Crown Castle Inc (CCI) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. We do apologize for the technical difficulties. Welcome to the Crown Castle International Corp. third quarter conference call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today, Thursday, November 6, 2008.

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

Good morning, everyone. We apologize for the delay. This is why we like the wireless business. Sometimes land lines can be challenging. Thank you all for joining us as we review our third quarter 2008 results.

With me on the call this morning are Ben Moreland, Crown Castle's Chief Executive Officer; Jay Brown, Crown Castle's Chief Financial Officer; and John Kelly, Crown Castle's Executive Vice Chairman. To aid the discussion, we have posted supplemental materials in the investors section of our website at www.crowncastle.com, which we will discuss throughout the call this morning.

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 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' 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 investors section of the Company's website at crowncastle.com.

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

Thanks, Fiona, and good morning, everyone. As you've seen in the press release, we reported another strong quarter of results. I'd like to take you through the results for the quarter, our outlook for the fourth quarter of 2008 and full year 2009, as well as make some comments regarding our capital structure.

During the third quarter, we generated revenues of $384.3 million, up 9% from last year. As highlighted on slide three of the presentation posted on our website, site rental revenue increased $27.2 million to $354 million, or up approximately 8% from the third quarter of 2007 and in line with our target. Substantially all of this growth was achieved through organic revenue growth across the towers that we owned as of the third quarter 2007.

Service revenue was $30 million, up approximately 22% from the same period last year. Gross margin from site rental revenue defined as tower revenues less cost of operations was $238.2 million, an increase of $23.3 million, or up 11% from $214.9 million for the third quarter of 2007. The adjusted EBITDA for the third quarter of 2008 was $217.7 million, an increase of $21.9 million, or up 11% from the third quarter of 2007.

Recurring cash flow, defined as adjusted EBITDA less interest expense, less sustained capital expenditures increased 23% or $22.7 million to $123.5 million from $100.8 million in the third quarter 2007. Recurring cash flow per share grew 22% from $0.36 in the third quarter 2007 to $0.44 in the third quarter 2008. I believe our third quarter operating results demonstrate our ability to consistently grow revenues and cash flow even in these challenging economic times.

During the quarter capital expenditures were $140.3 million. Sustaining capital expenditures totaled approximately $6.1 million. Revenue generating capital expenditures were $134.2 million. This was comprised of $63.8 million for land purchases, $21.7 million revenue of CapEx for revenue enhancing activities on our existing sites, and $48.7 million of acquisition and the construction of new sites.

Turning to the balance sheet, as of September 30, 2008, we have securitized tower revenue notes totaling $5.3 billion and other debt totaling approximately $800 million for total debt at the end of the quarter of $6.1 billion. We also had $314.5 million of our 6-1/4% convertible preferred stock outstanding as of September 30, 2008. During the third quarter, holders converted $63.7 million of the 4% convertible senior notes into 5.9 million shares of common stock. As of September 30, 2008 there were no 4% convertible senior notes outstanding.

As of September 30, our consolidated leverage ratio, measured by total debt to adjusted EBITDA, was seven times, comfortably within our covenant of 8.25 times. Consolidated interest coverage was 2.6 times at September 30 compared to 2.2 times at the same period last year and well above our covenant of two times. I would also point out that we are not exposed to short-term interest rate fluctuations as 97% of our debt is fixed rate.

Further, our debt does not contain any ratings triggers that would increase the interest coupons on the existing debt, accelerate the maturities, create an event of default, or violate any of our debt covenant. Moving to the outlook for the fourth quarter 2008, fourth quarter site rental revenue and site rental gross margin outlook are expected to be negatively impacted by approximately $7 million and $5 million respectively due to the significant decrease of approximately 30% in the Australian dollar exchange rates over the last three months.

Our July outlook assumed a $0.94 to AUD 1 which has since been adjusted to $0.64 to AUD 1. We expect site rental revenue for the fourth quarter of between $350 million and $355 million, site rental gross margin for fourth quarter of $235 million and $240 million and adjusted EBITDA for the fourth quarter of between $217 million and $222 million. And interest expense of between $87 million and $90 million.

We expect sustaining capital expenditures to be between $11 million and $13 million, and recurring cash flow to be between $118 million and $123 million. We have also updated our full year 2008 outlook to reflect the decrease in the Australian dollar exchange rate.

As you've seen in the press release and shown on slide four of the presentation, we have also provided full year 2009 outlook and expect site rental revenue and adjusted EBITDA growth on a currency neutral basis to grow approximately 8% and 10% respectively consistent with the growth we forecasted for this 2008. For full year 2009, we expect site rental revenue of between $1.485 billion and $1.5 billion, site rental gross margin to be between $1.015 billion and $1.030 billion.

We expect 2009 adjusted EBITDA to be between $925 million and $945 million and interest expense to be between $355 million and $360 million. We expect 2009 sustaining capital expenditures to be between $25 million and $30 million. We expect recurring cash flow for the full year 2009 of between $540 million and $560 million.

Before I turn the call over to Ben, I'd like to make a few comments about our capital spending plans and upcoming debt maturities. Since we reported our second quarter results, there has been a significant deterioration of the credit markets. As a result, we have made changes to our capital spending plans in order to prudently deal with our upcoming debt maturities. As shown on slide five, we have significantly reduced our forecasted levels of capital spending without compromising our customer relationships, our ground leases, or our revenue growth.

