Crown Castle Inc (CCI) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Crown Castle International Corporation second quarter 2009 conference call. (Operator Instructions). This conference is being recorded today, Thursday, July 30th of 2009. And 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 second 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 factor sections of the company's filings with the SEC. Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected.

In addition, today's call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA, recurring cash flow and recurring cash flow per share. Tables reconciling such non-GAAP financial measures are available under the Investor section of the Company's website at crowncastle.com. With that, I will turn the call over to Jay.

Thanks, Fiona. Good morning, everyone. Before I take you through the results for the quarter, I would like to comment briefly on our business in general and what we are seeing, as shown on slide three. First, I am very pleased with our excellent second quarter results, which reflect the continued demand for wireless infrastructure as we exceeded the top end of our guidance for site rental revenue. As shown, we continue to deliver topline growth consistent with our expectations. Second, we maintained a disciplined approach to cost, holding our direct tower expenses approximately flat year over year and reducing cash G&A expenses by 7%. This enabled us exceed the top end of our guidance for site rental gross margin, adjusted EBITDA and recurring cash flow.

Third, despite prevailing economic conditions, we have had strong application volume for wireless carriers to go on our U.S. towers. In fact, applications in the second quarter were up 30% in the U.S. over application activity in the second quarter of 2008. Fourth, we recently announced our third financing since the beginning of the year, and have now addressed all the debt maturities until 2014. The combination of a very strong first half of the year, together with higher tenant additions expected in the second half of the year, disciplined cost control and stellar execution, allows us to meaningfully increase our site rental revenue, adjusted EBITDA and recurring cash flow outlook for the full year 2009. With that, I'd like to take you through the excellent results for the quarter, the increase in our 2009 outlook and the continued improvements in our capital structure since the last quarter call. As highlighted on slide four, during the second quarter we generated site rental revenue of $376 million, up 8% from the second quarter of 2008.

The first quarter results were negatively impacted by the 19% decrease in the Australian dollar to U.S. dollar exchange rate from the second quarter 2008 to the second quarter 2009. The impact of the FX is also illustrated on slide four. Site rental gross margin, defined as site rental revenues less cost of operations, was $263 million, up 12% from the second quarter of 2008. Adjusted EBITDA for the second quarter of 2009 was $247 million, up 16% from the second quarter of 2008. It is important to note that these growth rates were achieved almost entirely through organic growth on the assets that we owned as of April 1, 2008.

Turning to slide five, recurring cash flow -- defined as adjusted EBITDA less interest expense, less sustaining capital expenditures -- increased 10% from the second quarter of 2008 to $132 million, and recurring cash flow per share increased 8% from the second quarter of 2008 to $0.46 in the second quarter of 2009. Moving to the outlook for the third quarter and full year 2009, our third quarter outlook is shown on slide six and reflects expected site rental revenue growth and adjusted EBITDA growth of 9% and 14% respectively over the same quarter in 2008. Turning to the full year 2009 outlook as shown on slide seven, based on a strong first half of the year and our expectations for the second half of the year, we have increased our outlook for site rental revenues by $17.5 million, site rental gross margin by $25.5 million, adjusted EBITDA by $22.5 million, and recurring cash flow by $20.5 million for the full year 2009. This increased outlook corresponds to a 9% and 14% increase in site rental revenue and adjusted revenue, respectively, compared to full year 2008.

Turning to the balance sheet, as of June 30, 2009, pro forma for the completion of the $250 million senior secured notes offering, repayment of the December 2009 notes and the purchases of the 196 million of the tower revenue notes, pro forma debt was $6.2 billion as shown on slide eight. Total net debt to last quarter annualized adjusted EBITDA as of June 30, 2009, was 6.1 times. Overall leverage is down approximately one turn over the last 12 months, and is now at the lowest level of leverage in the Company's history. Adjusted EBITDA to cash interest expense as of June 30, 2009, was approximately 2.6 times. Both our adjusted EBITDA leverage and cash interest expense coverage were comfortably within their respective covenants. As illustrated on slide nine, the liability associated with the forward starting interest rate swap is currently approximately $261 million, down from the $547 million at the end of the first quarter as a result of higher swap rates. As shown, we have also provided sensitivities for these swaps to changes in interest rates.

Moving to investments in liquidity, during the second quarter we spent 39.6 million in the quarter on capital expenditures. This represents a 72% decline in capital expenditures compared to the same quarter in 2008. As depicted on the graph on slide ten, this level of capital expenditures continues to drive site rental -- strong site rental revenue growth. Before I turn the call over to Ben, I'd like to 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 refinance our upcoming debt maturities. Turning to slide 11, two weeks ago we announced $250 million of senior secured notes, the proceeds of which are expected to be used to repay in full the GSL Trust II notes, of which $222 million is outstanding. These notes meaningfully extend the maturity of the debt.

