Crown Castle Inc (CCI) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Crown Castle International reports third quarter earnings conference call.

[OPERATOR INSTRUCTIONS].

As a reminder, this conference is being recorded Thursday, October 26th, 2006.

I would now like to turn the conference over to Jay Brown, Crown Castle's Treasurer. Please go ahead.

Good morning, everyone, and thank you for joining us as we review our third quarter 2006 results. With me on the call this morning are John Kelly, Crown Castle's Chief Executive Officer; and Ben Moreland, Crown Castle's Chief Financial Officer.

This conference call will contain certain forward-looking statements and information based on management's current expectations. Although the Company believes that such expectations reflected in these forward-looking statements are reasonable, it can give no assurances that such expectations will have prove to have been correct. Such forward-looking statements are subject to certain risks, uncertainties and assumption. Information about the risk factors that could affect the Company's financial results are available in the press release and in the risk factor section of the Company's filings with the SEC. Should one or more of these risks or other uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary significantly from those expected.

In addition, today's call will include discussion of certain non-GAAP financial measures including adjusted EBITDA, recurring cash flow and recurring cash flow per share. Tables reconciling these non-GAAP financial measures are available under the investor section of the Company's website at crowncastle.com.

With that, I'll turn the call over to Ben.

Thanks, Jay, and good morning everyone. As you can see in the release, we had another excellent quarter exceeding our outlook in virtually every measure and are pleased to share the highlights with you this morning. During the third quarter, we generated revenues of $200.9 million. Of that site rental revenue increased $26.2 million to $179 million or up approximately 17% from the third quarter of 2005.

Service revenue was $21.9 million. Gross margin from site rental revenue, defined as tower revenues less the cost of operations, was $123.7 million, an increase of $21.6 million or up 21% from $102 million for the third quarter of 2005. Adjusted EBITDA for the third quarter was $110.2 million, an increase of $24.5 million or up 29% from the third quarter of 2005.

Capital expenditures during the quarter were $30.7 million broken out as follows: sustaining CapEx was 2.2 million in the quarter; revenue generating capital expenditures of approximately $28.4 million comprised of $8.7 million of CapEx for revenue enhancement on existing sites; $6.8 million for land purchases; $12.9 million for construction of new sites.

For the third quarter, recurring cash flow, defined as adjusted EBITDA less interest expense less sustaining capital expenditures, was $61.6 million, an increase of $7.9 million or up 15% from $53.6 million in the third quarter of 2005. This includes approximately $13 million of additional interest expense from the $705 million of additional borrowings in June this year, the bulk of which was used to purchase our shares.

Annualized recurring cash flow per share increased approximately 24% to $1.24 per share for the third quarter of 2006, up from $1 per share for the third quarter of 2005, even after the short term dilutive effect of borrowing to purchase our shares.

Turning to the balance sheet as of the end of the third quarter, secured tower revenue notes totaled $1.9 billion for the quarter and other debt totaled $1.1 billion for total debt at the end of the quarter of $3 billion. The other debt was comprised of our corporate credit facility which was drawn $1 billion and approximately $64 million of our 4% convertible notes. We also had approximately $312.6 million of the 6.25 convertible preferred outstanding as of September 30.

As we have discussed in previous quarters, we continue to invest in our own assets through the purchase of our shares. In July, we invested $178 million to purchase 5.2 million shares at an average price of $34.22 per share. During the full year-to-date 2006, we have purchased approximately 15.9 million shares using approximately $518 million in cash to reduce common shares outstanding by approximately 7%.

In total, since January 1st, 2003, we have spent $1.4 billion to reduce our fully diluted shares by approximately 66 million shares or 24%, including the potential conversion of the 4% notes which had the right to convert at $10.83, and our 8.25 preferred stock which have the right to covert at $26.78.

Continuing our historical practice of investing in our business through share purchases, we have agreed to use up to $550 million of cash to acquire Global Signal shares sales in the acquisition, thereby reducing pro forma sales in the combined company post closing. As previously disclosed, we also redeemed our 10.75 and 9.375 senior notes on August 1st, which had approximately $10 million and $1.7 million outstanding respectively at June 30 for approximately $12.7 million, including accrued interest.

Moving to the outlook for the fourth quarter of 2006. We expect site rental revenue for the fourth quarter of between $180 million and $182 million. We expect site rental gross margin for the fourth quarter to be between $124 million and $126 million. And we expect adjusted EBITDA for the fourth quarter to be between $111 million and 113 million. Interest expense between $46 million and $47 million.

We further expect sustaining capital expenditures to be between $3 million and $5 million for the fourth quarter, thus bringing recurring cash flow to between $61 million and $63 million for the fourth quarter.

For the full year 2006, since we've updated the guidance on the press release last night, we expect site rental revenue for the full year to be between $690 million and $692 million. We expect 2006 site rental gross margin to be $478 million and $480 million and adjusted EBITDA to be between $422 million and $424 million with interest expense of between $162 million and $164 million. We further expect sustaining capital for the full year to be between $10 million and $12 million.

This outlook for 2006 translates into expected recurring cash flow for the full year 2006 between $249 million and $251 million or approximately $1.19 per share based on the 209.4 million weighted average sales outstanding standing for the nine months ended September 30.

In summary, our full year 2000 outlook suggest about $94 million of site revenue growth or about 16% over last year, about $79 million of site rental gross margin growth and $88 million of adjusted EBITDA growth or about 20 and 26% respectively. This outlook results in year-over-year expected growth in recurring cash flow per share of approximately 40%, substantially exceeding our long-term target of 20 to 25% per year that we've discussed.

When we began the year we first gave you guidance for 2006 approximately a year ago, we expected recurring cash flow per share to grow 30%. In fact, as it looks now we expect recurring cash flow per share growth this year of 40% and that's even after the significant short term dilution associated with the higher interest charges from borrowings for investments we made in shares and assets that further position us for growth in 2007 and beyond.

