Crown Castle Inc (CCI) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Crown Castle International conference call. During today's presentation all parties will be in a listen-only mode. (OPERATOR INSTRUCTIONS) This conference is being recorded today, Thursday, February 7, of 2008. At this time, I'd like to turn the conference over to Crown Capital's Treasurer, Jay Brown. Please go ahead, sir.

Good morning everyone, and thank you for joining us as we review our fourth quarter and full-year 2007 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 the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will have proved 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 risk factors 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 incorrect, actual results may vary significantly from those expected.

In addition, today's call includes discussions of certain non-GAAP financial measures including adjusted EBITDA, recurring cash flow and recurring cash flow per share. Tables reconciling such non-GAAP financial measures are available under the the investor section of Company's website at crowncastle.com. As you all know, on January 12, 2007, we closed the merger with Global Signal, the reported results for the fourth quarter and full year 2007 include the effect of the merger, which are compared to the premerger historical results of Crown Castle for prior periods. During the call this morning, we will refer to certain pro forma results for the three months and 12 months ended December 31, 2006 and 2007, which are also included on page six of our fourth quarter earnings repolice that we put out last night. The pro forma results combine the results of Crown Castle and Global Signal as of the beginning of the periods presented. With that, I'll turn the call over to Ben.

Thanks, Jay and good morning everyone. As you've seen in the press release we've reported another solid quarter of results and are pleased to review the highlights of those with you this morning. During the fourth quarter, we generated revenues of $375.2 million, site rental revenue increased $150.9 million, to $337.5 million or up approximately 80.8% from the fourth quarter of 2006. Service revenue was $37.6 million.

Pro forma site rental revenue growth was approximately 8.3% comparing the recorded fourth quarter 2007 results to pro forma fourth quarter 2006 results exclusive of approximately $4.1 million in the quarter which we were expecting in our outlook and $8.9 million out of run rate items in fourth quarter of 2007 and fourth quarter of 2006 respectively. Gross margin from site rental revenue defined as tower revenues less the cost of operations, was $224.8 million an increase of $94.7 million, or up 72.8% from $130.1 million in the fourth quarter of 2006. Pro forma site rental gross margin increased approximately 10.7% comparing fourth quarter 2007 results to pro forma fourth quarter 2006 results. Adjusted EBITDA for the fourth quarter of 2007 was $209.2 million, an increase of $92.7 million or up 79.6% from the fourth quarter of 2006.

On a pro forma basis for the full year 2007, site rental revenues were approximately $1.3 billion, up $95.7 million or 7.9% from pro forma full-year 2006. Pro forma site rental gross margin grew 9.5% for the full year 2007, from $777.5 million for the pro forma full-year 2006, to $851.7 million. Adjusted EBITDA for the full year 2007 was $758.6 million. Capital expenditures during the quarter were $108.7 million, sustaining capital expenditures totaled approximately $8.2 million, and revenue generating capital expenditures were approximately $100.5 million, and this was comprised of $35 million expenditures for land purchases, $17.9 million related to the addition of new tenants on existing sites, and $47.6 million for the acquisition of 25 towers and the construction of new sites, including 53 towers completed in the quarter.

Consistent with our long-standing practice of investing in our own towers, in the fourth quarter we purchased 3.2 million shares of common stock for $126.2 million at an average price of $38.97 per share. After the quarter, we purchased 1.1 million shares up through February 6, 2008, for an additional $42 million at an average price of $36.99 per share. Since January 1, 2003, we've invested over $2.2 billion in purchases of our own securities to reduce fully diluted common shares by 88 million shares. Without this consistent and disciplined approach to purchasing our own shares, our fully diluted common shares to date would be approximately 29% higher. Recurring cash flow, defined as adjusted EBITDA less interest expense, and sustaining capital expenditures was $110.9 million in the quarter, inclusive of approximately $20.4 million of additional interest expense related to the $1.3 billion in borrowings in the fourth quarter of 2006 and full-year 2007 used to reduce actual and potential shares outstanding, by approximately 36.9 million shares. Compared to $67.5 million of recurring cash flow in the fourth quarter of 2006.

Recurring cash flow per share was $0.39 per share for the fourth quarter of 2007, again, inclusive of approximately $0.02 per share of dilution from the previously mentioned borrowings used to reduce the potential and actual shares outstanding, compared to $0.34 per share in the fourth quarter of 2006. As we've previously stated, the additional borrowings to reduce the share count over the past year have had a short-term dilutive effect impact to recurring cash flow per share. We believe the actions we have taken will deliver long-term growth in this measure consistent with our long-term objective of growing recurring cash flow 20 to 25% annually.

Turning to the balance sheet as of the end of 2007, securitized debt totaled $5.3 billion for the quarter and other debt totaled approximately $784 million for total debt at the end of the quarter of $6.1 billion. The other debt was comprised of our corporate credit facility, which was drawn $720 million, and $63.8 million of our 4% convertible notes. We also had $313.8 million of our 6.25 convertible deferred stock outstanding as of December 31, 2007. Total debt to latest quarter annualized EBITDA as of the end of the year was 7.3 times, and adjusted EBITDA to interest expense as of the end of the year was 2.3 times. At quarter end we have approximately 75 million in cash, excluding restricted cash and currently we have $100 million of availability under our corporate revolving credit facility. During the fourth quarter of 2007, we extended this $250 million revolving credit facility another 364 days to January 2009, with substantially the same terms and pricing as our previous revolving credit facility.