The $250 million offering consists of two classes of notes, Class A-1 and Class A-2, both of which were rated investment grade and issued at par. The Class A-1 notes consist of $175 million of 6.25% notes, and fully amortized during the period beginning in January 2010 and ending on the final maturity date in August 2019. The Class A-2 notes consist of $75 million of 9% notes, and fully amortized during the period beginning in September 2019 and ending on the final maturity date in August of 2029. The weighted-average interest rate on the notes is 7.1%, and the debt on the entity represents approximately 5.8 times run rate adjusted EBITDA. I think it is interesting to note that the ten-year 6.25% Class A-1 notes priced approximately 50 basis points higher than the expected structured notes with an expected five-year maturity that we issued in December 2006 -- obviously, in much more favorable credit market condition at that point.

Importantly, subject to certain conditions in the structured notes, we are permitted to issue additional indebtedness on the respective assets securing these notes, as the entity delevers through the expected growth in cash flow and principal payments. In essence, the long date of maturities of scheduled principal amortization and the ability to issue additional indebtedness allow to us refinance these structured notes opportunistically as the market permits, thereby avoiding the inherent risks associated with bullet maturities. I believe that the amortization and the long-dated maturities of these structured notes represent important milestones for Crown Castle, reflecting the long-term nature of our assets and the contracted cash flow.

Moving on, since April 1st, we have purchased $196 million of the tower revenue notes due in June 2035 in open market -- in the open market at par, evidencing the market's view that these notes are refinanceable. Pro forma for these purchases, we have $1.7 billion of tower revenue notes due June 2035. As of June 30, 2009, pro forma for the completion of the $250 million notes offering, the repayment of the December 2009 notes and the July purchases of the tower revenue notes due June 2035, we expect to have approximately 177 million in cash and cash equivalents, excluding restricted cash. Further, our 188 million revolving credit facility will be undrawn.

In summary, as shown on slide 12, we have no significant debt maturities until 2014, having significantly extended the maturity profile of our debt. I'm especially pleased that we have been able to accomplish both of the most recent financings without increasing the run rate interest expense from the January 2009 run rate level. Furthermore, we have made considerable progress in achieving our goal to better ladder the maturity profile into smaller increments, limiting the amount of debt of maturities in any one year. I believe that these smaller and more manageable size traunches will enable us to refinance the debt more easily, particularly in difficult credit markets. I would expect to apply a similar laddering approach as we contemplate refinancing the remaining 3.25 billion of tower revenue notes.

The debt issuances thus far in 2009 demonstrated our access to multiple debt markets in a difficult credit environment. We now have time and flexibility to be opportunistic in how we refinance the remaining tower revenue notes. As I have discussed on previous calls, we are not required to refinance or repay the $1.7 billion and the $1.55 billion tower revenue notes on the anticipated refinancing dates of June 2010 and November 2011, respectively, as these notes have final legal maturity dates of 2035 and 2036, respectively. If we choose not to refinance or repay the notes by June 2010 and November 2011, the cash generated by the assets underlying these notes would begin to amortize the debt. It is instructive to point out that the growth in our outlook is virtually all organic, and the expected level of CapEx necessary to support this growth is currently available even if we were to begin to amortize the notes with underlying cash flows.

Effectively, this is the way we are operating the business today with no impact on our performance, as you saw from the excellent results this quarter. Based on our current trajectory, we would expect leverage in June 2010 to be approximately five times run rate adjusted EBITDA on the entities supporting the tower revenue notes. This compares very favorably to the 5.8 times leverage on the entity we just refinanced with the $250 million notes offering at a blended rate of 7.1%. Our refinancing goals are clear and multi-layered, and we will strive to achieve the most beneficial structure that serves the following objectives: Continue to ladder and extend the maturities over multiple years; ensure the most flexible use of cash flow permissible; maintain a reasonable level of leverage that we believe will enhance shareholder returns; and obviously, seek a favorable interest coupon.

I believe we can accomplish these goals as we refinance the tower revenue notes without meaningfully increasing our run rate interest expense. So to recap, I'm very pleased with the operating results achieved in the second quarter, the indications for an even stronger second half of the year and the refinancings we've accomplished. With that, I'm pleased to turn the call over to Ben. Ben?

