Crown Castle Inc (CCI) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Crown Castle International fourth quarter 2012 earnings 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).

This conference is being recorded today, January, 24, 2013 and I would now like to turn the conference over to the Fiona McKone, Vice President of Corporate Finance. Please go ahead.

Thank you. Good morning everyone and thank you all for joining us as we review our fourth quarter and full year 2012 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 Crown Castle.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 of 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 is available in the press release and in the Risk Factors sections of the Company's filings with the SEC.

Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected.

Our statements are made as of today January, 24, 2013, and we assume no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

In addition, today's call includes discussions of certain non-GAAP financial measures including adjusted EBITDA, funds from operations, funds from operations per share, adjusted funds from operations, and adjusted funds from operations per share. Tables reconciling such non-GAAP financial measures are available under the investors section of the Company's website at CrownCastle.com.

With that I will turn the call over to Jay.

Thanks, Fiona, and good morning everyone. We had an excellent 2012. In addition to delivering very strong results, we achieved several significant accomplishments during the year, as shown on slide 3.

We completed $4 billion of acquisitions, including the T-Mobile tower transaction which increased our tower count to over 30,000; the acquisition of NextG Networks, the leading provider of distributed antenna systems; and the acquisition of 2300 ground lease related assets from Wireless Capital Partners. These transactions position us as the largest infrastructure provider in the US with approximately 22,000 towers in the top 100 markets and extensive small cell operations in over 50 markets, with the concentration in the top urban locations where leasing activity is the highest.

Further, these transactions reinforce our strategic objective of being the leader in shared wireless infrastructure in the US, which we believe is the fastest-growing and most profitable wireless market in the world. We believe that these transactions will be accretive to our long-term growth rates and enhancing to shareholder value.

Additionally, during the year we completed more than $7 billion in financing activities to refinance existing debt and fund the aforementioned acquisitions. These financings lowered our average cost of debt by 170 basis points to 4.5% and extended the average maturity to approximately 7 years.

Further, in March 2012 we were pleased to be added to the S&P 500 Index.

In addition to these meaningful events, we consistently delivered strong results above our original expectations. For the full year we grew site rental revenue by 15%, adjusted EBITDA by 19% and, adjusted funds from operations by 20% compared to 2011. These results were considerably above our expectations at the beginning of 2012.

Further, our services business continued to outperform our expectations, delivering strong growth in 2012 as we continue to work very hard to meet customer deployment objectives and facilitate customers' installations on our sites.

Similar to the results for the full year 2012, we achieved strong growth in the fourth quarter results as shown on slide 4. During the fourth quarter we generated site rental revenue of $570 million, up 21% from the fourth quarter 2011.

This 21% growth was comprised of approximately 6% from new tenant additions, reflecting the increased leasing activity driven by the four major carriers upgrading their networks; 12% from acquisitions, including NextG and one month of site rental revenue from the T-Mobile towers that closed one November 30; and approximately 2% from our existing base of business from contracted renewals and contracted escalators net of churn.

Further, we had approximately $5 million of nonrecurring items in the fourth quarter of 2012 as compared to about $2 million in the fourth quarter of 2011. Site rental gross margin, defined as site rental revenues less cost of operations, was $421 million, up 20% from the fourth quarter of 2011.

Adjusted EBITDA for the fourth quarter of 2012 was $414 million, up 23% from the fourth quarter of 2011.

AFFO was $243 million, up 26% from the fourth quarter of 2011 as shown in slide 5. And, importantly, AFFO per share was $0.83, up 22% from the fourth quarter of 2011.

Turning to slide 6, pro forma for the T-Mobile tower transaction and refinancing, we ended 2012 with total net debt to last quarter annualized adjusted EBITDA of approximately 6.3 times, and adjusted EBITDA to cash interest expense of approximately 3.4 times. Our adjusted EBITDA leverage ratio and cash interest expense coverage ratio are comfortably within their respective debt covenant requirements.

Further, we completed a number of meaningful financings during the fourth quarter. We closed on a $1.65 billion senior notes offering at the Holding Company with an interest rate of 5.25% per annum. The proceeds of which, together with cash on hand and drawings under our revolving credit facility, were used to pay for the T-Mobile tower transaction. These notes mature in 2023.

In December we closed on a $1.5 billion senior secured notes offering at one of our subsidiaries. This was comprised of $1 billion of senior secured notes due in 2023 and $500 million of senior secured notes due in 2017 with a blended interest rate of 3.4%. The proceeds of these notes, together with a portion of revolver, were used to tender and redeem in full $830 million of 9% notes, and $965 million of 7.75% notes, saving $85 million of cash interest expense per year.

Also, in December 2012 we increased the size of our revolving credit facility by $500 million to $1.5 billion, of which $1.3 billion is currently drawn. During the fourth quarter, as illustrated on slide 7, we invested $158 million on capital expenditures. These capital expenditures included $47 million on our land lease purchase program, which continues to perform very well as we work to extend the ground lease maturity and ground ownership of the land beneath our towers.

In total during 2012 we extended over 1000 land leases and purchased land beneath more than 400 of our towers. As of today we own or control for more than 20 years the land beneath towers representing approximately 75% of our gross margin. In fact, 36% of our site rental gross margin is generated from towers on the land that we own.

Further, the average term remaining underground leases is approximately 32 years. Having completed over 13,000 land transactions we believe this activity has resulted in the most secure land position in the industry based on landownership and final ground lease expiration. Our team is doing a great job on this important endeavor as we remain focused on achieving the long-term benefits of protecting our margins and controlling our largest operating expense.

Of the remaining capital expenditures, we spent $18 million on sustaining capital expenditures and $93 million on revenue-generating capital expenditures. The latter consisting of $51 million on existing sites and $41 million on the construction of new sites, primarily small cell construction activities.

Sustaining capital expenditures in the fourth quarter was higher than the third quarter by approximately $10 million, primarily due to an IT upgrade that we did throughout the Company and some structural related activities that are typically higher in the fourth quarter.