While we are completing the majority of the individual projects that we have underway, given the incremental high returns of these projects, we have dramatically raised our internal hurdle rates for the approval of new projects that require capital spending. We would expect to reduce capital spending by approximately 40% in the fourth quarter 2008 with more significant reductions beginning in the first quarter of 2009.

In 2009, we expect to invest approximately $150 million to $200 million of capital in the highest returning activities around our core business. We will continue to appropriately maintain our assets and spend the capital required to install new tenants on our towers. Further, we will continue to build and acquire towers and purchase land beneath our towers, albeit at a significantly reduced level.

The projects that we are no longer pursuing provided attractive financial returns when our cost of capital was significantly lower than the current levels. The activities that are being reduced are discretionary in nature and we now expect to allocate our capital towards debt reduction, which I'll describe in greater detail in just a moment.

With regards to our land lease extension program, which represents our largest investment of capital over the last two years, we have modified our approach to focus more on lease extensions rather than land purchases. Having completed approximately 6,000 transactions, we believe that we have the best portfolio of ground leases in the tower industry, based on the land ownership and final ground lease expiration.

Over the last several years, approximately 35% of the transactions we have done were land purchases and 65% were lease extensions. As of today, we own or control for more than 30 years the land beneath towers representing approximately 52% of our gross margin. We currently own 23% of the land beneath our U.S. towers and the average term remaining on our ground leases is approximately 30.5 years. We believe this is a very important long-term effort that we should continue because it protects our assets and controls our largest operating expense.

Currently, we are incurring approximately $12 million of annualized G&A to work on extending the length of our control of the ground beneath our towers and improving our operating position. In better capital markets, purchasing land provided an attractive financial return, but today we believe that lease extensions generally provide a more attractive return.

Typically, these lease extensions result in a very minimal increase in monthly cash rent, but the rent expense on a GAAP basis increases as we have to straight line the future escalations over the new longer term of the lease. By shifting our focus away from land purchases, we will free up capital for debt repayments while continuing to lengthen our ground leases.

Turning back to the balance sheet, I want to spend a few extra minutes describing in detail the various components of our debt instruments. I'd like to go through each debt instrument with you to ensure that everyone clearly understands the debt maturity schedule and the flexibility inherent in our balance sheet.

As you can see on slide six, we have $472 million of debt maturities in 2009 which is comprised primarily of our revolving credit facility due in January 2009, which is currently drawing approximately $170 million, and our 2004 mortgage notes of $294 million which mature in December 2009. We expect to end 2008 with approximately $75 million of cash balances that could be used to repay a portion of the revolver. The revolving credit facility is a 364-day facility and is a part of our Crown Castle operating company credit facility.

We are working with our bank group to renew this facility for an additional 364 days per the terms of the operating company credit agreement. Based on my current discussions, I am confident that we'll be able to renew this facility, albeit at a higher credit spread, more reflective of the current market conditions. Depending on how our conversations with the banks proceed, we may decide to reduce the total revolver to something less than $250 million. A reduction in our total revolver will not impact our ability to operate our business.

With respect to the maturity of the 2004 mortgage notes of $294 million due in December 2009, we have modified our internal capital spending plans for 2009, as I just described, and expect to accumulate enough cash from operations to fully repay these notes by the maturity date. Further, we expect to accumulate enough cash from operations in 2009 to repay any remaining amounts that are drawn under our revolving credit facility.

Based on our expectations, this would mean we would not need to access the credit markets during all of 2009. As we look further down the time line of our debt maturities, our next maturity would be the 2006 mortgage notes of $1.55 billion in February 2011. These notes are secured by the majority of the legacy Global Signal assets. Based on our current expectations of cash flow generation between now and February 2011, we would expect to be able to accumulate approximately $500 million of cash or one-third of the mortgage notes by the maturity date.

This would leave less than four times leverage on these assets which is within the level of leverage that all three of the public tower companies have been able to finance at the AAA level. With regards to the most misunderstood portion of our balance sheet, our senior secured tower revenue notes of $1.9 billion and $1.55 billion, which are secured by the legacy Crown Castle assets, the final maturity date on those notes are 2035 and 2036 respectively.

Under the terms of those notes, there are certain provisions which provide for the expected refinancing of the notes in June 2010 for the $1.9 billion and in November 2011 for the $1.55 billion. If we do not refinance the respective notes by June 2010 and November 2011, the interest rates on the notes increase to approximately 10% and the notes begin to amortize by an amount equal to the excess cash flow produced by these secured assets until the notes are refinanced or repaid.

In 2005, when we began to issue our debt in the structure market we intentionally negotiated these very provisions to provide us with a significant amount of flexibility in difficult credit markets such as exist today. Another benefit of these notes is that once we're passed the expected refinancing dates, there's no prepayment penalty, which means that at any point between 2010 and 2035 or 2036 we can refinance without any penalty.

In the current environment, this is a very attractive alternative. I would note that last week Verizon issued 30-year A rated bonds with a yield of approximately 9%. To be clear, if we do not refinance the $1.9 billion and the $1.55 billion of senior secured notes by the aforementioned dates in 2010 and 2011, there's no event of default, no cross defaults that are triggered in any of our other debt instruments and principle amortization is limited to the amount of excess cash flow produced by these secured assets.

