Crown Castle Inc (CCI) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Crown Castle International fourth quarter earnings 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, Thursday, February 19th, 2004.

I'd now like to turn the conference over to Mr. Jay Brown, Vice President of Finance. Please go ahead, sir.

Good morning, everyone and thanks for joining us to review our fourth quarter and full year 2003 results. With me on the call this morning is John Kelly, Crown Castle's Chief Executive Officer and Ben Moreland, Crown Castle's Chief Financial Officer.

This conference call will contain forward-looking statements and information based on management's current expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to have been correct. Such forward-looking statements are subject to certain risks, uncertainties and assumptions. Information about the potential risk factors that could affect the Company's financial results are available in the press release and in the sections of the Company's filings with the SEC. Should one or more of these or other risks or uncertainties materialize or should underlying assumptions prove correct, actual results may vary significantly from those expected. Today's call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA and free cash flow. The tables are available under the investor section of the company's web site at crowncastle.com.

With that, I will turn the call over to John. John?

Thanks, Jay. Good morning, everyone. We appreciate you joining us for a review of our fourth quarter and year-end results. As I'm sure you've already seen in our release for the quarter, we had a solid fourth quarter both operationally and financially. And as I said in the past, I believe that our continued accomplishments demonstrate, in my opinion, Crown Castle's growing leadership position in the wireless infrastructure industry.

As you listen to Ben's review of the quarter, there are three key takeaways that I'd like highlight for you. First, we continue to grow recurring revenue and free cash flow and continue to delever our balance sheet without diluting our shareholders. We accomplished a lot in this area during the fourth quarter, which Ben will walk you through in some detail. Second, despite the recent wireless industry news, as we look at our financial year, we are comfortable raising our recurring revenue and free cash flow outlook for 2004, which we will discuss in more detail in this call. And third, whereas there are many metrics people used to analyze the business, I remain convinced that free cash flow on a per-share base is an important measure of performance and we will talk to that, as well on the call.

With that, I will turn it over to Ben to go through the financial results and I will follow up with brief comments at the end.

Thanks, John, and good morning, everyone. As we indicated in the press release, we remain committed to driving recurring free cash flow and made significant progress in this area during the fourth quarter. We had a successful execution of our operating units, exceeding our previously-disclosed targets. We generated revenues of $254 million during the fourth quarter. Broadcast transmission revenues were up $34.7 million to $214 million or 19% over the fourth quarter of 2002. Service revenues were $40 million. Gross profit from site rental and broadcast transmission, defined as net revenue less cost of operations, was $130.5 million, up $22.7 million or 21% from $108 million in the fourth quarter of 2002.

Gross profit from services was 7% of consolidated gross profit before G&A, consistent with the deemphasis we have placed on services. However, the margins remained stable. Free cash flow during the quarter, the fourth quarter of 2003, was $92.3 million, which included the benefit of about $45 million of prepaid rent for 2004 in the U.K. For the 12 months ended December 31st, free cash flow was $141 million compared to a negative cash flow of $68 million for the 12 months ended December 2002. An improvement of over $209 million year-over-year achieved with reductions primarily -- achieved reductions primarily through organic growth, interest expense and capital expenditures. Free cash flow defined as GAAP reported net cash from capital activities, excluding even discretionary capital expenditures, produced in very high returns.

During the quarter, we developed 15 sites in the U.K., all of the sites built in the U.K. were developed under our original agreement with British Telecom, bringing the original sites developed to 738. We also progressed our deployment of the BBC's digital audio broadcast network in the UK. Capital expenditures during the quarter were down $16.3 million from the prior year fourth quarter to approximately $23.7 million for the quarter. U.S. capital expenditures totaled $5.2 million and capital expenditures in the U.K. and Australia totaled $18.5 million. We believe this level of capital expenditures, which is being spent almost exclusively around our existing assets is more than sufficient to drive the recurring growth that we see in our outlook.

Turning to some of the changes in the income statement. Site rental revenue growth, comparing the fourth quarter of 2003 to the fourth quarter of 2002, growth was 19% for the consolidated company. The U.S. grew 9% year-over-year and the U.K. grew 35% year-over-year, growing still 25% when adjusting for currency fluctuations. Ignoring the benefits of currency fluctuations year-over-year, we grew consolidated recurring revenue 15%. These revenue results approximate same-tower sales as over 99% of our sites were in operation for the full 12 months preceding December 31st, 2003.

While we used GAAP reported revenue figures as a proxy for same-tower sales growth, we will remind you from time to time, we have revenue not associated with the run rate, which will introduce some volatility to this measure. Our percentage number revenue growth is very strong this quarter and benefited from approximately $5.9 million of out of run rate revenue in the U.K. primarily from '02 and the related amendment to the '02 agreement. We are very pleased with our organic consolidated revenue growth as it exceeds our long-term expectations. I would point out that after adjusting for the out of run rate revenue and currency changes, we added approximately $81 million of annualized tower revenue over the last four quarters. That's after currency adjustments.

From our perspective, the market should be looking at phenomenal dollar change in recurring revenue and the conversion of that revenue growth into free cash flow across the base of our shares as the most relevant measure of growth in our business. In our core tower business, we saw solid improvement in the year-over-year change in gross margin in the U.S. and U.K.

