Crown Castle Inc (CCI) 2009 Q1 法說會逐字稿

Welcome to the Crown Castle International Corporation first quarter 2009 conference call. 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). As a reminder, the conference is being recorded today, Thursday, April 30, 2009. I would now like to turn the conference over to Fiona McKone, Vice President of Finance. Please go ahead, ma'am.

Thank you. Good morning everyone, and thank you for joining us as we review our first quarter 2009 results. With me on the call this morning are Ben Moreland, Crown Castle's Chief Executive Officer; and Jay Brown, Crown Castle's Chief Financial Officer. To aid the discussion, we have posted supplemental materials in the investor section of our website at 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 section of the company's filing with the SEC. If one or more of these 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 nonGAAP financial measures, including adjusted EBITDA, recurring cash flow, and recurring cash flow per share. Tables reconciling certain nonGAAP 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. I'm especially pleased with our first quarter results as we have accomplished two very important things. First, having extended our debt maturity schedule, we have eliminated the need to access the capital markets for almost five years, as we can now repay all of our upcoming debt maturities with cash on hand and projected cash flow. And second, our operating results in the first quarter clearly demonstrate the quality of the assets that we own and operate and our continuing ability to execute at a level that exceeds our original outlook for 2009. I'd like to take you through the excellent results for the quarter, the increase in our 2009 outlook, as well as highlight the improvements in the capital structure since the last quarter call.

As highlighted on slide three of the presentation posted on our website, during the first quarter we generated site rental revenue of $367.7 million, up 22.6 million or 7%. The first quarter results were impacted by the 27% decrease in the Australian dollar to US dollar exchange rate from the first quarter 2008 to first quarter 2009. As you can see on the slides, we've provided the impact of the FX there on slide three. Site rental gross margin, defined as Tower revenues less cost of operations, was $258 million, an increase of $25.3 million or up 11% from $232.7 million for the first quarter of 2008. Adjusted EBITDA for the first quarter of 2009 was $242.4 million, an increase of $31.4 million or up 15% from the first quarter of 2008. These growth rates were achieved almost entirely through organic growth on assets that we owned as of January 1, 2008. Recurring cash flow, defined as adjusted EBITDA less interest expense less sustaining capital expenditures, increased 12% to $131.8 million from $118.1 million in the first quarter of 2008. And recurring cash flow per share increased 9% from $0.42 in the first quarter of 2008 to $0.46 in the first quarter 2009.

Moving to the outlook for the second quarter 2009, we expect site rental revenue for the second quarter of between $370 million and $375 million. We expect site rental gross margin for the second quarter of between $254 million and $259 million. We expect adjusted EBITDA for the second quarter of between $235 million and $240 million, and interest expense of between $108 million and $113 million, which includes approximately 12 million of non-cash interest expense. We expect sustaining capital expenditures to be between $8 million and $10 million, and recurring cash flow is expected to be between $116 million and $121 million.

Based on the terrific start to the year and the strong growth in lease application volume, we have increased our outlook for site rental revenues, site rental gross margin, adjusted EBITDA, and recurring cash flow for the full year 2009. As shown on slide four we expect site rental revenue for the full year 2009 of between $1.500 billion and $1.515 billion, which is approximately 8% growth over 2008. We expect operating expenses in 2009, excluding land lease expense, to be flat compared to 2008, allowing us to increase our 2009 outlook for site rental gross margin to between $1.035 billion and $1.050 billion. Furthermore, G&A expenses, excluding stock based comp, are expected to be down slight until 2009 compared to 2008 due to tighter management of expenses. The combination of increased revenue and lower costs results in a $32.5 million increase in expected 2009 adjusted EBITDA to between $960 million and $975 million, which is approximately 12% growth over 2008.

In order to help you reconcile our full year 2009 outlook with our first quarter results, let me point out a few items that we benefited from in the first quarter that we don't expect will recur during the balance of the year. Consistent with past years and as we expected in the guidance we provided for the first quarter, we received a $2 million annual payment from a customer in Australia. Also as we expected, first quarter repairs and maintenance were lower by approximately $3 million than our expectation for other quarters due to the limited amount of R&M that can be carried out in cold weather months, and we have not assumed that we will replicate the amount of contribution from the services business in the other quarters of 2009. We are assuming that gross margin from services will be lower by approximately $2 million to $3 million per quarter relative to the first quarter of 2009. Our assumptions are based on the unpredictable nature of customer take rates in our services business and is not a reflection of an expectation of lower leasing activity or demand for the balance of the year.

Going back to our 2009 outlook, after making the adjustment for the recent $1.2 billion notes offering and the repayment of the $1.55 billion securitized notes due February 2011, we expect interest expense to be between $440 million and $445 million. Notably, this is unchanged from our prior guidance. For the year, total interest expense includes approximately $48 million of non-cash interest expense. We expect 2009 sustaining capital expenditures to be between $25 million and $30 million. This 2009 outlook translates into expected recurring cash flow of between $490 million and $505 million, $32.5 million higher than the guidance we provided in February.

Turning to the balance sheet as of March 31, 2009, total debt at the end of the quarter was $6.5 billion. We also had $315 million of the 6.25% convertible preferred stock outstanding as of March 31. Total net debt to LQA EBITDA or last quarter annualized adjusted EBITDA as of March 31, 2009 was 6.3 times pro forma for the 7.75% notes. This approximates the lowest level of leverage in the company's history and I expect this will continue to be true on an ongoing basis as we continue to delever the balance sheet. Adjusted EBITDA to cash interest expense as of March 31, 2009, pro forma again for the 7.75% senior secured notes was approximately 2.5 times. Both our adjusted EBITDA leverage and cash interest expense coverage were comfortably within their respective covenants.

