitates leasing. But what we are -- I hope what we are improving on dramatically is taking on work that does A, drive leasing or otherwise, is profitable and as a result, we've de-emphasized it and have had very few metrics or targets out there in terms of benchmarks of what we ultimately need to do.

And it's a small amount. The gross margin line of 6% of total if were you to come up with an estimate of what it takes on the G&A side, it is a very small contribution to the overall company. But we think it's -- it has some strategic value and we'll probably stay in it at the levels that we are today.

Thank you.

Uh-huh.

Thank you. Our next question comes from Melvin Rosea, please state your company name followed by your question.

Good morning, guys. Melvin Rosea from Deutsche Banc. Couple quick housecleaning questions. First, I guess in the press release has disclosed that the company booked a gain of 3.3 million dollars in I guess the repurchase of preferred securities. I was wondering if you could clarify what securities they were and how much cash was used to retire those securities.

Yeah, we purchased a little bit of convertible preferred across the quarter. Very little. I think we spent about 8 million on that. But otherwise, not significant.

And this is basically the picks and how about the other converts --

Right.

Okay. I guess the follow-up question I had was with respect to -- I guess the retirements of bank debt. I guess there was a disclosure of 22 million on retired during the quarter. I guess this is -- I presume that this is not -- these were not scheduled repayments, my question is was this a voluntary action on the part of the company, or were there some other mechanism which triggered the repayments of the bank debt such as a free cash flow sweep or something like that in any of those two credit facilities.

No it was completely voluntary. We just -- you know it's one of the -- we have cash, free cash flow that is rolling up in both of the unrestricted subsidiaries, Crown Atlantic and in the U.K. And we -- absent the capacity to get dividends out which we don't and absent the ability -- or we certainly could invest further in cap ex but we are clearly meeting our needs in the cash generated from the entities and the excess cash flow we are paying down the revolvers and having the ability to borrow it back if we needed it for something but otherwise feel it is the prudent thing to do.

I would highlight in the U.K., we continue to do that and are generating significant free cash flow from this day forward, and have paid it down substantially and expect to, you know, over the balance of this year, you know, today on a run rate basis, we are at two times debt to EBITDA in the U.K. So at some point we are going to get pretty interested in seeing about is there some ability to get a dividend or sort of moderately leveraged recap, you know, into that U.K. business, because otherwise we'll effectively pay the debt off over the next couple of years or so. So we're going to have to address that at some point in the near term.

Thank you.

Sure.

Operator I think we will take one more question.

Thank you, sir. Our next question comes from Ethan Schwartz, please state your company name followed by your question. Mr. Schwartz?

You can hear me? From CRT Capital Group. A few question, first of all, in terms of the U.K. growth, what proportion over the last year and what proportion over the past quarter, particularly over the last year for the first thing, came from currency changes, in terms of the dollar translation, and also what proportion came from 3G generally?

Ethan on the currency changes, let's see. I haven't done that lately. It has been going our way a little bit. I guess over the last year, it has gone from probably 152 to 155. 157. Range.

Actually I think it went more closer from 145. Basically it is about 10% year over year end of March, end of March, should I roughly assume --

Just to keep the math simple pick 95 or 100 million pounds of EBITDA a year there, and then you can figure out what the benefit's been, what is it 10 million dollars or something.

And then, as far as 3G this quarter as well as year over year.

Yes, 3G, it is a while hard to know because obviously we know what the Hutch sites are, but then beyond that, we have installations that would be suitable for a modification or upgrade. To 3G. But you know, as it relates to 3 G in particular, you know, on a consolidated company, that we can identify, it's below 2% of consolidated revenue today. Consolidated power and site rental revenue today.

Okay. And as far as the proportion of growth in the U.K. do you have -- and in the past you said anywhere from 30 to 50%. And is it still running about that rate?

Yeah I would say that still holds. I think that's fair.