For the full year 2012, as shown on slides 8 and 9 of the presentation, site rental revenues were approximately $2.1 billion, up 15% from 2011. This 15% growth was comprised of the following. Approximately 6% from tenant equipment added to our sites, reflecting the strong leasing activity we enjoyed in 2012, 7% from acquisitions and approximately 2% from contracted escalators and renewal of tenant leases net of churn on our existing base of business that was in place at the beginning of 2012.

Site rental gross margin grew 16% from 2011 to $1.6 billion. Adjusted EBITDA for 2012 was $1.6 billion, up 19% from 2011. And FFO per share increased 18% from 2011 to $3.04 for the full year 2012.

Moving to the 2013 outlook, our expectations for growth in our base business remain unchanged from the 2013 outlook we provided last October. We have updated our 2013 expectations for the T-Mobile tower transaction and the refinancing activities that I previously mentioned.

For the first quarter 2013, as shown on slide 10, we expect site rental revenue of between $605 million and $610 million, and AFFO of between $259 million and $264 million for the first quarter 2013. The sequential growth in site rental revenue from Q4 2012 to Q1 2013 includes the benefit of approximately $44 million of additional site rental revenue from the T-Mobile towers, offset by approximately $5 million in nonrecurring items that positively impacted the fourth quarter of 2012.

Turning to slide 11, our full year 2013 outlook has been revised to reflect the expected impact from the T-Mobile tower transaction, together with the impact of recent financings we completed in the fourth quarter of 2012. We expect site rental revenue growth in 2013 of approximately $330 million or 16% over 2012. Of this amount, we expect approximately $270 million to come from acquisitions.

The balance of the year-over-year growth reflects our expectation of leasing activity to be similar to historical levels, with a significant portion of this activity already reflected in the run rate of site rental revenue as a result of our previously disclosed agreements with the four major carriers relating to 4G LTE amendment activity.

With regard to services, we are expecting approximately the same contribution to gross margin as we achieved in 2012. We expect 2013 AFFO per share to increase by approximately 21% to $3.68 per share.

As shown on slide 12, during 2013 we expect to generate over $1 billion of AFFO and invest approximately $400 million to $450 million on capital expenditures related to the purchases of land beneath our towers, the addition of tenants to our towers and the construction of new sites, including small cells.

In summary, we are experiencing tremendous growth in our business. In fact, the compounded annual growth rate of AFFO per share from 2010 through our expectations for 2013 is in excess of 18%. Importantly, we have been able to produce this growth while positioning ourselves for future growth without increasing the risk profile of our site rental revenues.

We believe our results reflect the value of the disciplined investments we have made over a long period time through share purchases and US acquisitions, and the industry-leading customer service we provide. We had a terrific 2012 with a number of significant accomplishments, and I'm very excited about 2013 as we continue to execute around our core business and integrate these important acquisitions.

With that, I am pleased to turn the call over to Ben.

Thanks, Jay, and thanks to all of you for joining us on the call this morning. I want to take a couple of minutes and reflect on the tremendous year we had on a number of fronts.

As Jay just mentioned, we delivered excellent financial results for 2012. And we acted intentionally to significantly enhance our portfolio through key acquisitions that should increase our growth prospects for years to come.

Today, with over 30,000 towers and over 10,000 small cell nodes in the US, and a presence in 98 of the top 100 markets, we're the leading provider of shared wireless infrastructure in the US, facilitating wireless carrier mobile broadband deployment.

In addition to a strong year of site leasing, our US services business performed exceptionally well as we continue to capture more of the revenue opportunities associated with assisting our customers in locating or upgrading installations on our sites. This increase in services activity reflects the unprecedented activity we were seeing from all four major carriers as they upgrade to LTE, and it is attributable to the confidence our customers have shown in Crown Castle, as regularly expressed in our customer surveys that consistently rank us as delivering the highest customer service in the industry.

During 2012 we invested $4 billion in acquisitions, quite a year, bolstering our premier portfolio of wireless infrastructure assets in the US with 7100 additional towers through the T-Mobile tower transaction. And following the NextG Networks acquisition, we are now the largest independent small cell operator in the US.

Small cells are increasingly important as the rapid growth in mobile traffic and data demands shifts to low mobility locations requiring wireless operators to bridge the gap between capacity and demand. Both the T-Mobile and the NextG portfolios are urban centric, complementing the location of our existing portfolio in the top 100 markets, which is where the wireless traffic is heaviest and where carriers traditionally focused their efforts on deploying new technologies and upgrades to existing technologies, such as the current LTE upgrade.

Finally, we expect that our acquisition of ground lease related assets from WCP, which relate predominantly to third-party towers, will allow us to apply the expertise we have gained as the industry leader in land, lease extensions and purchases.

The integration of the T-Mobile towers is underway and proceeding well. I would like to extend my appreciation to the staff at Crown Castle and T-Mobile who are assisting us with an orderly transition on those sites.

As evidenced by our recent domestic acquisitions, we remain firmly convinced that the US market, the largest and fastest-growing wireless market in the world, has significant growth potential with increasing smartphone and tablet penetration, growth of multiple subscriptions, and where the ability of wireless carriers to make profitable investment is most apparent and the barriers to entry remain high.

As I look out into 2013 and beyond, I am as excited about the prospects for our business as any time in memory, based in our ability to deliver a compelling economics of shared wireless infrastructure across this expanded platform.

This is an unprecedented time in our industry with all four major carriers actively upgrading their 4G networks, which is driving significant revenue growth on our sites.

Further, the expanding LTE networks are expected to accelerate the growth of computing devices, including smartphone and tablets over the next several years, and it is the wealth of such devices that is the major driver for mobile data traffic growth and wireless data revenue. According to CTIA's semiannual survey, the consumption of data continues unabated as Americans consumed more than 1.1 trillion megabytes of data from June 2011 to June 2012, which is more than double the previous year according to CTIA.