We expect to provide 2007 outlook for the combined company after the closing of Global Signal. And in the interim, we would encourage you to continue to assume the 20, 25% growth in annual recurring cash flow per share.

As we have discussed previously, we continue to work on refinancing outbalance sheet, which may include an offering -- an additional offering of securitized notes. We have entered into $1 billion of hedge agreements that insulate ourselves from fluctuation in LIBOR swap rates in contemplation of the refinancing of our existing financial facility. This potential interest savings is not reflected in our fourth quarter outlook for interest expense. Any refinancing we contemplate will be in line with our initiatives both to reduce interest costs and maintain influx investment flexibility.

We continue to be excited about our pending transaction with Global Signal. As we discussed in our call earlier this month, we continue to believe that this acquisition will be long-term accretive to our already solid growth expectations for site rental revenue, EBITDA, and most importantly, recurring cash flow per share.

In summary, we are very pleased with our outlook of 40% growth and recurring cash flow per share for 2006, which I might add is approximately 800 basis points lower than it would have been, but for the short term dilutive share purchases with borrowed money. Finally, this performance fundamentally is the result of terrific operating results highlighted by this quarter where site rental revenue grew 17%, site rental gross margin grew 21%, and adjusted EBITDA grew 29%.

With that I'll be pleased to turn the call over to John Kelly.

Thanks, Ben, and thanks to all of you for joining our call this morning. As I mentioned in the press release, I'm very happy with our performance this quarter.

We continue to grow faster than our internal growth rates that we have discussed with you previously, which I would remind you are 8 to 10% annual site rental growth, 10 to 12% annual adjusted EBITDA growth, and the 20 to 25% annual growth in recurring cash flow per share, and as Ben just mentioned, it grew faster in those particular metrics as we look forward to the end of the year by a large margin. The backdrop for our growth is the continuation of a trend I've indicated in previous calls. And that is the migration of wireline telephony to wireless telephony services.

Wireless subscribers are up again. The Cellular Telecommunications & Internet Association announced at the end of June, 2006, US wireless subscribers were up approximately 25 million, just slightly less than the record. And we now have a little over 219 million total wireless subscribers in the United States. In addition, today 8.4% of US households are wireless only, meaning they don't have wireline services in their home. As important as wireless subscriber growth is for our company and the tower industry in general, growth in wireless minutes of use is even more important.

According to the CTIA, more than 850 billion wireless minutes were consumed in the first half of 2006. That's up 27% from the first half of 2005. 65 billion SMS messages were sent by wireless devices in the first six months of 2006. That's up a staggering 99% from 2005. And very important for our wireless customers, wireless data service revenue grew to $6.5 billion in the first half of 2006. That is up 70% over the first half of 2005. In addition, wireless data revenues now contribute almost 11% of all wireless service revenue.

Finally, our wireless carrier customers are doing well, recording revenues of $60.5 billion in the first half of 2006. That's up 8.6% from the same period in 2005. Recent results by some of our customers reinforced the broader industry statistics. Cingular reported excellent results in the third quarter, more than triple in its net income while adding 1.4 million new customers in the quarter. Cingular's average revenue per user was up slightly in the third quarter as well, with data revenue increasing 46% year-over-year to $6.32 per month per user.

BellSouth, who as you know owns 40% of Cingular, reported healthy growth in their net income due substantially to the contribution from Cingular. At the same time, BellSouth reported that they continue to see a deterioration in their traditional fixed-line business with total access lines falling by 6.9%.

As exciting as this growth in data use is, I believe we are still at the tip of the iceberg. A study released by TNS Global Technology Insights indicates that just 16% of US wireless consumers have 3G-equipped handsets. And of those that do have a 3G handset, only10% make use of the full functionality 3G provides. The study equated this to the evolution from dial-up Internet access to DSL and cable modem adoption, foreshadowing better and more data use in the years ahead.

In my opinion, as the migration from wireline telephony to wireless telephony services continues and the need for vertical real estate grows, Crown Castle will clearly benefit. Crown Castle spends a significant amount of time working with our customers to determine how to better meet their needs. We survey our customers once a quarter in a number of areas and work hard to ensure that we're the best tower company in their eyes, improving in those areas that they identify.

One thing that is clear to us is our customer's desire to have efficient co-location options available to them, when they need it, where they need it. As I've discussed previously, our web-based site search tool identifies for our carrier customers which existing tower site among all publicly available tower sites best meets the customer's radio engineering need. If the site that best meets their need doesn't happen to be a Crown Castle site, our database automatically identifies which other tower site does meet their need.

As we encounter situations where Crown Castle doesn't have a site in the area our customer needs one and we identify the alternatives available for our customer, we regularly get feedback that the customer would have preferred that Crown Castle had an available solution. This, we believe, is primarily based on our continued focus on making the process to co-locate on one of our towers even more efficient.

Three weeks back, we announced our definitive agreement to acquire Global Signal in a deal that would bring Crown Castle over 10,650 additional tower sites, with 78% of these sites in the top 100 US markets and almost 40% of these sites in the top 25 US markets. Pro forma, Crown Castle will own over 23,500 towers with 16,000 towers in the top 100 US markets, more than any other tower company.

In addition, as a result of this transaction, we will be adding seven new top 50 markets to our portfolio, including Los Angeles, Detroit, Minneapolis, St. Paul, Portland, Oregon, Las Vegas, Milwaukee and Kansas City. Top 100 markets, as you can imagine is clearly important because as new wireless networks are deployed or new wireless applications are rolled out on existing wireless networks, wireless carriers focus on the most populated areas first.

Moreover, when we analyze the Global Signal portfolio using our proprietary lease forecasting tool, we determines which current customers need which specific towers, giving us the comfort that post-close, we'll be even in a better position to assist our customers with their co-location needs. From a shareholder perspective, owning more towers may not be beneficial unless the growth prospects relative to the price paid is accretive.