Okay. And then in the U.S., obviously the site rental revenue was down quarter over quarter, I'm curious as to why that was. And second of all, the number that you announced of the 5.9%, I guess a little bit of a shade less than, that is the same tower number, I would assume the 2.3% of that is from escalators, so that number seems a little bit week, and sort of only getting 3% year over year same tower growth. Am I right and is there a reason for that?

Let me walk through, back to your first question on the U.K.. I would point out that we do have expenses and some natural hedge of the debt although as I mentioned on the prior debt, perhaps not enough debt in the U.K., it is becoming less of and less of a hedge but those are pound denominated securities so we do get a little bit of an interest hedge there.

On the growth in the U.S. business, you know, we looked at it and we thought long and hard about whether to go back through, trying to reconcile to same tower. And what we quickly determined was it would be so confusing, and we only built 50 or so sites, it's about 100 -- about 150 sites or so over the last year based on 11,000, we elected to just go with the GAAP reported numbers. Now those GAAP reported numbers, remember, a significant portion of those, about at least half, are straight-line revenues, so you're going to -- because of the requirement that we have a fixed escalator already built into that contract, so those GAAP reported revenue numbers are straight line. So you're not going to see nearly the full effect of the cash escalator that you would see typically on a cash on cash basis. And so you know, that 6% is what it is on that GAAP number and those two numbers are what is on the face of the financial statement.

As we experimented with that number a little bit trying to go backwards and look at the percentage changes, the 6% does look low and it is low because of a couple of things that occurred last year, which were what I would say out of run rate revenue experiences. Last quarter, you remember, we talked about 4 million of sort of one-time termination or otherwise payments that were sort of out of the run rate. And so when you -- if were you to do that in this quarter over quarter it would have been in excess of 8% in growth.

And so we run the risk, and I appreciate the question, we run the risk going down this path of people that it's going to be -- there is going to be introduced volatility into that number because if we get another payment in the current period then it will go from 6 to 10 or who knows, it will go up substantially.

So as I look at it, you can look at the year over year number, which again, is 6%, you can then look at our guidance, and the guidance is in the range of 10-12% year over year GAAP numbers which goes from 678 to the midpoint of call it 760 and I believe that's just a shade under 12%, about 12%, and that does include broadcast revenue as well. Which, you know, one of the things we think is a benefit for listeners and investors is when we were focused on the BBE metrics so he solely as the determinant of growth in the business oftentimes people would overlook the growth in the broadcast side and we have had significant growth in the broadcast business over the last year.

This will capture it, now that we're talking about total site revenue and broadcast revenue, again, guidance would be 10-12%. Actual last year was 15%. And then because of some of these quarter, you know, the first quarter to first quarter experience, it was 6% on the GAAP reported basis.

So I appreciate everyone sort of bearing with us. I would not characterize it as 2-3% organic growth. You know, if you just do a -- you know, if you kind of look back at what I reported leasing was when we were doing that last year, you get very close to sort of 8-10% organic and that's sort of where we think it's going to be. If you were just going to look at site rental growth.

And then finally back on the U.K., in Q1 of '02, did those numbers still include the ITV revenue or was it out in that period?

Yes, they did include it.

Okay. Thanks very much.

Sure, Ethan.

Thank you. Gentlemen there are no further questions. Please continue with any closing statements.

I would just like to thank everyone again for joining us on this call. We look forward to updating you on the next call, on the continued progress on the three things that I mentioned on the front end, growing our free cash flow, delevering our balance sheet and doing the kinds of thing that are going to protect and enhance the value of Crown Castle's shareholders. With that I wish you all a good day.

Thank you, sir. Ladies and gentlemen, this concludes the Crown Castle First Quarter Conference Call. If you would like to listen to a replay of today's conference call, please dial 303-590-3000 and enter access 535647 pound. One are once again if you would like to listen to replay, please dial 303-590-3000 and enter access code 535647 pound. You may now disconnect and thank you for using AT&T teleconferencing.