The survey also revealed that smartphone adoption continues to grow impressively. As of June 2012 smartphones made up 131 million or 41% of the embedded wireless connections, and up 37% from a year ago. And the number of wireless enabled tablets, laptops and modems was up 42% year-over-year.

Further, mobile Internet usage is already beginning to displace PC usage, and the US is leading this trend. It is expected that by 2015 there will be more consumers accessing the Internet through mobile devices than through PCs.

These figures illustrate Americans' growing appetite for more mobile data and the utility that provides. And we provide the essential shared infrastructure and services that assist our Company -- our customers in meeting these challenges and facilitate the execution of their network deployment plans.

To that end, I believe the growth we are currently experiencing is an early indicator of the important in increasing role our assets and capabilities will play in enabling wireless carriers to meet the mobile broadband demand of the consumers.

So to wrap up and go to questions, we are delighted with the 2012 results and the 2013 outlook of 21% AFFO per share growth. And I believe they demonstrate the quality of our assets and our ability to execute for customers.

To that end, I want to take this opportunity to thank all the men and women of Crown Castle who have worked very hard to make our goals a reality.

With that, operator, I would like to turn the call over for questions.

(Operator Instructions). Brett Feldman, Deutsche Bank.

Just a question here on the guidance. If I look at the fourth quarter, your SG&A kicked up a notch. I was hoping you could give us a little color on that. And then what is the level of SG&A you are anticipating in your guidance for 2013?

You are right, and some of the numbers Fiona can walk you through. But generally year-over-year, and most of all it is in the fourth quarter run rate, we will see about a $20 million increase, not only in G&A. It is evenly split between the G&A and above the line in tower cost of goods sold and basically indirects, which represents the staff and resources we are adding to really handle the LTE activity we are seeing, the services level of activity we are seeing.

We have added resources in the DAS small cell business, as we've mentioned before, and then some modest increase from the T-Mobile acquisition. So the run rate is largely already stepped as we sit here in January of 2013. But on a year-over-year basis, it looks to me right about $20 million total. And that is about evenly split, again, about $10 million on G&A and about $10 million above the line.

Okay, and so if your run rate in G&A is going to persist in, say, the first quarter, that would imply that you also expect an above run rate contribution from your services business earlier in the year, even though on the annual basis it is probably going to be flat. Is that the right interpretation?

That's right (multiple speakers) yes.

Okay, I just wanted to clarify that, so thank you. And then just to get back to comment that Jay made earlier, he was talking about how because of the -- essentially the master lease agreements you have, so much of your revenue is baked into the run rate. I am just curious. How sensitive is your guidance this year to the actual level of leasing activity going on in the market in light of those master lease agreements?

Let me frame that for you a little bit. When you think about new leasing activity, as we all work on every day around here, the financial or GAAP revenue reality is about half of that activity is pre-sold and about half of that is new revenue in the year, okay, so roughly evenly split. And let me give you a little window into what we see.

Among the half that is not pre-sold, i.e. new revenue growth that would come onto the GAAP statements this year, among that half that is not pre-sold, we can already see in the pipeline about 70% of the volume we expect for the year. So we are really optimistic about the year.

Now it is January 24, and as Jay mentioned, we didn't raise guidance beyond the financing and the T-Mobile acquisition, because it is so early in the year. But it is encouraging that we can see in the pipeline 70% of the application volume that we expect among that half of that is not pre-sold.

So let's hope that continues and we see continued activity, and you could certainly see increases throughout the year. But we will just have to see.

Great, thanks for clarifying that.

Jason Armstrong, Goldman Sachs.

Just a couple questions, maybe first on capital spending, if you could just maybe walk through different line items. I think one in particular that was a little bit higher than we had expected was the tower improvement line, so help us think through what is going on there. And as part of that, just initial augmentations on the T-Mobile towers and how you would think about that into 2013.

And then maybe just one on granularity. The non-cash revenues were down fairly significantly quarter over quarter; maybe just some sort of help on what is going on there. Thanks.

Sure. On the first question around capital spending, we saw an increase in the fourth quarter both on land purchases -- obviously, some of the changes that happened and expected changes that were happening with the tax code caused some people to want to sell properties earlier then maybe they otherwise would have. So we benefited from that and increased the spend that we would have on land purchases during the fourth quarter.

And then the amount of activity as Ben alluded to in his comments that we are seeing from the carriers is driving a lot of tenant adds to our site, so we saw an increase of spending there. And usually there is a push, as there was in this past period. Usually there is a push in the fourth quarter, and we certainly saw that. We certainly saw that this fourth quarter.

I think as we think about the full year 2013, as I alluded to in my comments, from a CapEx standpoint we will probably end up spending about $150 million related to the land lease extension program as we purchased land. We will spend probably another $150 million or so related to construction of new sites, which would include and would be mostly comprised of small cell related activities.

And then probably somewhere in the neighborhood of $100 million, or a little over $100 million on adding additional tenants to existing either towers or DAS systems. And as we think about what we think we will spend on T-Mobile, obviously, that activity around spend is completely tied to leasing activity.

And in terms of the structural capacity and ability to do that, we think those assets, in terms of the cost to add additional tenants, will look very similar to our existing portfolio. So I think it will largely just be determined by what does leasing activity as we go through the course of the year look like. But the $100 million, we think, will largely cover that based on Ben's comments around what we are seeing on the current activity level.

The second question around non-cash, obviously as we began to focus a year ago on this AFFO metric, and believe it is a great one because it focuses everybody on a cash item rather than thinking about it just from GAAP revenues and GAAP expenses. The business is comprised largely of these long dated lease arrangements, both in terms of revenue and costs. And as we have movements in those, there are effects that happen to that AFFO number, either increases in non-cash revenues or decreases at the revenue line. And the same thing occurs at the expense line.