For housekeeping purposes and to assist some of you in your modeling exercises, I will make a couple of comments about some specific one-time items. Forgive us for diving into some of the weeds here, but just for a moment. In total, the out of run rate revenue items had approximately $3.7 million positive impact on EBITDA this quarter. Primarily as a result of our amended agreement with '02, U.K. tower gross margins were positively impacted by $2.3 million and service impacted by $2.7 million. These positive impacts were partially offset by some one-time G&A charges, which were negatively impacted by $1.4 million. The U.S. benefited from approximately $2 million of out of run rate tower revenue, which was offset almost entirely by some out of run rate tower expenses, which obviously in the quarter would then make your incremental margins look a little bit funny, but as we said and will come back to, perhaps, later in the call, year-over-year comparisons we find most helpful even when quarter-on-quarter can vary. Even when you subtract these positive adjustments, we exceeded our expectations for the fourth quarter with the progress we've made in improving the margins in our core tower business and ancillary service business.

Turning to the balance sheet, senior bank debt at the end of the quarter totaled $1.5 billion, approximately 3.3 times fourth quarter's annualized EBITDA. Bank debt net of cash is 2.3 times annualized EBITDA. High yield debt totaled $1.9 billion for total debt at the end of the quarter of $3.4 billion. Pro forma for the 9% notes and the 9.5% senior notes tender settlements in the first quarter of 2004, high yield debt totaled $1.7 billion for total debt of $3.2 billion. Pro forma for the tender settlements for the 9% notes and 9.5% notes, and additional repurchases of the 10 3/8 senior discount notes and 11 1/4 senior discount notes at December 31st, we had approximately $585 million of total liquidity. This is comprised of $396 million availability under our senior credit lines and $189 million of cash or cash equivalents.

Net debt, including the preferred and convertible notes to Q4 annualized EBITDA is down to 7.7 times. This compares to 8.9 times a year ago or a reduction of 1.2 turns in the last year. While this reduction is impressive it could have been even greater had we invested our cash in paying down bank debt, which would have resulted in a reduction of 1.5 times for an extra third of the turn, yet consistent with our stated focus to reduce interest expense to the maximum degree possible, we paid premiums of approximately $140 million to redeem early certain higher coupon securities.

I would point out that this deleveraging results in a $93 million annual reduction, total interest expense from the fourth quarter of 2002. Going forward, we continue to expect to reduce leverage by about 1 turn per year in 2004 and 2005, targeting to end 2004 at approximately 7 turns and 2005 at approximately 6 turns. By growing EBITDA 10 to 12% per year and investing free cash flow to pay down debt. Interestingly, EBITDA to total interest expense today exceeds 2 times and based occurrent run rates could exceed 3 times by year-end 2005.

Moving on to our outlook, we expect site rental and broadcast transmission revenue for the first quarter to be between 211 and $213 million. We expect first quarter 2004 net cash provided by operating activities to be between a negative $7 million and break even, which includes the effect of working capital uses, including the timing effect of some semi annual interest payments on our bonds. We expect total capital expenditures to be between 20 and $24 million during the first quarter. And we expect the result of this will be free cash flow for the first quarter of between negative 35 and negative $25 million. For the full year 2004 we expect to produce 145 to $160 million of free cash flow, which at the mid point is 70 cents per share.

As I typically point out, this measure of free cash flow will not always lend itself to sequential quarter-to-quarter comparisons as significant fluctuations in accrued interest due to the timing of our semi-annual bond interest payments or changes in working capital do occur. But these fluctuations are offset when comparing the quarter to the same quarter in the prior year -- when comparing annual results. We utilize this GAAP measure even though it's tedious because it reflects the true cash flow of the operations and rewards permanent working capital reductions. By the way, for the years 2002 and 2003 combined, the efforts of many of our dedicated employees have resulted in a net reduction of $150 million in working capital in this company.

For the full year 2004, we've increased our free cash flow outlook but assumed no further reductions in working capital. Further, we've adjusted our expected foreign exchange rates for 2004 to 1.75 U.S. dollars to the pound, up from $1.65 previously. And to .70 cents per pound -- per dollar -- per Australian dollar, up from .60.

Our current guidance for 2004 projects total net cash provided by operating activities of between 235 and $250 million. Which includes total interest expense as all of our discount notes have now been eliminated. We expect 2004 capital expenditures to be unchanged at between 70 and $90 million and for the full year, we expect free cash flow between 145 and $160 million as I've said, up from previous guidance. During 2003, our free cash flow results benefited from $74 million in improvements in working capital. Therefore, the mid point of our guidance now suggests that apart from the working capital gains last year, free cash flow will improve approximately $85 million year-over-year or approximately 39 cents per share. We are not forecasting further interest savings our outlook beyond what has already been accomplished in 2003. Our continued focus on free cash flow growth with conservative assumptions on the top line growth is intentional. Our outlook implies adjusted EBITDA of between 105 and $108 million for the first quarter of 2004 and 405 to $470 million for the full year 2004. Our adjusted EBITDA expectation reflects the volatility and seasonality of our services business.

We do not expect the contribution from services -- I'm sorry, we do expect the contribution from services to be sequentially down in the first quarter versus the fourth quarter of 2003. This past year we made significant progress operationally and on the milestones we set to deleverage the balance sheet, reduce interest expense, extend maturities and improve our financial flexibility. On October 10th, we announced the completion of our new bank facility, which is one of the most recent examples of these efforts. This new financing, which included $700 million of new institutional term loan B now matures in September of 2010. In the fourth quarter, we were pleased to announce we raised $600 million of 7.5% senior notes. The proceeds of these offerings were used to redeem, tender and purchase some of our more expensive securities.

