Crown Castle Inc (CCI) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Crown Castle International corp's second quarter 2008 earnings conference. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS.) This conference is being recorded on Friday, July 25, 2008.

I would now like to turn the conference over to Fiona McKone, VP of Finance. Please go ahead, ma'am.

Thank you. Good morning, everyone, and thank you for joining us as we review our second quarter 2008 results. With me on the call this morning are Ben Moreland, Crown Castle's CEO, Jay Brown, Crown Castle's CFO, and John Kelly, Crown Castle's Executive Vice Chairman.

This conference call will contain forward-looking statements and information based on management's current expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to have been correct. Such forward-looking statements are subject to certain risks, uncertainties, and assumptions. Information about the potential factors that could affect the Company's financial results are available in the press release and the risk factors section 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 flows and recurring cash flow per share. Tables reconciling such non-GAAP financial measures are available under the investor section of the Company's website at crowncastle.com. With that, I will turn the call over to Jay.

Thanks, Fiona, and good morning, everyone. As you've seen in the press release, we reported another excellent quarter of results. During the second quarter, we generated revenues of $379.5 million. Site rental revenue increased $26.2 million to $348.5 million or up approximately 8% from the second quarter of 2007, in line with our target. Substantially all of this growth was achieved organically across the assets that we owned as of the second quarter of 2007.

Service revenue was $31 million, up approximately 50% from the same period last year. Gross margins from site rental revenue, defined as tower revenues less the cost of operations, was $234.8 million, an increase of $24.6 million or up 12% from $210 million for the second quarter of 2007. Adjusted EBITDA for the second quarter 2008 was $213 million, an increase of $26.6 million or up 14% from the second quarter 2007, ahead of our expectation. As a result of diligently managing our direct tower expenses and G&A, in the second quarter, we were able to convert 100% of our year-over-year growth and site rental revenue into adjusted EBITDA.

Recurring cash flow, defined as adjusted EBITDA less interest expense, less sustaining capital expenditures, increased 31% to $119.2 million from $90.9 million in the second quarter 2007. We significantly exceeded our targeted annual growth rate of 20% to 25% growth in recurring cash flow per share by achieving 34% growth from the second quarter of 2007. Our continued strategy of investing cash to maximize long-term cash flow per share, coupled with the strong operating performance of our towers, has enabled to us deliver results above our target. I believe our operating results demonstrate our ability to consistently grow revenues and cash flow, even in challenging economic times.

During the quarter, capital expenditures were $140.7 million. Sustaining capital expenditures totaled approximately $5 million. Revenue generating capital expenditures were $135.7 million. This was comprised of $73.5 million for land purchases, $18.4 million of CapEx for revenue enhancing activities on existing sites, and $43.8 million on the acquisition and construction of new sites.

Turning to the balance sheet as of June 30, 2008, at quarter end, we had approximately $98.8 million of cash, excluding restricted cash. Total debt to adjusted EBITDA as of June 30, 2008 was 7.2 times and interest coverage for adjusted EBITDA to interest expense was 2.4 times. Securitized tower revenue notes totaled $5.3 billion and other debt totaled approximately $856 million for total debt at the end of the quarter of $6.1 billion. The other debt was comprised of $792 million under our corporate credit facility and $63.7 million of our 4% convertible notes. We also had $314.3 million of our 6.25 convertible preferred stock outstanding as of June 30, 2008. Lastly we had $100 million of availability under our revolving credit facility.

Moving to our outlook for the third quarter 2008, we expect site rental revenue for the their quarter of between $351 million and $356 million. We expect site rental gross margin for the third quarter between $235 million and $240 million. We expect adjusted EBITDA for the third quarter of between $214 million and $219 million; and interest expense of between $88 million and $91 million. We expect sustaining capital expenditures to be between $8 million and $10 million; and recurring cash flow -- recurring cash flow is expected to be between $116 million and $121 million.

As you have seen in the press release, we have also updated our full year 2008 outlook; increasing site rental revenue, site rental gross margin and adjusted EBITDA by approximately $5 million, largely based on the strong performance of our business during first half of 2008. As reflected in our full year 2008 outlook and due to the efficiency of our capital structure, we expect to translate the 9% growth in revenue into 14% growth in EBITDA and 26% growth in recurring cash flow per share, again, above our target. Taking into account our full-year 2008 outlook, our compounded annual growth rate and recurring cash flow per share over the four-year period ending in 2008 is projected to be 26%.

Given the state of the credit markets, I would like to make just a few comments on our capital structure. We are in an excellent position relative to the current dislocation of the capital markets, as virtually all of our interest expense is fixed and we have no significant refinancings before June 2010. Importantly, there's no current requirement for the Company to access the capital markets, as we are producing nearly $0.5 billion of annualized cash flow. Projected recurring cash flows sufficient to fund our capital spending around improving existing sites, the acquisition and construction of new sites and land purchases.