As is the case with all of our investment decisions, we carefully evaluate what we think an investment will mean to our recurring cash flow per share measure. As we've stated many times, our long-term objective is to produce annual growth and recurring cash flow per share in the 20 to 25% range. I say long-term objective, because in the near term, we have been consistently beating that growth objective.

We believe that based on our self-point leasing analysis that the merger will enhance our ability to generate long-term growth and cash flow per share of 20 to 25%. So the combination of helping our customers with their network needs, while advantaging our shareholders, makes this a compelling transaction in our view.

As mentioned in the press release, while we're very excited about the proposed combination, we are not taking our eye off the ball and meeting our current business objectives. We have established a dedicated group of professionals from our Company in each of the operating disciplines. And they're being assisted by representatives from Global Signal, and they're formulating all of the integration planning, and then they will be responsible for executing the integration of Global Signal into Crown Castle, post-close.

Those teams are making great progress. And I believe we will be in an excellent position post-close to assimilate these new assets into Crown Castle without compromising the service that we currently deliver to our customers. At the same time, I am confident that we will continue to deliver for our customers on our current customers during this interim period before close.

Consistent with our theme of helping our customers efficiently deploy their wireless networks and new wireless applications, we have continued to make operational progress with our Modeo initiative. We firmly believe and wireless carriers have agreed that in the long term, it is necessary to establish an alternative way of distributing what I call mass media content to wireless subscribers. We need to do this more efficiently than the one-to-one approach used in wireless networks today.

A multicasting network architecture, similar to the one by Modeo, will more efficiently deliver content, content such as news, sports, things like that that a lot of wireless subscribers want to watch at the same time. User-specific media content, content that select users are interested in watching at any given point in time could then be distributed using the new 3G networks being deployed today.

To assist our customers with efficiently delivering video content, we expect to wrap-up in the next two months the last few sites necessary to launch the Modeo network in New York City. This will not be a commercial launch in that we have not currently finalized the distribution contract with any of the major wireless carriers.

However, this networked launch will be, we believe, the largest most sophisticated network launch of mobile television in the United States. This network will give our customers the ability to see how Modeo performs in a large complex urban market.

In the following weeks we'll provide a number of you with a website address at which you can request a Modeo DVH handset. For those of you that are Cingular or T-Mobile subscribers, you can take the SIM card out of your existing phone and plug into it your Modeo DVH phone.

You'll then have the same mobile phone number you have with Cingular or T-Mobile but add to that all the functionality of Modeo DVH media network in the New York City area. Your participation, long with that of our wireless carriers, will demonstrate, we believe, the exciting future for mobile television and the role Modeo can play in that space.

Also on our last call, we discussed the options we were pursuing to raise outside capital to fund the deployment of the Modeo network beyond New York City. At this time, we have not been able to reach terms with any of the parties with whom we are engaged. We believe that it is because those investors are equally interested in the New York City launch and the wireless carrier reaction to this launch.

As such, all of our efforts will be on deploying New York City this year. And then, we'll be determining our next steps for Modeo after that. So as I wrap-up, but before I turn the call over to questions, as we sit here today, we are looking at wrapping up a very good year.

We are very excited about the growth our company is generating. Some 40% on the recurring cash flow per share metric based on guidance for the year. I believe our people are among the best in this industry and we all look forward to successfully finishing out the year with our sites set on what we believe will be an exciting new year after the close of our Global Signal transaction.

And with that, I'll turn the call back over to the Operator, who will coordinate the questions. Operator?

Thank you, sir.

[OPERATOR INSTRUCTIONS].

Our first question comes from David Barden with Banc of America Securities. Please go ahead.

Hi, guys. Thanks. Congratulations on the quarter. A couple of questions, first was just on -- as we look ahead maybe just to the next quarter and anticipation of the Global Signal deal closing, obviously you guys pointed out that leveraging your systems will be an opportunity to try to ramp-up the sales rate at Global Signal in their portfolio.

Are you planning or do you see any need to make incremental investments either capital or operating related in order to get the systems ready for this deal to occur? I guess the second question would be, Ben, could you just talk about the delta between the hedge rate and credit facility, in terms what was kind of savings we could look for there?

And then I guess just the last thing just to kind of tie it off, you guys mentioned, you know, the internal option, the investigation that you guys had done to just try to look at that topic last quarter. I just want to make sure that that kind of had come to a complete and total dead end. Thanks lot, guys.

All right, David, I'll grab the first question and then Ben can grab the second and we can, kind of, both talk to the last question about the informal investigation we discussed at the last call.

As far as the CapEx for the systems is concerned, no, these systems are scalable to be able to accommodate the additional towers that we will be getting in the transaction with Global Signal at 10,650. So there isn't incremental large CapEx expenditures necessary to incorporate them. And if anything, it is clearly what gives us the comfort once identifying what leasing prospects we see and that's what we have been doing certainly pre the announcement of the transaction using the project's south point internal tool.

We know which customers which this towers. We load that data then into our database and we are in a position to affectively offer those towers in the same way we've been offering ours, quickly post-close. And that's what the aim is of our integration teams are and that's what we're confident in talking about.

So what we're -- we're comfortable that we're going to be able to unlock the potential that we have identified in those towers faster than would have been the case where Global Signal continuing to develop all those systems internally.

David, on the cost of the debt question, if you just look at the $1 billion term loan that we have outstanding today, you know, and I'd say if we're successful because you know we always caveat these things until we're done and we're not done. But the savings just on that $1 billion, you know, could be in the 175 to 200 basis point range, if we're successful in the securitize note market.

We may choose to go further than that and finance some or up to and including all of the cash considerations that we have in the transaction for Global Signal, which would be incrementally higher spreads. So I hate to give you a prediction there but substantial savings obviously from what we're currently seeing on the billion dollars and what we would have expected to see in the bank or term-loan market had we undertaken that additional $550 million in the market.

So again, we'll put that in the forecast for 2007, you know, as and when we get that completed assuming that we do. I would also add that the swap, the $1 billion swap is in and around $522 so really kind of at the money. It has fluctuated some but basically $522. So you know, you can sort of from there put the spread on top of that and our last deal is the spread was about $62 over.