As I mentioned in the press release, we tendered for four of our high yield debt issues, 10 3/8, 11 1/4 discount notes in May 2004 and August of 2004 and our 9% and 9.5% senior note issues. In addition, we redeemed all of the outstanding 12 3/4 senior exchangeable preferreds on December 15th, which we previously announced on our third quarter call. The net result of these refinancing activities reduced our interest expense by approximately 400 basis points on $1.1 billion of debt and lowered our interest expense by approximately $37 million per year. Since we began these balance sheet efforts six quarters ago, we have reduced total run rate interest expense by $141 million or 40%, without increasing our share count. In the fourth quarter, we also repaid $20 million on our Crown Atlantic bank facility out of cash flow from that entity. Further, 88% of our total debt and preferred stock maturities are at 2010 or beyond. As you may have noticed in our fourth quarter results, our net loss widened to about $171 million as these high coupon debt repurchases have gotten more expensive and generate current period losses as we pay premiums for the early retirement of these securities. We expect to continue to incur losses although at a reduced level over the coming quarters as we continue to improve our balance sheet.

In summary, we plan to keep doing what we have been doing and that's executing our business plan, reducing leverage and interest expense by investing our excess liquidity, resulting in free cash flow for our shareholders. If we continue organic growth at approximately the same rate and are successful in capturing some of these potential refinancing opportunities that lay in front of us, this may lead to more than $1 per share of free cash flow in 2005. We have a great opportunity to continue this progress with our recent financings and very much appreciate the support of those institutions that have participated. We remain on track to reduce total interest expense run rate to $200 million or less by the end of 2004.

With that, I'm pleased to turn the call back over to John. John?

Thanks, Ben. I'm just going make a couple of brief comments so that we can take as many questions as possible here at the end of the call.

As you have seen from the press release, we had another solid quarter, delivering on the projections we made to you early in 2003. While I appreciate all Ben has taken you through, when you cut through the financial metrics, the measure I'm focused on is free cash flow and also what that is on a per-share basis. As Ben indicated for the year 2004, we are increasing our tower revenue and free cash flow outlooks. Our entire organization works diligently everyday to maximize free cash flow and what that is on a per-share basis by focusing on the initiatives I have stressed throughout 2003.

First, our team is driving organic leasing of our existing sites, they use our asset management tools to better understand and capture the demand for our sites. These tools have also enabled us to be more responsive to our customer's needs for expedited solutions for their network challenges.

Second, as we pursue our leasing opportunities, everyone in our company strives to maximize efficiency in everything we do to ensure that we are keeping our costs in check.

Third, as Ben indicated, we have leveraged our operating performance to reduce our interest expense through refinancings and debt buybacks, all of this without diluting our existing shareholders. And finally, our entire team understands the importance and follows through on our commitment to invest our capital wisely to achieve high incremental returns with low risks. Though I know the statement may appear trite, it is truly the fact that everyone in our company is focused on our initiatives that enables us to consistently deliver on our objectives.

Looking forward into 2004 in terms of our jot look for tower revenue, we continue to see very positive signs in each of our operating units. In the U.S., we are continuing to see a pickup in the level of applications for our sites from the wireless carriers. While these applications didn't always turn into site leases, I'm growing more optimistic to see an uptick the rate we are leasing our sites given the recent wireless carrier public comments regarding our '04 and '05 network plans. In the U.K., we are continuing so see strong demand for our sites, as well. We're seeing activity out of each of the three operators in the U.K. and expect to maintain our current rate of adding new tenants our sites throughout 2004. As a good indication of what is to come, I'm sure many of you saw Voda phone U.K.'s announcement of launching the data card network this past Monday. Throughout London and along the M-4 corridor. They expect to roll out the coverage to other areas including Birmingham and Manchester to reach 30% of the U.K. population by April. This enables data transmission at speeds up to 384 killing bites per second and will allow the customers to access all the usual office applications like e-mail, calendar and the Internet at speeds up to 10 times faster than GPRS.

Going down under, while Australia remains a relatively small part of our business, we're seeing signs of a much stronger leasing environment there, as well, as all three incumbent wireless carriers in Australia develop 3-G networks to keep pace in the new 3-G networks launched by Hutchison.

As you can see, it's easy why I'm optimistic about our business and the value that is inherent in our essential infrastructure, given that two of our three operating units are experiencing strong revenue growth from the launch of 3-G data services. Experience tells us that increased voice minutes of use and the deployment of faster data services is good for our business and so the current U.S. market holds a lot of potential. All of that being said, we're barely 45 days into 2004 so we're not yet willing to increase our forecasted level of new tenants to be added to our towers and as such are leaving our 2004 leasing assumption at approximately the same rate of 2003 and we'll just continue to monitor the year and give you updates on future calls. Consolidation in the U.S. wireless base has been a hot topic for months and given Tuesday's announcement of Cingular's winning bid to acquire AT&T wireless, I think it warrants a little perspective [inaudible]. Again, I don't believe that is a likely outcome, because we know that both Cingular and AT&T wireless are committed to enhancing the services they provide their customers and we're working closely with both of them to assist them wherever we can.

All in all, I'm pleased with our 2003 results as we followed through on our objectives we shared with you. I'm proud of our people, this organization [inaudible].

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 1 on your push-button phone. If you would like to decline from the polling process, please press the star followed by the 2. You will hear a three-tone prompt acknowledging your selection. Please ask one question and one follow-up and requeue for additional questions. If you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment, please, for the first question.

Our first question comes from Thomas Vincent. Pleat state your company name and your question.