Moving to investments and liquidity in the first quarter 2009, capital expenditures were 39.3 million. Sustaining capital expenditures totaled approximately $5 million. We spent $24.7 million related to the addition of new tenants on existing sites. Following through on our commitment to reduced capital spending, which I discussed on previous calls, during the first quarter 2009 we spent $3.4 million on land purchases and $6.2 million on new towers, reducing capital expenditures related to land purchases and new towers by 77% compared to the fourth quarter of 2008.

On our last call, I spent considerable time walking you through the mechanics of the forward starting interest rate swap. As illustrated on slide five, the liability associated with these swaps is currently approximately $430 million based on five-year LIBOR swap rate of 2.57%. The settlement date of the swaps remains unchanged irrespective of the refinancing of the $1.55 billion notes due in February 2011. We expect to settle the $31 million swap associated with the $294 million [GSL 2] debt with cash in December of this year and expect to settle the other swaps on their respective settlement dates as lined out on the slide. On slide six we have provided again some view of the sensitivities of these swaps to changes in interest rates.

Before I turn the call over to Ben, I'd like to take make a few comments about our capital structure. Since the beginning of the year, we have made significant progress in raising capital in order to deal with our upcoming debt maturities. We are one of the very few companies that have successfully accessed the credit market on multiple occasions since Labor Day, 2008, reflecting the quality of our business. We believe that our ability to have raised debt in these difficult credit markets reflects investors' ability to differentiate between quality and weaker credits and reflects the long-term recurring nature of our contracted revenue stream and an expectation of continued growth in operating results. As a matter of fact, our most recent bond was issued in line with Triple B rated notes of similar duration.

As we previously disclosed, in January 2009 we issued $900 million of 9% senior notes due in 2015. Since January 1, we have purchased $319.5 million of securitized notes in the open market for $305.3 million, which represents a 4% discount to the face amount of such notes. These purchases were comprised of $72 million face value of the securitized notes due in December 2009 purchased for $71.3 million, and $247.5 face value of the securitized notes due in February 2011 purchased for $234 million. Two weeks ago, we priced a $1.2 billion offering of 7.75% senior secured notes, which, together with the cash on hand from the January offering, will enable to us repay the securitized notes due in February 2011, and to meaningfully extend this maturity to 2017. Pro forma for the completion of the 7.75% notes and the repayment of the securitized notes due February 2011, we expect to have approximately $274 million in cash and cash equivalents, excluding restricted cash, and our $188 million revolver will be undrawn. Given our cash position, we are able to repay the remaining portion of our December 2009 securitized notes with cash.

In summary -- as shown on slide seven, by year end we will have refinanced, repurchased, or repaid all of our material upcoming debt maturities through 2013 including both of the legacy Global Signal securitized notes totaling $1.8 billion with a combination of cash and proceeds from debt offerings. And we will have five years before the next sizable fixed maturity, our $606 million term loans due in March of 2014. These debt issuance have eliminated the refinancing pressure and allow us time to consider our options with respect to the $3.45 billion of Tower revenues notes which are secured by approximately 12,000 of our US assets and the respective cash flow from those assets.

Given that all of our required debt maturities through 2013 have been extended or could be repaid with cash on hand, I'd like to spend a few minutes discussing in greater detail the optionality we have in dealing with the $3.45 billion of senior secured tower revenue notes. I think you will see that we have significant flexibility and can be opportunistic in how we approach refinancing these notes. By way of background, the $3.45 billion of senior secured tower revenue notes were issued in 2005 and 2006 and are secured by approximately half of our 24,000 towers and the respective cash flow from these assets. Further, the notes contain anticipated refinancing dates of June 2010 for $1.9 billion of the notes and November 2011 for $1.55 billion of the notes.

As we have explained before, we are not required to refinance or repay the $1.9 billion and the $1.55 billion tower revenue notes on the anticipated refinancing dates of June 2010 and November 2011 respectively, as those notes have final legal maturity dates of 2035 and 2036 respectively. If we chose not to refinance or repay the notes by June 2010, and November 2011, the interest rates on the notes would increase by approximately 5% and the cash generate beside these assets would begin to amortize the debt outstanding. The notes are structured such that all of the principal amount of the notes would be expected to be retired well in advance of the legal maturity of the debt if the notes were not refinanced.

As I think you'll see as I go through the detail of the notes and our cash flow, I am comfortable that we have sufficient liquidity and cash flow to run our business in the event that these notes begin to amortize with all of the cash flows underlying these notes. Let me say that it is not our intention to allow these notes to trigger the amortizing provisions, but in the event that these provisions are triggered, I'd like to spend sometime walking you through the practical implications of such a scenario.

Referring to slide eight, if we have not refinanced the debt by the respected anticipated refinancing dates, the cash flow on these approximately 12,000 towers, after all direct operating expenses, interest expense on these notes, maintenance CapEx, and the management fee equal to 7.5% of the revenues, would go directly to amortize the debt. Importantly, the approximately 5% interest rate step up that I mentioned applies only to the principal balance outstanding and is not paid to the holders until all of the principal is retired. In other words, the increased interest is accrued during the period in which the principal is being repaid and we do not pay interest on the accrued interest step up.

Obviously this lowers the effective interest rate on these notes. For example, if the cash flows from the assets fully retired the debt over approximately eight years, then the effective interest rate would be approximately 8%. The effective rate is certainly attractive in the current capital markets environment. In the event that the cash flow on the 12,000 towers is going directly to amortize these notes, at our current run rates, we have enough cash flow from our other assets to service our other funding needs. As illustrated on slide nine, cash flow from our other various assets subsidiaries including management fees, flows up to support our obligation at the parent and the operating company levels.