And, so you know, if we go all the way down into potentially even "BB" ranges the total blended spread maybe a little higher because we're accessing proportionally little bit more leverage to get to the $550 additional proceeds. And that's kind of where we are and it would all be fixed rate because of the swap that's already in place and the terms of the notes.

On the third question, really all we can say to that the question on the options investigation, the informal inquiry that the SEC is conducting; we have cooperated promptly and fully with all of their requests. And really -- have really nothing else to add today.

Nor do we have anything that suggests that our previous disclosure on the matter is -- requires updating or is not correct. So that's about all I can say on that and we obviously don't speak for the SEC or their timeline.

All right. That's great. Thanks a lot.

Okay. Yes.

Our next question comes from Jonathan Atkin with RBC Capital Markets. Please go ahead.

Yes. Good morning. I was curious about the timing of the mobile video trial, was that in the next several weeks or roughly might these units be available? And then, with regard to 2007 any sense that you can give us of what perhaps the outlook would be for site using revenue growth for CCI stand-alone?

So Jonathan, on the Modeo side again the last few sites are under destruction in New York City at this point. And those will be coming on in the next couple of months. So the network launch will be by the end of the year and what we're going to do is make available -- we cannot accommodate everybody on this call and everyone else that has otherwise expressed an interest.

So I just want to put that point out there right now. Unfortunately, some of you that are interested are not going to be able to be participants in this when it first launches and try to get as many of you as we can but that website address, Jonathan, will come out in the next few weeks, I'd say, hopefully the first couple of weeks of November.

And that will be a process through which then you can then get the fulfillment. We'll send you out the DVB-H unit and as I mentioned in the prepared remarks, if you happen to be a Cingular T-Mobile subscriber really in any part of the country you can go ahead and tame the SIM card out of your existing unit, put it into this DVB-H phone, all the same phone number or functionality you otherwise get with Cingular and/or T-Mobile and still continue to be provided through your DVB-H handset. But you now also get all the video and audio feeds that will be coming through to your DVB-H handset when you're in the New York City area.

If you happen to be a resident of an area outside the New York City. The only place that it's going to work on the DVB-H side your T-Mobile or Cingular service will work wherever else but the DVB-H will only work in the New York City area. So next few weeks look for that website address. And as I said, unfortunately we won't be able to accommodate everybody's request but we're going to try to get to as many of you as possible so that you can see it firsthand.

John, on your second question on-site growth, I would say that, you know, our teams are -- our sales teams have already moved beyond thinking about our portfolio as an old standalone core, you know, legacy portfolio and they're already working on the forecast for the full 23,000 sites. You're probably safe in assuming, you know, as John outlined our metrics sort of the 8% to 10% revenue growth, 10% to 12% EBITDA growth and 20% to 25% recurring cash flow growth.

You can bet, we're not certainly changing that outlook that view post this transaction as we've indicated we think at the margin this is accretive to the -- all of those growth rates but I don't -- you know, we debated whether or not we put out Crown Castle legacy company guidance for '07. And I just don't think that helps anybody because we fully expect that we're going to be closing this early in the New Year. If not even possibly into this year but probably early in the New Year and that will be the number you ought to be focused on and certainly our teams are already planning that way. So we're not doing the budget based upon sort of that way.

Okay. And then one timer's, I may have missed that but can you kind of go over whether that had any substantial impact on that?

Nothing significant this quarter in terms of one time.

Great. Well, thank you very much.

You bet, John.

Thanks, Jonathan.

Our next question comes from Ric Prentiss with Raymond James. Please go ahead.

Yes. Good morning, guys.

Good morning.

A couple of things. One, can you talk to kind of what the organic growth rate is? As you mentioned your same tower or your revenue growth rate and cash flow growth rate. Can you talk about was there any significant difference between organic and total given any M&A activities or anything else. Second, Australia has I guess a significant one time or last year though.

So can you talk a little about what you're really seeing in the Australian assets and then actually very nice increase in the EBITDA guidance? Can you talk to us little bit about what seems to be going on there to improve things in the third quarter and looks like it is carrying into fourth quarter that appears to be G&A related?

Yes, Ric, I'll try to remember all of those. On the organic versus total it's about 90% organic. Okay. So if you look at the full year guidance versus -- for say EBITDA growth, it makes about 300 basis points difference if you were to just strip out the Mountain Union transaction, if you will.

So that's sort of the difference. You know, we obviously focus on organic first and foremost as the way to drive real value here. And, so, it's really not heavily skewed by the acquisition of the Mountain Union sites we did. Australia did have an out of period adjustment last year it is coincidentally positive and a small one not material, but small one this quarter negative.

So naturally that's why it looks like there is no growth quarter-to-quarter and we put that little note in the press release just to make sure you guys understood we didn't miss that. If you do look year-over-year, and we don't give you guidance obviously full year on Australia. But it looks to us like full year-over-year, we're getting very substantial growth very comfortable to the US business.

Actually, a little bit higher, if you look at a constant currency, looks like EBITDA growth of about 30% plus and so very comfortable with the trends we see in that business notwithstanding this one quarter little bump, which kind of made it look funny this quarter.

And then on the continuing to extend the EBITDA guidance, it's not so much G&A as it is the continuing out-performance in our very conservative and delicate guidance we give or outlook we give around our services business. You know, we've been very careful to forecast that, because it is volatile and certainly can go down and we've seen that happen before.

But we continue to see very good traction on customers wanting us to facilitate the deployment on our sites, and that's typically all we're doing. With very nice margins. And we're continuing to see that business be very strong this year. And as we've come through the year we kept, you know, kept expecting it to sort of slow down and frankly it hasn't.

And so that's a significant contributor as well as just the out-performance on the site rental margin to the continued growth in EBITDA, but it's not so much G&A. G&A is pretty well running flat.