Moving on to the outlook for the first quarter of 2008, we expect site rental revenue for the first quarter between 336 million and $341 million, we expect site rental gross margins for the first quarter to be between 226 million and $231 million, we expect adjusted EBITDA for the first quarter of between 205 million and $210 million, and interest expense between 89 million and $91 million. We expect sustaining capital expenditures to be between 6 million and $8 million, and thus recurring cash flow is expected to be between 109 million and $114 million for the first quarter. We expect site rental revenue for the full year 2008 of between $1.377 billion and $1.392 billion. We expect 2008 site rental gross margin to be between 930 million and $940 million. We expect 2008 adjusted EBITDA to be between 850 million and $862 million, which is approximately 13% growth in adjusted EBITDA over 2007, and interest expense to be between 355 million and $360 million. We expect 2008's sustaining capital expenditures to be between 21 million and $26 million, and this outlook translates into expected recurring cash flow for the full year 2008 of between 474 million and $484 million.

Based on the current share count, the midpoint of our outlook would suggest approximately 24% increase in recurring cash flow per share compared to full-year 2007, which is near the high end of our stated targeted growth in recurring cash flow per share. Our 2008 outlook comprises approximately $100 million in annual site revenue rental growth and $100 million of annual adjusted EBITDA growth. Clearly this means we are managing expenses well as we expect to post 100% incremental margins in 2008.

Over the past few years, we've made many significant investment decisions, most notably, the purchase of approximately 29% of our fully diluted outstanding shares since 2003, and the acquisition of Global Signal, which closed in January of last year. Due to the solid performance of our core tower business, and the diligence we have demonstrated through refinancing the balance sheet and purchasing a substantial amount of our actual and potential shares outstanding, we have positioned ourselves to effectively leverage our core tower business revenue growth into recurring cash flow for share growth. This is best demonstrated in our outlook where this year we expect 8% revenue growth to translate into 24% recurring cash flow growth. Approximately a 3-to-1 ratio.

Consistent with our past actions, we expect to continue to use our recurring cash flow and additional borrowings to make investments based on their anticipated impact on long-term recurring cash flow per share. We have not included the impact of these potential investments in our current outlook. As of the fourth quarter 2007, our debt to adjusted EBITDA ratio was 7.3 times, which is down approximately one turn since the closing of the Global Signal transaction. Our interest coverage level defined as adjusted EBITDA divided by total interest expense, has increased to 2.3 times implying that we are now creating borrowing capacity within our targeted leverage ratios.

Given the state of the debt markets, I'd like to comment on how we see the current environment impacting our business. First of all, there's no requirement for this Company to access additional debt to deliver the 2008 outlook we've laid out. Existing recurring cash flow is more than adequate to fund all our contemplated capital spending around improving existing sites, selected new tower construction, land purchases, and with a substantial sum left over for discretionary investments in tower acquisitions or additional share purchases, which we don't forecast in the outlook.

That said, as you know, it is our stated objective to maintain leverage in the 6 to 8 times adjusted EBITDA range. In order to maximize the long-term growth in recurring cash flow per share. Accordingly, with the adjusted EBITDA forecast we have, we would expect to borrow approximately $700 million this year and put it to work either through additional share purchases or tower acquisitions.

With the difficulty in the credit market, clearly our cost to access additional debt has increased. However, this is somewhat mitigated by the drop in the underlying LIBOR and treasury rates. Our approach is going to be to watch the credit market very closely and take advantage of opportunistic times to be in the market as an issuer, remembering that the investment of borrowed money in our business is a relative value trade against the price of the assets or the implied yield on the shares we are purchasing. Given the volatility that we see in the debt and equity markets, it very well may be that we are able to make opportunistic investments this year incurring less short-term dilution than we have in the past, even taking into account higher borrowing costs. Again, this is a function of the cost of the debt and the expected return on the investment. Fundamentally, we have not changed our approach to share repurchases at all. I'd say on balance, we see this as a real opportunity to invest in our Company's assets at a substantial discount, to our view of fair value based on our long-term outlook for the business. While there's no guarantee it's all-in cost of additional debt offerings and what that will be, we believe we could be an issuer today in the neighborhood of 6.5 to 7%.

Further, we continue to believe that prudent leverage at our current levels enhances our long-term expected equity returns. Certainly, the volatility of the credit markets may affect both the timing and the pricing of future borrowings. We took the steps -- we took our first steps toward this end as we began borrowing under our revolving credit facility to buy shares over the last three months. Again, we are pleased with the results for the quarter and look forward to a strong 2008. With that, I'm pleased to turn the call over to John.

Thanks, Ben. And once again, thanks to all of you for joining our call this morning. As Ben just mentioned, we had an splint fourth quarter and full-year 2007. Exceeding our outlook that we provided you in October 2007 for site rental gross margin, adjusted EBITDA, and recurring cash flow. Before we turn the call over to questions, I'd like to make a few comments about our operating performance in the fourth quarter, give you an update on the Global Signal integration, discuss our expectations for Crown Castle, for 2008 in light of the current economic environment, and make a few observations about the 700-megahertz auction and our customers.

As I sit here today and reflect on where we are just 12 months after closing the Global Signal transaction, approximately, I'm very pleased with what we have accomplished and how that positions us for the future. I mean, specifically, we've doubled our tower count and thus our future leasing opportunities. We doubled the tower count while only increasing the share count by 40% which is inclusive of the 8% reduction in common shares outstanding we achieved during 2007, and as Ben mentioned today, we've also restored our leverage ratio to pre-transaction levels, putting us back in a position of levering our growth and adjusted EBITDA to make investments that we believe will maximize our long term growth and recurring cash flow per share. We completed a major milestone in the growth of our Company as I'm pleased to report the integration of Global Signal is substantially complete. The data quality review and lease abstraction are finished and we have completed quality check and entered into our system over 80% of the cab site and tower drawings and expect to be done with the rest very shortly.

At this point, as the integration work is rapidly winding down, we have eliminated almost all of the temporary staff associated with the integration activities. This accomplishment is a credit to our integration teams and all our employees have done a terrific job in 2007, exceeding our operating targets while successfully integrating Global Signal and doubling the size of our business. Additionally, we have significantly exceeded our original G&A synergy estimates of 12 million to $15 million annually. As reflected in our outlook, our annualized G&A expenses are down approximately $34 million from the combined Company's run rate from two years ago which represents greater than 60% of the legacy Global Signal G&A costs. All in all, I couldn't be more pleased with how the integration of Global Signal has gone and it's great to say that we won't need to be talking to you about that activity any longer.