So there isn't some volatility that we have seen in a number over time based on the timing of payments and the arrangements that we make. Obviously, anything that we do where a lease has a prepaid component related to it, that would have an impact or a postpaid, if you will, component to it. That would also have an impact to those numbers.

And then add to that in the fourth quarter we also did the T-Mobile transaction. So all of the -- those existing leases, both at the revenue line and expense line, came through.

So we have, as we talked about, I think, a little bit last quarter, we have historically guided that number a bit conservatively. It is difficult for us to have quite as much precision as we can at the site rental revenue and adjusted EBITDA line, so we have guided that number a bit conservatively. And I think as I have mentioned in past calls, we would expect as you look at the delta between non-cash revenues, straight-line revenues and straight-line expenses there, a bit of a drag on EBITDA, if you will, as we move down to the AFFO and the cash line.

We expect that gap will completely close by -- within the next 3 to 4 years. So the trendline there should be a movement towards AFFO and EBITDA coming a little closer together. So, hopefully, that is helpful on the second question.

Okay, great. Thank you.

Simon Flannery, Morgan Stanley.

Quick housekeeping question first. The $5 million of nonrecurring revenue, what is the EBITDA impact on that?

And then, Ben, I was wondering if you could give us a little bit more clarity. You talked already a lot about small cells and DAS. I think a year ago on this call, you said you were hopeful that you could grow this business EBITDA 5 to 6 times over the next five years. I was just wondering if you could update us on where we are on that trajectory. And what do you see for 2013? Would be great to get some more clarity on the materiality here.

On the first question, we did have $5 million of revenues benefit in the fourth quarter. And it was largely offset -- remember in our outlook for fourth quarter we did not include the T-Mobile transaction, so we didn't include the costs associated with that adding folks for that transaction, either. So most of that was offset by the additional cost and staffing costs that we had in the quarter.

If you were trying to exclude it, there wasn't necessarily an offset directly related to that, so it would have fallen through. But if you're trying to compare that to the outlook we gave previously, most of it was consumed by cost increases that we had not previously guided to related to the T-Mobile transaction.

Thanks.

Simon, my enthusiasm around the small cell business has not abated at all. We have got nine months of operating with the NextG folks and we are adding resources, as I mentioned earlier, which is evidence of our commitment and enthusiasm for the business.

I still believe you'll see us grow that number 4 to 5 times over what we bought over that period of time. We are finding significant opportunities to put capital to work at very attractive all-in returns. And we are seeing a continued migration of capital spending and commitment on the part of carriers to the small cell technologies and architectures.

I would also mention on this call, don't be confused by a lot of the -- what we see out in the press around confusing nomenclature around small cells and DAS and what does it look like in picocells. The real critical element that we offer is the property rights that we have secured and the fiber that connects whatever architecture, whatever electronics the carriers ultimately want to install.

And so, while it may have initially been a shared DAS system, where you had multiple carriers in each box if you will, to otherwise going into the small cell environment of picocells next pole over, the economics to us and the benefits to the carriers of the shared economic proposition of the largest component of cost being the fiber and the rights that we secure, that is all well intact.

And so we try not to get distracted, if you will, with what is going out there in the marketplace. We are able to accommodate, really, all of this through what we are doing in the business. And our enthusiasm, frankly, has increased over time and like very much what we see there, and it is certainly confirmed by public statements on the part of most of the major carriers.

Thank you.

Michael Rollins, Citi Investments.

I was just wondering if you could provide just a little bit more details on the bridge for 2013 revenue growth. So you mentioned that there is the $330 million of growth implied in your guidance ranges from 2012. I think you mentioned $270 million from acquisitions and $60 million in leasing activity.

So if I put that $60 million of leasing activity over last year's numbers, and try to make a couple of adjustments for some of acquisitions that were included for part of 2012, I'm only coming up with about 3% to 4% revenue growth. I was just wondering if you can bridge these numbers to the organic revenue growth to get a cleaner sense of what the cash growth looks like for 2013. Thanks.

Mike, thanks for the question. I think the $60 million, it is obviously a year-over-year comparison, and there is a couple of things that would affect that. One of the things that I mentioned was -- is the contracted escalators on the existing leases net of churn.

We expect churn in 2013 to be about 1%, maybe a little less than 1%. So that number is at levels a little bit lower than what we have seen over the last couple of years. We think that will offset the benefit of about 1% of rent escalations that we would see in the number.

So the $60 million that you are correctly highlighting, that number would reflect basically all -- that would all be organic growth or new tenants going on existing systems. And that would be a combination of new tenants on towers as well as new tenants going on DAS systems.

There is another, if you parse through the numbers and look at -- to Jason's question earlier about what are the movements in the straight line revenues -- there is another about $40 million to $50 million of benefit from cash escalations on existing leases, which is why when you look at the AFFO growth that we are showing for the year of about $190 million of AFFO growth, about -- a little over $80 million of that is obviously coming from the interest expense saves. And then we have got about $110 million that is coming from the base business.

T-Mobile is -- when you add the combination of the financing costs there and the increase in cost, T-Mobile is basically a push. So we are not getting any benefit, really, at the AFFO line from T-Mobile when you consider the cost increases that Ben referred to. So that $110 million would be what we are getting in the organic leasing business, a combination of cash escalations and leasing, and not really getting any benefit on that cash line from contracted escalations that are variable in nature. So, hopefully that reconciles you (multiple speakers).

Just listening, I just want to make sure that -- so that $110 million would also be after normal growth in operating expenses ex people costs -- so normal growth in site maintenance and ground leases and things. So you're basically dropping $110 million through to AFFO.

And just to be doubly clear, the T-Mobile accretion net of financing cost, that $20 million, is basically covering the increased run rate of people cost, resources as I have talked about, which is basically paying for the resources we have added through the services business, the DAS business, all the things we enumerated earlier on.

So that is basically, Mike, I think the easiest way to cut through it. And then to get back to the $190 million is about -- the $80 million or so of interest, say.