While we would expect to see an improvement in the credit market some time in the next two or three years, allowing us to refinance these notes, we are under no obligation to do so. And we are in the very fortunate position of having up to 25 years to repay more than 50% of our debt outstanding.

As shown on slide seven, given the growth nature of our business, our balance sheet delevers very quickly. Solely for the purposes of illustration and not providing specific Crown Castle outlook for the next three years, we have calculated our pro forma leverage on the graph on the right hand side of the page using Wall Street analysts' consensus growth estimates. If we limit our discretionary investments to approximately $150 million per year and repay debt at par, we would expect consolidated debt to consensus adjusted EBITDA to be approximately four times by February 2011.

If the credit markets remain in the current state with limited liquidity, we will manage our expenditures and balance sheet to delever along this path. Over the last several weeks, I've had a number of people ask me about our long-term appetite for leverage. I think there are two important considerations in determining the appropriate amount of leverage on our business.

The first consideration is the maturity of the debt and while there can be no assurances of how or when the credit markets will recover, we will look to ladder our maturity schedule similar to the laddering we had achieved in the legacy Crown Castle balance sheet prior to the Global Signal acquisition. The second consideration is the stability of the cash flows to service the debt. Our revenues are produced by long-term leases from high quality tenants to provide the critical highly desired wireless communication networks used by over 80% of the U.S. population.

Our towers are essential infrastructure. We are to wireless communications what airports are to air travel. Wireless communication networks of today depend on our towers. The stability of our revenues provides us with the opportunity to appropriately lever our business to enhance the long-term returns of our equity holders.

As we have discussed over the years, we believe that limiting our adjusted EBITDA to interest expense to no less than two times coverage is an appropriate target as it naturally adjusts the amount of nominal debt that we borrow based on interest rates. As we consider the debt to adjusted EBITDA leverage level at which we will operate our business long term, it will be a function of the maturity schedule that we can achieve as well as prevailing interest rates.

I don't think it is wise to commit to a level of leverage during what many consider the worst financial market in many decades. But I think it is helpful to provide a framework through which we will evaluate future leverage on our business. However, I will reiterate that until the credit markets improve, we plan to reduce our capital spending and eliminate short-term maturities with cash flow.

As I consider the significant and stable cash flow that our business produces, the discretionary nature of our capital spending, and the terms of our indebtedness, I am comfortable that we will be able to prudently navigate the difficult credit markets and address our debt maturity schedule without impacting our core growth or the execution of our business.

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

Thank you, Jay, and thank you for everybody joining us on the call. Before I turn call over for questions, there are two themes we wanted to communicate very specifically on this call this morning. First, we're very comfortable with our balance sheet and our plans to deal with our short-term debt maturities as Jay has just outlined.

Secondly, we remain very enthusiastic about the future for wireless and the growth it suggests for our business. While we are facing a weakening economy and challenging capital markets, I would like to remind you that under the current management team, Crown Castle successfully weathered a similar disruption in the capital markets in 2002, when by all metrics we were a much weaker Company.

To put it in context, as shown on slide eight, in June of 2002 leverage was almost 11 times EBITDA, interest coverage was one times, and we had no recurring cash flow. Today we are seven times leveraged, right in the middle of our historical target range of six to eight times. We have interest coverage of 2.6 times and annualized recurring cash flow is almost $500 million.

Today we are a significantly stronger Company operationally and considerably less levered. As Jay has mentioned, we have made adjustments to our discretionary capital spending to eliminate our short-term debt maturities in 2009 as an appropriate reaction to the current credit environment. Notwithstanding the challenging environment, it's important to remind you our business remains strong, characterized by long-term contracted revenues, solid growth in our core business, and exciting underlying fundamentals in the wireless industry.

In fact, recall that at any given time, approximately 97% of our revenues for the upcoming 12 months are already contracted and this is true for 2009 as well. I'd like to make a few comments on some of the important industry trends and statistics we're seeing. As many of you are aware, wireless remains the strongest growth market in telecom today. According to recently released CTIA semiannual surveys, total reported wireless data revenues increased 42% in the 12 months to June 2008.

This current market is worth approximately $30 billion annually to the big four wireless carriers. During their recent third quarter calls, Verizon and AT&T stated that wireless data revenues in the quarter grew 42.5% and 50% respectively year-over-year and wireless remains the carriers' most important business segment. In fact, Verizon Wireless stated that 70% of their growth came from wireless data.

The growth in wireless data revenue is driven by the increase in integrated devices that consumers are signing up for in data plans. SmartPhone penetration grew to 21% in the third quarter, up from 16% in the second quarter survey. Notwithstanding the increase, today only approximately 18% to 21% of the big four subscriber bases have SmartPhones, indicating that we're still in the early days of SmartPhone and data plan adoption.

As AT&T noted in their third quarter call, while the number of 3G devices has increased 2.5 times from $7 million to $17 million on their network in the last year, this still only represents less than a quarter of their total subscriber base. As most of you will have read, 2.4 million 3G iPhones were sold and activated in the third quarter of 2008.

Using an average iPhone user as a proxy for an integrated wireless device user, iPhone users are 10 times more likely to search the Web from their phones and consume six times more data. Devices which seek to compete with the iPhone, like the new G1 and BlackBerry Storm, are expected to contribute to the accelerated growth in wireless data traffic and will drive strong data growth.