I am comfortable with our current level of indebtedness, as it represents less than 40% loan-to-value which is very conservative relative to other real estate or infrastructure assets. We also benefit from having the majority of our site rental revenue from an investment-grade rated tenants under long-term leases with historically low churn rates. I would also point out that given the anticipated growth rates in our business, we tend to delever quickly as seen over the last six quarters. Since we acquired the Global Signal assets, we have reduced the total debt leverage from 9.25 times to 7.2 times, largely through organic growth and adjusted EBITDA.

With regards to current borrowing rates, and while there's no guarantee about the all-in cost of incremental debt offerings I believe we would be issuer in the CMBS market of approximately 6.5% at the AAA-level. Or in the high yield market at approximately 8% to 9%, assuming our current level of leverage. Though we have not issued any incremental debt in 2008, I continue to believe that our long-term expected equity returns are enhanced by a prudent level of leverage. Obviously, the cost of any incremental debt must be weighed against the risk-adjusted returns of investments made with the proceeds.

Certainly the volatility of the credit markets may affect both the timing and pricing of the future borrowers. We will continue to diligently manage our capital structure, balancing the benefits of utilizing debt to enhance our long-term recurring cash flow per share growth, while not compromising our ability to refinance our existing indebtedness at reasonable terms and costs.

Again, I'm very pleased with the results this quarter and continue to believe that the assets we own have considerable growth potential. And due to the efficiency of our capital structure, we expect to be able to translate 9% revenue growth in 2008 into 26% growth from recurring cash flow per share. With that, I will turn the call over to Ben.

Thanks, Jay. I want to welcome you and Fiona onto this call going forward. Thanks to all of you for joining us on this call this morning.

As Jay reported, we had another very good quarter; as we exceeded our outlook for adjusted EBITDA, recurring cash flow, recurring cash flow per share, and increased our full-year 2008 outlook, based on the activity we have enjoyed in first half of the year. As reported in our press release, for the first six months of 2008, we have experienced an 11% increase in leasing activity and associated revenue in the US, compared to the same period in 2007. We are excited about the long-term prospects for site rental revenue from the continued deployment of wireless, voice, and data services, and the migration from wireline to wireless telecommunications, we are all witnessing.

Before we turn the call over for questions, I would like to make a few comments about our expectations for Crown Castle for 2008 and beyond, driven by the strong industry fundamentals characterized by rapid growing minutes-of-use with an increasing demand for wireless data. Our wireless penetration is now at about 84% of the population. Recent moves by wireless carriers to unlimited plans have led people to spend more time on their wireless devices.

Subsequently, minutes-of-use have grown more than 20-fold since 1999. Even with penetration exceeding 80% in the US, wireless minutes-of-use have grown 18% in the last year, and exceeds 2 billion billable minutes annually. It's interesting to note that in a recent CTIA report, US households with wireless-only service increased to 16% at the end of 2007 from just 8% at the end of 2005. Further, the increased availability of SmartPhones and 3G devices is contributing to accelerated growth of wireless data traffic and revenue.

As we have stated in the past, the combination of rapidly growing minutes-of-use, and increasing demand for wireless data means that network quality remains a key factor in the retention of subscribers, resulting in carrier spending on their networks to insure coverage and capacity to meet customer needs. This growth in minutes-of-use and data services is resulting in increased revenues for our customers. In fact, wireless industry revenues for the six months ended December 2007 was up over 9%. And for the full year ending December 2007, revenues were over $141 billion. Carrier revenues from mobile data services were $23 billion in 2007, representing a 53% increase year-over-year.

Over the next three years, mobile data revenues are expected to exceed $70 billion annually, representing a 30% compound annual growth rate. Notably, AT&T in their release earlier this week commented that only 18% of their subscribers currently have an integrated device, but that's up from 8% last year. And on average, these subscribers had an ARPU roughly double the company average.

With the rapid launch and adoption of 3G devices and the rising demand for wireless data, wireless carriers are aggressively updating to 3G to capture the significantly higher ARPU than that of the traditional 2G subscribers. SmartPhones have been the fastest growing segment of handsets globally with that trend continuing well into the future. ABI research has said that 10% of the 1.1 billion mobile phones sold last year were SmartPhones and forecast as many as one-third of new phones sold in 2013 will be SmartPhones.

This summer, the launch of several high-profile 3G phones has received a lot of attention. Apple sold 1 million 3G iphones in 21 countries during the first weekend of its launch, more than four times the number of units that it sold when it launched 2G handset last year. Also Verizon and Sprint, both launched competing SmartPhones with great success. The relevance of these statistics for us is that it's becoming clear that as user-friendly devices become more widely available for accessing data services, usage and ARPU accelerate markedly. As next generation data-enabled devices penetrate the market, wireless carriers are leasing more of our sites in order to support the growth and demand for wireless, voice and data services that they are seeing.

Specific to Crown Castle, on the leasing from, we continue to be excited by our leasing in 2008. As I mentioned earlier, in the first six months of 2008, we've experienced an 11% increase in leasing activity across the board and associated revenue in the US, compared to the same period of 2007. As a result, we have increased the full-year outlook, based on the activity we have seen in the first half of the year.