Great. Thomas Vincent, Smith Barney. John, in terms of the guidance, can you maybe quantify how much of the increase is really related to your increased expectations for the exchange rate and how much is actually core growth in the -- in the business and maybe quantify what you expect, you know, on a relative basis, from the U.S. and the U.K. and Australia?

Yes, Thomas, this is Ben. Let me take a crack at that and John can jump in. On our site revenue, increase in guidance, about 55% of that increase is from exchange rate, taking the exchange rate expectation from 1.65 to 1.75. It's about $22 million out of that 42 or so, something right in that range. So, it's roughly half of that overall improved -- improved guidance. While we're on the topic, I do want to make one clarification about the exchange rate overall in our results for the Company. Remember, our expectation for the year was about $1.65 and it turns out that the full year was 1.70. So, we haven't seen the real increase in the exchange rates that we've seen obviously in these last few weeks, really impact our -- our revenue and free cash flow yet. So, when you boil it all down, when you look at the results of the company for 2003 whether you do quarter-over-quarter or full year, the revenue growth or the free cash flow growth or the tower margin growth, which metric you choose to look at, about 80% of that growth was organic Washington built by the Company and about 20% of it came from -- from currency appreciation in the Company. So, I think that's an important point. You know, obviously if the exchange rate were to stay in the high 180s where it is today, we would continue to get significant benefit into 2004 and you can see the guidance today is 1.75, so, obviously that can change on a moment's notice in terms of the overall market. We wanted to be clear that it's about 80/20 organic versus FX growth in our historical results.

John, maybe if you then look at remaining, roughly 45% of the increase in guidance, how is that split between the U.S., the U.K. and Australia? Is there any differences there?

Thomas, what we did in terms of the guidance is we looked at the run rates coming out of the fourth quarter and that's what we reflect in our new guidance for the year. Relative to growth, what we're expecting in 2004 are similar levels of growth coming out of each of the operating units, though it is immaterial from the standpoint of relative size. Australia is going to be growing a little bit faster than it did in '03 and really the large part of the guidance is based on similar growth rates in the U.S. and the U.K. as you saw in 2003.

Okay. And then as a follow-up, you guys have obviously had the opportunity of working the U.K. and Australia where you've seen, you know, more early employment of 3-G than here in the U.S. Can you maybe compare some of the things you've learned from the deployments, what the carriers are actually doing with the cell sites in the U.K. and in Australia? And what you expect will happen in the U.S.?

Yeah, I -- I think it's an excellent point and appreciate you mentioning it, actually, relative to a somewhat unique position that Crown Castle is in and that we do have operations in countries that are farther ahead than the U.S. in terms of the launch of these wireless high-speed data networks. Because there are differences. I mean the net is when launching these high-speed wireless networks, what we're finding is that the carriers recognize the need to optimize their network differently for high-speed wireless data than they did for voice. You know, the number one issue that we have seen is a greater density of sites, in order to support high-speed wireless data. The kind of data operating in the 300 -500 kilabites per second rate, you need a greater strength. It requires more sites are built out. I think there's inherent benefits clearly to the wireless carriers because you're able to offer new services that consumers are ready to pay for, but in order to provide the services consistently, you have to have a network to support it. And that does require new sites.

At existing sites, we also find that it is important and carriers in these countries optimize even where they are overlaying on an existing site. They optimize their data network separately from their voice network. And in so doing, someone -- most of the time they're adding new antennas so they can differentiate the transmission of the data signal from that of the voice signal. And I think that's all very important as -- as a precursor to some of what you will start seeing in the U.S. We started to see that with Verizon in EBDO in the couple of markets they've launched thus far in the U.S. Because the issue is if you, as a wireless carrier, provide new, high-speed wireless data services of the kind I just mentioned, 300 to 500 kilabites per second, there will be applications developers that will be developing applications that work at that speed.

If your network then is not build to the kind of standard that allows that kind of data rate to be received throughout the area that you're marketing that service, the customer is going to continue to drop down to a slower data rate and conceivably the application they were trying to use isn't going to work anymore. Of course, we know consumers are pretty impatient when it comes to inferior perceived network quality. So, what we have seen to kind of round out this long answer for you, Tom, is in the other two countries the carriers have been committed to increasing the density and on optimizing on overlay sites data over voice and that has resulted in the kind of growth that we've seen in the U.K., as you know. '03 outstripped of the growth rates in the U.S. and '04 continues to look like it can do the same but I think the U.S. is going to be catching up.

That's great. That's very helpful. Thank you very much.

Thank you, Tom.

Thank you. Our next question is from Rick Prentiss. Please state your company name followed by your question.

Yeah, good morning, guys. Rick Prentiss, Raymond James.

Morning.

A couple of questions for you. John, I -- I hear your comments strongly talking about you're feeling more optimistic on the leasing front given what you've seen in the U.S. and the U.K. A couple of questions on that front. First, just getting off the Nextel call, Nextel talking about significantly increasing their cell site deployment in '04 versus '03. 2200 cell sites are going to put in this year versus just 1200 in '03. And on the call they said they're going to have a three-year program to make sure that network expansion becomes a competitive advantage for them. Given yet another data point along that path, when will you guys feel comfortable feeling that applications, indeed, will turn into revenues and then a side question with that is when you say applications, is that search engines, is that physical applications in hands? Or what exactly do you mean by applications?