Average revenue per user, or ARPU, on SmartPhones is 48% higher than other devices. And while data ARPU is 147% higher according to Nielsen data. Accordingly, we are pleased to see the carriers gaining incremental returns for their 3G network investments. We believe these trends bode well for our industry as carriers invest in their networks to support these data centric and bandwidth intensive applications and capture the significantly higher ARPU.

Finally, the rate of replacement of land line phones with wireless phones continues to accelerate. More than one in four [sailor] customers in the U.S. no longer have a land line phone according to J.D. Powers & Associates. This is the first time the figure has surpassed 25%. Approximately 20 million U.S. households that are wireless only tend to use their wireless phones 45% more than those with land line service.

As customers choose wireless exclusively over land line phones, particularly in this economic climate, the need for wireless network enhancements delivered through our sites continues to increase. To wrap up, we are very excited about the growth prospects for our core business. We expect to add at least as many leases in 2009 as we have in 2008, even in this challenging economic climate.

Despite the challenging capital markets, we are comfortable with our balance sheet and our ability to address our short-term maturities as we've outlined on this call. As I mentioned, this is the same team that has navigated the balance sheet challenge in 2002. And Crown Castle's current situation bears no resemblance to that era.

Further, we have not forecasted in our outlook any benefit from interest expense savings from the anticipated use of cash to repay debt which would obviously raise our expected growth rate in recurring cash flow per share. We have positioned this Company very deliberately for growth as shown on page nine of our presentation.

We grow recurring cash flow per share faster for a given dollar of revenue growth than our peers, simply due to how we've allocated capital over the years. Even if we are witnessing a permanent repricing of credit in the market compared to historical levels, this relationship of growth in recurring cash flow per share compared to our peers will be maintained. With that, operator, we'd be pleased to turn it over for questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) And our first question comes from David Barden with Banc of America Securities. Go ahead, please.

Hey, guys. Thanks a lot. A couple of questions, if I could. First, Jay, just on the bank line. You have $472 million of what you outlined was maturities through the end of '09. But you're also working on the bank line.

I just wanted to be clear that that assumes that if you can't refinance the bank line that that $472 million is the maturity. If you can refinance some of or all of the bank line, that number goes down. The second piece would be, Ben, you hinted at the very end that there's an opportunity to go into the market and maybe acquire securities.

Could you frame how that happens? Do you have to wait for people to approach you with swap opportunities? Can you go into the market and just bid for them? Presumably, you know who holds them. And presumably if the market is that tight you'd be the only buyer out there. You could probably name your price.

And the last thing, third, would be just in terms of the guidance outlook, obviously people are going to be interested in is WiMAX in there? Is T-Mobile's 3G network in there? What the pieces, parts are of the guidance are would be great. Thanks.

Good morning, Dave. Thanks for question. On your first question, the $472 million that we assumed in the forecast there in terms of debt maturities would be the $295 million for the December '09 maturities of the trust two notes, $170 million related to the revolver, and our assumption is that we roll the revolver in January 2009, but would then save enough or accumulate enough cash during the full year 2009 to fully repay any amounts drawn. We've taken the conservative approach that we'll fully repay it by the end of 2009. And then the other $7 million would be amortization related to our term loan.

Got you.

We are assuming, just to be clear, that we're going to go ahead and roll it in the coming weeks. And then you go into '09 under the assumption that you pay it off as you said, Jay.

And we'll be looking for an announcement on that in the next couple of weeks?

We're working on it. Secondly, Dave, on your other questions on buying debt, I'm not going to comment a lot about that for obvious reasons. I'll remind you in the play we ran in 2002, we bought a lot of high yield notes back at big discounts and it created a lot of value for the Company. I think we have an opportunity going forward that is not in our outlook at all because we obviously don't forecast things until they're done.

We have an opportunity in the illiquid credit markets at this point to put some cash to work as we've discussed. With respect to outlook for 2009 on leasing, I'd say we've got WiMAX in there in a very modest way. And modest will be modest. We'll primarily expect to see, for example, a lot of Clearwater activity after their transaction has closed. We were pleased to see the approval of that and the shareholder vote get scheduled.

We would expect potentially some upside from that. It's not a big contributor to the future for 2009. You mentioned T-Mobile, for example, we're having a big year I think as many are with T-Mobile. T-Mobile is making substantial investments to improve their network, building out a 3G network as well as roaming overbuilds and we're seeing a lot of activity from them and some of that clearly continues into 2009.

And others are continuing as well. As I mentioned, as we do our analysis, looking at all of our internal tools as well as our applications in the pipeline and customer conversations we're having, we believe we have a very good shot at doing more leasing in 2009 in total than we did in 2008. That can change. Obviously, things move around and timing slips sometimes.

Right now our view is that we appear to do a little bit better in 2009 than 2008. We remain very enthusiastic and I think you can see from the carriers' results here over the last couple of weeks that wireless continues to grow in its profitable growth, which is very important to us as we mentioned. It's very important that the incremental returns on this capital investment that the carriers are making show up.

And that's actually happening. We feel very pleased with our forward outlook right now.

Thanks, guys.

Thank you. And our next question comes from Brett Feldman with Barclays Capital. Go ahead, please.

Yes, thanks for taking the question. Thank you, Jay, for all the detail around each one of the debt securities. I wanted to have one follow-up on that. You did a really good job talking about the meaning of the expected repayment dates on I guess what are the legacy Crown Castle securities. On the legacy asset-backed stuff you got from Global Signal, I know you're going to pay the first one off. For the second one, is that due date that you talk about is that a firm maturity date, or is there actually some flexibility to extend the repayment of that?