Our full-year forecast for leasing from our customers continues to be conservative relative to the deployment of the WiMAX network. As ClearWire completes its announced transaction, we fully expect to see significant amounts of leasing activity from the new ClearWire as they deploy their WiMAX network. We forecast aggregate leasing activity from all other customers to exceed 2007 levels.

I believe we are best-positioned in the tower industry to translate the revenue growth opportunity that I have discussed into recurring cash flow for share growth for the following reasons. First, we have the best located assets in the industry, with 72% of our sites in the top 100 BTAs with approximately 3800 more sites in the top 100 markets than our next closest competitor. Secondly, we are the industry leader in customer service. After only five quarters following the closing of the Global Signal acquisition, customer satisfaction scores from our surveys now exceed preGlobal Signal levels.

And finally, we have the fewest shares outstanding per site of any publicly traded tower company. Depending on the company, anywhere from 25% to 50% fewer shares outstanding per site. This simply means that as we add revenue, this revenue will be divided among fewer shares than our peers, which translates into higher recurring cash flow per share.

In closing, the tremendous results we have delivered in the quarter are not surprising to me. We are a significant beneficiary in the continued migration of communication services from a wired platform to a wireless platform. We are wonderfully-positioned for growth going forward, because of the trends I spoken of this morning. And they are not abating, but rather accelerating as more communication activities are taking place across wireless networks than ever before.

I believe that our growth going forward is positively impacted by three things. First, the industry dynamics I have spoken of; second, the way we capture demand and execute for our customers; and third, and perhaps most importantly, the way we have deliberately capitalized our company to leverage this demand into shareholder returns which we believe is unique among our peers. With that, operator, I will turn the call over for questions. And thank you.

Thank you, sir. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS.) Our first question comes from Ric Prentiss. Please go ahead with your question.

Yes. Good morning, guys.

Ric.

The analysts always ask one question in about 25 parts here. First question I want to ask you guys has to do with what Jay was talking about with the capital structure and the debt markets. No stock buybacks in the quarter, but significant land program purchases in the quarter. Walk us through a little bit about how you think about using your cash, your available undrawn, maybe approaching the markets. And how you would prioritize, given where your stock is at versus what you just shared with us about your excitement with the Company. How do you prioritize stock buybacks, land programs, leverage levels, capital markets being open or not, how much cash you want to keep on the balance sheet. A pretty long-winded multi-point question to say, how should we think about how do you put the balance sheet to work on those things.

Yes, Ric. Thanks for the question. I will hit a couple of those and then let Ben handle the stock question. On the land purchase side, we're doing all we can and would hope to continue to do more of that.

We look at these land purchases as really refinancing the long-term operating leases that we have off balance sheet at a lower cost by bringing them on balance sheet. The returns we are getting on those are really a form of debt refinancing; and we are doing that at very attractive rates. And strategically, we think it's valuable to control the land underneath our towers as it really eases our ability to lease up the assets.

With regards to the other comments about the capital structure, again, I'd point out we really don't have any significant refinancings before June 2010. We have $100 million of availability under our revolver. And if you look at what we are spending, we are really spending the cash flow coming off of the business on the activities that you mentioned in your question. We have plenty of cash to continue those activities. We've historically spent most of the cash flow on activities related to our core tower business, whether that was acquisition, land purchases, or the construction of other sites.

Just a couple of other things to add to that, Ric. We typically spend generally all the cash flow that we create, recurring cash flow around the business, including some acquisitions, smaller rollup type acquisitions. Then typically would borrow historically to buy back stock or do larger acquisitions. As we look today, an obvious question I think as you raised, is we haven't bought any stock back here in the last quarter. The honest answer to that is, we've been engaged in some M&A activity that frankly, at the prices we are proceeding or participating in, would have required us to go to the debt markets to finance. At the prices we were bidding, we thought they were very compelling opportunities and we needed to wait and see how those fell before we proceeded.

I would also note that the valuation, frankly, fell off here at the end of the quarter and into July. But the fact isn't lost on us that we have growth recurring cash flow per share over the last eight quarters, 44% and the stock price is basically flat over the last eight quarters. Another way to even say it more simply, we've had 40% multiple compression on that metric. Which makes the value of the stock pretty compelling, even in the face of more challenging credit environment and what you might have to pay for that incremental dollar of debt. I would say, stay tuned on that front. We continue to evaluate acquisitions against the stock and it's a dynamic exercise.

Obviously, a big flurry of activity this week, maybe leads to a perfect set-up for question two. $1.3 billion in tower M&A this week. You did not do it. Are there other ones in the wings that would keep you back from symptom buybacks? And the second part of that question is, remind us again on what multiple you paid for Global Signal. As you look at acquisitions, where is your walk-away point when you say, wow, that's getting too big for us?