On the leasing front we continue to be excited by the leasing opportunities in 2008. Driven by the level of applications and activity of our customers, and the increased leasing demand that we are seeing related to the deployment of the AWS spectrum. Consistent with how we ended 2007, we are seeing leasing activity across all of our customer segments, including the Big 4 wireless carriers, and other wireless voice carriers, as well as emerging new technologies and government entities. Our level of new applications and leasing activity is ahead of where we were at this point in 2007, which is a continuation of the trend we saw in the fourth quarter. In addition to leasing activity from all customer segments, we continue to see the contribution from amendments to existing leases in and around 30% of leasing activity.

As evidenced by the recent earnings announcements by our customers, the tower industry fundamentals remain strong as continued growth in minutes of use and increasing demand for data requires the continued investment by wireless carriers in building out and upgrading their wireless network to support data-intensive applications. The incremental investment wireless carriers are making in their networks to support data services is supported by customer acceptance of data services and the revenue it is generating. AT&T recently announced they have just under 2 million Apple iPhones on their network which has been achieved in just over six months. This, of course, is in addition to to smart phones from other manufacturers that are already on their network. Buyers of these devices are acquiring them for their ability to transmit and receive data in addition to0 working as a basic phone for voice purposes.

Wireless data is now more than 15% of total average revenue per user for the wireless carriers as a whole, which is more than double where it was two years ago. AT&T announced that their average revenue per user was up approximately 2% comparing fourth quarter 2006 to fourth quarter 2007, which is the sixth consecutive quarter of year-over-year ARPU growth. And in their case, data revenues grew 57.5%. But to continue these trends, AT&T announced yesterday that they will be expanding their 3G service to 80 additional cities this year, launching more than 1500 new cell sites. So whereas wireless subscriber penetration is approaching 85% of the U.S. population, I believe the continued growth in voice minutes of use from existing subscribers, and the increasing importance of data usage will continue to drive demand for our towers.

Furthermore, the strong correlation between network investment and low churn necessitates the carriers to continue upgrading their wireless networks to improve network quality, increase capacity and add functionality in order to remain competitive. A trend I've discussed in the past is the continued evolution of telephony services from being wired to being wireless. This has been going on for over 20 years and is continuing with the introduction of enhanced wireless functionality. As such, while much of the U.S. economy is grappling with recession fears, I believe that wireless telecom service will be more insulated from the tightening of credit markets and slower consumer spending than most sectors because of the nature of the subscription-based business model, and the consumer's view of their wireless device which more and more is replacing their wireline telephone. Today greater than 11% of adults subscribe only to a wireless service. As such, I believe wireless telephony services rapidly emerging as a consumer staple that will be recession resistant.

A recent study that came out of the UK, done by the London School of Economics found that 85% of the people taking the survey thought that having a mobile phone is vital to maintaining their quality of life, and interestingly, most of the 16 to 24-year-olds in the study, which is the generation that are most likely to be the drivers in the adoption of wireless data service, would rather give up a number of items, including alcohol, chocolate, or coffee, than live without their mobile phone for just a month. As our business matures, the fundamental strength of our cash flow model becomes clearer, as approximately 97% of the revenue for our full-year 2008 guidance is already contracted for at the beginning of the year. Our business is often compared to a traditional real estate business. However, the key difference is that we experience high organic growth in revenues, and cash flow as compared to most real estate businesses.

The last point I'd like to make regarding my confidence in our leasing prospects are the current results of the 700-megahertz auction currently underway. Bidding is currently just over $19 billion, far exceeding prior auctions and the FCC's minimum of 12.9 billion for this auction. This reflects the high demand for these very attractive spectrum licenses. There are a myriad of prospective uses for this spectrum being considered by the various bidding parties but some have estimated the buildout requirements associated with deploying the 700-megahertz spectrum could result in the buildout of 20,000 plus new cell sites which consequently drives growth for the tower industry beyond 2009. I believe these trends continue to underscore the value of our infrastructure to the wireless industry. And these trends apply to our Australian business as well as the U.S. business as illustrated by the results from our Australian business. That business has continued to perform very well as the wireless carriers down under continue to enhance and expand their third generation wireless data networks.

So in summary, we delivered a very strong fourth quarter, have substantially completed the integration of Global Signal, enjoyed better than expected results and synergies following the Global Signal merger, and are optimistic about the strong industry fundamentals. All that, coupled with the efficiency of our capital structure, and the actions we have continued to take to reduce our outstanding shares have positioned us for strong recurring cash flow per share growth in 2008, which is always our objective. And with that, operator, I'd like to turn the call over to you to organize the question-and-answer period, please.

Thank you, sir. (OPERATOR INSTRUCTIONS) At this time our first question will come from the line of Jason Armstrong. Please go ahead.

Thanks. Good morning. A couple questions. When you talk about the percentage of revenue that's already under contract, I know you've talked about this before, you mentioned 97%, can you remind us if you look back a year when you gave '07 guidance what that percentage was? And then second question here, you guys have talked for a while about the tower portfolio and what percentage is in urban market and that percentage being higher than others. Can you add any granularity behind this, as we see incremental sell side activity or amendment activity, can you help us think through towers in these markets versus not in the top 100 market and what sort of differential has been just to give us granularity on the trend rates?

Sure, Jason. The 97% measure is pretty well a future contracted revenue at the beginning of the year, is pretty well sort of a year-end run rate revenue concept against the forward 12 months. And that would suggest if you're growing sort of organic revenue in the 5 to 6% range plus the escalators, the contracted escalators that you've got built into the business, on half your convention, that gets you to about 97% contracted in any given year. As we sit here today with the forward contracts we see and the application pipeline, we expect to deliver today in actuality, it's higher than 97% as we sit here in February because obviously we're working on the pipeline today of applications. But that's pretty consistent.