Thanks, Jay, and thanks to all of you for joining us on the call this morning. As Jay just mentioned, we had an excellent second quarter, exceeding our outlook for site rental revenue, site rental gross margin, adjusted EBITDA and recurring cash flow. As reported in the press release, we expect net new tenant additions to be significantly higher in the second half of the year compared to the first half of 2009, fueled by a 30% increase in second quarter application activity versus the same quarter last year; a continuation of very robust application activity we enjoyed in the first quarter. Based on this activity and the strong first half of the year, we have raised our full year 2009 outlook and remain very excited by the continued growth prospects for our business. The trends driving our business, as we've noted on prior calls, continue to strengthen.

Smartphones now account for 28% of the Big Four subscriber base compared to 16% to 18% just a year ago, and continue to be the predominant driver of topline growth in wireless data services. The trend for users to consume larger and larger amounts of data upon acquiring a data enabled phone continues unabated. As the networks and devices become faster, more efficient and more multifunctional, the consumer responds by using more data services. A good example of this is the YouTube experience. YouTube saw its mobile uploads increase 400% a day in the week after Apple released its iPhone 3GS, the first version of the iPhone to offer video capture capabilities.

Similarly, according to a Pew Internet and American Life survey conducted in April across almost all wireless data categories, including text messaging, gaming, picture taking, e-mailing, accessing the internet and playing music, survey respondents meaningfully increased their activity from just 15 months ago. In fact, 44% of the respondents were now regularly users of non-voice mobile services, up from 32% just 15 months earlier. This continued demand for data was reflected in the carrier's second quarter results. In fact, data revenue growth has been impressively strong throughout the recession and is expected to remain robust, with average data revenue per user, our RPU, rising materially. Once again, Apple beat sales expectations of -- on the 3GS, selling more than 1 million units in the first three days of sales.

The iPhone helped drive robust wireless data growth and RPU improvements at AT&T. Specifically, more than 2.4 million iPhones were activated in the second quarter, for a total of 3.5 million integrated devices activated on the AT&T network in the quarter. At AT&T, Smartphone users as a percentage of postpaid subscribers doubled from the second quarter of 2008 to 36%, and the average integrated device RPU was 1.8 times more than the non-integrated device RPU. This contributed to a 37% increase in wireless data revenues at AT&T versus the same quarter in 2008; and data, an increasing percentage of the carriers' overall revenue, represented 29% of AT&T's second quarter wireless service revenues, up from 23% a year ago. Driven by strong data growth, AT&T's postpaid data RPU increased 26% to $17.72 compared to the same quarter last year.

At AT&T, postpaid subscribers with data plans are now more than 50% of the postpaid base. Similarly, Verizon enjoyed a 33% increase in wireless data revenues versus the second quarter of 2008, and data represented 29% of Verizon's second quarter wireless service revenues, up from 24% a year ago. Data RPU at Verizon increased to just under $15 per month, up 23% from a year ago. As data services drive incremental returns, the carriers are leasing more of our sites to support this growth in network demands for wireless data services to capture the higher RPU. We also saw significant applications from 4G developments in the second quarter, most of which were not in our guidance at the beginning of the year, and reflects the launch and prelaunch activities of these coming 4G services.

Specifically, Clearwire, the first wireless company to launch 4G services, has been very active; and we expect the level of leasing activity to remain the high through the remainder of the year and into next year, as they plan to launch a number of markets this year and next. We would expect to be a significant beneficiary of these launches by virtue of Sprint's ownership in Clearwire and our ownership of most of the Sprint towers following the Global Signal acquisition. We believe the increased application activity we are seeing and our increased 2009 outlook are consistent with the wireless carriers' recent comments on their expected network investments over the coming years. In addition to a great quarter in site rental revenue, our U.S. services businesses performed very well. Service revenues were up 19% and service margins were up 82% compared to the same quarter last year.

This is attributable to the higher take rate on the part of most of our customers. Furthermore, while the services business is not as predictable as our core leasing business, it has become somewhat less volatile over the past 18 months. On another positive note, I would like to take this opportunity to recognize our employees' diligent efforts to contain costs, which resulted in a 7% decline in cash G&A expenses, and flat operating expenses compared to last year. Notably, this reduction in G&A expenses was achieved without a decrease in headcount and despite substantially higher leasing and service activity, reflecting an enormous and commendable effort by our employees. Finally, the strong growth we are delivering against this exciting market backdrop does not happen by accident. It is the result of a very focused strategy we have put in place to maximize our business opportunity in the U.S. and Australian markets.

With the combination of our tower portfolio being located predominantly in the top 100 U.S. markets, with 3,700 more towers in these top 100 markets than any other company and industry-leading customer service as voted by our customers, our Company today is capturing more of the opportunities in the market than ever before. We are executing at a very high level right now, whether you measure it by leasing applications, customer feedback or high take rates in our service business. The opportunity in the U.S. market as the mobile internet deploys across a competitive landscape is tremendous for Crown Castle. Our strategy is to be the leader in this market by all objective measures, and I believe our results are bearing that out.