That is really helpful, and if I could just ask one other follow-up to that. On the $80 million of interest saves, as you look at all the refinancing activity that you have now completed, is there another leg down of interest costs for 2014 or 2015? Or should we look at that $80 million of interest save as really the getting back to, I guess, the run rate of current interest costs in the market today?

Yes, I think on the -- there is one -- one other bond out there; the 7.5%, 7.25% $500 million -- 7.5% $500 million note that we would like to potentially refinance over time. But if you look at the whole balance sheet, $11 billion, the average coupon is about 4.5%. So, at 4.5% I think we have gotten most of it out at this point.

Thanks very much.

James Ratcliffe, Barclays.

Thanks for taking the question, two if I could. First of all, can you give us a little additional color on -- now that you actually own or lease the assets, of the strategy for lease-up on the T-Mobile towers, if there are particular carriers that you think are most likely to be picked up, et cetera?

And, secondly, can you talk about what sort of lease-up activity you are seeing in areas where there is already LTE, so Verizon activity, in, I guess by now, the bulk of the country, and AT&T? Are you starting to see infill or is it still -- most of the activity you are seeing for just POP coverage at this point? Thanks.

Yes, James, thanks. With T-Mobile -- and thanks, I was hoping we would get to address this. We have owned it 60 days and we are still in this transition period working through, loading all the data in the systems and beginning to take applications on our own from carriers.

So there will be a little bit of integration process that will last probably another 90 days until we are completely essentially integrated. But we already are having productive conversations and would have very high expectations as we talked about on the last quarter's call for those sites going forward.

It is early days, and so we wouldn't put a whole lot of that into 2013 run rate, if you will, in terms of contribution inside the year. But, nonetheless, we are seeing -- we are having very good conversations and have very high expectations for the long-term growth prospects there.

And coming off of a very low base of run rate of tenancy, as we have talked about before, it doesn't take a lot of additional tenants to make that investment perform exceptionally well. So we're probably more enthusiastic about it 60 days in that even when we started. And that could be a potential source down the road for outperformance if we see things happening as we would certainly hope.

With respect to cell splitting, James, and infill locations, I would tell you that it is too early to raise guidance based on that. And remember that anything we would see incremental for the year would only have a stub period contribution for 2013, but would be more meaningful into 2014. So it wouldn't be a huge amount for 2013.

But I would tell you that -- my previous comments about where we can already see 70% of the application volume we expect on the non-presold activity, some of that is clearly coming from that activity. And so we're optimistic we will see that continue to build throughout 2013.

And it is a very good next leg of growth for us going forward, particularly given the 22,000 sites Jay mentioned now with the T-Mobile portfolio -- the 22,000 sites that we have inside the top 100 markets. We think it is -- we have lots of sites that are going to be very attractive for infill and cell splitting. We will just have to see how that develops, but certainly we think it is headed in the right direction.

Thank you.

Ric Prentiss, Raymond James.

A couple questions, if I could. First, just want to go back to the straight-line stuff a second. Obviously, a lot of people confused by straight-line still.

Jay, I think, just to make sure I understood you correctly, you feel that while it is a volatile line item, that you guys are being very conservative on your guidance still and how you take people through that. And I think I heard you say 3 to 4 years [figured] that adjustment goes away.

That is right, and trending towards that. So the line should trend towards that.

Okay, second question, with the pending T-Mobile PCS acquisition, T-Mobile has made it very clear they want to keep the MetroPCS DAS networks that have been built in New York, Boston, Philly, California. I believe a lot of those were built by NextG, which you guys own. T-Mobile has explicitly said they want to add LTE and HSPA+ to that.

Is that in your guidance? Does that help you guys? Or is it something that they just spend CapEx on and buy their own?

I don't want to really get into specifics on what may or may not happen contractually with those upgrades. In many cases they will take additional slots on those systems, which will be a revenue event for us, and so I'm not sure we would put that fine a point on the revenue guidance.

There is certainly an expectation and an internal budgeting and forecasting around the small cell business, and it comes from a lot of different places. And as we have talked about for years, if you forecast -- if you are within 70% accuracy on exactly where it comes from inside a given year, you have done pretty well, but -- so implicitly some of that -- it is in our thinking. But I wouldn't put too fine a point on that.

Okay, so if it does happen, there could be a little more upside to that as well, just if DAS does play out?

There could be, sure.

Okay, and then on the cell splitting, we have heard that the leader in deploying LTE in the United States has put out search rings to look at that cell splitting to create LTE capacity. I think, as you were mentioning, does that imply that if search rings are out are you seeing them, and that it is probably by a midyear type event that you might see some of that activity show up at the tires towers?

I think that is a pretty fair assessment, but I don't want to scope that for you yet. And we don't make a practice to talk about our carriers' business. So let's let them talk about that in detail, but I think certainly some of that we are seeing in the pipeline.

Makes sense. I will ask you something you can answer directly -- stock buybacks. What do you think about getting your leverage back down into your target zone? And as you look at the CapEx program and acquisitions, where does stock buyback and leverage fit into your thoughts of running your business?

Sure. Broadly, what I would tell you in terms of capital allocation, we haven't changed the plan. We look at every dollar of capital that we spend and the goal is to maximize long-term cash flow per share, and we measured AFFO per share.

So we put everything from construction of a new small cell sites to tower sites to buying back stock or acquisitions, all of them run through that risk-adjusted filter that we put everything through. And we continue to look at opportunities there and feel like we had a good year of putting cash to work and money to work, on acquisitions primarily, that we thought were better, frankly, then what the opportunity was of us buying back the stock. And so we will continue to look at opportunities in that same vein and on the go-forward.

With regards to the deployment of leverage to do those activities, we obviously, over the course of the year, took leverage up about [a turn and a quarter] to take advantage of some opportunities that we saw. We thought it was shareholder-friendly not to issue shares to do the acquisitions that we did. And given the low cost of debt in the market and the term that we could achieve, we thought that was appropriate.