Okay. Thanks, Rick. Appreciate that upstate here from the Nextel call. We haven't had a chance -- [ OVERLAPPING SPEAKERS ]

It ran into your call --

Right. But I appreciate the update. It's consistent with the kind of input we're seeing from most of the U.S. carriers, as we work with them, much earlier in the cycle. As I mentioned in my prepared comments, you know, the asset management tool that we have provides us an ability to help these wireless companies deploy quicker the sites that they're looking at that are either for expansion of coverage or -- or expansion of capacity. And, by the way, as we start to launch these new high-speed data networks, you will start to hear us talk about coverage again because you can have voice coverage without the high speed wireless data coverage. And so that's driving the need for additional sites.

I'm -- I'm very -- I'm very excited and pleased, clearly, for the U.S. consumer that that is the kind of input that we are getting and that -- and that you are getting from the wireless carriers because clearly what it pore tends is that we're going to be seeing new, exciting services coming from the wireless service carriers that I, quite frankly, believe that U.S. consumers are ready to pay for as we are seeing in some of the other countries that we operate in. And in order to do it and provide the kind of experience, as I mentioned in the prior answer, we need to build out these networks. And the carriers, I think, are, in fact, very much committed to doing that.

Now, the question that you raise relative to applications versus search rings, we -- we see an uptick in both. We have been working with our wireless carrier customers on literally thousands of search rings. You can imagine in the case of Nextel, as you quoted the figures here, if they had done 1200 sites in '03 and are talking about 2200 in '04, 1,000-site pick -- is quite a change. We're seeing that type of desire from a number of different carriers and we're working with them on search rings, which is thousands of sites, which they do then convert into applications where it is effectively a strong expression of interest in the site, but is not yet a revenue committment their part in that they haven't signed a lease at that juncture. And the reason why we haven't at this juncture incorporated that into our '04 guidance, we have maintained the leasing rate at essentially the same rate we had in '03, is because we really wanted to see how the corporate budgets translate from these wireless carrier corporate headquarters down into their field. Where are they going to specifically be targeting the site additions? How does that look relative to where we own towers? And are, in fact, these expressions at a corporate level being translated into budgets at a field level?

I would say, to answer your question as to when we're going to be more comfortable, we're holding an analyst day in April and I would submit to you, Rick, that at that point we will be in very good shape to be able to help you better understand what we then see '04 leasing looking like because by April, if these corporate expressions have not been translated to the field's operating units of these wireless carriers, it is highly unlikely they'd be able to translate the kind of increases of cell site deployments into 2004 in reality. At that juncture, we will be able to help you with that particular number and help ourselves, quite frankly, as we look forward into the year.

The answer is pretty soon.

Pretty soon, April.

And to everybody on the call, what is our revenue assumptions today? It remains about $60 million year-over-year growth, plus the $25 million for the increase in exchange rate. Okay? So the $60 million, if you do the 786 that we did last year, you know, takes you plus 60, plus 25, takes you to the high end of our new guidance. And that $60 million, you've heard me talk about in a number of public settings. You know that is continuing to sort of be our focus. In the most recent four quarters, so, the Q4 over Q4, normalizing for one-time items, we had growth of about $80 million and that would be before currency impact. So, the most recent fourth quarter saw a little bit higher than that but nonetheless, you know, our target as we rolled up our budget was about 60 organic. Again, the reason we stick with that number is if 60 organic is coming in the door and we're converting that at a high level of incremental margin, that is very substantial growth in free cash flow and more than enough to accomplish the objectives we've set for ourselves, obviously to the agree we've seen activity being higher than that, certainly that's and we will translate that into guidance as we see it.

And for my second question, sorry for the long answer on the first one, the U.K., you mentioned $45 million prepaid '04 leases got cashed in '03, in the fourth quarter? Can you share a little bit more about that? Was that something with Hutchison or with that '02? And just to clarify with the exchange rate, you guys, since you've closed out the loans in the U.K., are you actively bringing dollars back from the U.K. at this high exchange rate, then?

Rick, we probably don't want to tell you exactly who prepaid rent, but it happens to be consistent with what occurred in the fourth quarter of 2002. And just to be obvious disclaimer, if it were to not happen in December of 2004, then obviously you'd have a low working capital reversal there for the year, but that's just a timing difference of a week or something. But that's what happened there, these are annual rentals due January 1. The -- the repatration of the cash is occurring weekly. You're right to remember that we have extinguished our U.K. debt facilities. It's now all part of our U.S. facilities. So, as a result we are rolling out the free cash flow out of the U.K., literally almost weekly and so we are repatriating at the current exchange rate and so while we don't count on exchange rates as -- as a positive or negative in our business to the degree we are actually getting it into dollars, you know, $1.88 or something, that's real money.

Great, good luck on a good year, guys.

Thanks.

Thank you. Our next question is from Dave Coleman. Please state your company name, followed by your question.

Dave Coleman from RBC Capital markets. Two questions for you. One is on project south point. Is it possible to quantify what impact this had on U.S. leasing activity in the fourth quarter? And then regarding consolidation, can you discuss Crown's exposure to I guess redundant AT&T and Cingular sites that may not be on the same tower, but in the same sector of cell tower? I would think that would be crown's real exposure to consolidation among those two carriers? Thanks.

Thanks, Dave. Relative to Project South Point, quantifying the impact of Project South Point on the fourth quarter growth is -- is a little difficult. What -- what I can idea and what I will tell you is that Project South Point and will explain for those who don't know what that is, and its counterparts in the U.K. and Australia, is helped us on a-- on a measured basis work with our wireless carrier customers higher in the -- higher in the value stream. And what I mean by that is as Dave points out, using our internal code name for that project, what we chose to do over the last two years was assess on a site by site basis, the prospective demand that each site has relative to the big six wireless carriers and what we were interested in determining was at any given site who, among those wireless carriers that were not already leasing space from us at that site, might be a perspective carrier down the road.