I would like to comment a little on my view of international expansion opportunities given some of the recent erroneous press reports regarding Crown Castle's potential participation in the Indian tower market. As we have always done and will continue to do so, we stay abreast of opportunities in international markets. Given the challenging capital markets, there are a lot of towers for sale around the world right now, particularly in developing countries. When we look at developing countries, we continue to observe that they do not have the same characteristics that mark the U.S. business. Specifically, there appear to be fewer barriers to entry and less ability to secure long-term real estate interests. Notwithstanding some growth potential, which we acknowledge, we do not see the long-term risk reward relationship as attractive.

Our long-term goal is simple and unchanged. We are focused on maximizing long-term recurring cash flow per share, without increasing the risk profile of our business. I'm excited about the progress we've made on the balance sheet this year and look forward to our continued execution as the industry leader and further enhancing our growth with opportunistic investments over time. With that, operator, I'm pleased to turn the call over for questions.

Thank you, sir. (Operator Instructions). Our first question comes from the line of Jonathan Atkin with RBC Capital Markets. Please go ahead.

Yes, good morning. Ben, you raised an interesting point about the Clearwire build and the fact that you benefit because of your ownership of the former Sprint assets. So is it fair to say that in the vast majority of cases there's a meaningful revenue amendments or lease amendment events that benefits revenues in cases where Sprint has the underlying original CDMA lease? And then on a bit more broader level, apart from that factor, is there anything else non-4G related that you see fueling incremental growth in the second half compared to the first half?

Yes, hi, John. The Sprint situation with Clearwire locating on the Sprint sites -- I think we talked about it a little bit before -- there is an inherent savings and some sharing of infrastructure on a Sprint site; so there is a financial incentive as well as an organizational incentive, I believe -- not speaking for -- them to locate on Sprint towers. And so clearly, it's our presumption that we're seeing a disproportionate amount of that, given the concentration of the Sprint assets that we have. But I wouldn't limit it to that. We are getting a lot of brand new applications on sites where Sprint is not located; but certainly I think we are getting the benefit of both. So there is a propensity to hit a Sprint site, as well as where there's not a Sprint site, we are executing very well for that company. As well as non-4G activity, I would argue, is continuing quite well. We are continuing to see other emerging carriers roll out in new markets. We are seeing a lot of amendment activity still for 3G enhancements. We are seeing roaming over billed and things like that with T-Mobile. So it's pretty broad-based across the rest of the group with Clearwire's 4G build and obviously LTE applications for Verizon being really the distinction this year.

And then I might have missed it, but any one-timers that affected revenues or expenses?

No, not this time.

And then finally, I think you are the last major tower company to buy, directly or indirectly, in a sizeable portfolio of carrier built assets, and there still are sizeable carrier owned towers out there. How do you kind of view the possibilities of possible consolidation, either by yourselves or others over the next couple of years?

Well, we will view it as we always have; which is, again, back to the goal of maximizing recurring cash flow per share over a long period. When you buy assets, obviously it costs capital. It's either debt or equity -- it's not free. Or it's cash flow you could have otherwise put to doing something with. So we will evaluate anything out there against the backdrop of running our core business as we currently are with pretty healthy organic growth rates. I look at the market out there just more broadly and suggest that it's beginning to sort of pick up on the smaller acquisition front. We are seeing more opportunity out there.

We are going to take a very measured approach here for just a -- probably a few more months as we work through our final refinancing on these tower revenue notes, as Jay mentioned. But we are beginning to see it pick up. And prices haven't really adjusted downward that much. But back to your question of consolidation in more carrier towers, we are not aware of anything out there on the market today. There could be something in the future, and obviously we will take a pretty hard look at it.

Great. Thank you very much.

Thank you. Our next call comes from the line of Rick Prentiss with Raymond James. Please go ahead.

Thanks, good morning, guys.

Hi, Rick.

Hey, a couple questions for you. First, it takes a lot to stun me, but I thought your guidance increase was pretty stunning. Two quarters in a row of pretty big guidance increases. Talk to us a little bit about where you started the year in guidance, what's really changed since then on the three main areas of revenue -- tower revenue, tower cash flow and adjusted EBITDA. Typically this business has been seen as a very high visibility business, not many surprises, slightly take guidance up. So it's pretty amazing when somebody puts up these kind of guidance numbers. So that's the first question.

Rick, let me try to answer that. We put our guidance, you remember, at the end of our third quarter call last year -- so at the end of October when the world felt, frankly, a lot worse than it does now. We were very concerned -- or I should say maybe cautious -- about the carriers' ability to raise capital -- particularly the emerging carriers -- and then willingness to spend it. So we were appreciably conservative in our guidance, and in particular around the 4G build for Clearwire and the LTE amendments on Verizon; appropriately the cautious, really, for everyone else, as we can all remember how the world felt in the fourth quarter of last year.