Good morning, Brett, thanks for the question. There is some flexibility on the February 2009 date. 2011 date. It would require us to go out and have a conversation with the servicer on the notes, as well as the trustee on the notes.

And they would have to make the decision that the cash flows were sufficient to amortize the debt over a period of time. What I would describe that as is it puts some discretion as to how those notes are dealt with in the hands of a third party which is something in this market we're not going to take the risk of.

I think in a normal market most would tell you that's a reasonable approach and the servicer and the trustee would work out a reasonable path for us to amortize that debt with the excess cash flow. But we're going to focus the business and get ourselves in a position to repay or refinance those notes by the time we get to the maturity date. There is some flexibility there, but we're not planning on or resting on or relying on the flexibility that's there.

Okay, that's helpful. Let me know if my math here is right. You said that you expect to end the year with about $75 million of cash. But if I look at where your cash position was for the third quarter and I look at what your cash flow guidance is for the fourth, it seems you would actually end the year with more like $190 million. The variance is the discretionary dollars that you intend to spend in the quarter. Is that correct?

That's exactly right.

So $190 million would obviously be enough to completely pay down the amount outstanding on the revolver. Should we assume that based on the fact that you're still comfortable spending money that's an indication of the types of assurances and the progress you've made with your lender group?

Brett, as I said in my comments, I'm very comfortable that we're going to be able to roll the revolver for another 364 days. That's a good working assumption.

Okay, and just one last one about the guidance -- actually for the 2008 guidance. You talk about how foreign exchange can create like a $7 million headwind on the leasing revenue and about a $5 million headwind on the tower cash flow. When I look at the way your guidance was adjusted, the midpoint of your full year leasing revenue estimate is essentially the same, but there's a $7 million decrease in the tower cash flow. Could you walk us through the moving parts that gets to all those? I'm wondering if it has to do with the lease extensions?

It's actually not the lease extensions. The delta there is in the third quarter actual results, we didn't come in at the high end or above our range because of the currency decrease. So the comment we made in the press release and my comments in the prepared remarks were pointing to the impact of the currency for the full year.

So the impacts there are really both impacting third quarter actual results as well as fourth quarter. And the movement is there between site rental revenue and all the way down to adjusted EBITDA or tower cash flow are a function of where the numbers came out in those various categories in both the third and the fourth quarter.

Okay, great. Thanks for taking those questions.

Okay. Thank you. And our next question comes from Rick Prentiss Raymond James & Associates. Go ahead, please.

Hi, guys.

Good morning.

A couple of questions for you. You mentioned the cash balance at year end at $75 million. Where would you be comfortable long term keeping your cash balance and remind us again what restricted cash is?

We'll probably be comfortable keeping cash at at least $50 million. That's where we've run the business. In this environment, we may decide to keep cash balances a little higher than that, closer to the $100 million range.

In terms of the restricted cash, that is really a timing issue. We collect rents around the last day of each month and then the cash is released out of the structured entities around the 15th of the following month. The cash sitting on the balance sheet that you see at the end of any given quarter, that restricted cash is basically paid out to us within 12 or 15 days. I would consider that restricted cash as basically gone within a few days to pay the direct operating expenses, and probably not meaningful for anyone's analysis.

I think that's important because we've had some people wondering if that was in a lock box and it's really not, Ben.

Yes. It's only there for about 15 days and then it goes to pay the direct expenses associated with the towers.

Then on the guidance, the WiMAX is in it in a modest way. Are you assuming Clearwire is a new tenant, an amendment tenant? They've made suggestions that they can use some of the Sprint sites. I think American Tower kind of was mentioning amendment revenue from Clearwire. What are your thoughts as far as amendment versus new rent?

I think, Rick, it remains to be seen a little bit. We expect they're going to do some of both. We'd expect they'd access Sprint sites where that makes sense and then do single installs where that also makes sense, based on their engineering and their architecture of their network. I think it's a mixture. We couldn't tell you exactly how that's going to come out but think it's a mixture that we will benefit from, given the Sprint tower exposure we have as well as the concentration of sites in the top 100 cities.

And SBAC went on to kind of quantify, you said Clearwire not a big number in '09 by the time it gets closed and through the pipeline. SBAC said kind of $1.5 million worth of revenues is what they tossed in there. Is your number of a similar magnitude on a percentage basis given your business?

Yes, I'm really probably not going to go there on speculating with you. We've got, as you know, when we look out over the next five quarters to do our outlook for leasing there's always a little bit of wiggle room in between any given carrier's expectations. Obviously, they don't completely know what they're going to do in a forward year. I would say to get any more precise than saying, we've got it in there in a modest way, would be giving you precision that's frankly just not there. It's impossible to have that level of precision in terms of our specific guidance.

There's always an other budget of leases that we believe is activity that we've always seen that you'll continue to see and it moves in and out of there. But it seems like our guidance in terms of future leasing, we come in pretty close. From where we start in the October time frame of trying to pull this together to what we actually do is remarkably close every year.

The nice thing about this business is it has pretty good visibility usually. One other quick question on the debt. Back to Barden's question. Can you tell us? It's hard to for us to figure out but can you tell us where you think your debt is trading at right now? Is it in the $0.70 and $0.80 on the dollar? Or where is it at right now?