Secondarily, I'd say to your question about the top 100 markets and the position of the portfolio, it's one of the things we're probably most pleased and encouraged about. The position of the Company today with 72% of the towers in the top 100 markets as we sit here and consider the future impact of data services and the upgrades on networks that are required and the amendments that we see, in our mind continues to solidify the value of the assets are largely driven by their location, and that's also consistent with our results. We look back and we constantly evaluate our tower results by market, and by a grouping of top 100. And the two categories we follow that are not in the top 100, the 28% of our sites that are below the top 100 have clearly leased up less than the top 100 sites. That has been the case since inception of the Company, that has not really changed.

Given the uptake we're starting to see in wireless data, whether it's across laptop cards or you've got some smart phones coming in at relatively high usage rates are you starting to see carriers come back with some amendment activity on existing networks?

Oh, absolutely.

Yes, I mean, as AT&T's announcement would suggest, Jason, the first places that they went and deployed their wireless data services were major urban markets. They're now following up with some of the secondary markets in their expansion of 80 additional markets this year. When you look at a T-Mobile introducing UMTS into their network this year, once again, they have a pretty prescribed plan for how that's otherwise going to be rolled out and you can well-imagine that the markets they go to first are the markets with the greater populations, they get a bigger bang for their buck in that particular regard. Emerging technologies, once again, you can continue to see a trend that would suggest that it's larger markets that get deployed, that get deployed originally. And so we would imagine that as you look at the continuing deployment of AWS by those -- that one in that spectrum auction, as well as the ultimate outcome of the 700-megahertz auction, that the place where carriers are going to invest first are going to be in the top 100 markets before they're going to be thinking about smaller markets, other than some regional plays and things of that sort where a carrier might only have that kind of exposure. What I'm talking about clearly are national trends that tend to show that larger urban markets are the first places that are being deployed.

Okay. And just getting back to the comments on the pipeline, begin the comments about what's contracted already and then given positive comments on the pipeline, sort of what it looks like, as we look at this quarter, you did, if you strip out the out of run rate revenues, and just get down to core rental revenues, sequentially you just put up, I think, 7.7 million in incremental revenues, 3Q to 4Q, yet you're still implying in this guidance range I think on average about 4 million step-up per quarter. So it just seems like these two don't really fit at this point, it seems like there's an opportunity to be a little bit more aggressive there.

Yes, I mean, Jason, you make clearly a good point, and it's somewhat the obvious point when you look at how the fourth quarter rolled out and what we're saying relative to the first quarter. But that's simply a continuation of the approach we have taken year-over-year in our view of the upcoming year. By virtue of how the carriers release their capital budgets to their field organizations, what we regularly see is, and clearly exhibited in the fourth quarter, there's a flurry of activity in trying to ensure that they hit their objectives of deploying X number of sites by the end of the year. As they roll into the first quarter, that flurry of activity somewhat comes to a rest and they then go through a process of distributing their capital budgets to their field, and we begin to get significantly more granular input on where they're going to specifically need sites this year. We looked at the forecast and outlook for 2008 on the basis of the same leasing activity as 2007.

Now, the point you're making is the fourth quarter ended strong, we're optimistic about things that we see in 2008 from a leasing perspective, so it could be higher than that. But what we would prefer to do is wait until after we've had a chance to see the specifics around the budgets being released at which point then we can make further comment on our first quarter earnings call about what we see as positives to what we had originally forecasted for the year, or whether or not we see any negatives in that particular regard. It's just the way the process rolls out. I would remind that maintaining leasing at a 2007 rate is generating 24% growth in the cash flow per share metric. And so could there be upside? We'll certainly let you know more about that as we finish up the first quarter here and report that back to you. But I appreciate the question.

Okay.

One other little nuance, there's a lot of little nuances in that number with you're talking about changes quarter to charter. Q1 example, Jason, maybe it's our inherent conservatism, is we're forecasting Australia exchange rates at 0.83 the rest of the year. That's about 1 million a quarter, if it stays at the current rate. So a lot of little nuances here that frankly could go our direction, particularly around leasing, as John just said. But we think the 3-to-1 relationship between revenue growth to recurring cash flow per share growth is pretty healthy.

Great. Thanks guys.

Thank you. Our next question comes from Ric Prentiss, please go ahead.

Good morning, guys.

Hey, Rick.

I have a couple of things, too. On the first quarter guidance, Ben, are there any one-timers that are baked into that guidance? I think you mentioned your fourth quarter guidance assumed the 4 million, there was anything in the first quarter that we should already be thinking about?

Yes, there's about 3 down, then also you've got the sequentially falloff in services business that you could back into in there and figure out that in the first quarter, which is our custom, normal seasonality, we did over 15 million in margin in the fourth quarter, and we expect to do substantially less than that in the first quarter. But I would say that is roughly almost double what we did in the first quarter of 2007. So our outlook for services, I know we don't actually provide you with guidance, but you can squeeze the number, is about double what we did in the first quarter 2007. So we're very encouraged by the activity but it will be a natural sequential quarter-to-quarter fall, which is the biggest reason why adjusted EBITDA guidance for the first quarter is basically flat to fourth quarter actual.

Right. Makes some sense. Okay. Second question is on the pipeline. I think you touched a little bit on it John in the last question, but if you think about your guidance for the pipeline, what was the thoughts as far as 4G spending from Sprint and Clearwire, if you're saying '08 similar to '07, there probably was not a lot going on from either of those guys. A follow-up question to that is when you say the application pipeline's going strong, last week when we were in Portland for the Clearwire analyst day, they talked about how they want to go very slow as far as actually turning cell sites on in '08, as far as timing within the year but also they want to do a lot of prep work doing zoning, acquisition, planning, per se, 30 million pops worth of build versus just the 6 that they're planning on doing right now. How does that sort of work affect you guys? They want you to kind of get all the way up through application but not pay the revenue, how fast could something be turned around, if you will?