So I would say that we were conservative on our leasing assumptions and have been very pleasantly surprised by the level of activity -- as we've noted in the press release -- that we've seen, really since kind of the March time frame. January, February, we were still a little bit slow; but then March on through has just been really strong. So we've been very pleased with that. The second thing I would mention is -- again, to commend our team -- we have found more cost savings in our Company than we probably thought possible. I will just go ahead and admit it. The team is been diligent on how we are spending discretionary expenses -- as we mentioned around G&A, down sequentially for the year, and operating costs at the tower level basically flat year over year. That's just from being smart. And I would not suggest we can continue to do that year over year. Obviously, that gets harder. But certainly this year has been wonderful to see.

And in the last thing I would say has been -- we have been very successful in continuing to grow and perform and execute for customers around our services business; and for those of you who are not that familiar with it, that's typically the business of facilitating the installation of antennas on our sites on behalf of carriers. We have grown our take rates there. We have improved our execution. We have more balanced the execution across the nation as opposed to having certain regions do extremely well and others not get very much. So we are more balancing that across the country. And that has been a pleasant surprise. As you know, that's a difficult business to forecast; and we've always been conservative, and we put out guidance -- we don't actually put out guidance but you can implicitly back into it -- we are always typically down from the prior year just out of conservatism, because it's not a recurring business.

And yet, this year looks like we will probably end up doing more than last year. And so when you take those three things combined -- leasing, cost saves and services -- you end up with the kind of performance that we are posting.

On the Clearwire item -- on the revenue and the 4G being funded now and ramping up -- this isn't just lease applications you're suggesting; this is actual revenue showing up in the Clearwire business. Two questions on that. One is, have they applied for this in advance and were waiting for funding, so you maybe are seeing some quicker revenue take rate as it was kind of sitting on G, waiting on O; and also, is it possible as you look at your Clearwire applications, that disproportionately higher on the Sprint sites than non-Sprint sites, so maybe they are using this as kind of their first shot at getting coverage and then they will come out to you and other tower guys probably to fill in behind that?

Yes, Rick, I probably don't have that level of granularity, and you'd probably need to ask the company specifically how they are phasing their market builds. But we are seeing significant revenue growth out of the Clearwire applications turning into leases. That continues through the rest of the year -- and into next year, I would forecast. And we are very pleased with the activity we see from them.

Okay, the other question is on the balance sheet. Now that you've done a major job refinancing, getting maturities pushed out, we've seen a lot of activity from the other tower guys as well. How do you thinking about one, your target leverage ratio? What's the right change to be in? Interest coverage, I'm sure you'll bring up as well. But then also as you look at your balance sheet where excess cash goes, how do you consider stock buy back versus portfolio growth? And if you could update us, just what's going on with the land program? You had kind of ramped up that towards the end of last year -- just kind of those three areas as you get the balance sheet locked down -- stock buyback, portfolio growth and land programs.

Sure, on the -- relative to target leverage -- and you're right, I will go to interest coverage because I think that is the right way to think about leverage on the business. From an interest coverage standpoint, we've targeted being north of two times interest coverage, and really aim to keep the business somewhere in the neighborhood of about 2.5 times cash interest coverage, which is at about the level we are running at currently. As I noted in my comments, I'm hopeful that we can go through the process of refinancing the tower revenue notes without meaningfully increasing our overall interest expense -- our run rate interest expense from where it is currently -- which would suggest that we are in and around the level of leverage that we would be comfortable with. We may see it tick down, as Ben mentioned in his earlier comments, for the next couple of quarters or months. But we are approaching a level where we get pretty comfortable with the total amount of leverage outstanding.

With regards to -- maybe I will speak to land purchases and Ben can take the question broadly on cash allocation -- but on the land purchase side, as we've talked about in prior calls, we've touched nearly a third of our portfolio over the last five or six years extending ground leases, purchasing land, such that today more than half of the cash flow is on sites that we either own or control for greater than 30 years. We've moved that number significantly over the last couple of years with the work that we've done. We've transitioned the program largely to lease extensions and have been very successful at that. We still have in place the team that we've had over the last several years that has been focused on this, and we continue to see an activity level commensurate with the levels that we've seen over the last couple of years -- just lower amounts of purchases, much greater allocation towards lease extensions.