Well, size is -- we can do pretty much anything we want to do, obviously, in terms of raising capital. I won't probably comment much about what's still out in the wings. We are always working on various things of any size. You didn't see us participate in all the flurry of activity this week, and that's -- I think you can draw certain conclusions around that.

Nevertheless at the prices we were proceeding with on those -- on certain of those, we would have had to -- we would have felt like that was an appropriate allocation of capital, even against purchasing stock. That didn't follow our directions, as you can tell. As we look at where we sit today, we will continue to evaluate how we access the credit markets to continue to take the share count out or look at additional acquisitions and opportunities that come up. It's going to be a continuation of what we have done.

We are -- while we haven't borrowed anything significantly this year, it's 7.2 times leverage and over, comfortably over 2 times interest coverage, as Jay mentioned, we have capacity. We have access in a number of markets. We're going to continue to do what we have been doing.

One final quick question, Southpointe project. You guys mentioned latent demand that you felt was out there, but you would be updating that project looking at data and all the items you talked about. Any update on when we might get some thoughts from you guys on an updated Southpointe projection?

Yes, Ric. It's John Kelly. This is one of the primary focuses that I have right now in my new role, quite frankly, is really focusing on the whole questions of -- is the true latent demand for tower space on our towers? We have talked to all of you about 1.25 tenants per tower of indicated need. Quite frankly, just using that number, and you estimate that occurs over some five years, you will find that that drives the growth profile that quite frankly, is quite significant.

Notwithstanding that statement, we've also told you that we think the 1.25 is conservative by virtue of the fact that it doesn't include a number of the new technologies that are being announced. The update for that, Ric, it will be going -- that work that the team, myself, are working on is going to be going on over the next six months. I would venture that as we start to wrap up the year here, we will give you a much better sense of that.

A big issue, and the reason for otherwise taking that time, is to truly understand what some of the 4G technologies, whether be they WiMAX or LTE are going to require in terms of cell site density and in terms of the actual antenna and line installation activity. We want to make certain we got that right. We know it's additive, but we want to make certain we got it right. Then we will go ahead and update you and the rest of the street on what we see that number growing from 1.252.

Great. Appreciate it. Look forward to that number. Good luck, guys.

Thanks, Ric.

Thank you. And our next question comes from Jason Armstrong. Please go ahead with your question.

Hey, thank you, guys. Good morning. A couple of questions for you. Maybe first on the guidance, if you pick it apart, the revenue hike seems to reflect, really just the beat in the quarter and then a change in currency assumption.

Just wondering -- the fundamentals of the business, obviously look really strong. There's very bullish commentary in the call. It seems to support a bit more of a raise and can you help us sift through how you're thinking about the guidance. And what keeps you from a little bit more of a raise at this point.

And second question, just back to the land repurchases. We talked about that a little bit. Big pick up. Can you offer some color behind, what provided that type of opportunity to allocate capital there in the quarter? Is this generally, just more available for purchase? Or have the terms gotten more favorable to you there? Just some color there? Thanks.

Sure, Jason. Thanks. On the guidance, as you mentioned, we did increase the guidance across the board at the revenue line and the EBITDA line. Most of the steps that's notable in the release, if you look at it and squeeze out what the fourth quarter is implied to be from our full-year guidance and our third quarter guidance.

As we've approach the fourth quarter, we have a little bit more clarity around our services business. It looks like the demand for installation of new tenants on our towers going into the fourth quarter is strong. We have increased our expectation for the margin from that business going into the fourth quarter which creates that step in EBITDA. And the step in revenue is muted a little bit by the fact that we have lowered our FX expectations for the third and the fourth quarter, relative to what we performed at in the first -- what we saw in the first two quarters of the year. That's typically been our practice.

We've generally backed off a little bit and the currency will fall where it falls. To the extent that the currency stays at levels that we have seen over the first half of the year, that would suggest that we would be towards the high end of the revenue range that we have given.

With regards to the land purchase program, and what we are seeing. This has been something we talked about obviously, in the past that we are focused on, believe it's for all the right reasons and an activity worth undertaking. I don't know that I would tell you that the market has changed that much. We are certainly probably getting better at it, as we are maturing and perfecting how we explain it to our land owners, as well as how we perfect that sales pitch. I think we are getting better at it. We haven't seen a lot of change in the market in terms of multiples or price required to be paid. I think this probably just reflects our focusing internally, as well as getting a little better at it.

That's really helpful, Jay. Can we just go back to the currency question? Can you refresh our memories as to what the built-in assumption was before what is now and what that translates to in dollar terms?

Yes. In the first half of the year and I don't have the -- let me give you our expectation that we included there in the outlook section. I think we assumed about $0.94 million for the balance of the year for the second half of the year. The first half of the year was at the high end of that, so we were about $0.96 million or so. It represents a couple of million dollars at least in the back half of the year at the revenue line.

Okay. Great. Thanks.

Thank you. And our next question comes from David Barden. Please go ahead, sir.

Hey, guys, thanks. Welcome to all of your new roles this quarter.