To summarize slide nine, based on the current cash flows, we are producing approximately $370 million of annual cash flow from such subsidiaries, ignoring the cash flow currently produced by the 12,000 assets securing the $3.45 billion senior secured notes, which is sufficient to service the parent and operating company funding needs of approximately $322 million per year. As shown on the slide, assuming no growth in cash flows between now and June 2010, which we would certainly expect to occur, we could continue to pay all debt obligations, maintain our current G&A levels, as well as continue to fund capital expenditures associated with adding new tenants to our towers. In other words, we would not expect any significant change to how we are operating our business if these secured notes were to begin to amortize from the cash flow of approximately half of our assets.

To reiterate, it is our intention to attempt to refinance the tower revenue notes in advance of the anticipated refinancing dates. But we thought it would be helpful to walk you through the alternative, including the relatively preferential effective interest rate, and illustrate that even in the amortization scenario, we have sufficient cash flow to continue to operate our business and service all of our obligations. Further, we could refinance the $3.45 billion through the issuance of incremental notes over time -- that is, we don't have to do a $3.45 billion financing in a single offering. We could refinance these notes with the issuance of additional debt at the parent or at the asset level. Any incremental notes issued at the asset level would have to be issued with similar terms as the existing notes.

In summary, as we weigh our options and alternatives for refinancing or repaying the $3.45 billion of notes over the next several years, I believe that we have a valuable option of extending the repayment of these notes or refinancing the notes if there is an attractive alternative in the capital markets. Clearly, we are now able to be opportunistic in our refinancing approach, given the significant actions that we've taken during the first four months of 2009.

To recap, I'm very pleased with the operating results achieved in the first quarter. I'm excited about the upward momentum of our 2009 outlook. We have sufficient cash flow to meet all of our maturities through 2014 without accessing the credit markets, and we have time to address the tower revenue notes opportunistically. With that, I will turn the call over to Ben.

Thanks, Jay, and good morning again -- and thanks to all of you for joining the call this morning. As Jay just mentioned, we had an excellent first quarter, exceeding our outlook for site rental gross margin, adjusted EBITDA, and recurring cash flow. As reported in the press release, we have seen strong growth in leasing applications during the first four months of 2009 -- in fact, the highest level in recent memory. Based on this activity and the strong first quarter results, we have raised our full year 2009 outlook and remain excited about the continued growth prospects for our business.

Before we turn the call over for questions, I'd like to make a few comments about the overall environment and the exciting developments in our industry which continues to drive usage and leasing demand. The fundamentals in the industry remain very compelling. In 2008, US wireless subscribers grew 5% to 285 million consumers with a combined 2.2 trillion minutes of use on their mobile devices, a 100 billion minute increase over 2007. Today wireless represents a $148 billion market, and the growth continues unabated as wireless data services become the primary driver.

Text messaging remains by far the most popular mobile data service today, with 215 million subscribers paying for text messaging. While the number of calls has stayed pretty steady at about 200 per month for the average US subscriber, the number of text messages has gone up for all subscribers to about an average of 447 text messages per month. In 2008, US consumers sent 1 trillion text messages, almost tripling the previous year's SMS traffic. In fact, for the first time, text messaging is now more popular than making phone calls.

While text messaging, the most mature of the data markets, has grown rapidly, the growth opportunities in other richer and more bandwidth intensive mobile data services such as mobile Internet access, mobile content, and mobile video streaming are significant. Due to the unquenchable demand for data, the industry has recently evolved from being a coverage focused to a capacity focused industry driven by the proliferation of 3G devices and demands for new applications, products, and services. Daily mobile Internet usage doubled in the last 12 months, with nearly 22 million US mobile users using their devices to access the web. Nine out of 10 iPhone users are accessing the internet and 80% of G1 users browse the web daily. Sky rocketing data demands, six to 14 times more data being consumed over the past year depending upon the wireless company, results in the need for more robust networks for continued revenue growth.

Applications for mobile devices have created a revolution in mobile content availability, evidenced by the sevenfold growth in web addresses that are created specifically for locating content that's configured for mobile phones. There are now 1.1 mobile site addresses worldwide that have content that works on mobile phones compared to 150,000 last year. The relevance of the growth in applications to our business is that the devices will continue to become more and more compelling, driving increased usage. To cite a few of the application related statistics, iPhone recently passed 1 billion applications downloaded in a little more than nine months after the iPhone apps store was launched. Similarly, there have been approximately 1 million G1 devices sold to date, with an average user downloading 40 apps from the Android market. The G1 customers use data services 50 times more than their average voice centric phone users and 80% browse the web on their mobile phone every day. Blackberry just launched their App World in April at CTIA and we would expect the see the same sort of usage we are seeing from the iPhone and G1 devices.

Some notable statistics on mobile content and its importance to the carriers. Today approximately 213 million are paying for text messaging on a regular basis. 115 million subscribers are paying for mobile Internet access, and 64 million subscribers are downloading content, and 18 million already are paying for mobile video. This is obviously an important source of revenue for the carriers and represented approximately $7.8 billion of the carriers' revenues for the fourth quarter of 2008, with 34% of that coming from text messaging and 28% coming from accessing the Internet on a mobile environment.

The growth in wireless data revenue is also driven by the increase in integrated devices. Despite the economic conditions, smartphone upgrades continue to grow and represented 46% of total upgrades in the first quarter, up from 39% in the fourth quarter of 2008 and 31% in the third quarter of 2008. Importantly, the growth in devices is expected to increase US wireless industry data revenue by $47 billion from 2008 to 2013. Two-thirds of this growth is expected to be attributable to an increase in smartphone penetration to 35% conservatively estimated by 2013 compared to a base of 14% today. Some of this penetration is already evident. The carriers, specifically AT&T, reported that their number of subscribers with 3G devices more than doubled in the first quarter of 2009 compared to the same period last year to 41% from about 20% a year earlier.