And we can certainly ramp that back up over time, and probably will to some degree, as we complete the balance rollover. As you note, Rick, the finance team has been pretty busy around here since January; and it's been almost $2.5 billion if you include the bank deal since the beginning of the year. I look at the balance sheet and think we are approaching levels we are very comfortable with, assuming that we are able to accomplish this refinancing on the tower notes on a similar basis, which is laddering out the maturities with fixed rates. If that gets accomplished -- which we believe it will based upon what we've recently done and what we are seeing in the market -- then I would say we are probably getting very close to comfortable on sort of balance sheet leverage and coverage; and at that point, we are back in the investment game.

And so I would say we are not quite there yet, but we are close; and we will take a very measured look -- as we always have, whether we are doing stock buybacks again the valuation of our own Company across our own leasing expectations versus M&A, which we've been very aggressive on both fronts overtime -- and I think you should continue to expect we will act in that manner. We do have a team engaged in M&A today. We are looking at everything on the market. Again, we will probably be a little bit measured in how we pull the trigger here for a short period of time, but I would say we are getting very close to being back in that game in full swing.

Great. Thanks, guys.

Thank you. Our next question comes from the line of Anthony Carmen with Deutsche Bank. Please go ahead.

Hi, I wanted to expand on that prior comment that Ben just made. I want to make sure that I'm understanding it clearly. And Ben, you kind of pooh-poohed the international expansion in your prior comment, and there was obviously that direct article about you guys in India. But I guess just from a macro perspective, are you saying that until you have 100% certainty on what the cost of capital will be on the CMBS that it really precludes from you a larger type transaction, whether it be an M&A deal or big buy back or something of that nature?

Not completely, Anthony. I would say that we'd have to make a judgment call. We've had great success in the debt market thus far this year. I think we are getting more and more confidence in the ability to rollover the ARD notes at something substantially less than what the ARD trigger interest rate would have suggested. But nonetheless, we've all been through a period where we saw capital markets completely shut; and so I think you are going to take a little bit of an appropriate measured approach.

Again, it's not about leverage. It's about the fact that that note steps to 10%, and we think we can do substantially better than that. So I would say we would have to make a judgment call on that and we would look at the facts and circumstances. I would make an overall point about acquisitions and investment -- and I think this is a good quarter to reiterate this. Remember in this business, whether you're 8,000 towers or 24,000 towers, most of the value gets created in this business from organic growth, which is what we are delivering and certainly haven't compromised at all through this period where we've been rolling over the balance sheet and otherwise conserving discretionary capital expenditures. That's where the real value driver is. It is clearly supplemented by external investment, whether that be -- in our case as we've done in the past --buying assets or buying stock, and it's certainly -- it can be accretive over time as long as you don't change the risk profile of the overall business.

But let's not put the cart before the horse, the -- or the tail wagging the dog, so to speak. The real value is sweating the assets we already own -- and I will remind you, we doubled the size of the Company two years ago, positioning ourselves in these top 100 markets just for what's occurring. And so we are working very hard to actually deliver on the 11,000 sites we bought two years ago; and so while we may go out and find 100 sites here, 200 sites there, it's going to be a fairly small rounding area. Specifically on international, I wanted to direct my comments to that press report that we saw that was just not inaccurate. I would not suggest to you that we would never consider an international acquisition. Of course, that's not the case. We will continue to look and evaluate situations. I'm only making the point that as of today, as we've looked at these situations -- and there are a number of them out there, as I suggested -- we haven't seen a risk reward relationship appropriate from our judgment that compels us to want to invest capital. And that's probably where I will leave it.

Thanks. And then just maybe for Jay, when you talk about -- when you're comparing sort of keeping interest coverage neutrality on the re-fi, you are comparing that to what the CMBS would step up with the ARD, or just on the current rates where they are fixed right now?

I'm talking about where the current rates are today. So run rate interest expense is a little over $440 million.

Right.

The average interest rate on the balance sheet is about 7.1%.

Right.

So the combination of timing, using cash flow that we have, cash on the balance sheet today and how we go through the process of refinancing; I'm saying my aim is to keep the nominal amount of interest expense in and around that 440 level.

And do you think to help yourself achieve that, that you would sort of consider buying down the size of the re-fi by dedicating some of your excess cash and free cash flow towards reducing the re-fi amount?

Yes, I think that's exactly what we are speaking to, Anthony, and that's Ben's point about we don't no exactly what the time something when we are back able start to allocate cash flow to investment. It's really going to be dependent on market conditions and the credit markets and at what point are we able to refinance the debt. But it's a combination of those two things.

Okay, and one sort of operational model question. As we think about all those amendments that come in -- and let's pick Verizon as an example -- will their deployment of LTE to the extent it's on a site where they already are be a similar type amendment to what you guys were talking about earlier with Clearwire? And do those all then roll in to the master lease arrangement that you have with these companies such that in future years the amendment revenue will also be subject to an escalator? Or will it be more than one-time in nature?