Yes. It's a function of the tranche or the rating on the various tranches of the debt. And $0.70 to sort of mid $0.80s is a pretty good range of our various debt components, depending on the maturity of the instrument.

I noticed on your slide you mentioned the difference in guidance from tower cash flow to adjusted EBITDA. You mentioned on one of the slides $4 million less on service business margins just because of the choppiness or what else is going on there, anything?

Rick, typically that's what we do. We're fairly conservative in terms of how we forecast services gross margin. You saw that in 2008 we benefited down in Australia from some services gross margin. And we're not forecasting that to occur in 2009. So that's really the reason we took it down by about $4 million.

That was a one time event that we can't forecast.

Sure. Okay. Thanks, guys.

Thank you. And our next question comes from Jason Armstrong with Goldman Sachs. Go ahead, please.

Thanks a lot, good morning. A couple of questions, maybe just one more on the debt structure. Rolling the bank line seems like it is, obviously, imminent and obviously there's going to be higher rates attached to that. A lot of us are obviously going to use that as a gauge or sort of the best near-term indicator of where the cost of capital is resetting for this Company. Can you give us a sense, in your conversations, just is there sort of a basis point step-up relative to the legacy rates we should be thinking about?

And second question related to the guidance and the current revenue performance. You guys have had a little bit of a drag from some narrow band exposure through the legacy Global Signal assets where actually the core trends you're reporting are better than what we actually see. I'm just wondering, as we look into '09, what's the base of narrow band exposure right now and what is built into the guidance in terms of how quickly that declines? Thanks.

Good morning, Jason. I'll take the first question. And I appreciate where you're trying to go here and get a sense of where we're going to end up on the revolver. Given that I'm currently in discussions with the banks, I'm going to beg off you question.

I'll point out though that we're only drawing $170 million. We'll see where the spread ultimately comes out, but it's just not going to have a meaningful impact on our overall balance sheet. I would also probably caution you against implying that against the entire capital structure. 50% of the debt as we noted is going to roll over, assuming we don't refinance it at about 10%.

And there are a number of issues that have been done in the market over the last couple of weeks by high grade issuers that give you a sense of where credit spreads are. I think, as I noted in my comments, this is the only piece of capital we would expect to access the credit markets related to in all of 2009.

And the first time that we would really be in the market trying to price a new piece of debt would be the $1 billion of the $1.550 billion of GSL notes which is not until February 2011. I'm certainly not prescient enough to be able to give you guidance on where the spreads in 2011 are going to look like on our capital structure.

I wouldn't want to take whatever we do here in the next few weeks to be an indication of long term what our cost of debt is.

It's funny. If you started five year at 5% and then you rolled to ten years for 5%, I guess that would be 7.5% for 10 years. Not all bad if the world really is at that level, which is hard to imagine. Jason, your question on narrow band. I think we mentioned it at your conference a little bit on the Web there. We do have some churn in the business. Some of the narrow band churn that is rolling off this year and into 2009. It's spikes in 2009.

That's all implicit in the guidance. A couple of big contracts, in fact, that were already negotiated and certainly we were aware of. That's implicit in the guidance that we have here today. And we believe 2009 is the peak of that by some significant margin.

Certainly not going to get into 2010 guidance on this call. It certainly appears to us today that the peak year is clearly 2009. And I'll probably just leave it at that.

Okay, and then, Ben, if I could just follow up because it seems like from the prior comments I think you started with about $40 million of initial exposure, obviously, you've worked down some of that. If '09 is the peak, we could literally be talking about another 1% revenue drag from that alone, which would mean that the core guidance here, what's actually going on in the business would be a percentage point better than what you're guiding to. Is that the right way to think about it?

That's a very fair characterization.

Okay. Thanks.

Okay, thank you. And our next question comes from Brad Korch with Credit Suisse. Go ahead, please.

Hi, thanks for taking the question. I just had one quick follow-on to David's question on leasing activity. There's been a lot of discussion lately around the potential for lower CapEx budgets coming from the carriers. I think our thoughts were that wireless will be the last place they would look to cut. I'm wondering if you've seen anything in conversations with them or body language that there could be any reductions going forward?

Brad, thanks for the question. No. In fact, we haven't. We are very close to our customers. We're having ongoing dialogue with a number of the actives as well as those anticipating building out new markets and new service.

And we don't see a significant cut in CapEx for all the reasons that I covered in some of my prepared remarks as well as even better covered by themselves on their own calls. This is a growth business. It's economically viable. You're able to see, as I mention in our calls and many other meetings we've talked about, where we watch very carefully the results of our carriers to make certain that their incremental returns are there from the incremental spend.

And that's clearly what's going on today. You could also even convince yourself probably that in a recessionary environment you have increased wire line churn which puts even more reliance on the utility like nature of wireless service. Just one small anecdote here in Houston in the hurricane. Wireless was the only thing that worked.

We didn't have electricity; we didn't have cable; we didn't have hard line phones because of all the trees on lines. It has become an essential utility, as we've all witnessed and we provide the infrastructure for that. And we don't see any evidence of any slowdown of capital spending to accomplish those goals.

Okay. Thanks, Ben.

Thank you. And our next question comes from Gray Powell with Wachovia. Go ahead, please.

Good morning, everybody.

Good morning, Greg.