During their recent first quarter calls, Verizon and AT&T stated that wireless data revenues in the quarter grew 37% to $3.6 billion pro forma for the acquisition of Alltel and 39% or $3.2 billion respectively year over year. And wireless remains the carriers' most important business segment. In fact, AT&T reported that data average revenue per user or ARPU was up 27% year over year and represented 27% of AT&T's first quarter wireless revenue, up 22% in the first quarter 2008. Similarly, data represented 28% of Verizon's first quarter 2009 revenue, up from 23% in the first quarter of 2008. Notably, 80% of Verizon Wireless's service revenue growth this quarter was from wireless data, confirming the importance of every carrier having a robust data service. Not to bore you with all these statistics, but from our vantage point it is the explosion of data services and the networks that support it, whether the continuation of 3G service networks or the new 4G networks under construction that is driving the demand for site leasing.

Finally, to wrap up before we move on to questions I would like to reiterate a few of the points from the call this morning. We are obviously very pleased with our results. We believe they demonstrate the quality of our assets combined with our ability to execute for our customers. We have proactively and deliberately addressed all of our near term hard debt maturities and will not be required to access the credit markets again until 2014. We are off to a great start this year and are well positioned to benefit from strong leasing demand as reflected in the increase in our outlook for the full year 2009. With that, operator, I'm pleased to turn the call over for questions.

(Operator Instructions). Our first question is from the line of Ric Prentiss with Raymond James. Please go ahead.

Thanks, good morning, guys.

Good morning, Ric.

Appreciate all those statistics, although, Ben, I thought you were channeling John Kelly for a second there. First question, obviously very strong quarter, big increase in the guidance for 2009 -- also we've got a very visible business here. Help us understand what allowed you to really go above the high-end of your ranges, take your guidance up so much? And maybe also address what you think this year starts out as far as loading? Is it heavy first half, heavy second half, level loading? Just update us a little bit on that, please.

Sure, Ric, given the economic uncertainty over the last six months, as we put out our guidance for the first quarter and for the full year 2009, we were a bit cautious. We wanted to get a few months into the year and see how the leasing developed. We certainly had signs which we spoke to on the first quarter call that leasing was going to be in good shape, but we really wanted to see those applications come in for a few more months and then see those start to turn into leases and get down the path a little bit. I think the raise in guidance is reflective of just tenants coming in at a pace a bit higher than what we had embedded into our guidance previously and we forward that through the balance of the year. As I mentioned on our first quarter call, we thought the leasing was going to be loaded 40% first half of the year, 60% back half of the year. Given our raise and the way the numbers shake out suggest it would be slightly more back end loaded than previously as we have increase our expectations for the later quarters of the year.

And then second question, in the past you've given us I think in the release the non-cash revenue, non-cash expense adjustments. Do you have that or are they still washing each other out a little bit?

Ric, we didn't put that in this press release and the reason to that is its basically a wash. And has been for a long time. Our expectation is it's going to continue to be a wash.

I think we had third and fourth quarter last year was like less than $100 million, so. And then a third question -- as you look at your balance sheet, I think you've taken all the short term --

Rick, just one clarification, I think it was less than $1 million, not less than $100 million.

No, I'm sorry, got the wrong scale there, sorry. As you think of your balance sheet taking care of the short term maturities, medium term maturities, how do you look at leverage levels and what do you think your options are to look at cost of debt in different structures -- given the effective rate of if you didn't do the ARD, again your intention I think was pretty clear you intend to do it. But 8% effective rate if you didn't do it is pretty attractive. What do you think is out there these days or what you think you might be looking at?

I think the most recent quote we have would be the bond that we issued a few weeks ago. And like I said I think we will be opportunistic, so I don't want to pin us down as to exactly how we will go about structuring the debt. I think we have time on our side, and we will probably look to let the market share out a little bit. We've been demonstrated now that we have access at the parent level to do a bond as well as down at the asset level of secured bond. So it could be a combination of a couple of different thing so we may end up -- depending on how the market shakes out, we may end up doing all of it down at the asset level.

As far as leverage targets, any change in that?

I mean, look, as we've allocated the capital and talked about, I would expect we will continue to delever the balance sheet. Based on our pace, it's about a turn per year. So as we get into, if you are forecasting where we would be by June 2010, that number probably looks something like about 5.5 times off of where we are at today of about 6.3 times. Certainly from a coverage ratio standpoint, we are covering interest at 2.5 times, which is a level that we are very comfortable with.

Sure. Great. Thanks. Good job, guys.

The only thing I would add to that -- I think it's pretty interesting what Jay said in his remarks about the new bond we just did that's pricing and trading right in line with Triple B levels, and that was about a five times debt to cash flow issuance at that level. So I find that pretty instructive and probably a level we will look towards which will put us in the 2.5 to three times coverage level and pricing like Triple B risk, which I think is probably about the most efficient place for us to be.

All right, thank you.

Thank you. Our next question is from the line of Brett Feldman with Barclays Capital. Please go ahead with your question.

Thanks for taking the question, guys, and maybe just a follow up to your talking about your refinancing objectives. Could you maybe just give us a sense as to some of the most important priorities? For example, you've talked about your ability to maintain flat levels of interest expense through your recent refinancing. Is it your expectation that as you look at your options around the tower revenue notes, you will be trying to achieve the same thing whereby interest expense won't be going up? And also can you talk a lint about little bit about maturity schedules and whether it's a greater priority in the past to ladder those out a little bit more?

Let me make sure I cover what our most important priority was, which is what we just accomplished. We set meetings with many and different conferences and certainly on these calls have expressed our desire to deal with the uncertainty around the maturity schedule in a very aggressive manner, which is exactly what we have done. I would suggest we have accomplished our most important priority, and now it leads to the opportunistic approach that Jay has walked you through. Jay, please chime in on the interest expense.