Thanks, David.

Just a couple of questions if I could. I want to clarify, just because it seems to be the big topic right now. The reason why you didn't buy stock back in 2Q was not because you couldn't go out in the market, borrow at rates you felt would be accretive to the equity, and buy stock in a positive or net positive way, but it was because you were keeping your powder dry to do M&A? I want to make that clear.

And then the second piece of that question is maybe could you walk us through Jay or Ben, the math on how borrowing at say, at 9% today and buying back stock, would compare with maybe even just a year ago, where you thought you could go borrow at 6% and buy back stock? And do you need to be borrowing even more to get the same amount accomplished, in terms of value creation for stock holders?

And then if I could, just the last piece, again because we talk about recurring cash flow. But it turns out that we are spending all that is left on growing the business which is what many other businesses do. They just spend money to grow the business and they don't divide it between recurring and nonrecurring. The questions would be, you talked about 14% cash flow growth; if you didn't spend all this money on growth CapEx, what would your growth be? And how would we value your company if that cash was coming back to stockholders instead of going back into the business? Thanks a lot.

Okay, David. Let me take a couple of those. Your final question, the 14%, I might have misspoken. I think we talked about he 44% over the last eight quarters in my remarks to Ric's question.

EBITDA growth rate is about 14%. An unlevered enterprise value growth rate is about 14%, and not -- It is augmented a little bit by acquisitions, but our acquisitions have been very, very small and so it's not -- it's almost all entirely organic. Obviously you don't get EBITDA growth from buying stock. On the land side, you get some EBITDA pickup, but you also get substantially higher ground renting expense, because of the straight lining on all of the lease extensions that we're doing. They largely wash.

You are not seeing a big EBITDA pickup in the ground rent activity that Jay was describing. We only talk about the financial impact which is the purchases. Understand, there's a whole other activity going on where we are extending a bunch of leases which have a negative impact on lease expense, because of the new straight lining requirements; so just to be clear about that

That let me go back to the M&A versus stock question though for just a minute, because it's something we've talking about for years. I want to reiterate something. We look at M&A and stock purchases as one-and-the-same transaction, and ongoing in a relative value equation. We don't think about buying stock as returning cash to shareholders. Nor do we think about it as a catalyst where someone should be anticipating we're going to buy back stock and that will drive the stock prices.

Our view is actually the opposite. To us, it is exactly an M&A activity. One is simply investing internally to own more of the sites that we currently own for those shareholders that remain. The other is an external activity which is just to simply add more towers among the current shareholders. We constantly are looking at that relative value equation.

This last quarter, against -- for the quarter, what was a substantially higher price than we're sitting at today, against M&A opportunities that we were participating in. I might add on a disciplined level, and we did not prevail, as you can see from the announcements of the week. We thought at the levels we were bidding against the relative value equation of the stock for most of the quarter, had we prevailed, those would have been very attractive transactions. That's a constant that we look at all the time. Going forward, we have -- we are not bashful at all about -- in fact, we certainly would have been borrowing to consummate any of those transactions that we were looking at. We would think the exact same way about stock purchases going forward. I will ask Jay to comment on the relative value trade between the incremental cost-to-debt and the cost of the stock.

Yes. Dave, your question about that, and it's a good one. If you look back over the last several years where we have been borrowing in and around the 6% level, we have been buying back shares on a free cash flow or an RCF yield basis, of about 4%. The stock's been trading somewhere between 3.5% and 4% over that period of time when we were borrowing. And we were borrowing at the cost of debt of about 6%.

Given the growth rate in the business of growing that yield or the cash flow per share at about 20% to 25% per year, it was about three years to break even from the date that we invested the debt proceeds, took on the additional interest expense, until that investment would be accretive at the RCF per share line. We spent a significant amount of time articulating over the last several years, why we made those decisions to, if you will, bring down, dilute the RCF per share because of the benefit of the long-term value of buying in shares at what we thought were relatively attractive prices. That equation has changed slightly today.

Today, as we mentioned, the borrowing cost is approaching 8% to 9%, if we were to enter the corporate bond market. And the yield on the equity or the yield on the recurring cash flow per share is about 5%. The trade there is about the same as what we have seen over the last three years. It's about three years to the break even point. For the first three years of making that investment, it would dilute or lower RCF per share, but we still believe that long term it is enhancing to RCF per share.

And as you have watched us over time, you have seen us be more than willing to make that trade of suffering a little bit of short-term dilution in order to increase or enhance our long-term growth rates and recurring cash flow per share. As we talk about 20% to 25% per year for the long term, that assumes that we continue to keep the balance sheet levered and invest that cash flow and borrowing capacity to buy in either assets or buy back stock.

One final point. In my remarks, David, I mentioned the results of this over the last few years has gotten to go to be a situation where we tried to come up with the simplest way to speak about the dynamic around growth that we can come up with. Frankly, it's as simple as shares per site outstanding. Shares outstanding per site. As the result of all of this continued purchases over time, today as I mentioned, we are on a shares outstanding per site level, 25% to 50% less than our public competitors. Why is that important?