So, Ric, on the question of 4G kind of WiMAX deployments, I think consistent with my comments on the third quarter call we're big believers in the technological elements of WiMAX and certainly the demonstrations that have been taking place, and don't see any current indications from Sprint that they have taken their foot off the pedal in those initiating markets, the first markets that they have indicated to everyone that they were going to turn up. But relative to kind of massive expansion beyond that for 2008, we don't have that in our numbers. And the reason for it as I indicated on our third quarter call, is that as a Company, clearly they have indicated that they're looking at all aspects of their business, and looking at what steps they should take to optimize returns for their shareholders as relates to the three different initiatives they have, their CDMA network, their IDA network, and their 4G initiative. So that isn't baked into the 2008 outlook, and as such we'll be following their announcements in that particular regard, as you, but it would be upside to what we would be seeing for 2008 in our current outlook.

As relates Clearwire, you bring up a great point relative to the one I was just mentioning when answering Jason's question, and that is we wait to see how the carriers look at their 2008 capital budgets and in Clearwire's case, one can recognize that there is going to be work that is done around the services side of the activity to get the sites prepared and ready for capital to be deployed at them, AKA antennas and base stations installed, but at this juncture, they have indicated that they're going to take a more slower pace in rolling out while they otherwise work through some of their financing objectives that they have for this year. And so that was something that we also expected as you ended the year 2007 just by virtue of how you could see their activity trending in. So there will be, as they get these sites prepared, some nonrecurring services revenue, but depending upon what the capital market environment is and how they progress their financing initiatives, their desire or willingness to deploy sites and put them in billing mode is going to be tempered by those activities. And so that's a big part of why we wait to see how all this rolls out in the first quarter. I mean, those two things, 4G and Clearwire, are offset by other initiatives by carriers. I mentioned the UMTS rollout by T-Mobile They're absolutely committed as they have indicated publicly, what they have allocated in terms of capital for this initiative, certainly recognizing the trends that I mentioned before, 15.5% of average revenue per user now derived from data, you have to have a data network to be a party to that particular revenue stream. They're absolutely committed to that activity and we're very close to them and helping them on rolling that out as rapidly as possible. You see other initiatives, as I just mentioned on the AT&T new announcement of 1500 new sites. So there's always puts and takes in a given year. As we look at the year, we're quite comfortable that the level of 2007 leasing is there, and the question's going to be how much more, if any, will it be higher than that. And that's something that will shake out here this quarter.

So it's kind of like playing ready golf, you get everything ready, if the capital comes in, you can start hitting the ball pretty fast, it sounds like?

Yes.

Final question for Ben maybe on M&A environment, you bought some towers in the quarter, you bought some land in the quarter. Update us on what kind of multiples you're seeing on both the land business and on the tower business?

Probably not, Ric, but I will say--.

Come on, Ben.

Because it's competitive out there. But I would say -- on both fronts. But I would say we are extremely interested in continuing that effort and growing both the M&A effort on the -- what I call the small acquisitions, small private deals, as well as the land purchase program. And would expect to see continuing sort of further investment on both fronts. And it's extremely accretive, both activities. We look at long-term leasing prospects on everything we buy, just like we evaluate our own Company when we buy stock, it's exactly the same methodology as we've taken many of you through before, and we evaluate that against the price being competitively bid in the marketplace.

I guess the other way of asking the question is given what we've seen on the pullback in the public tower stocks--?

Oh, we'd like to think it would be impact value clearly and you can bet we'll be pushing that point.

Sometimes it takes the private guys a little bit longer to realize some of the pain the public guys felt, you don't always have it calibrated exactly from a time standpoint but have you seen some rationalization from the private guys realizing that maybe multiples should contract a little bit?

A little bit and I think we'll see more as it becomes more of a realization on what the cost of financing is for anyone to ultimately acquire new assets unless they've got a built in capital, funding source like we do through the recurring cash flow or to the extent you're taking out new financing, it's going to be more expensive than it was.

Thank you our next question is from Jonathan Atkin, please go ahead.

I got three quick questions, one, what surprised you in terms of leasing activity during the fourth quarter that led to the outperformance on the top line? And then if you could talk about your current sales backlog compared to last quarter as well as this time last year. And then finally, the network development business, which, as you commented, has been kind of ramping up, what's been kind of the principal driver behind that? Thank you.

On top-line revenue, I think we were very parenthesis with how we finished the year. It's never absolutely certain until you sort of get to the end of December, but I would say it was really across the board we were pleased with sort of how we finished up. And not really any big surprise, as John just went through it. It's puts and takes and around markets and different carriers. On the service--.

If I could just interrupt quickly then, are the trends that led to that outperformance continuing year-to-date?

Yes.

Yes. Jonathan, because I think that the surprise was clearly that notwithstanding the slower start to the year and we had talked about that being a back-half year, I think the surprise was that notwithstanding the capital markets environment, the carriers did actually come through with their network expansion in the fourth quarter. And it's led by new initiatives like a T-Mobile UMTS upgrade initiative. There's also other activity, as I mentioned in the original comments, the 30% amendments, something that I think investors don't typically recognize all the time, is that there's other activity that goes on at the site that isn't necessarily always related to antennas and lines. We're getting a lot of activity from carriers along the Gulf Coast areas, hardening their sites with generator installations, taking on new site compound space that's rental increase. Those are things that are going to continue on into the new year from what they're telling us. And that's really, as we look at the pipeline, what's different in 2008 than was in 2007. We're starting the year with activities like the T-Mobile and other AWS expansions. Those that want them, the Leaps and Metros in a position where they have much more defined plans about what they're doing than was the case at the start of 2007. And so that activity is otherwise greater today than clearly -- but consistent with fourth quarter than it was at the beginning of 2007.