With regards to how you think about the $3 billion to $3.5 billion of notes, I think the most important -- I think you've seen us do a couple of different things over a long period of time. One is we want to ladder the maturity schedule, and we've accomplished that in the two notes that we have coming up, as you can see from the schedule. We have some maturities in 2014, 2015, and 2017. So I think that path of trying to ladder the maturities over multiple periods will be something that we will aim to replicate. We are obviously going to be cost sensitive. I laid out what the effective interest rate that we have, and I would look at that as basically a call options if you will on what the interest rate can be.

And we will weigh that against another element that I think we've been pretty diligent in over the years as we finance this business and that is flexibility around the cash flow and the investment of that cash flow, and what we believe will drive long-term, long-term returns to the shareholders. So we certainly in the -- one of the things that obviously we've eliminated the risk of refinancing and the offerings that we've done. But one of the things that I'm especially happy about is we've been able to do that while not compromising our flexibility. At the parent company, the Holdco bond that we recently issued allows to us to continue to buy back stock, provided we are under seven times leverage or make investments in other assets. So we've been able to come through this and refinance our debt and extend the maturity schedule while not compromising our long-term ability to invest cash flows or take certain actions that we think strategically make sense for shareholders. So I think those are going to be the big drivers. I think pretty consistent with the way we've done it in the past.

But as a practical matter, is it reasonable to assume that until you have really figured out what you are going to do about the tower revenue notes that you will probably just accumulate cash for purposes of debt reduction as opposed to doing thing like buyback?

I think that's practical, yes.

Okay. Thanks for taking the questions.

Thank you. Jonathan Atkin with RBC Capital Markets, please go ahead with your question

I had a question about CapEx, which was down considerably year on year, and a lot of that was fewer land purchases. But the revenue enhancing CapEx on existing sites was actually up and I just wondered what some of the drivers were there.

Jon, that's a number we continue to manage and work through. The run rate I guess if you look at this quarter was about $24 million. I think and -- we've spent a little time working on this as we go through our leasing, some of it is we believe front loaded fourth quarter last year and first quarter this year. It looks like for the full year it will be in the $80 million to $85 million range and we think that's a reasonable run rate. And it's coming at about a one-year payback if you think about adding new tenants on towers. If you look at the new additional revenue that comes with those improvements on the site, it's about a twelve-month pay back. So it is, and has always been the highest returning activity available to the company and something that we view sort of as sacrosanct. We will always spent appropriate capital to improve the sites to accommodate that additional tenancy. And as you saw from Jay's chart on page nine, we certainly included that as a discretionary CapEx spending matter that we would continue to certainly fund even if we go into this cash trap condition as Jay outlined in his notes.

Then on the growth in site leasing rental, can you talk about cash versus GAAP and some of the differences there at this point?

Sure, one of the things that I think you heard us talk about over time is how the components of our revenue growth are, come from. So if you look at 2008 total revenues, site rental revenues, we did about $1.4 billion. Depending on how folks run their model at a 3% escalation, that would assume $42 million of growth -- 4% escalation, that would be about $56 million of growth. And we expect our GAAP revenues this year, 2009, to increase right inside that range. So there's no meaningful difference between our cash, and cash and GAAP growth rates.

And then quickly back to Ben's response on the CapEx question. Are you having to look at augmenting the site a greater portion of the time or a lesser portion of the time compared to earlier periods when you get a new leasing application? Or is the nature of the CapEx that you are putting into the structure changing?

Jon, I would say that as we looked at it over time it is going up modestly over a four-year trend. And it's something we've spent a lot of time on analyzing and it's not concerning to us. We are also getting customer contributions at that level as well that are tracking that. So it's not something that I see as really an issue. And obviously it's related, it's success based -- so more leasing means you are going to spend more to augment the towers. And I guess just over time the logic would follow that as these sites become more loaded as they certainly have over the time period we've all been involved in this company, you are going to spend more over time to make them accommodate more. And so it's trending directionally higher, but not by any alarming amount. I believe last year we spent about $80 million on this number and I think this year it might be like $85 million and at the high-end maybe $90 million, so really not a concern.

Jon, one other thing to that comment, obviously we get paid back in the first year's rent more than what we actually invest in this. So this is a home run investment. The incremental returns are well in excess of 100% on a yield basis in the first year.

So the carrier contribution is all shows as revenues rather than any a contra CapEx item, correct?

Correct.

Thanks.

Thank you. Our next question is from David Barden with Bank of America Merrill Lynch. Please go ahead.

Hey, guys, thanks for taking the question. Congratulations on a good quarter. If I could just -- three quick ones. Just first, not to beat the dead horse but to think again or get inside the head on the refinancing issue, we've set an 8% bogey for refinancing this $3.45 billion. The secured paper is trading just under 8% and markets seems to be generally trending that way.

So on the one hand, you would rather refund closer to the date to keep your interest costs lower, but on the other hand, you want to maybe just get rid of this issue and I think the equity holders would love if this is a gating issue for you to address it sooner rather than later so that you can start going back out and doing the acquisitions and the stock buybacks and the land repurchases -- that can be accretive to the growth rate. So I was wondering how you think about the balance between getting out there and doing tower things, and then maybe from a strictly mathematical standpoint pushing off the negative carry that a new refinancing would entail.

The second question was just on the trajectory of the trends you are seeing in carriers looking for 20 year lease contracts to move into that capitalized lease buckets. And third was what leverage you are pulling on OpEx that are keeping things flat on the cost side? Thanks.

Sure, Dave. On the first question, look, I wouldn't describe the $3.45 billion of notes as really a gating issue. I think we have -- as we've shown in the numbers I think we have an ability to deliver on the business pretty significant organic growth on the existing assets. So we want to be opportunistic in terms of how we deal with those maturities such that we really set ourselves up for a long-term solution and don't just move quickly based on a desire to free up something in the short term that maybe longer term is not the best execution. So I think we are going to let some time pass. Obviously the longer the amount of time passes, the lower the assumed leverage will be against those assets, which will drive down the cost of the debt as well as presumably drive down the cost of the debt and may also increase our flexibility.