I do think over time what you will see us do is come back down as we grow EBITDA and bring the leverage back down to the 4 to 6 times target level that we will operate the business at most of the time. And aiming to get ourselves back in terms of -- back to somewhere in the neighborhood of 5 times debt to adjusted EBITDA.

We may, from time to time, use some portion of our cash flow to pay down debt, but I don't think that will be any meaningful allocation of the cash flow. I think most of the deleveraging is likely to come from just growth in adjusted EBITDA.

Thank you.

I would just add -- I think, Jay, you mentioned -- we are probably at the highest interest coverage. Interest coverage has actually gone up through this refinancing and through the increased debt we took on to do these acquisitions. Interest coverage as a multiple of adjusted EBITDA is actually higher than when we started, which is pretty phenomenal.

And as we look back about being disciplined over a long period of time around the capital structure, I would observe that we have taken EBITDA in this Company from somewhere around $700 million to $1.6 billion run rate and not issued any shares. And we have done that through a lot of investment and a lot of organic growth, but that is how you get to $3.04 a share. And this year we will have, as we talked about, over $1 billion of adjusted funds from operation. So we are quite pleased with that outcome.

Alright, sounds good, guys.

Jonathan Atkin, RBC.

I was interested in following up on your DAS business. And can you give us a sense of how much revenue and cash flow contribution are coming from those assets? And then I think you talked about over 10,000 small cell nodes, and maybe you could provide a perspective on how that compares with previous periods post the close of the NextG transaction.

Yes, let me say first of all, I am probably -- I don't want to break out -- we are not going to segment report. We operate it as the same business. We look at it in a return basis on capital we're putting in.

As Jay mentioned we are making significant capital investments on the build side. And that goes through our normal capital allocation process and we are very pleased with what we see there. And the growth therein, in terms of revenue, is at or above our expectations and deal pipeline.

Obviously we have put additional resources in it, as we've talked about, which costs money in the short run, to build out that capacity and enable us to handle that pipeline that is continuing to grow. So that is probably all I would say, other than to say we are continuing to be very pleased with the growth we are seeing, revenue and margins, and the opportunities in the marketplace to put real money to work at very attractive returns, which is what we had thought when we came into this.

And, importantly, is the same financial model and proposition that we could offer to customers, which is the compelling nature of the shared infrastructure, where it is cheaper for them to go on our sites and operate on our sites, notwithstanding the ease and speed to market that it creates, just on a pure financial basis, just as it is on the towers. And that relationship is well intact and I think we will certainly continue.

So we are not breaking it out separately, but we own it. It is paying its way. And we certainly expect to see the kind of returns out of it that we initially modeled.

And then Ben gave some very helpful comments on small cell and DAS and some of the nomenclature confusion and so forth. Is it correct to assume, then, that the basic architecture that NextG had used, you're open to expanding that to other approaches as long as you're leveraging the core fiber assets?

Absolutely, and we are working on that every day right now.

So, given your fiber assets, I just wondered if there is an element of your DAS business where you will consider providing backhaul, but not operate or maintain the nodes themselves. Perhaps the carriers prefer to build them or already built them, but you could leverage the fiber in more of a direct backhaul way, as well as operate the small cell business.

Yes, we are doing that in limited geographies today, where it is obvious where we could provide dark fiber, where we have got -- where we are passing cell sites. So we have got that in a limited way today. And I wouldn't say it is a significant meaningful contribution, but it is certainly a way to leverage that embedded plant and something we are going to continue to focus on.

Thank you.

Phil Cusick, JPMorgan.

This is Richard for Phil. Just wanted to ask on the T-Mobile towers, if you were going to change tower heights, how long does that take if -- granted it is still early the integration process -- but is this something that could be done very quickly in terms of getting through zoning or not? Or, once you decide to do it, it is going to take a while and would end up being more of an impact in 2014 or beyond?

Richard, not really a difference per se in T-Mobile's site going through zoning on changing height as it would on our own sites. It is a process -- depends on where you are in terms of zoning.

But what I would also point out is that over time, as the equipment has gotten smaller and lighter and the desire for tall sites, frankly, has abated, because now we are covering much smaller cell sites, diagonal -- diameters -- it is more and more likely that these sites become available and useful to the carrier without necessarily augmenting the height of the tower. And that is something that we've seen change over the last 10 years in the industry.

Very often times the smaller sites, based on their location, and the smaller electronics and the tighter separation that we are able to put the different rad centers on the sites, make it such that these smaller sites actually have more utility than they might have when they were originally built. And we are seeing that on our own portfolio, and would continue to expect to see that on the T-Mobile sites as we move forward.

I guess is it fair to say, then, that given where things are, that most of the most recent activity over the past few years are probably on smaller sites, since all the bigger sites are taken and it is not (multiple speakers).

Again, a lot of the activity, the majority of the activity in the industry the last couple of years has been LTE amendment activity on existing installations. So there has not been a lot of new leasing and the marketplace. As we have talked about on this call, we expect that to gradually change over time with infill and capacity cell splits. But the last two years to three years, the vast majority has been upgrade of existing installs.

Great, thank you.

Jonathan Schildkraut, Evercore Partners.

Most of my questions have been asked and answered, but I do have a few additional. First, in terms of the EBITDA outlook, you look at the first quarter and you look at the annualized number that you have given. It seems like EBITDA is not going to grow through much of the year.

Now, earlier you highlighted how, given your MLAs, a lot of the potential revenue growth or the cash revenue growth is already captured in your GAAP numbers. So I am wondering if this is a similar impact on your EBITDA, and then I will come back with a follow-up. Thanks.

Yes, Jonathan, it is the same answer as the answer to Mike's question about revenue.

All right, great. Thanks. And then could you give us the details in terms of the split between amendments and new cell activity as it applied to the fourth quarter and for -- if that is embedded in the outlook for 2013?

We are currently seeing about 85% of the activity to be amendment related. Most of that would be LTE related activity. And 15% would be brand-new tenants going on the towers. And we have a similar assumption for 2013.