Okay. And then two other questions. We just got off the Sprint call, and they were making a very large emphasis on how important EV-DO Revision A or Rev A is going to be. John can you talk a little bit about how you think the benefit of having the Global Signal Tower will be on capturing whatever may be happening with the Sprint billed out?

I mean one of the things, Ric, that we certainly have noticed when singular and Verizon have undergone their upgrades to 3G on their networks. Was that by virtue of the number of sites that we own, the ones that they had sold to us originally as part of their outsourcing deals, we get very healthy benefit as they upgrade all of their existing sites first and they start doing fill-in around that, to compliment the data density that's otherwise necessary.

So they're adding antennas and lines to all the existing sites as their engineering requires. And it depends upon the carrier as far as what they decide to exactly do as they're upgrading, because you will hear things like well, they can just do it with a card swap and that's exactly done. I mean a card addition they could do there, but what we find is that given that data is becoming a more material element of what consumers are looking for, 11% of wireless service revenues now, as I mentioned in the prepared remarks. The carriers are really ensuring that they're delivering high quality data services to their customers. And in so doing in many cases are adding antennas and lines.

So we saw that benefit in Cingular and Verizon upgrades and would expect that with the Global Signal portfolio, given the fact that they have acquired the Sprint site locations there by, having a disproportionately larger exposure to Sprint, that you will be able to see that benefit coming from Sprint's desire to upgrade as well.

And I just -- point out again that the financial results that are being recorded by the industry as a whole and some of these carriers, most of them notably are here, Cingular in terms of the earlier week not having had an opportunity to kind of look at the Sprint numbers, given they just have been released this morning. You know, data is becoming a bigger and bigger part of what consumers are looking for in their units and in their service.

And as the wireless carriers continue to make inroads with enterprise sales selling data cards and the like, I think this is just going to continue to grow. And as such the carriers clearly are going to see economic return for their investment in the network. But in order to ensure that they are providing service to the customers and the customers expect they have to make certain, they built the network to in fact accommodate that high-speed data service, wherever the consumer happens to be in that geographic area.

So long answer to the question, I think we're going to see similar benefits as we saw with Cingular and Verizon as we close on Global Signal and otherwise have the large number of Sprint exposure, as they upgrade their network.

Let me ask one quick one. I apologize for going so long, but I have got a question that was asked to me the other day and I did not know the answer to which, always bothers me. With Global Signal transaction, Global Signal, doing a REIT.

What's going to happen to the dividend there? They have already declared the third quarter dividend. Will the fourth quarter dividend be paid, does it need to be pro rata if you close it early '07 versus late '06? Is there any kind of issue there been? Either it wasn't that really that promoted? What has to happen when somebody buys a REIT?

They have announced they will not paying fourth quarter dividend.

Okay. Thanks. Good luck, guys.

Thanks.

Thanks.

Our next question comes from Clay Moran with Stanford Group. Please go ahead.

Good morning, a couple of questions. You gave us the expenditures for Modeo year-to-date and maybe what's included in the full year numbers and if you can break it out by operating and capital that would be good. Also, on the services business how is that contributing to EBITDA for the full year?

And then lastly you mentioned that recurring free cash flow per share was up 40%, originally you were looking for 30%. Could you elaborate on what's driving the out performance, is it almost all coming from increased activity from the big four carriers? How much maybe is coming from the regional or other emerging carriers? Thank you.

Okay. See if I can get across most of those, Clay. On the CapEx, you know, this last quarter as you'll see in the queue and as we disclosed it obviously we segment report Modeo. This last quarter we spent about $10 million in capital and about $2 in OpEx. The OpEx run-rate is about that going forward.

So it's really sort of been that run-rate for some time. And we've talked about that, we're spending sort of in the $10 million range of G&A or negative EBITDA burn if you will around Modeo. And so this last quarter we spent about $10 million on CapEx and you'll see that in the queue as you do every quarter.

And then going forward just to finish-up the New York network, you know, it will be - and some other things just for odds and inns. It will be around that same range for the -- for the fourth quarter on Modeo. And that should basically complete this New York activity that we've talked about. Then on the services business, we report that every quarter as well.

If you look at our services margin full year, it is going to be in the $28million to $30 million range full year. It is kind of -- that is -- we don't give you specific service margin guidance but you got -- you'll have three quarters of that reported. And if you sort of look forward in to what we think in the fourth quarter somewhere in that $28 million to $30 million range just sort what was we think. Ben, can I cut you off there?

Yes. Is that EBITDA contribution or is that gross margin?

It is one in the same. Because we -- we look at G&A really as a total G&A number in the company. So the gross margin is the direct contribution, if you will.

Okay.

If you look at the out-performance of the 30 versus 40 it is pretty amazing to us that, you know, in terms of site rental revenue out-performance it's been very strong that has driven a lot of that. And then as I said in my remarks, had we not taken on the debt in the summer to buy the shares literally it would have been about 48% versus 40%. But as you understand, when you're borrowing at the margin about 7.5% and you're buying shares on nominal yield of about 3.5% in that equation it is dilutive for the first couple of years, so it brings that back down.

In effect, when we started guidance this time last year for '06, our total interest expense guidance was about $115 million. It's actually going to be as you know about $165 million. So, you know, substantial $50 million more of interest expense we've been able to undertake this year and still outperform recurring cash flow by about 10 million. And we have been able to take that extra $50 million of interest expense obviously and borrow that amount the $700 million or so.

And we've spent it on the Mountain Union transaction and shrinking the share count 7%. So when you think about the composition of that 40 -- that 40% growth and how that positions the Company going forward. We've effectively spent the out-performance in the form of 7% less in shares plus another 460 towers. And so the growth prospect going forward is that much more enhanced. So it is clearly more than just one year out-performance because it positions you then to frankly only have 93% of the mouth to feed next year plus 460 towers.

A couple of just wrap-ups, Clay, you were asking about the customer side of the equation. You know, we had a nice quarter. But big four to your specific question represented about 65% of the total adds in the third quarter. With the remainder coming from people like the regionals, nice activity from the [cricket] says you can imagine what the number of new markets that they launched, metro PCS and you know every other name is pretty much on the list that I am looking at in terms of other regional carriers.