Just had a few quick questions. I know that you guys can't talk too specifically about carriers. Can you give us some idea as to the level of conversations you're having with both Clearwire and Cox Cable on their deployments next year? And how quickly do you think each one of them gets started on their deployments?

As you know, Gray, we're not going to get into violating confidences of customers. What they want to say to the market, they can certainly say. You should be assured that we are in active dialogue with both companies and expect to see exciting buildouts from both companies, based upon the investments they've made to date. And in the case of Clearwire closing their transaction. So we expect and believe that's going to happen. We probably would not get into any specific conversations with you about markets and pace and how many sites. That's really for them to describe and I think have in certain respects. And we'll be happy to accommodate them as we go forward into 2009.

Okay. Fair enough. And then just on Clearwire and Sprint, both of those companies have at least formally launched a decent number of WiMAX markets in 2008. Have you seen much leasing demand associated with those launches or was it a situation where most of the sites were already turned on the tower back in late 2007 and they are just now officially launching the market?

They really haven't launched a lot of markets. And we did a recently significant amount of leasing with Clearwire in the 2006, 2007 time frame. But obviously, today, they're working on planning for their launch in the new Clearwire with the capital they expect to bring into the company here at the end of the year.

We do have a nice book of business with them today. We expect it will increase significantly going forward. But it hasn't been a real active year this year for obvious reasons.

Okay, that makes sense. And last question, if I look at leasing demand trends in 2007 as fairly back end loaded, 2008 more evenly spread out. How do you think 2009 looks?

Best we can tell pretty spread out. No big huge spikes, we think we see continued steady builds on the part of the large wireless carriers. And then we see potential for things like Cox and things like Clearwire, like we've talked about, that we would hope get started here in the front half of 2009. Generally, a pretty steady year is what we would say and no real indicated sort of spike.

And the thing about this business, remember, we always talk about because of the way the leases come on over the half year convention, it's very hard to detect ebbs and flows, frankly, in leasing. It's (inaudible) million dollars against a very large run rate today. It's one of the great features of the business today.

Okay. Thank you very much.

You bet.

Okay. Thank you. And our next question comes from Michael Bowen with Piper Jaffray. Go ahead, please.

Okay, thank you. I'm sorry for any background noise here, I'm in transit. But a couple questions. Back on the debt, are there any covenants that we need to think about? I didn't hear that mentioned.

Second question, at the PCIA conference last month, there were several tower build companies talking about the weight of the Clearwire equipment and how that was going to potentially necessitate a lot of retrofitting of towers. If that is the case and if you could give us an indication of that that would be great.

If it is the case, can you pass on that retrofit cost to the customer? And last question, I didn't hear, if you could give us the tenants per tower. That would be great.

Sure, Michael. I'll hit the first one, and then Ben can take your second and third question. On the covenant side, I mentioned our two consolidated covenants would be our consolidated debt to EBITDA. That covenant is 8.25 times. We're currently 7.0 times and obviously on a path to go down significantly from there given our capital spending plans and aim of using cash flow to repay debt during 2009.

The second ratio at the consolidated level would be interest coverage; the covenant is 2.0 times and we're at 2.6 times. So we've got plenty of margin on each of those covenants and would not expect to be close to either of them.

As I mentioned, there are no ratings triggers in any of our debt or accelerations. And then related to our structured notes to the extent they roll into the refinancing dates there's no cross default. I don't think at this point there are any covenants that we're anywhere close to and no reason to be concerned about covenants.

Secondly, on the Clearwire build specifically, we probably won't get into the specific configuration. We'll let them talk to you about that. But it is common practice in our case to negotiate capital contributions to pay for some, and up to in certain cases, all of the capital required to upgrade sites to accommodate the configuration of a customer. It's deal by deal specific negotiations depending upon location and quality of the site and what the competitive landscape looks like.

I can't give you any more than that other than to say we have gotten over the years and continue to get significant capital contributions toward this tower augmentation activity and we would expect that to continue. We don't see any reason why should that should abate. These sites are continuing to become more and more loaded.

And it's taking capital to accommodate the additional tenancy. As Jay mentioned in his notes, we will continue to spend capital on our highest returning activities. That is the highest returning activity in the Company, obviously, because it brings a new long-term contract to the Company. On the tenants per tower, physical tenants per tower are approaching about 2.7, 2.8. On a revenue basis we're over three.

About three and a quarter currently.

Yes, about three and a quarter on a revenue BBE basis if you go back to that old vernacular. But on a physical tenants about 2.7, 2.8 tenants per tower. That doesn't really tell you a whole lot. That's the only problem. Because you have sometimes multiple installations from the same tenant.

So I think the root question that you're asking is capacity. Do you have capacity for these additional tenants and the answer is absolutely. We very rarely, in fact, I can say almost never run across a situation where the physical loading capacity of a tower is the impediment to getting a tenant on the site.

In fact, we've gotten much better at that over the years and find that the spacing and the engineering technology to upgrade these sites has improved dramatically and we're getting pretty good at it and don't see that as a real impediment going forward.

Great. Thank you for the granularity.

Thank you, and our next question comes from Batya Levi with UBS. Go ahead, please.

Thanks, a lot. I have two questions. One, when contracts come up for renewal, given the environment, do you think there is any risk of keeping the escalators at the current levels? And also, if CapEx levels are coming down significantly in '09, what do you think that implies for growth in 2010? Thanks.