And the ads to that are going to be things like Ric's question, they're going to be things like what does happen to WiMAX, where does Clearwire go with its expansion plans and any other new announcements like the one that just came out from AT&T yesterday. Because AT&T had been winding down a lot of their activity. They were not making any public announcements about what they would or would not do with their expansion of 3G and just yesterday, of course, I think probably influenced by what's going on with the uptake of the Apple iPhone they talk about expanding to 80 additional markets. Those are the things that are going to be the upsides to our forecast. But again, we'll see that shake out this quarter because there's a certain lead time that carriers have to provide any tower company. If they don't have it pretty well locked down by the end of the first quarter, it starts making it a lot more difficult for them to realize those additions to their network in this calendar year. That's when we think it's most appropriate to talk about additional upsides to what we have originally forecasted.

On the services piece, let me just comment, Jonathan, you asked the question, clearly we're off to a better start on services. I think is a function of what's gone on in the market as well as probably we've piked up our take rate in terms of amount of the new installations and amendment work we're doing that are engaging Crown to do that work. It looks to us like a much who more level-loaded year. As John just mentioned, we started very slow in 2007, and we're playing catch-up on that business really all year and ultimately got there but it was with a big ramp in the fourth quarter. I think we have the luxury this year, at least in forecasting more of a level-loaded year to sort of get to the same outcome of 2007, and if it's better than that, well then potentially there's some upside there.

Thanks very much.

Yes.

Thank you. Our next question will come from the line of Mike Rollins. Please go ahead.

Hi, good morning.

Good morning.

Just a couple questions. I guess firstly, as you look at the Australian business, it looks like the 4Q to 4Q you had some really nice growth was any significant part of that currency or was that organic? And is that the type of organic growth that you would expect into 2008? And I guess the second question I would just throw out there, is if you look at the domestic portfolio and the type of mix that you're seeing, where are you seeing, in terms of upside on domestic for 2008? Do you think it comes more from upgrades? You talked a little bit about what T-Mobile's doing on the 3G side, or do you think it could be more back-end loaded in terms of some of the site co-location plans of some of the new entrants and regional guys looking to expand? Thanks.

Let me take the Australian one and unfortunately the 40% plus growth we'd love to see and tell you that's all organic but it wasn't. It's small in the overall Company scheme of things but still very nice to have. With the weak dollar against really all currencies, about a third of that quarter-to-quarter year-over-year growth in that comparison, about a third of that was currency driven. The other two-thirds was organic leasing growth, I would say have had a terrific year. And then a couple little small acquisitions they did, not big against the total Company but enough to move those numbers in that order of magnitude. Incidentally, we do see other opportunities down there, we may do a few more of those small things in Australia. Very pleased with what we see there.

Mike, on the upside question, I think the upside's going to come from the kind of announcement you saw from AT&T yesterday. Which is that as data rolled out, I think the wireless carriers did things very prudently, which was amend existing sites, add the relevant equipment they needed to upgrade their existing installations to handle 3G data services, recognizing that at the time there wasn't a revenue stream really that was there to support that investment. So wait to see what the consumer acceptance of those new services were going to be, what kind of revenue generation was that going to create, and then look at what it takes to expand the network both within markets that you had already initially, quote, launched it around, your existing sites. So fill in sites as well as continuing to add new installations to other markets. I think that's where you're going to see the upside. I mean, at this juncture, it was very nice, and clearly we had an opportunity to see what the plans are in the case of the T-Mobile UMTS upgrade, clearly they would be following the same basic pattern that the Verizons and AT&T already have in terms of how they have introduced 3G to their network.

What still lies ahead is going to be the opportunity for the infill because of the different characteristics of wireless data services from wireless voice services. And what it needs -- what the network needs to look like in terms of density of sites to ensure that you are producing a robust enough signal to drive the high bandwidths rates that 3G services are demanding. And so I think that's where you're going to see some of the upside. I think that what we're seeing on this macro evolutionary trend is tremendous in the adoption of data services and the way in which people are looking at using data services. I think it was tremendous that you see AT&T and Apple discussing their initiatives around modifying the Apple -- the iPhone software so that it is more of a business friendly device, to secure e-mail services, things of that sort. Because today it's been predominantly a consumer driven sale as opposed to a business driven sale, the efficiencies, the productivity improvements by putting more of these smart devices, wireless devices into businesses' hands are going to continue to drive revenue growth and ARPU growth to the carriers, certainly supporting the investments in wireless data.

So those are the things that I think are upside. And I think it's all consistent with what you would expect, that you want to see where the market is, and what kind of revenue it's going to generate before you start making those kinds of investment decisions. But I think that's what we're now seeing, and I think that's where we're going to start to see the upside to our current kind of outlook for the leasing for the year.

Thanks very much.

Thank you. And the next question comes from the line of Brett Feldman, please go ahead.

Thanks for taking the question, earlier in your prepared comments you were talking about potential borrowing you may be willing to do this year, and you said that your willingness to do that is highly dependent on the cost. Also curious, how important is the term of a potential loan to you? In other words, most of the securitizations you guys have been doing have sort of been five-year terms. Are you still comfortable with five-year loans even if they're in a another market like a bank or a bond market, or would you actually try to see if you can get longer duration loans in future borrowings?