It's real simple. As we talk about capturing the growth, the demand that's out here in this industry, you share that with your fellow shareholders per site. In our case, it will be shared with many fewer than in our peers. It's frankly, just that simple.

The irony here is that if we stopped doing this, the growth rate actually increases in the short term, as you can appreciate because you are not diluting yourself, either through purchases of shares or acquisitions. Long term, obviously, you compromise some growth opportunity. What we are trying to do is thread the needle and be opportunistic about how we invest in either acquisitions or purchase shares against an incremental cost to debt. Long-winded answer to your question, but it's pretty fundamental to understanding our story.

Thank you, guys.

And our next question comes from Simon Flannery. Please go ahead with your question.

Thank. Good morning. You talked about the leasing activities being up 11%. Perhaps could you provide a little bit more color about that. Has that been fairly even across carriers, compared to say, Q1 or what you were expecting? Or has it been quite lumpy? What are your expectations for the second half in terms of distribution amongst the major carriers? And any thoughts -- you mentioned WiMAX briefly. You think -- I want to make sure I understood it right that you really don't have WiMAX in your numbers for this year. But LTE timing, there's a lot of numbers thrown around, 2009, 2012. What your thoughts are at this point of when we start to see the networks deployed. Thanks.

Sure, Simon. On the carrier leasing, it's been pretty broad-based really this year across virtually everyone with a couple of exceptions we won't go into. But across the board, we have been very pleased and up in most cases, sometimes modestly, sometimes quite healthily from comparisons for last year.

And you are right in your assumption. We really don't have anything for WiMAX in our expectations for the rest of the year, but we have high expectations, optimism, about the new ClearWire entity closing their transaction. We have a number of applications in the queue ready to go for them, as soon as they are ready to roll. I will ask John to comment maybe on the LTE time.

Yes, Simon. With respect to LTE, our perspective on the timing is that you would start to see some markets being upgraded to LTE, fourth generation technology in the back half of 2010. We don't see something as early as 2009. There's just quite a bit of work that has to be done before that actually is commercially viable. And so second half of 2010, and then in earnest moving into 2011.

And I think that's still, quite exciting from a consumer's perspective, because it is clearly on the near-term horizon. But until that technology is available commercially, I think it's both WiMAX, as that funding -- as the picture slash the combinations of the various different companies is realized towards the end of this year. And then the continuing upgrades of the 3G networks that the wireless carriers have been working on to date, including the launch of the new 3G network by T-Mobile and the continuing expansion of the current 3G networks that the Verizons and AT&Ts have deployed previously and are continuing to expand in other markets.

I think that's what you will see as far as the primary driver until the fourth generation technology LTE is available sometime in the second half of the 2010.

That's very helpful. Thank you.

Sure.

Our next question comes from Michael Rollins. Please go ahead with your question.

Hi, good morning. Just a couple quick questions. One question and sorry if I continue to focus on the balance sheet. Over the last few years, it's been my impression that you guys have been working to get better credit ratings for the leverage that you had.

And is there something to read in terms of a change in your strategy, with respect to either investments or cash repatriation, with the recent -- I think it was a downgrade by one rating agencies. Is there any change in your strategy for how you are approaching balance sheet management that investors should be thinking about?

And then the second question I had for you was how should we be thinking about some of the upgrades as carriers are putting new frequencies into the sites. I know we touched on it a little bit, talking around technology. Do you see significant upgrade activity when carriers -- in revenue benefits for you when carriers put on another spectrum band to what they're doing? Or does that get now lumped into the cabinets and the antennas that are on the existing sites?

I will take your first question there, Mike, on the balance sheet. We did have a recent downgrade on our corporate credit facility and our corporate rating from S&P. That really does not affect our refinancing plans or the way we manage the balance sheet.

The vast majority of our debt is in the structured notes. The ratings on those notes was unaffected by what you have seen recently from the rating agencies. Really, again, that's the vast majority of the capital structure and where we've focused. I would tell you that the tower paper, the corporate bonds, and bank facilities have historically traded well inside of the ratings from the rating agencies. We will continue to work there, but I don't think that really affects how we think about refinancing the balance sheet over time.

Just to follow up on that real quick. Separate from the refinancing, though, was there something about your strategy for cash flow that changed, that prompted the change?

No.

Or was it just a decision that was completely independent of the way you are approaching the business and your financials?

I think it was completely independent, Mike. We've had our stated target of trying to balance -- to maintain about six to eight times leverage. That's been a consistent theme of our story for the last three or four years; and we haven't changed that. I think it's just the way the rating agencies are viewing that maybe in this climate, relative to past days. But no change in our strategy or deployment of cash or the way we manage the balance sheet.

The last thing I'd add, it's continuing -- it's a little puzzling to try to reconcile the corporate side of the ratings with how -- what is historically a real estate or infrastructure-type ratings process that goes on in the structured finance side of the house. Frankly, we have been at this for a long time and we can't reconcile that so we frankly, moved on.