And we're also seeing nice activity from emerging technologies which would include people like Clear Wire and Fiber Tower. And then something else that you don't necessarily hear us talking a lot about but we put a significant internal initiative on ensuring that we're also reaching out to government agencies. There is a lot of government need for vertical real estate and we're seeing a pick up in that other category, as it were, from government agencies.

A lot of work going on with the state agencies and that's contributing as well and, so, the combination of all of those other names that I just mentioned to you was about 35% with the big 4 being 65%. And then the only last point on Modeo as Ben was going through the numbers, that was to, in fact, finish New York as we have been previously discussing with all of you.

Post New York, what we had indicated to you is, we don't need to fund that on our own balance sheet by virtue of the fact that, as we've indicated, we're looking to outside capital to do that in whatever form it takes, whether that happens to be a non-controlling interest that's invested or a controlling interest that's invested.

Our aim has been to ensure that we have assisted our customers with deploying a new, more efficient approach to deliver in video content. New York is absolutely going to be an example of how Modeo will be able to operate in that type of an urban marketplace, and so, there really is no need to do anything beyond that from our standpoint from a balance sheet -- from a funding perspective.

Because it's at that juncture going to be proven up for our customers and for the investment community as to how Modeo operates. And from there we will either be raising outside capital in a non-controlling interest or we could be raising capital in a controlling interest as I mentioned before. And that you'll be hearing about certainly on the next call more updates on it because New York will have launched and we'll have users running around using it both yourselves and customers.

So I just want to make certain that I put those numbers in context because really post 4Q there is no need to continue the bigger CapEx numbers we've been spending in the last couple of quarters building New York. Okay.

Thank you.

Our next question comes from Anthony Klarman from Deutsche Bank. Please go ahead.

Thanks. A couple of questions that weren't asked. If I go back and look historically at the Global Signal numbers a lot obviously changed there overtime as they made acquisition, but the organic growth was certainly below what your organic growth was if you try to peel away escalators and acquisitions.

And I'm just wondering what gives you the comfort level that there won't be at least some up-front dilution to your growth rate as you, you know, pull the synergy from the transaction out overtime. And perhaps more affectively try to market their portfolio with the combined Crown Castle portfolio for the solution for wireless providers?

Anthony, there is two ways I'll answer that question and both of, which we considered long and hard as we were looking at this transaction. The first is, as we were able to really evaluate all of the detail around Global Signal, the gross leasing adds were actually quite reasonable.

They actually had some churn this year earlier in the year onetime in nature. They also had some FAS 13 adjustments which were one time in nature. The When we looked at the gross top line adds it was quite respectable. Not quite, what we're doing but quite respectable.

And again, the second way I would look -- I would evaluate that issue, because it was obviously the critical issue in our evaluation of the transaction, was in fact remember that with -- they having comparatively less revenue per tower and less gross margin per tower, they had got about 65% of our gross margin per tower. A dollar of revenue growth on their sites is obviously worth more in terms of growth than it is on our sites.

And so you don't -- I want to be clear for everyone, you don't necessarily have to assume that they lease those sites as rapidly in terms of dollars of new revenue per year tenant adds as we do on our own side to get the same financial outcome.

And I believe as I mentioned on the call three weeks ago that the breakeven on that is about 70%. So if you -- even with the capital expenditure that we have conservatively forecasted in our outlook for that business, again higher than what we're spending and what global is spending when you look at that altogether, about 70% lease-up on that portfolio looks to be about financial breakeven to us.

And so I just wanted to make sure that was clear. That was one of the key drivers for the decision, which we looked at the results they have been posting, looked quite reasonable, we looked at our South point data, looked like there was a plenty of additional tenant opportunities there and then comparatively needing to add less tenants per tower there than on our own sites, that is how we got comfortable with that very critical question.

Now, what has your ability been to really big into the weeds and look at a lot of the acquisitions that Global Signal made? Obviously you certainly would have seen the book on Sprint. So you probably had your own diligence on that transaction before they completed it but there are lots of other transactions that were made even going back to when it was pinnacle before they had emerged from their reorganization. What has your ability been to really diligence the sites and have a good sense as to what the customer make-up of their average revenue per tower is?

Yes. Anthony, I mean, it wasn't a question of just looking at the books that were otherwise prepared by, you know, Sprint sites or any one of the other companies that they bought towers from. And what we do is we do a ground up kind of evaluation of the potential acquisition and it was no different in this particular case, not withstanding effect that it's a lot of towers.

Basically, you start with this question of what is the leasing demand on their towers and it is not -- it is not kind of a singer in the air what does it look like based on macros. It's back down to by tower, by customer, current customers with current technologies as we have indicated the use of methodology around South point.

We were able to isolate what the specific global towers, tower-by-tower have in the leasing prospects by specific carriers and, so, that accommodates kind of all of their portfolio as it were where it's not in this specific transaction that they entered into or that specific transaction, it's basically looking at this as a holistic portfolio and just looking at each one of these as unique facilities.

And in those areas I mentioned a number of new top 50 markets that we would otherwise be adding to our portfolio but we would not have traditionally had the drive test data necessary for us to do the work. We got the drive test data to go ahead and do that work. So that way we were in a position of saying what does the leasing look like.

Then what we looked like as well was, we did a rigorous examination of the actual facilities, looking at things like compound spaces, looking at the structures, so that we could otherwise translate, were there difficulty that we needed to be aware of vis-à-vis accommodating those lease prospects on those particular facilities. I mean, was there structural issues. What we're finding is there is always a way to mitigate structural issues in terms of re-enforcement so that is not typically a problem.

But you need to ensure that you have done an appropriate modeling for that in your CapEx going forward, which we have. The issue that is a little bit more problematic because if you're otherwise boxed in on a compound and there is no way to expand the compound then whether there is demand for that site or not, you fundamentally can't add the tenant.