Brett, the answer, we're looking at all different sources of borrowing, the place we would most likely focus our attention would the institutional term loan market, the bank market would typically be a seven-year maturity and then the securitization, ABS market would be, remember, as a legal final it's 30 years with an anticipated refinancing of five. I'll quickly concede that we would expect to refinance in five, but it is a subtle distinction, maybe not so subtle in this type of environment, that you don't have a default risk in five years. You've got a step in interest rates to about 10%, and clearly that wouldn't be a pleasant day, but you certainly don't have an absolute maturity. As we look today, our first sizable anticipated refinancing in the CNBS market is 2.5 years you a. So it's just impossible to figure or kind of think about where that market will be. But clearly even if we had to take it out in institutional market that's consistent with my comments that the 6.5 to 7% range is kind of where we would think we'd be a borrower today for new money. That's at a very high spread to LIBOR as you can calculate quickly. But we believe there's availability there, that's what we're being told.

When we think about the relative value equation, to us if we can buy our own securities at 20 times current year guidance cash flow and by implication on the growth rates we talk about, that would be sort of mid teens next year, if we can buy our current securities at those levels, even with that incremental cost of borrowing we think that's a fantastic opportunity and that relative value trade is probably more favorable in this environment than it has been anytime in the last three years as we've been buying $2.2 billion worth stock. So within the level of leverage ratios we've described, I don't think -- we're not suggesting we're going to go out and just flat out lever this Company and have no flexibility, that is not at all what I'm suggesting. But I am clearly suggesting we're committed to remaining at this level of leverage and taking advantage of this relative value situation that's there, notwithstanding the sticker shock on the credit sped that's out there today.

That makes sense, I guess I'm just trying to understand how -- whether it's a priority to you guys or not about concentration of when you would have things come due or when you would anticipate refinancing them? So if you started to--?

Again, the way I think you best manage that is by having a ladder built in, which we do, between 2010, '11 or so, and then you have a reasonable level of leverage and interest coverage that even in an expensive interest rate environment, you could take out. And remember, at the level of growth today as we've just demonstrated in the last 12 months we're taking out a turn a year. So even if you were to get concerned about that a year and a half from now, you could take this down to where basically all you're looking at having to refinance is essentially the AAA traunches, and I have a hard time figuring how that would be a real problem.

Sure, that makes sense. Totally separate question, I think for about as long as anybody can remember, you guys have always been in some small business that was not pure tower leasing, whether it was FreeView or what you were doing with Modeo or even the investment you had in Fiber Tower before it spun out. Right now you're not doing any of those things, I'm just wondering, are you continuing to look at other revenue opportunities around your assets, or are you just kind of focused in on the core leasing business these days?

I think the opportunities on the core leasing side of the business, Brett, are so exciting as we look forward the next couple of years, that we're not looking elsewhere for revenue-generating opportunities. Fundamentally, it is around the core tower business.

Do you think that you might have some further opportunities then to take certain fixed costs out of your G&A, for example? I think that you guys have always operated with maybe a little more fixed costs because you were looking at new revenue opportunities, I'm wondering if you had an opportunity to revisit that now?

Well, I mean if you look at 2008 and the $100 million of revenue growth translates into $100 million of EBITDA growth, basically, I think what you can see is we're holding our costs very, very flat, and we're managing it very tight. And so I wouldn't suggest that there is big changes in that particular regard in terms of taking it down, I think we just need to continue to manage it the way we are, utilizing all the current resources a efficiently as possible so we can get that kind of incremental margin on new revenue.

I mean, to be absolutely fair, just to head off a question, absolutely we're going to be the beneficiary this year of run rate favorable comparisons to last year because last year we had some expenses through the integration period in coming -- bringing G&A levels down, coming out of the Global Signal transaction and Modeo that are obviously not going to replace themselves this year and that's how you're able to run at these levels for a year. I wouldn't suggest that's sustainable over a multiyear period but absolutely I think we're working on a number of initiatives where we are becoming more efficient and I think you'll find over time that we'll be at very high incremental margins over a long period.

Great. Thank you for taking the questions.

Thank you. Our next question comes from the line of David Barden. Please go ahead.

Hey guys, good morning. If I could just -- just on the capital expenditure side for 2008, obviously it was a big investment in 4Q in the land repurchases, I was wondering, Ben, maybe if you could scope out what a rough parameter for capital expenditures for this year is going to be that we could kind of carve out of our expectations for cash flow and leverage as they might be applied to buybacks? Thanks.

Well, David, you know we have a philosophical disagreement a little bit on that whole methodology of valuation because everything below recurring cash flow in our mind is discretionary. What I will say about that is what you've seen we spend money on is clearly the first thing we do is augment existing sites around additional revenue opportunities that come with leasing, that comes with usually less than a year buyback, that's obviously a wonderful return on investment. That could be rolled into a lease contract with a customer and have them make that investment. So again, it's somewhat of an accounting treatment of how that gets actually displayed in capital expenditures.

Beyond that, you've got land purchases and you've got some tower builds we're working on, maybe 150 or so this year that we're sort of looking at. Those are completely discretionary and we are focused on where we believe we see real organic leasing opportunity there. And hight returns on investment, sort of mid teens unlevered type investment returns is what we're targeting there.

So when you sort of sum it up to answer your question, it's in and around $200 million of sort of things that are sort of left over. My comments, I've sort of alluded to a fairly large sum of unspoken-for cash, it's in and around $200 million. But again, the 250 or 270 that's been spoken for is, again, completely discretionary. So we're going to evaluate it as we go.

Just to be clear, the 200 million is kind of the sum of all that kind of discretionary activity, which is over and above the maintenance capital expenditure--?

Correct. If you look at the 480 of recurring cash flow guidance, if you were to say give our take 250 is kind of core business augmentation, land purchases, new builds, et cetera, to maybe 280, well, then the rest of it leaves 200 that's fair game for anything. And that's just round figures. And we're not going to give -- we don't give firm guidance on the number because frankly it's discretionary. We could change that materially. But that's sort of how it looks like as we rough it out for the year.

Helpful. Thank you very much.

Thank you. Our next question comes from Gray Powell. Please go ahead.