So I think I'm happy obviously as we go through the process over the coming periods to discuss it further. And I think the point you're raising is one that again I think we are very focused on -- the flexibility of investing the cash flow to drive long-term shareholder returns is absolutely of importance to us and I will grant you that at some point you would say if we are talking about 25 basis points or 50 basis points difference, it would be worth gaining that flexibility by going ahead and refinancing the notes. I think in the short term which you are going to see us do is investing the cash flow to retire the debt anyway. Effectively we are operating the business very similar to the way this business would look like if we were amortizing the debt on these notes. I don't think it's limiting our growth and I think the smart thing, prudent thing to do at this point is to be a little bit more opportunistic.

We are pleased with -- if we can grow on an organic basis 12% or about $100 million or so at the EBITDA line, David, as you know for years that's what we've talked about trying to accomplish. And then obviously putting the cash to work, whether it be through long-term value creation opportunities such as acquisitions or buying stock, certainly something we will look at long-term. But in the short term, certainly the opportunity to create near term value just from the debt to equity transfer is an opportunity not lost on us. And as we have certainly witnessed the cost of equity has certainly spiked in this business. And so we are very conscious in terms of what we, how we think about the cost of equity. And our view is we want to do everything we can to get that risk premium out of that equation and I think we've made a lot of progress on that front and will continue to do so.

Your next question was I think on OpEx and what we've done. Really on the OpEx side, it's everything that every company in America is doing right now. We are looking at every single thing that's not nailed down on not spending money that are nonessential to driving revenue and margin growth this year. When you take a pretty hard look at everything there are places where you can bring -- it doesn't take a whole lot -- if what you are talking about is incremental margins, it doesn't take a whole lot to make a fairly significant difference. And that's what we've done and I would -- for those managers and employees listening on the call, I would say thank you, because it's certainly been through their efforts that we've been able to sustain the run rate from last year, and I think we will continue to operate on that basis. It's certainly not compromising our ability to deliver the business and I would suggest we're probably getting a little better at operating and being efficient.

Thanks, appreciate it. Last one was on the trends you are seeing towards carriers moving into the 20 year lease bucket.

I'm not sure we've experienced that, David. We are seeing routinely now 10 year terms and 15 year terms. I can't recall a 20 year term that we've done. But, again, 10to 15 years is a pretty nice commitment.

Okay. Great. Thanks.

Thank you. Jason Armstrong with Goldman Sachs, please go ahead with your question.

Okay. Thanks a lot. Just one follow up on the debt site and sorry to beat this again. But if gaming the system around the re-fi, if the stars align such that you do end up raising debt sooner than rather than later -- can you take out parts of the two tranches that make up the $3.5 billion without taking out all of those structures? And if so what prepayment penalty should we be thinking about?

Second question, back to the core business, you talked about raising guidance and the comment was that if we were to think about the raise, this is even more back end loaded than the 40/60 split previously given -- what specifically gives you the confidence relative to what you've seen right now in that type of conclusion? Thanks.

Thanks, Jason. On your first question we can take out the $1.9 billion or the $3.45 billion of notes in incremental amounts. We don't have to take them out all at once. We can refinance those notes and as I said at the parent level or down at the asset level. In terms of the prepayment penalty, those notes are able to to be prepaid six months prior to the their anticipated refinancing date. So in the case of the June 2010 notes, we could prepay those at par starting in December of this year. And if we were to prepay them earlier than that, then we would ends up paying treasuries plus 50 basis points to the December date. So obviously we are about six months to seven months away from that really where we are eliminating any prepayment penalty on the $1.9 billion or the most near term anticipated refinancing date.

With regards to your second question, on the back end loaded nature of the revenues, I think what gives us the confidence there is as I said in my comments before -- it's an issue of where the run rate is in the first quarter as well as the application volume that we've been seeing during the first four months of the year.

The only thing I would add to that is obviously the add volume which will come on into commencing revenue on new leases in the back half of the year, but also a little bit of trueing up the guidance, because as you saw we raised guidance I think $15 million at the margin line and $32 million at the EBITDA line. And as we said on the fourth and first quarter calls, we are always pretty conservative, really conservative about services. And so we don't give you those margins obviously as a guidance matter.

But implicitly we've taken those back up to look more like -- not necessarily this quarter run rate, but more like a run rate that was consistent with our full year last year. So that's why you have a little bit of a disproportionate raise or trueing up between revenue and EBITDA combined with the flatness of the G&A expenses and the operating expenses that we talked about. Obviously we would have been a little more conservative than our forecasting at the beginning of the year, but now looking at where our run rates are and the ability to really grab a hold of those run rates, I think we are pretty comfortable. And that's somewhat why the guidance has sort of been trued up for you.

That's great. It sounds like you guys have made these comments before, and industry peers have made this December, January trends following seasonal weakness patterns from prior years, but then February, March, into April big pick up in terms of the trend rates. Is that fair?

Yes, that's accurate.

Okay. Great. Thanks.

Thank you. Our next question is from Simon Flannery with Morgan Stanley. Please go ahead.

Thank you very much. A couple of things. On the leasing demand that we just talked about, is it still the same sources as the three of the Big Four with supplements from some of the new unlimited carriers or are there any changes in the sources of that growth? Are you seeing any significant 2009 impact on the 4G side, for example? And given that you've made some great progress on your leverage, at what point do you start thinking about getting more aggressive and going back to a bit more building, perhaps looking at small tower portfolio that is might be available? Is that something that you could consider later in the year or is that still a ways out? Thanks.