We did that very specifically to ensure that we could increase the speed and accuracy at which we could deliver these sites to the wireless carriers as they ultimately need that particular site to cover that particular area. And from that, and as we described last year in our analyst day in April, we were able to determine, based occurrent technologies and at that juncture it was 2.5 G that we were focused on, there was additional perspective demand in the neighborhood of about .8 additional tenants across the U.S. portfolio. And this particular data has been very helpful to us because as wireless carriers are looking to advance their networks more rapidly this year than was the case in the past two years, they're looking for companies that are able to help them quickly analyze perspective solutions and also understand at those particular sites, what are the timeframes associated with getting on that site? And so all the work that we've done over the last two years has been helping us in -- in a -- in a, you know, very measured way and -- and the way I'm looking at that, Dave, is by the number of search rings that we are otherwise receiving from our customers, where in effect what they're doing is they're working with us by saying here's all the areas in the United States we want to -- we want to improve service. Help us understand all those areas that Crown Castle can help us with a solution and tell us how long that solution's going to take.

So, I think what we'll be seeing is now that the carriers are, in fact, focused on increasing the number of sites deployed, as was the case in the prior two answers, I think what we'll start to see is the efforts behind project south point driving the conditional leasing in '04 as opposed to what you might have otherwise looked at in '03, the fourth quarter the '03, as you said.

Let me just touch real quick on the point you made as far as AT&T wireless and Cingular. Again, by virtue of having all of this data, you know, and -- and looking at it, what we -- let's take a look at how many sites, AT&T wireless and Cingular, are co-located on our towers. And the exact number is 837. As you know we have a little over 11,000 sites in the United States so 837 sites is the number of sites that AT&T and Cingular both happen to have installations at the site. And as I mentioned in my prepared remarks, if you wanted to take the most draconian view of what could happen, and when I say could happen, it clearly is dependent upon how these two companies view their network requirements capacity, data services, things of that sort and also it should be noted that there are, in fact, contracted terms with all of our wireless carrier customers, so it isn't a question of if the deal closes as proposed that this particular worst case scenario could occur on the day after this transaction closes. But if you were to assume that 50% of the revenue associated with these 837 sites where they overlap came off, we'd be losing less than 2% of our consolidated run rate revenue -- it would be about $16 million. And that would be at whatever point in time all of these sites were decommissioned by Cingular, if, in fact that was their intention. I think what you can see is that by bracketing it, the -- the impact on the Company is not at the level that some might have been concerned about. It is the reason why we're happy to ask the question and get the facts around the situation out. Again, I don't think that that worst case scenario is necessarily going to unfold. Don't know. But, you know, we will continue to monitor that and let you know as we have additional information as Cingular and AT&T wireless go through their planning efforts, you know, in the next year-plus.

Mr. Coleman, does that answer your question?

That's fine, thanks.

Thank you. Our next question is from Jim Ballan. Please state your company name followed by your question.

Thanks a lot. It's Jim Ballan from Bear Stearns. I think we're all on the same wave length in terms of -- in terms of the questions that we want to ask you, but let me bring up a couple of other things. The -- I -- we're definitely all hearing that the carriers are talking about more sites this year. Are you -- is -- do you believe there's any possibility that this could be somewhat back-ended? Are you see the carriers at all slow out of the gate here? We're already, you know, midway through February. Are we going to see a typical first quarter or do you think that it could be a little bit slower out of the gate because of all the talk that's gone on around consolidation? Or is it faster because of -- because of the move to data? Also, the other -- my other question is: Have you had discussions with Verizon wireless, they're obviously a big customer of yours in the U.S., regarding EBDO and can you talk about what you think the impact of EBDO could be on you guys, particularly? And how much of that is -- is -- double is in your guidance right now?

Okay, sure, Jim. Relative to the question about first quarter and is it, you know, fast or slower or the same as 2003, you know, there's a logistics associated with how these carriers do, in fact, roll out their budgets. And so whereas everything we're hearing and you're hearing is suggesting there would be more sites, the first quarter does, in fact, look consistent relative to kind of activity levels with what we would have seen in the first quarter of '03 because it takes a little while to actually get these budgets translated, as I said before, from the corporate headquarters out to their operating units. So, I would look to see the translation and that's part of the reason why I think this April timeframe with a discussing earlier with Rick is a good timeframe, for giving you a better sense of how this increased leasing that we hear carriers talk about will actually translate into leasing at Crown Castle. I think it will be coming in, you know, the second, third and fourth quarters as opposed to anything materially higher in terms of growth rate in the fourth quarter.

Then in terms of -- of the question about Verizon, yes, we do, in fact, spend time with all of our customers and spend time, of course, with -- with Verizon, as well. You know, I would -- I would -- I would -- I would just answer the question this way because we don't like to share discussions that we've had with any of these carriers on a specific basis, on these calls, because we do, in fact, recognize that that is of concern to them, when they do share with us some of their important network goals and objectives. They would just assume have us keep that in confidence so we -- we honor that confidence that they place in us, but certainly some of what they have indicated on a public basis is their commitment to delivering high quality wireless data services. The EBDO services. And as I mentioned in a prior answer, Jim, the reality is -- and Verizon has been consistent it this particular approach, where it comes to network quality, they are always very, very, very focused on ensuring that they do not deliver anything less than the highest level of quality to the customers that their network can deliver. So, they have been focused on optimizing the data aspect of their network separately from the voice element of their network, which -- which necessitates adding antennas to the towers so that they can have a separate data transmit from the voice transmit antennas on existing sites. And then down the road, conceivably, it's also going to lead into the fill-in sites that I described earlier, as well.