Great, and just as a follow-up to that, in terms of the 3G overlays and the time periods that were overlay versus moving into some capacity infills, how -- maybe you can relate that experience as to where we are in that 4G upgrade cycle? Thanks.

I guess what I would say is historically as we have gone through the process, you end up with a period of time, generally it is a two-year to four-year period of time, where the carriers go back and touch the sites that they are already on. And during that period of time where they're doing the initial deployment of whatever the new generation of technology is, we see the leasing results similar to what I was just speaking to, be somewhere in the neighborhood of 75% to 80% of the activity to being amendments.

And then as they move towards having touched all their existing sites, then we see that transition go back much more towards brand-new cell sites and cell splitting. And obviously there has been a number of carriers who have commented on that, as they roll out their plans for the next couple of years and talk about the need that they have to go back and infill sites, cell split, add additional sites, where the activity has been over the last couple of years, more in the amendment timeframe.

So I think we would say probably balance of 2013 looks like that will continue to be a heavily amendment tied activity base. And then as we transition into 2014, probably early 2014, mid-2014, we start to move back towards a more normal cycle.

Thanks for taking the questions.

Batya Levi, UBS.

A couple questions. One, your commentary about churn. How do you think that will trend throughout the year? Do you expect any ramp from the iDEN churn in the second half or is that more a 2014 event?

Is there any level of discussions with Sprint right now, maybe to lock that churn with increased activity from Sprint? Is that something you that you could do this year?

Also, another question on maintenance CapEx. I think you lowered your outlook for this year and you have more towers, including T-Mobile, in your base. Can you talk about what drove that reduction? Thanks.

Sure. On the first question with iDEN, we don't expect to see any churn from iDEN in the calendar year 2013. We would expect to see that in 2014 and 2015 in terms of impacting the revenues. We believe that will be somewhere in the neighborhood of about 3% of revenues.

And for assumption purposes, I would expect we will see somewhere in the neighborhood of two-thirds to three-quarters of that in calendar year 2014, and then the balance of it in 2015. At least if I was trying to predict it at this early stage, that is the best I could do. But I don't -- contractually they don't have the right to do any of that in 2013.

On the maintenance CapEx side, some of the change there that we gave in the outlook was us pulling forward into the fourth quarter some of the IT upgrade that I mentioned in my prepared remarks. So we actually got that done in the fourth quarter along with some of the tower and maintenance activities, we were able to pull that forward into the fourth quarter. And so it was really just moving those expenses between the two periods and bringing some of that -- we brought some of that activity and work -- we were able to get it done a little earlier than what we had previously expected.

Okay, thanks.

Mike McCormack, Nomura Securities.

Just looking at the maintenance CapEx run rate, it looks like it is a pretty similar level if we look at 2012 versus the guide on 2013. Just trying to get a sense for the much larger tower portfolio, what the piece parts are there.

And then, secondly, thinking about M&A opportunities, it would seem that domestically there is not much left. But do you guys have any thoughts about revisiting some international opportunities? Thanks.

On the first question, with regards to maintenance, we spent -- in 2012 we had the IT refresh that I mentioned, an upgrade which was out of normal experience in terms of the amount we would spend on a normalized basis to maintain the towers. And then the amount that we would see in 2013, obviously, that has the impact of T-Mobile coming in. So when you're comparing year-to-year, I think the cover that we had in 2012 with the increase related to IT and so it doesn't look like a large step as it would otherwise.

Typically maintenance CapEx per tower is relatively low. We spend between $500 and $700 per tower per year on maintenance CapEx. And so there is not really a big uplift related from -- directly from towers, but in the year-over-year comparison it would just be the elevated amount we are spending in 2012.

And a lot of it runs through the P&L on a current basis. Just (multiple speakers) as we fix things ongoing.

Michael, on your second question around M&A, every time we think there is not something else to do, something comes up in this industry, so I would caution you to say there is nothing else to do. I don't know about that.

But I would say that as we have always done, we will look at anything, and we continue to look at really everything on the market, including international. We haven't talked about it on this call, but we had a very nice growth in our Australian business. We are forecasting good growth again in 2013. There is a lot of activity going on in that market.

Other international markets, we certainly could look at. Again, we do it on a risk-adjusted basis against the stock price and decide where do we find the best opportunity to drive AFFO per share long-term. And thus far, you have seen us take advantage of the opportunities we have seen as we have.

But I wouldn't predict the future. I would say let's -- we will continue to do it that way and see what happens. And I would never say that there is nothing else on the market. You just never know in this business.

Ben, when you think about the tower portfolios of both AT&T and Verizon, has there been any change in their posture, their interest in maintaining versus selling?

Not that I am aware of. Obviously, you'd have to visit with them.

Right, okay, thanks, guys.

Kevin Smithen, Macquarie.

If we look at CapEx minus land purchases over site revenue, the figure has grown from 7% in Q1 to 19% in Q4. Some of that is for new DAS nodes, revenue-enhancing CapEx on existing sites looks like it has gone up from about $26 million in Q1 to over $51 million in Q4. Can you give us the breakdown of that existing site CapEx between the IT upgrade, core CCI sites, T-Mobile sites and DAS sites?

On the DAS portion, is there any element of maintenance CapEx on the fiber nodes in there? And can you clarify for us how you account for carrier reimbursements for DAS CapEx? Is this booked as site revenue?

In terms of the granularity on CapEx, we spent about $10 million related to the -- $8 million related to IT. So that clears off that component of it for you.

Most of the CapEx come as we have seen the rise over the course of the year and over the last couple of years, most of that would be related to an increase in activity that we are seeing. Obviously all of the -- that is driving the services business. So, on the services side, we are seeing services revenue as we install tenants and add largely, as I mentioned my prior comments, significant portion of that related to the LTE upgrade.