So we looked at that in great detail as well and we're able to get very comfortable that the extent to which these facilities are boxed in is not material from the standpoint of its impact on that portfolio over time.

And so I would tell you that it really is not an issue of any particular transaction that they entered into underperforming or being a problem. I think the big issue is that that company, and we've regularly kind of talked about it was predominantly deal-oriented and has only recently been focused on operationalizing the different deals.

You integrate those assets into our company with our systems, our people, our processes, and you're going to be unlocking the potential of that, we believe, much more rapidly than they would have on their own. And that's how we get comfortable that we're not going to be looking at significant issues post close as we start to market these assets.

Two financial questions. First, the cash portion of Global Signal transaction effectively serves the purpose I guess of a buyback in terms of reducing effective dilution from the deal. Will you take a breather at this point on your own stock buyback and wait to see what portion of shareholders subscribed to the cash portion versus the stock portion.

And are the -- is the group that you noted at the time of the announcement of the deal who are I think represented 40% will they all be taking the stock portion of the transaction?

The second question answer, we don't know. Obviously I don't speak for them. They will have the same optionality around that of that cash component as the others. Anthony, in terms of our -- we do look at the $550 made up consideration exactly like a stock purchase.

I mean it's resulting in us issuing 15 million less shares into the transaction. So it is exactly the same thing. It means we will conclude the year, even if we don't buy any more shares between now and then having spent almost $1.1 billion on stock purchases, you know, out of this at balance sheet so pretty aggressive and frankly, we are going to -- we're going to get the $550 million commitment put together.

Don't have a lot of capacity in the near-term post that only because that takes us at closing to about 8.2 times that EBITDA, very happy and comfortable with that, particularly if it is financed at lower rates but you know you won't see us go much beyond and so we're not going to -- we're probably not going to do anything between now and then, because that $550 is a very adequate and nice big number out there.

So but again on the cash consideration in terms of how the large shareholders over there would vote, certainly can't speak for them on that.

Okay. Thank you.

You bet.

Your next question comes from Vance Edelson with Morgan Stanley. Please go ahead.

Thanks. And congrats on the quarter. Most of my questions have been answered. But in terms of land purchases, it seems like activity stepped up a bit this quarter. Is that a good run-rate to use going forward? Is there any increase sense of urgency to acquire land or is it more now that you have the cash so you're looking for ways to opportunistically put it to use?

Yes. Vance, it's a -- I hope it is not a run-rate and I hope we can continue to grow it. But it has stepped-up and it's been through the effort of lot of very good people that are working on it in our company. And I might add Global Signal is doing a good job as well it appears and based upon their reported results as of the second quarter.

So as we go forward, we certainly expect to continue that. I would expect we will encourage and hope that the team at Global Signal will do the same and post-closing we have the view that, you know, we will as a combined company use those resources to continue to buy land. And it is really opportunistic in our view.

You know, as we've talked about it before, we're also doing a significant amount of extensions of ground leases and, so, you know, continuing to move out the average maturity. And we think it's a terrific use of capital on our part. And it's essentially refinancing what's an off balance sheet obligation with a more efficient structure and controlling the asset long-term. So again, we'll continue to do all we can.

Okay. And same type of question on the new tower construction, the amount spent there was up a bit sequentially, up a lot over the past year. Should we expect that to go down in coming quarters or might that pick up steam?

Well, we are trying to ramp that business. We want to be very careful. Obviously, we want to make sure that the sites we build are all going to perform, and we've used all of our internal systems to predict in addition to just the anchor tenant what the additional tenancy would be. So we are ramping that. And I think if we're successful, you'll see that continue to grow in 2007. But it will only be based upon success.

We have no internal initiative to build sites just as, you know, as an exercise. It's obviously a financial undertaking and to meet customer needs where we see the need. And, you know, we certainly have adequate capital to make those investments, and we will continue to do so as we demonstrate to ourselves we can do that in an accretive way.

Okay. And if I could ask one technology question, we're hearing a lot about the potential demise of CDMA, especially on a global basis, less so in the US. But I believe there are some small, very small carriers that have already made the move from CDMA to GSM. Does that have any implications for you or would you say more technology agnostic and indifferent to carriers making the switch, any implications in terms of the space needed, floor space and so forth?

Yes, Vance. I think that one of the great aspects of this particular business is that it is technology agnostic. Kind of what goes on the tower is not of particular consequence from our standpoint in terms of the technology that's being broadcast. I mean the only thing you find if a company were to actually make a switch is that at times what they'll do is they'll have duplicative antennas serving the two different technologies just to ensure that they are not compromising quality on one or they're migrating to the other.

Relative to things like floor space, to the degree that they have a shelter at the bottom of the tower, then typically they'd be able to put the new electronics into that shelter side-by-side with the old electronics and be able to make the switch that way. We wouldn't even see it. To the degree that they have outdoor cabinets, well, then they would need additional ground space leased with which to be able to accommodate the new electronics, while they're otherwise migrating to that, and then they would take the old electronics out and reduce some of the size.

So, you know, it would be conceivably an interim step-up, pickup in some respects. But, you know, we're not kind of seeing as much as that and certainly from a US carrier perspective that would suggest there is anything in the near-term that would indicate that there is any even near-term pick up in that regard. But that hopefully answers kind of what was the logistics are on an operational basis and nothing much in a way of pickup for us at least from our perspective in the near-term.

Okay. That's helpful. Thanks.

Sure. All right.

Next question comes from Jim Ballan with Bear Stearns. Please go ahead.

Thanks a lot. A couple of quick questions. One is, can you give us any update on the expected timing of the closing of the deal? And I know you said first quarter, but can you give us any more granularity there on maybe what's left to do?

And then the other question that I had was, you know, can you talk about any indications of any pauses by any of the carriers as they, you know, have been going pretty much gangbusters for a while here just, you know, to take a break to reload or to think about the new spectrum that's been acquired and are you getting any indications that-- that may happen over, you know, the next quarter or two?