Simon, on the leasing I'm very pleased to tell you that it is broad based. It is from literally everybody in the industry. Obviously with the Clearwire build, we've seen a number of applications come in on Clearwire as they've been very public about their build and launching markets at the end of this year, new markets -- so obviously we have a lot of application volume there that we are working on, but I would not suggest to you that it's solely that. It is across the Verizons, the T-Mobiles, the AT&Ts, the Cricket Metros -- and then a fairly big category of other which is everybody else. It's everyone from roaming overbuild from T-Mobile or UMTS construction from T-Mobile or Verizon or AT&T continuing to add new sites as well as augment sites. So it's pretty broad-based and very gratifying to see, and again why we drag you through some of those statistics, through my comments because I think it's important for everybody to understand where this, the growth driver have coming from. And we spend a lot of time listening carefully to what the carriers are talking about and looking at their results, because obviously that's the leading indicator for us on how they are going to be compelled to make capital investments in their network. So that's the connection there.

Secondly, you ask when might we be back in the quote investment business. The answer to that is, I don't know for sure but I suspect it's sooner than people might be contemplating. Today as we talk about, there's clearly value in lower the cost of equity. And that's what we've been attempting to do ,and doing it in a very aggressive and deliberate way as you've seen in the first four months of the year. We will likely continue that. But as I outlined before it's interesting to me that five times leverage is trading in the Triple B levels, and I don't aspire to anything less than that because in my view -- and this could change -- but in my view today that requires an overcapitalization of the business. And given the long-term nature of these contracts that we have and the predictable nature of the business and interest cover rivers and latter maturities that that suggests today, I think something in and around 2.5, maybe even three times interest coverage if that results to Triple B levels in pricing is where we want to be, and we will be there sooner than most people realize.

And so I would say stay tuned and I would reiterate fact that most all -- almost all of the near term growth in the business occurs on an organic basis. And if you look at our results over this last 12 months as well as our guidance for 2009, that's coming off of the organic business, and let's not forget that we doubled the size of this company two years ago through an acquisition. So it should be paying dividends in terms of organic growth. And before that we took on a lot of debt that we are having to refinance now and we issued 98 million shares to pay for it. And so we are now going to see -- let's hope and we expect and are working on driving value through the organic growth in this company, and that's the critical value driver in the business. And whether we are out making small acquisitions or building some towers here and there, at the margin we would believe that we do do that effectively, but it makes a pretty small contribution to the overall total.

Thank you.

Thank you. Gray Powell with Wachovia. Please go ahead.

Great, good morning everyone. Thanks for taking the questions. Just have a couple of quick ones here. Just looking into the rest of 2009 and going into 2010, do you see any carrier initiatives that you feel like could be a big swing factor in either direction in terms of leasing demand?

No, Gray. I mean, fortunately what we are seeing is the continued sequential so far process that the carriers are going through in improving their networks. And it's continuing. I think the one swing we would say is there this year is as I mentioned is obviously Clearwire as they've described in their approach to building out their WiMax service, and we are doing everything we can to support them and expect they will be successful. But that's probably the one swing factor this year. Everything else looks very much business as usual, which is tremendous. I don't want to minimize that at all. It's tremendous in what we are seeing from everybody else.

Okay. That makes a lot of sense. And then just not to focus too much on Clearwire, but they do have a couple of markets that are launching this summer. Obviously that's good for the tower sector in general. However, they also have a decent number of cell sites that have already been turned on and markets that maybe not have officially been launched yet. Can you just give us an idea as to when you expect to see a material level of lease commitments from Clearwire? Is that like a second half 2009 event or is it really more like 2010?

No, it's second half 2009. It's third and fourth quarter 2009, and then obviously on 2010 and 2011. But we would expect to start to see that really commencing in the third and fourth quarter of this year. And then you also see application volume on the LTE side that will be a very late this year and ultimately next year launch for Verizon, and certainly they've been more public and it's up to then them to describe that for you. But we are seeing the application volume there that we think is exciting, because it's sort of the preview of the next-generation technology for them.

Okay. Just one last question, I'm not sure if you are going to be able to answer this, but do you have a rough idea what the set up on an LTE installation and what the incremental rents could be there?

It varies and it's not a short answer. Over the next few quarters we will probably be able to be more disclosive about it because it's so early. But it's varying based on what's already existing on the site. So in some cases it's a swap out with just more lines and in other cases it's new antennas and lines. And that's about as specific as I can be for you today, but obviously we are on the very early stages of that.

Okay, well, great, thank you very much for taking the questions.

You bet, Gray.

Thank you. Batya Levi with UBS, please go ahead.

Thanks a lot. Just want to talk a general question on the M&A environment. Do you think there are willing sellers in this environment right now and how do you view the current valuations?

It's an interesting question. We are certainly out having conversations. We are in that market. We have a team that's engaged in that as we have been for years. And I would tell you, from my vantage point, I think a lot of folks are just sitting on the sidelines, not willing to sell what are tremendous private businesses in this environment unless they absolutely have to. And I guess there are certain extenuating circumstances from time to time, but a belief that these make great private businesses as they do public. And to sell into this market at these multiples, I think you are finding a lot of reticence on the part of sellers. I think there's a lot of people waiting on the sidelines. I guess if this were to persist for an extended period of time and people otherwise want to seek liquidity, I think will you see the M&A activity [gin] up again. But I think we are too early in the cycle for all but the distressed sellers looking to aggressively sell.

One little question, can you give the how many towers you added in the quarter and how many decommissioned just leading the total to down about 8?

Yes, we added about 16 and decommissioned about 24.

Okay. Thanks a lot.

Thank you. Jonathan Schildkraut with Jefferies, please go ahead.