On the upgrade question, Mike, you've asked about -- as carriers add spectrum bands, what's happening on our sites? By and large, what's happening when they are adding spectrum they've purchased, is it's coming with new services they are offering to customers. In the case of the 3G overlay that we are seeing, it's a very significant component of our leasing over time. And has been for the last two or three years and it's continuing this year, probably most significantly around T-Mobile's 3G build, as we talked about, as John mentioned.

Generally, what's happening is as they advance or adding additional services, and those are typically in the order of about one-third of a full install. It depends on what they are doing. But in the order of $400 to $600 a month, and depending upon if they are putting up microwave dishes, it can be a little bit more. That's by far on average what we are seeing. It can be that to add bands to existing services without increasing any of the capacity on the site, but that's not generally the norm.

Thank you.

Our next question comes from Brett Feldman. Please go ahead with your question.

Thanks for taking the question. If I remember correctly, back when Global Signal originally acquired the towers from Sprint, there was a decent amount of revenue share in those assets. Since then and there's been a lot of land acquisitions, maybe you can give us an update as to what percentage of your portfolio right now has a revenue share on the land?

Yes, Brett. Thanks. Good morning. We have about 15% of our assets that have had some level of revenue share on them. Certainly that is a long-term benefit, even apart from the financing -- the refinancing benefit that we get from refinancing the off balance sheet debt on balance sheet.

There's certainly some benefit long term, as we add additional tenants to those assets of non incurring, additional revenue share. But I would point out, that's pretty small. And even the revenue share that we saw from the Global Signal assets, it was only about a percentage point higher in that overall portfolio relative to what we had in the Crown portfolio. You can see our incremental margins on a quarter-over-quarter basis have largely not been affected by that over time, as we've really maintained 85% to 95% at least incremental margins.

A separate question. One of the transactions that was announced this week involved a company that had a DAS business. You guys have been involved in the DAS space for awhile. Maybe you could just give us an update. Are you seeing a pickup in demand there? Is this an area of your business you might be putting more investment into going forward?

Brett, we have been at this really under John's leadership for about four years actively; and today have five systems up and operating. We continue to pursue it. It's not a large component of our business.

Our business is obviously, pretty large at this point, on the power side. It's hard to really move the needle, but we are excited about certain opportunities that we see. We are getting a little bit smarter, I think, about how we are proceeding and pursuing these. We are finding there are common characteristics of systems that seem to make them perform better and track the collocation to ultimately get the kind of yields you want.

I would say across our systems we have built today, we are very pleased with the returns that we have today. But it is possible to build one and only have one tenant on it. And so you have to be careful. It depends on the maturity of the market and where a carrier is rolling out, versus where other coverage already exists in the market.

We are getting, I think pretty thoughtful about the kind of systems we want to pursue. We are going to continue to do that.

Are you finding that DAS is becoming more competitive with your towers? There's just a big market launch in the Northeast that was done, making heavy use of DAS. Is that an area where maybe traditionally would you have gotten more business on your towers if the DAS opportunity hadn't been there?

No, Brett. This is John Kelly. Quite the contrary. I think what you are seeing is there are locations in which a DAS network is the best alternative. But I will tell you that the first priority that wireless carriers look at are existing towers. And what you are mentioning in the Northeast, that tended to be more of an urban core. The same thing in southern California.

The fact of the matter is the alternative to the DAS network was going to be a lot of rooftop locations, as opposed to going on the contributed antenna system. It didn't have any impact on tower leasing because quite frankly, what was occurring was the DAS network was somewhat designed around the tower location. In other words, when they were looking at the engineering, and looked at where are their towers? Okay. That's great.

We will go there first. And where aren't there towers, we were then going to have to worry about getting roof top leases and things of that sort. Maybe a DAS network is better than the rooftop lease. That's what you are seeing in some of the urban centers. Then clearly, there are other closed communities, be they college campuses or theme parks or private communities, that are otherwise interested in, perhaps, the low profile nature of the distributed antenna system. You see some of those that are being built as well.

But this is not in markets by far. This is not an alternative to towers. It's tending to be an alternative to rooftops in certain specific urban locations.

Great. Thank you for taking the question.

Our next question comes from Dave Coleman. Please go ahead with your question.

Thank you. Just a question on the 2Q results. It looks like the incremental tower cash flow margins were in the low 60% range. I thought that would have been a lot higher than that.

I'm just wondering if there there's some one-time events that impacted 2Q. As far as the assumptions in your full-year '08 guidance, I'm trying to understand what your second-half leasing activity assumptions are versus the first half. And then going back to an earlier question on frequency clauses and leases, I'm wondering if the carrier redeploys from let's say, 1900 to 850, using the same technology, if there's any potential benefit to you. Thanks.

Yes, on the first question. As we enter the warmer months of the year, generally we incur a little bit higher R&M expense. And so you will see in the second and the third quarters often that there are incremental margins due to -- quarter over quarter, will be impacted slightly.