So, Jim, relative to the two questions on the timing of the deal, I think, you know, all we can really still say at this juncture is that it is first quarter in that we can't predict kind of how the regulators otherwise will handle this particular transaction.

You know, our belief is that there are plenty of precedence that has been established for this type of transaction to otherwise move through the regulatory process without significant delay. But, you know, we can't call that until after we've really been down-the-road a few more weeks relative to that.

So at this juncture unfortunately, I'd have to still say that it's a first quarter '07 kind of an event as we have indicated three weeks back when we announced it. And then with respect to the carriers and any kind of pausing, I mean, it depend upon what the carrier was specifically doing. As I'm looking across all the numbers on my sheet in front of me here, as a carrier is otherwise doing an upgrade and really focused on an upgrade they're going to pick up incrementally from what their steady state is.

And so to the degree they're from the backend of that upgrade, some of that activity a lot of which at this stage would have been taking the form of amendments, adding antennas and lines to existing facilities. Otherwise we'll take a back a bit, and then they'll start going back to more other steady state. Those that hadn't really been in the process of doing a large scale upgrade would have, as I'm looking at my numbers, continue to be operating pretty much at a steady state of new sites being added.

So that doesn't really change too much. And then your second point, which was, you know, there was a lot of new launches that some of the regionals otherwise described in their most recent announcements and, you know, once a system is launched clearly a large kind of pent-up activity is otherwise released at that juncture. And so then they start going back to a more steady state as well in terms of leasing.

And so I think that's some of which you would see at this juncture, which is that for those two reasons, that is going back to a little bit more of a steady state from perhaps what was a more than normal kind of quarter based on some of these other activities having taken place in the third quarter. But certainly not a pause as in going to very little new leasing because there does appear to be, and there is a real linkage that I think the carriers are seeing between churn rate, quality of network and expenditures on CapEx keeping up with their customer demand.

That's both for voice and for data. And, you know, the costs of continuing to build out the network is small, quite frankly compared to what the cost of incremental churn costs them. And, so, what we're seeing is steady state environments for most of our carrier customers that is what gives us some ability along with clearly our Project South point to forecast going into the future.

That's great, John. I really appreciate it.

You bet, Jim.

Ladies and gentlemen, we have time for one final question. Our last question comes from Michael Rollins of Citigroup. Please, go ahead.

Hi, good mornings, guys.

Hey Mike, good morning.

A couple of questions. The first one was I didn't catch you may have mentioned, forgive me if and I've missed it. Just what the organic growth rate was in the third quarter on revenue. And then the second question I had was, if you look at your portfolio, what percent of sites needs some significant investment to add a new tenant and what would that average investment be?

And then the last part is, could you compare what that would be for you versus what it would be for Global Signal based on you are due diligence, just to try to understand the cost of growth as we look to, you know, continue to grow your portfolio overtime and then accelerate the growth of the pending acquisition. Thanks.

Okay. Mike, I can hit both of those for you pretty quick, and tell you how we did. The quarterly growth if you back out Mountain Union would have been about 13%, okay, just quarter-to-quarter and at the EBITDA line if you look at our full year outlook of about 26% growth it would have been about 23% growth without Mountain Union, okay, so that just clears that up hopefully. Still obviously about --

Very good --

Very vast majority of this being organic. On the CapEx question it's one we study a lot because, you know, we want to make sure it's a terrific investment and I should start with the fact that the first dollar we will always spend because you know, it always comes with the tenant by definition and in our case we're spending on average about $12,000 per new tenant add. So call it a nine-month payback.

In terms of the percent of sites, that's a tough one because it varies. It goes everywhere from no CapEx required to a substantial rebuild occasionally where you've got, you know, a very heavy loaded tower and the next tenant sort of pushes you to do some major reconstruction, so on average, about 12,000 per site. Our modeling and this is just purely modeling now, for Global Signal, it was twice that number, okay?

So that is more than they are spending. It's more than we're spending on our own portfolio. It is sort of the nature of how we model things and that is we'd love to be conservative and incorrect on the -- you know, on the downside there. So, that is how we've modeled it.

And that is certainly within the expectations of, you know, you have to get to sort of the 70% leasing to breakeven financially the CapEx was certainly in that model when we did that, so I just wanted to share that with you all. It goes to the notion that there are, you know, some sites there that will require some effort and spend, but, you know, we hope and believe that we have been extremely conservative in that outlook.

And just trying to make sure I understand those numbers, so when you say 12,000 for you, for your average site, that could mean, you know, you have half your sites -- just making this up -- that are zero and the other half might be 25,000. So the average is -- or 2,004,000 -- excuse me -- so the average is 12 and that would sort of be the same for global; where some might not need any incremental investment but some might need significantly more than that average. Is that a fair way of understanding it?

Yes. Obviously that's how the average will work.

Sure.

You'll have some that are zero and some that are substantial.

Good. It's 12,000 on every new tenant not on just those sites that need to be upgraded. That is correct?

Correct, correct. And the only point, Michael, is that your know your 50-50 split makes sense on a hypothetical, but it's not kind of 50-50 50% need, twice the number and 50% need to zero. It's a smaller minority that need substantial CapEx. Just that when they do, we're typically doing some sophisticated structural work and or rebuild and that's where it takes up the average number.

Okay. Thank you.

Appreciate that Mike.

All right, ladies and gentlemen, sorry we ran over a little bit our one hour normal timeframe. We just wanted to ensure that we took as many questions as we could, given the recent announcement of the Global Signal transactions from three weeks ago.

Appreciate your attendance this morning and again, as we sit here today, we're looking at wrapping up a very good year and we look forward to talking to you about that as we report our fourth quarter results in the first quarter of next year. Take care and we'll talk to you soon. Bye, bye.

Ladies and gentlemen, this does conclude the Crown Castle International third quarter earnings conference call. You may now disconnect. And thank you for using AT&T teleconferencing.