How that otherwise is incorporated into our guidance, we've looked at what was the first element that I just described to you would be an amendment to our site. Which is adding additional antennas to an existing site. So, it's not a full, new revenue component. It is -- it is about a third of the revenue that we would get from a brand-new installation at the site as they add the brand-new antennas to the site. And what did we previously experience in 2003 in terms of the component of the amendments of our total business and what do we expect in 2004? Well, 2003 we had the amendments associated with some of the GSM overlays. Well that certainly is slowing down as the two carriers that were engaged in that activity are -- are really coming to the end of that particular path. And so now we see the potential of an EBDO amendment level activity and yet I think the one replacing the other and so in essence, as we look forward into -- into this year, you know, we're still suggesting that guidance is -- is taking into account all that we know today. If it turns out that they start to do things at a pace faster, then perhaps was the case with some of the GSM overlay activity, then, again, we can update you in April on that, Jim, and help you better understand what we then know at that point in time. At this juncture, I would say that our leasing guidance clearly reflects everything we know today and we'll be getting more information here over the next month and a half and update you in April.

Okay. Great, thanks a lot, John.

You bet.

Thank you. Our next question is from [Sam Martini]. Please state your company name followed by your question.

Hey, guys, it's Sam at cobalt. Just a question. A peer of yours yesterday mentioned that one of the negotiations that might be coming per the Cingular AWE announcement and the comments they made on the call is the opportunity to potentially buy their tower leases out which is paying present value. Could you give me some insight, "A" on your thoughts on that and if you're having those discussions. "B," how you would price the present value? And "C," what if that were real, even though only 2% of our tower revenues on a present value basis, depending on how you priced it all, could be a fairly meaningful sum of cash. Are you still comfortable with 5.5 times leverage and what would you do with excess cash below that level? Thanks.

Sam, this is Ben. On the discussions on the discounting of leases, obviously we're not having those discussions today. It's quite premature given the -- the newness of the transaction. But, you know, our view is we've done it in a very isolated cases before. We've come out even. We we'd strike a discount rate that would be very fair to us and don't see that it would be a significant issue. I mean one way to think about any potential site rationalization is that -- and again, we can't know today exactly how that's going to play out. But what we do strongly believe and I believe virtually all the carriers and Cingular in their statements have made, the point around wanting to move toward a high-speed data network capacity for customers and we know, based on our experience in the other two countries, that's going to require substantially more cell sites. So, I think where we sit here today any -- any reduction we might see in rationalizing the existing networks we would expect to more than make up for with the advent of new services and additional minutes of use and penetration in the U.S. market. And so, you know, could you find a few sites that become [deplecitive]? Probably. I mean we just can't know today.

It would seem like it could potentially be accretive?

It possibly could. Again, the $16 million is the half of the co-located -- you know, the exposure. Not a big number given what we're adding annually. I think you have to step back and say, okay, with six or five competitors in the U.S. market, does that really change the dynamics given that we've seen, you know, minutes of use growth six -- fold since 1999 and that's really before you even get into data services. So, I don't think it's something we're overly concerned about today.

Well, it just seemed to me that if it were something -- it would seem "A" they would come back. And release those towers later. But "B" that they -- if they willing to buy you out, it could potentially be upside to your free cash flow numbers.

It potentially could. I mean when you think about when that probably comes to fruition, in terms of getting to the party list post-merger, you know that may be a couple of years away and that's a long time this industry right now. There are a lot of things moving. It's hard to predict where these networks and consumer services and the competition will be in a couple of years.

Fair enough. One quick housekeeping question. Is there anything left to do with the balance sheet here, Ben? Or are we pretty much -- anything below the debt levels, looking at the 8 1/4s callable this August? Or comfortable with how it is today?

Actually, thanks for asking. There is quite a bit left to come, in our opinion. It is certainly embedded in the comment I made in my statement around, you know, we sort of have a vision of perhaps $1 a share of free cash flow next year and that is -- that would suppose that we got some additional refinancing saves. Clearly we've got the 10 3/4 that are callable summer of '05. It may make sense to take those out early in a tender as we have these others, based upon rolling the interest rate down enough to cover the premium. We're certainly looking at. That the next one, the 9 3/8 is the year out, that's '06. That one will be a struggle. But if you think about it holistically, you'd say there's 850 million of callable notes over the next two years, if you could roll down 300 basis points, $25 million of save, we're also getting pretty good vibes around the opportunity to reprice our bank facility in the fall, assuming market conditions were to be what they are today, you know, and we continue to make the operational progress we're making, so, you know, we think the total opportunity, sometime over the next 24 months is in the vicinity of $40 million, cumulatively. So, when you add that to our organic growth that we're delivering, it's significant free cash flow. It's almost -- as we sort of say around here, it's almost, you know, three years worth of work for two years worth of effort in terms of the growth of the business. We think there's still something to come.

Is that included in your potential for the end of '05? Or exclusive --

A little bit of that would be in that expectation.

Great. Thanks so much, guys. Nice quarter.

Thanks.

Thank you. Our next question is from Gregor Dannacher. Please state your company name followed by your question.