Yes, the answer to the second question is yes, absolutely. It becomes part of the overall run rate for any of the carriers that would be doing amendments. Without getting into specific contract details, there are significant differences in a Clearwire deployment -- which is much more like a brand new -- much closer to a brand new sort of full install versus an LTE amendment, which can run the gamut from just a couple of lines to maybe a couple, three lines and antennas. So on average, LTE amendments running less than we would have historically seen on the original 3G amendments; however, we are seeing many, many of them and we will expect to see significant increase in those applications going forward as LTE rolls out in these markets. But then Clearwire is much closer to a full installation.

And both would be subject to the escalators going -- ?

Yes, absolutely.

Great, thanks. That's helpful.

Thank you. Our next question comes from the line of Simon Flannery with Morgan Stanley. Please go ahead.

Okay, thanks very much. Good morning. Ben, just following up a little bit on that last one, microwave backhaul; some of the carriers are looking at that. Are you seeing any major changes there? And then more generally, you've got -- you've had strong earning, you've got strong guidance. It seems like you've got better trends than some of your peers here. What would you attribute that to? Is there something in terms of your tower portfolio of your customer relationships that is giving you this particular strength versus the industry overall? Thanks.

Simon, on microwave, we are seeing a lot of leasing for dish space. As you can appreciate, carriers are attempting to address the backhaul issue in any number of ways, and so we are seeing a lot of dishes and charging for that. We are seeing carriers bring fiber to sites -- which bringing fiber through a utility easement for their own benefit is not a revenue opportunity for us, but nonetheless creates an opportunity to make that site more valuable to the extent its got significant backhaul capabilities for that particular carrier. So backhaul has been widely discussed. It is a revenue opportunity for us; but I think it likely just sort of goes all in the overall mix of 4G and ultimately mobile internet connectivity that results in more revenue per site.

And then secondly, to speculate with you on what we are seeing, it's hard to do. But I have to go back to the interaction that I have with our own employees that are out dealing with customers, as well as our tower footprint. With 72% of the sites in the top 100 markets, as well as customer survey results, we are getting upwards of 300 to 400 respondents a quarter telling us that we are doing not only better than our peers but better we have done before, is leading me to believe that the execution around the business -- as well as the location of the towers -- we are not missing very much right now, and that's a very good feeling. So as I mentioned in my prepared remarks, we are executing at a very high level. Clearly, you have to have carriers actually doing something to actually perform in our business, so you can't create it out of nothing. But we are executing at a very high level; and I have probably never seen us capturing more of the potential opportunities in a market than we are doing right now.

Great. Thank you.

Thank you. Our next question comes from the line of Batya Levi with UBS. Please go ahead.

Okay, thanks a lot. With higher than expected growth in revenues, I wanted to ask if you think that you need to adjust CapEx accordingly? I believe the original target was about $80 to $90 million for revenue and [have some] CapEx in '09. Do you think there will be any upside to that? And also similarly, if you could talk about the driver for the tower, the number of tower reductions in the quarter, and how we should think about it going forward? Do you need to add more to support the growth you are seeing?

On both of those questions -- the CapEx impact, no, I wouldn't expect there to be any change relative to the outlook or our services business. Shouldn't be any impact there to CapEx. I think the prior comments that we made still hold and wouldn't expect CapEx to change much off the run rate that we showed in the second quarter. With regard to your second question --

Number of towers.

Number of towers. I think we took down about 36 towers in the U.S. during the second quarter. We go through a process pretty diligently to the look at towers that we don't believe will have lease up opportunities in them. They may be negative margin sites. And so we had some in this, we had some in this second quarter -- maybe a little bit more than we would expect on a normalized basis. But that's just a normal way of operating the business and I wouldn't expect that to impact revenue growth rates.

Do you expect that number to grow in the second half?

No, I wouldn't expect it to grow.

Okay, thanks.

Thank you. Our next question comes from the line of Gray Powell with Wells Fargo Securities. Please go ahead.

Hi, good morning everyone. Thanks for taking the questions. Just had a few here. Not to keep -- you've been asked this a couple of different ways, but at least one of your peers has a pretty similar percentage of Sprint revenue in their tower portfolio that you have, and they just weren't seeing as dramatic a pickup from Clearwire. So I guess my question is, is it something specific about the 6,000 Sprint towers and the Global Signal portfolio, and are those towers getting more demand than the legacy Crown towers where Sprint is already a tenant?