Good morning. Thanks for taking the questions. Just a couple here. The first is, when we met with Clearwire coming out of CTIA, they seem to indicate that they were doing a lot of application activity potentially for a broader footprint than they might deploy over the near term. In terms of what you are seeing, have you seen any kind of extension from an application to deployment and what's your sense around that and as a kind of subcategory here? Is there any kind of preferential range that Clearwire would receive on your towers as a result of Sprint's prior relationship with Global Signal?

No, is the answer to that second question. There was no preexisting agreement and we've negotiated our arrangement with Clear Wire completely on an arm's length basis going forward. Whether they are hitting a Sprint installation through a very material upgrade effectively is what that looks like or a brand new installation, obviously we have different pricing schedules for both of those activities. And then in terms of any delay, no, I think they are out making commitments as they certainly have said and that's what we've seen on committing for long-term leases on these sites. And beyond that, we typically don't go into any more detail with respect to individual lease negotiations between customers. But there's about a four-month delay or lag normally between when we see an application and commencing revenue on a committed lease.

Great. One more question in -- as we look at last year, you had a fairly large working capital investment in the first quarter, which unwound over the course of the year. Similarly we saw a working capital investment this quarter. Would you expect working capital to be source of cash then as we look through the rest of the year?

I would assume that it will generally be flat throughout the balance of the year. There are a couple of payments that we have in the first half of the year that then amortize over the course of the year largely related to our property taxes that we pay on our sites. We would pay the majority of those in the first quarter and then expense them over the course of the year. So maybe a little bit, but I wouldn't expect a big increase from working capital. We are certainly not assuming that in our cash flow forecast.

Thank you for taking the questions.

Sure.

Okay, operator, maybe we will wrap up the call this morning. Unless there are any more questions.

We do have a couple more questions in queue. Chris Larsen with Piper Jaffray. Please go ahead.

Hi, thanks for taking the question. I'll make it quick. You talked a little bit about $80 million to $85 million for new builds, CapEx -- can you give us a sense for how that might break down between augmentation, new site? And I notice in your guidance you have the actual cash taxes a bit higher than the previous and wondered if you could give us an idea of what was driving that.

Chris, on your first question, just to clarify that $85 million or so is on tower augmentation on existing sites. So that's not build -- that's not new construction, unless you talk about like we call a drop and swap in the industry where you are actually doing a complete tear down and rebuild. But that all goes into the tower augmentation line in our minds. That's that $85 million for the year. And then we are looking at your question on taxes. I think it was about $2.5 million in the quarter.

I notice in the guidance it looked like it had your tax guidance had gone up a fair amount. I wasn't sure if it's because you took your top line up and your EBITDA up significantly, I was wondering if that was it or if there was something else driving the taxes up.

No, I don't think there's anything there from a cash standpoint of any significance.

Remember on a cash basis I guess these small amounts of taxes are some franchise taxes and things in various states, but we have over a $2 billion NOL. So we are not a cash income taxpayer and won't be for a number of years.

All right. Thank you.

Thank you. Michael McCormack for JPMorgan will be our final question.

Hey, guys, thanks, just a couple quick ones. On carrier subgrowth, Ben, any thoughts on -- the postpaid numbers at AT&T and Verizon have slowed very dramatically, obviously seeing some shifting to lower end customers, but those might not be the once that are heavy data users. Do you guys have any concerns about where that goes over the next couple of years in subgrowth? And then secondly on the revenue side, I understand we have maybe one or two one-time items this quarter, but I think you had mentioned $2 million to $3 million lower each quarter. Is that sort of compounding itself or is it just $2 million to $3 million less than first quarter?

Thanks for both of those. First of all on sub growth -- thanks for the question because I remember on this call I think a year ago we talked about the fact that we are all going to see headlines of slowing subgrowth, and how that is frankly not the story. The real story is the application of data services and what people are using and we had a statistic we didn't put in here around 22% of subscribers now are at $100 per month ARPU. There's some statistics that are out there. Obviously we picked a few, but there's a ton of them that suggest the continued explosion of usage around the embedded subscriber base. And that's really the takeaway, because obviously you are going to see subscriber growth slowing. I don't think it will stop, because most countries we are aware of outside of the US are still north of 100%. Certainly Australia, but I think it will certainly slow sequentially.

But it's really the year over year data demand and followed by the ARPU increases associated with those data packages that are incrementally creating margin and incremental returns for the carriers on making these investments in these networks. And so when you see something like -- of all the statistics I read to you, the one I think is the most interesting is probably that 80% of Verizon's growth in revenue -- in wireless revenue was from data services. And that to me suggested that obviously there's a very compelling reason for everyone, every carrier to have a robust data service. I think that's what you are going to continue to see. And we've all seen from the applications and the devices that are currently out as well as what are coming that that has the opportunity to really influence consumers' demand for services, and I think we will see more of the same.

Secondly on your one timers, Jay, let's clear that up.

On the revenue side, we saw $2 million payment from a customer in Australia. That's a payment that we receive every year in the first quarter. I would suspect that would recur in the first quarter in each of the subsequent years. The rest of the revenue that's portrayed in the statements we would expect to recur for each of the following quarters for the balance of the year. So hopefully that clears up the question.

All we are trying to do is back people down if you were going to annualize the first quarter. It was comparable to first quarter last year -- it's just if you were to annualize that number to get to a full year 2009, there's some things about it seasonalitywise that you need to back down, and that's what we were trying to do.

Understood. Thanks, guys, appreciate it.

With that, I think we will end the call and I want to thank everybody for their attention, and again we've gone a little past the hour. But we are happy to take the questions and very pleased with your continued interest in Crown Castle and will talk to you next quarter.

Thank you. Ladies and gentlemen, this does conclude the Crown Castle International Corporation first quarter 2009 conference call. If you would like to listen to a replay of today's conference you can do so by dialing 1(800)405-2236 or (303)590-3000 and put access code 11130311. ACT would like to thank you for your participation for today. You may disconnect. Have very pleasant rest of your day.