In terms of growth in 2010, we don't see CapEx levels coming down significantly, as I mentioned before. We're not going to talk about so much about 2010 as to work on 2009. But given the broader wireless trends that we see around wireless data and ultimately LTE as we get out into 2010, we certainly don't expect to see any slowdown in the demand for wireless services at the consumer level, which is what ultimately drives our business.

You have got to really go all the way through to the carrier and say, okay, what's going on at the consumer level and as we've talked about on this call we continue to see very significant demand trends around the consumer devices both in terms of data and voice and a wire line replacement activity. So we would continue to expect long-term growth to be pretty solid.

Just to clarify my question, I meant actually your discretionary CapEx levels coming down significantly.

Yes, Batya, on the discretionary CapEx side, as I mentioned, if you look at year-over-year revenue growth of about 8%. Less than 0.5% of that was associated with acquisitions. So virtually all of our revenue growth is organic. Most of the -- if you look at the discretionary investments that we've made over the years, a big portion of that, the largest item would be our land purchase program.

And as I mentioned, as we look at doing lease extensions, that would somewhat offset or has offset the benefit that we've gained at the EBITDA line from reducing ground rent through purchases. I really don't think you're going to see any top line impact or bottom line impact frankly from the reduction in capital spending and allocating it towards debt repurchases.

As Ben mentioned, as we allocate the cash flow towards buying back debt, depending on what the yields are at which we buy back that debt, it actually has a positive impact towards the bottom line growth rate. I think top line impact is minimal. And bottom line impact may actually be slightly positive ahead of sort of what we've assumed.

And your first question about the contractual renewals of the tenants, for the most part when we come up for renewal of our leases there's really not a conversation with the tenants. They have engineered their network around the spots on their network where they are located on our towers. And as they come up for renewal the terms of that renewal are already set forth in the contract. There's not a renegotiation of the lease as we approach lease renewals.

Many times there's not even a discussion. The carriers don't want to have the responsibility of taking an action in order to extend the ground lease. So the leases are actually structured where the renewal is automatic into its next term rather than requiring action by ourselves or by our tenants to take an action in order to renew the tenant leases.

Our experience has been that well in excess of 99% of the leases that come up for renewal just extend into their next term. I don't think that's something you need to be worried about.

And we've had thousands that have done that just in the normal course. Not something we spend a lot of time on.

Okay. Thanks a lot.

Our next question comes from Dave Coleman with RBC Capital Markets. Go ahead, please.

Thank you. Just on your 4Q sustaining CapEx guidance it's about a $12 million, doubles from the previous quarter. Anything we can read into that as far as future levels of maintenance CapEx required or is it seasonality?

And then it looks like you picked up about 145 towers in Australia. I was wondering if you could talk about the assets you acquired or built there, the economics around those, motivation for picking up those towers? And then to go back to an earlier question on Clearwire. Using an existing Sprint deployment, would you require Sprint to backstop those leases or would you allow Clearwire just to basically amend the lease without any kind of additional Sprint commitment? Thank you.

Okay, good morning, Dave. On the first question, related to capital spending around sustaining activities, I think I mentioned this on our third quarter call briefly, we're going through the process of doing a technology refresh, which is a normal every three year cycle for us internally. We're just replacing our computers and software, upgrading --.

I guess after this morning we might look at the phone lines too, what do you think? (laughter)

Upgrading to Vista. So we're going to incur a big portion of that in the fourth quarter. We had thought some of it was going to come in in the third quarter, but most of it looks like it's going to fall in the fourth quarter and then in the beginning of next year. There's nothing related to our towers really that's a meaningful change in activity from quarter to quarter, so I would not expect that to be a recurring or a new level of CapEx on a quarterly basis.

In Australia, we acquired 140 towers from a carrier in Australia. These are good sites that we're very pleased about that we believe will lease well going forward. And that's what that transaction was. It was added about 10% to the portfolio in the Australian business.

And we think it has a good long-term potential for us going forward. And we'll look to do more to the extent that we see -- to the extent we see opportunities to continue to grow that business and the U.S. business we'll certainly avail ourselves of those as we talked about on the call this morning. Specifically around your question around Clearwire and the legal terms of that, again, probably not going to get into that, Dave, too much.

Clearwire will be a very well capitalized entity going forward with their sort of stellar group of investors coming into that business. We think they're a very viable company and we appreciate having their business going forward.

Just to go back to the Australia towers, can you talk about the multiples paid for it as well as the characteristics, number of tenants on those now, as well as the co-location opportunity on those towers?

Yes, Dave, it was not a material transaction in the scheme of things. Attractive multiples, I'll say, relative to our trading value. Our trading multiples. And we have very high expectations for growth around additional co-location in those sites and that's probably all I'll really get into given it was a relatively small transaction.

But you can be safe in assuming we certainly wouldn't have done it if we didn't think it added value and it was accretive long term there.

With that, I think we'll wrap the call. I appreciate everyone's attention, particularly in these uncertain times. I think you can tell from our remarks this morning we were pretty pointed to talk about the balance sheet and specifically our enthusiasm for 2009 and the continued growth in the business.

Appreciate your attention and look forward to visiting with you on the next call. Thank you very much.

Ladies and gentlemen, this concludes the Crown Castle International Corp. third quarter conference call. If you'd like to listen to a replay of today's conference, please dial 800-405-2236 or 303-590-3000 with the pass code 11121062. ACT would like to thank you for your participation, and you may now disconnect.