Hi, Gregor Dannacher, CIBC. Just a quick question. It seems that in the last half of 2003 that cell site deployment from the carriers was picking up critical condition and as we get more comments out of them recently, as has been mentioned , you know, it seems like there's more activity coming in 2004, do you get any since or have any clarity into where some of the sites are going? Is there any push by the carriers to put cell sites on other either buildings or sites other than towers, such as that your first quarter that you're already seeing, the activity around the towers may be relatively flat or, you know, maybe a little bit up, but the rest of the incremental that the carriers are talking about is just going to other sites. Do you have any incite into that type of activity?

Gregor, we -- I mean given, again that our carrier customers are sharing with us their search rings, we do, in fact, have a very good sense of where it is that they are looking at deploying and, you know, what I can tell you is that a big part of the focus right now is clearly on the largest cities, you know, you can just kind of take a look at top 50 cities of the U.S., certainly where all the people are. So, that's where the wireless carriers are all interested in ensuring that they have enhanced their network quality as well as ensure that as they are focused on bringing out new services that's the place where they want to bring them out first because naturally that's where they're going to get the highest return on their investment because of the population in that area. So, within that -- within that context, what we see clearly is that if we have a tower in that particular geography of that city, that's the first option that a wireless carrier is always interested in, because as an easier process. If you're looking at some other vertical structure, including buildings or water tanks, you're dealing with a structure that wasn't built for the purpose of hanging antennas and so you get into a level of complexity that otherwise is inferior to simply co-locating on a tower.

Not to say it doesn't happen, of course it does, it happens all the time. You certainly will see antennas on rooftops throughout every major city in this country and around the world. So, it does happen, but simply because there is no tower there and there is really no opportunity to build a tower. And so that's when a carrier would go that route.

You know, what we're able to see and -- and certainly reflected in our guidance, as we look across the year, part of what all the activity that you elude to occurring in the second half of last year but also the search rings and the applications that we're seeing today, as we look at -- at pipeline, what we can see is that we are on a -- a very comfortable path to realize levels certainly consistent with what we saw in 2003 and it's the reason by we have increased almost of the guidance at this point in time. And then, you know, and I hate to continue to repeat myself, what we will certainly do is give you a much better sense of that on the -- on the analyst day in April. But a good, good question, Gregor and at this juncture, you know, our prime focus is -- and these asset management tools we have is to ensure that wherever there is an opportunity we capture it but if we don't happen to have a tower and there is a rooftop, it doesn't bother me that the carrier installed on the rooftop because it wasn't an opportunity we could have done anything with.

Okay. And just a follow-on on that. Is there any thought process along those lines to augmenting south point such that, you know, you can work with other types of structures from either utilities or some other even real estate to have a more complete package when you go in, you know, if you have a tower going, sure, the Crown Castle tower, brut also reselling somebody else's under-utilized assets that could be used for structures?

That's -- that's a great point, Gregor. And the answer is yes, we would like to continue to enhance it with a vertical real estate. As you point out there's two -- there's two other areas of vertical real estate. One that we have loaded into our system, which is the competitive tower company's real estate so that to help our customers, clearly if we happen to have a request from a customer to analyze search rings and it turns out that in a particular search ring we don't have any towers but one of our competitors does, we will be happy to share that information with the wireless carrier. We're interested in helping them meet their goals as quickly as possible.

So, you know, we have that in our system and have, in fact, shared that data with some of the wireless carriers as they have provided us with these search rings, but there are also commercial databases of rooftops over "X" feet in heights, you know, essentially over 100 feet in height, you know, what we'd be interested in. And by loading that in, the point you make, which is what we're really focused on doing, is being a clear first stop for our wireless carriers to come to as they look at rapid deployment of -- of enhancements to their network. And that's almost regardless of whatever the quantity of sites is they want to deploy in a certain year. The more sites, the more important it is to move quickly their part. Even if the level of demand -- or the level of site additions went back to what it was a couple of years ago, when they do decide on a particular area to enhance, they like to move quickly. We like them to feel comfortable coming to us and recognize that with this database and the continuing work that we do with it that we're able to provide them quick, fast solutions and input as to what the solution is, whether it's Crown Castle site or where we don't have one, some other structure. We're able to provide that to them quickly so they can make their deployment decisions that much faster. You know, the faster they get it on the air, if they're focused on doing something, the better from their standpoint in terms of revenue generation or churn reduction.

Thank you. At this time, I'd like to turn the call is back over to management.

All right, thank you, operator. Well, I know a lot of you had a very busy morning here with other calls happening just prior to ours so I do appreciate you taking the time to -- to join us and go through our results and what I'd like to do is -- is once again ask you to mark your calanders and invite you to join us on our analyst day that will be held on a very important date, April 15, one that you can all remember, April 15, 2004, it will be at our Pittsburgh U.S. operating headquarters in South Point and we invite you to join us there for that as we go through the business much the same way we did last year, sharing with you, as I mentioned earlier on the call, additional insight we might have on the year. If you need additional information on the analyst day, contact Jay Brown, Vice President and Head of Investor Relations here at Crown Castle.

With that, I wish you all a good day and we'll see some of you on April 15 and the rest of you on our next call. Thank you.

Ladies and gentlemen, this concludes the Crown Castle International fourth quarter earnings conference call. If you would like listen to a replay of today's conference, please dial 303-590-3000 followed by access number 567812. Once again, if you would like to listen to a replay of today's conference, please dial 303-590-3000 followed by access number 567812. Once again, we'd like to thank you for your participation in this morning's conference and at this time you may decision connect.