As you look at the guidance that we provided for the fourth quarter, you see that there's a big step in EBITDA. That's in part because we are not assuming as much R&M expense in the fourth quarter as we would be in the second and the third quarters. That's what I point out there again. Looking at it year-over-year, where you are comparing the like quarters, I think that gets you to the right incremental returns and you can see that there.

It will also be slightly impacted over time as we acquire assets to the extent, even though it's relatively small, to the extent that we acquire assets that have lower levels of tenancy and therefore, lower gross margins. Those will impact our incremental margins as you look at them quarter-over-quarter. Want to take the second question?

On leasing, Dave, our back half of the year is pretty similar to the front half. That's where we have ended up. It's a little bit hard to tell even completely for the end of the year, even as we sit here in July. We look at -- we have out paced our run rate, as we mentioned for the first half. We used that and followed that -- basically flown that through the rest of the numbers for the year.

As you know, we're characteristically always a little bit conservative about how that ultimately turns up at the end of the year, but don't see any real material change . Frankly, we are real excited about some of the things we are seeing going on with customers. And they are redoubling their efforts to build out capacity for the data services we talked about. There's a lot of activity going on.

And then your last question, forgive me, I think I have forgotten

Just whether there's any frequency clauses in your leases. If a carrier redeploys an existing technology at a different frequency, whether there's an opportunity to charge them.

The leases tend to be, Dave, very specific to what is being installed. It certainly is a situation by situation. But the leases are very specific as to the number of, the type of antennas, the number of and type of lines, ground space, generator space, as well as frequencies that are being deployed at that particular site. Without commented on any specific customer contracts, I would suggest to you that -- like all real estate transactions, there is specificity in what it is that is being leased for a certain rate.

What through me, is you said redeploy. We think of it mostly as overbuilds, so you are adding frequency -- as we were answering a prior question. Typically, your adding frequency to a capacity-owned site, and almost always, that comes with additional lines and antennas.

Great. Thank you.

Thank you. Our next question comes from Jonathan Schildkraut. Please go ahead with your question.

Hi. This is (inaudible) for Jonathan Schildkraut. I have a few questions about the back haul. In terms of the -- backlog that you saw in the second quarter, do you see any more?

Did it accelerate from the first quarter? Are you seeing it more from the carriers would you say you think more from a third party wireless back haul providers? Thanks.

I would say on the back haul front, Jonathan -- I'm not sure I could give you specific percentage answer. But it is an increasing opportunity for us on the leasing front. Back haul continues to be a very critical point of choke point for the carriers in delivering the services that they are desiring to deliver. There's a number of solutions. Some of it is self-provided as we are leasing space for carriers to install their own microwave dishes. Some of from companies like FiberTower, that are doing it on a third-party basis in a shared construct. But from our perspective, we are happy to take all comers.

We do see it as an increasing opportunity over time. I would actually add in Australia, it has actually been a business initiative of ours to test the waters and see if we couldn't make a business initiative out of specifically initiating back haul links for carriers. We don't own the electronics, but we come up with a turnkey solution for them across our sites.

We've had some early success there, and it's something we're certainly going to look at proceeding with here in the states. All right?

Great. Thank you.

Our next question comes from Brad Korch.

Thanks for taking the question. I just have a couple of quick ones here. On the sprint WiMAX rollout, I know it's not in your guidance. At this point, are you pretty much saying, it's more of an '09 event? Or is there an opportunity to get some revenues in '08 on that?

And then secondly on your guidance, just digging down. It looks like you raised the guidance for maintenance capital a little bit, and this could have resulted in the narrowing of the cash flow guidance. I'm wondering if there's anything in there that we should be thinking about, assuming that you are doing to the towers. I didn't see a percentage -- same increase in the tower counts. I'm just wondering what is going on there.

Sure, Brad. I will take the first one. On Sprint WiMAX with ClearWire, that JV going forward, obviously as we mentioned earlier, we are excited about what they are doing and the launch of the production, and the capitalization that they have secured to fund that.

We don't have a lot of expectation that that -- that's an '09 event. That's really not going to impact the numbers this year. Jay?

On your second question, we are sitting at about $700 per tower, per year on maintenance CapEx. That number is not really changing in the back half of this year or for the full year. We are going through the process of updating our IT systems, doing a technology refresh so that's affecting the numbers. We run through all of our corporate maintenance activities, IT, vehicles, those kind of things, through that sustaining line. It's not tower related, but more corporate related.

Okay. Thank you.

At this time, there are to further questions. Please continue.

Okay. Great. Well, I think we will wrap up with that on a Friday morning. We appreciate everybody joining us on a Friday in late July. Appreciate you interest. We look forward to seeing you on the next call. Thank you.

Thank you. This concludes the Crown Castle International corporation second quarter 2008 earnings conference call. We thank you for your participation and you may now disconnect. Thank you for using AT&T teleconferencing.