Gray, think Ben spoke to it a couple of different ways. Let me take my shot at it. I wouldn't try to attribute the growth in revenue all to Clearwire. I think Ben was trying to speak to the fact that we are seeing significant activity from them, and more than probably what we expected going into the year. But we are seeing leasing demand across the board. And as Ben mentioned, we have 3,700 more towers in the top 100 markets than any other company, and more than 70% of our existing revenue streams are coming from the Big Four carriers. So when you have the massive scale deployments of 3G upgrades driven by the iPhone that we talked about and many of the other trends lines related to 4G, we would just expect that we would see a disproportionate share of that given the location and number of assets that we have in those markets. So I think Clearwire is a part of it, but I don't think that's all of it. So if you're trying to draw a direct correlation to Clearwire, maybe that's where the -- where it falls apart a little bit.

Okay. That makes sense. And then just more of a big picture question. Can we just talk about your ability to supplement growth by reinvesting in your business, whether it be share buybacks, new tower builds or acquisitions? And I don't want to get too specific, but just by my math I roughly estimate that you can grow the absolute dollar amount of free cash flow by a mid to high teens rate for -- call it the next four years on an organic basis. When you think about reinvesting in your business, how much can you supplement your free cash flow per share growth?

Gray, I'm probably going to refrain from giving you four year guidance on this call; but you are on the right path in terms of how the math works. And it's something we've practiced for years, admittedly taking this year off as we essentially are going to rollover the entire balance sheet in a 12 or 18 month period. But if you go to our previous comments about we are getting very close to being comfortable with leverage, and you say, look, okay, you're going to generate -- call it $500 million for current cash flow you can put to work and maybe you get comfortable at five, five and a half, six times leverage, so you are releveraging that --- you are over $1 billion a year of investable capital. And this is the same math that we took you through back in 2006, '07, and '08. And putting that money to work, you are very wise to remember that it creates a significant amount of benefit over a long period of time.

And so whether you are shrinking the share count, as we've done -- we've bought basically a third of the Company back in at an average price of about $25 over a number of years -- or you are buying assets which come with initial yield obviously and then hopefully growth over time through additional leasing -- no matter how you slice that, that redeployment of upwards of $1 billion a year makes a difference over time. In the short term, you can barely see it. In the long-term over five years, it's obviously material.

Okay, great. Thanks. That's all I had. Thank you very much.

Thanks, Gray.

(Operator Instructions). We have a question from the line of David Barden with Bank of America. Please go ahead.

Hey, guys, thanks a lot for taking the question. Just maybe kind of shorter term picture, Jay, with respect to kind of the usual seasonalities into the back part of the year. Given kind of the ramp that you seem to be talking about, I guess is it fair to say that we will probably see kind of higher expenses going into maintenance and kind of situating towers for this growth in the third quarter per usual? And then are you seeing the trajectory -- the ramp trajectory -- for the development side of the business kind of accelerating into the fourth quarter, which would kind of give us that kind of end of year revenue bump? Thanks a lot.

Sure. On the seasonal expenses sides, during the warmer months we do typically incur more repairs and maintenance expense on our assets, and you can see from the guidance that we've provided we would expect direct rental site expenses to pick up a bit between the second quarter and the third quarter, and that's largely related to the seasonality there. In terms of the growth in revenues, we've obviously increased our expectations for where revenues will be in the third and the fourth quarter in this most recently provided guidance from where we were previously. And that's largely impacted from the application volumes that Ben spoke about and I spoke about in my comments turning into actual leases and beginning to pay rents. And you're right to say that the impact we would expect to be a bit greater in the fourth quarter, and then really mostly affecting the beginning run rate as we go into 2010.

And I apologize if I missed it, but could you then also give us a quick update on kind of what the status of the Australia properties is?

Sure. Australia continues to perform quite well. We enjoy viewing that market, not only from just the financial returns and execution business, but also just seeing what we believe is a preview of the wireless landscape in the U.S., with much more robust data speeds available in that market, primarily on the Telstra network, but with others catching up over time. It's exciting to see something like what Verizon has been talking about in terms of 8 to 12 megabits per second speeds being available in that market and what actually means on a handset, where you can see seven or eight streaming channels of video and do pretty much anything you want. And there's a lot of iPhone users in our office down there, and they do a whole lot on their iPhones that I think we all expect we will see here in the coming years. So we are very comfortable with that business and I think we will continue business as usual there.

With that, I will probably end the call. I want to thank everybody for joining us today and being interested in our results, and look forward to speaking with you in the coming months and on the next call. Thank you very much.

Ladies and gentlemen, this does conclude the Crown Castle International Corporation second quarter 2009 conference call. If you would like to listen to a replay of the conference, please dial 303-590-3030, or 1-800-406-7325, with the access code of 4114093 pound. We thank you for your participation, and at this time you may now disconnect.