Good morning, everybody. I just had a few quick questions. First off, can you just talk about what needs to happen for industry demand longer term in order for you to maintain free cash flow growth above 20% beyond 2008? And then what do you expect to be the main driver of growth for the industry over the next two to three years? Do you expect it to be new tenants coming on to existing towers or amendments from existing tenants? Thanks.

That's a great first question there, Gray, I'd love to address it. The wonderful position we find ourselves in today, because of the actions we've taken over the last four years in terms of the balance sheet and shrinking the capital structure, get us to the position where at this level of leasing, and I don't mean percentage, I mean dollars, $100 million a year basically of new revenue coming on. Because, again, the percentage on that static number will fall about 50 basis points a year because you're coming off a bigger number every year. Unless you're adding assets. But just for the example purposes that $100 million a year now reinvesting that as we just talked about with Dave, that $480 million of recurring cash flow growing over time by roughly, call it an 85, 90% incremental margin, call it $90 million a year, reinvesting that cash flow and the borrowing capacity that gets created in our judgment, in our long-term planning horizon, gives us the confidence to be able to say to you we expect to be able to grow recurring cash flow per share 20 to 25% for the foreseeable future. That is exactly how we get there is because it's not just a one-year thing, it's because you're constantly reinvesting either in shares or in assets that are ultimately driving organic growth that results in that.

It's a very important point, because we could not invest this year -- I'll give you the example, this year as suggested in our guidance, doesn't presume further investment of that discretionary cash flow or borrowing capacity. And you see 24% as some would expect could we outperform that number, could it be 25, 26? We don't know. But we do know if we go in and relever and borrow appropriately as we've discussed, that 24% goes to about 20. Now you have to assume at what price you're buying the shares and the incremental cost of debt but it takes it down in the current year a little bit. But it enables you, to your question, to sustain that growth rate over a very long period of time, assuming that the current level of leasing basically remains. So hopefully that wasn't too confusing but that's sort of how we think about it.

No, that makes a lot of sense. And then really just to follow-up on a previous comment, did you guys say that there's going to be a $3 million one time negative item that hits Q1 site leaving revenue? If that's the case, then just the simple math implies that the midpoints of incremental revenue is actually up in Q1 from what was a pretty strong Q4?

Actually, Gray, it's about 2 million, that's sort of normal recurring, nonrecurring items, if you will. There's back billings and there's things in that number. So it's -- I wouldn't spend too much time thinking about it, it's sort of normal one-time numbers of about 2 million, and that's already baked into that number.

So there's a negative $2 million one-time item in the Q1 guidance?

Yes.

Okay. Thank you. Thank you very much.

Thank you. Our next question comes from the line of Richard Choe, please go ahead.

Hi, thanks for taking the question, I just wanted to clarify something, in terms of your current guidance and I guess you mentioned a few times the AT&T announcement, is that announcement something that's going to help you get to your guidance or is that something that could drive the guidance a little bit higher in the latter half of the year? And the other thing I wanted to kind of touch on was this whole idea that while this industry seems to be very volatile, people are uncertain with a lot of things right now but all your comments so far about how the leasing business have gone, amendments have gone, doesn't seem to reflect that. Can you give us a little more color or comment on that?

Yes, Richard, with respect to the AT&T announcement, all other things being equal, it would be upside to what we were forecasting for this year in terms of leasing. The reason why you don't see us, based on yesterday's announcement, changing the view is because we have to wait to see whether or not there's any offsets to that from other carriers this year because of alternative priorities that they might have, including capital market impacts on some of their plans. But all other things being equal, that doesn't get us to our number, that would be upside if nothing else changed. So we'll let you know more about that again on the first quarter call.

And then your comment about notwithstanding the volatility, our comments seem to be fairly sanguine about the state of our industry, I think is right on point. The reality is in difficult economic cycles, there are certain products that continue to be consumed by consumers and business alike. Certainly on the consumer side, there are the myriad of different consumer staples, and on the business side there are certain realities to conducting business. In good economic times and in bad economic times. And on both sides of that equation, communications are very important. Notwithstanding what somebody feels about their prospects, either on a business level or on a consumer level, there is a need for communication. And given the way wireless is replacing so much of what people had traditionally done on a wire-line platform, our view is that the companies engaged in this from the wireless carrier perspective are going to continue to prudently allocate capital in good economies and bad economies to the continuing growth of their networks.

I mean, in essence, Richard, one of the things that we found, not all carriers followed through on this, but at the last economic downturn post-9/11 in 2001, there was one carrier that was unbelievably consistent in their routine capital investment in their network. And it has been very beneficial to them as they have clearly been recognized as a leader on the element of network quality. And I think others have witnessed the positive impact that created for them, and so I think people, certainly businesses on the wireless carrier side are going to strive to continue to ensure that they're meeting the demands of consumers and business alike for these wireless communication services. I think that's why we're sanguine, is because we're seeing that in the activity levels of our customers and seeing that in terms of what they talk about for this year and certainly we would expect post the close of the 700-megahertz auction, we'll start hearing more about what people are thinking about there.

Again, no one should be looking at that as a 2008 element, the frequencies really don't become available until 2009 when the analog television is shut off but we'll start getting greater visibility as to what people's plans are later this year and be able to talk to that on future calls as it then impacts 2009 and beyond. I think at this juncture, operator, since we've run over our time, we certainly appreciate everybody's continued interest in the Company, and your being on our call today. Sorry, we have run over a little bit, we wanted to make certain we fit in as many questions as we could. But I'm going to conclude the call at this juncture and thank you all and look forward to talking to you about our first quarter results a little later this half of the year.

Thank you, management. Ladies and gentlemen, at this time we will conclude today's teleconference. We do thank you for your participation in today's conference call. If you would like to listen to a replay of today's program, please dial 1(800)405-2236, or 303-590-3000 with an access code of 11107434 followed by the pound sign. We thank you for your participation. You may now disconnect, and please have a pleasant day.