So we are adding equipment. We get the services revenue associated with that. And then there is, in some cases, a component of that where we are adding additional CapEx to our sites. Given the scale of our DAS business relative to the tower business, the vast majority of CapEx on existing sites is related to towers and not related to the small cell business.

On the construction of new sites, revenue-generating on new sites, almost all of that is small cells.

And then with regards to your last question is, to the extent that we get carrier contributions related to CapEx, whether that is on the tower side or on the DAS side, the way we would account for that is -- that would be -- a portion of that would be rent revenues that we would recognize over the term of the contracted contract -- the contracted lease. And then, obviously, we would receive cash in the current period associated with that.

That is very helpful. Thank you.

Michael Bowen, Pacific Crest.

Just a couple of questions for you. With regard to the T-Mobile towers, I think if I have my math right, your guidance implied on the revenue -- based on EBITDA margins, looks like the EBITDA incremental margins were around 37%, 38%. I was wondering if you could walk us through your thoughts of where this might move going forward, how long it would take. What are some of the steps you will be looking at?

And then as far as anything you're looking at internationally, can you talk us through how you think about return on invested capital in any particular market other than the US? Thanks.

On the first question, Michael, you're right; we did bring those assets over to about a 37% margin, direct margin, off of the revenues. That is a function of having about 1.6 tenants on them today. And the growth in those margins, as you know, is largely a function of what leasing looks like.

The incremental margins on adding an additional tenant to these sites is very high. So we have taken -- when we first acquired the portfolio of assets that we had prior to T-Mobile, in the early days back in 1999, we acquired those assets with about 1.3 tenants on them. And the margins were in the low -- the high 20%'s, low 30% depending on which portfolio they were.

Today those direct margins on those assets is in the 80% range, and that is largely a function of adding, in many cases, 2.5 or more tenants to the towers. So really, it is a function of how do we add tenants over time.

As we talked about when we did the T-Mobile transaction, we assumed a little less than a tenant add, thought that the assets could hold a full tenant addition to them given the current capacity of the assets. And without necessarily getting the margins on those sites all the way to same level as our legacy portfolio, the returns are incredibly high with just adding half to one tenant on those assets.

So time will tell, and it will largely be a function of leasing.

Mike, on your second question in terms of how we think about risk-adjusted hurdle rates and things, the way we do it internally is we constantly are updating our thoughts and variables around our internal cash flow generating capacity of the business we own. And we translate that into a cash flow per share number, the AFFO number you see on the sheet.

We didn't look at the long-term growth rate of that and how we can grow that from the base business that we own at any given time. And we look at the slope of that line, and as we are looking at domestic acquisitions that would have a similar risk profile, similar credit, we see it's as simple as -- is it accretive or not to that slope of that line which would otherwise include just buying back stock, as the default candidate for how you would spend the money.

And if we see an opportunity to add accretion to that number, as we have been very aggressive in this last 12 months with $4 billion in acquisitions, then we will move on that.

As we look at international markets, one of the things we look at and we add to that mix is, what is the inherent cost of debt in that market? What is the risk-free rate in those markets? Because at its essence, we are essentially a lender to wireless carriers. We are lending them steel as opposed to dollars.

And so when we think about it that way, it definitely puts a risk premium or a higher hurdle rate, depending on the country. And thus far notwithstanding some growth in those markets, thus far we haven't seen something that we are willing to pull the trigger on and win an auction over, given some of the other opportunities we have seen in the states.

That is not to say that they are not some good opportunities out there and we may do something in the future, but that has been our judgment as we have talked about on this call, where we see the growth opportunity on a risk-adjusted basis in the US and the Australian market.

Okay, thank you.

I think we have got time for one more. Thanks.

Tim Horan, Oppenheimer.

Jay, just on the AFFO redeployment, it sounds like you're happy with debt levels. You have done a major acquisition here. You have accelerated some land repurchases.

Not to put words in your mouth, but it seems like stock buybacks are really the best option at this point unless -- and can you handle another acquisition if you could?

And maybe secondly, Ben, do you think -- have the carriers caught up with customer demand at this point? It seems like they have been under-engineering the networks for the last two, three years, but do you think they have been surprised with LTE uptake and usage? Just some thoughts on the overall networks. Thanks.

Sure. Tim, I think on your first question, as Ben mentioned, every time that we think the environment is settled and we have great clarity on what is going to look like for the coming months or quarters, something else will come up in terms of an asset or otherwise.

So we have historically looked at our capital and the investment of that capital based on what we think maximizes long-term cash flow per share. And so I would give you the same answer. As we look at it, we would love to find more opportunities to invest in land purchases and acquiring ground lease assets.

We would love, based on the returns that we are seeing in the small cell business, we would love to allocate more capital towards that endeavor. Happy to buy back shares if we can't find another alternative or potentially acquire assets. So we will just have to see what is in front of us, and we will make what we believe to be the best decision based on maximizing long-term cash flow per share when the opportunities are in front of us.

In terms of the networks, Tim, for what we see in the market, I am an interested wireless consumer like all of us on this phone call, and I look at things at CES, and I look at press releases and things. And I don't think the market nearly has caught up with customer demand or consumer demand. I think that is a very difficult goal, because I think the market continues to develop new devices and new applications and new ways to use wireless spectrum.

So I think there is going to be a long road here on devices and capabilities and services that we probably can't even imagine, particularly when you look at some of the machine to machine and automotive, and other ways to offload what you normally would think of as a desktop Internet experience that now it is very clear in a mobile environment, we all use it considerably more than in a wired environment.

So we have been at this about 14 years, most of us on this call, and we have always thought, well, we are going to get to some plateau. And I think none of us could have appreciated at the time the real technology shift that is happening in all of our lives around wireless. And we are very pleased to be positioned where we are, to have a shared financial model in terms of the shared elements of the infrastructure that is compelling for the carriers to operate on our sites.

We are very pleased with the position that we've created in terms of the largest and the concentration in these top 100 markets, as we have talked about. 2012, I think, will prove to be a real watershed year for Crown Castle. We took some very deliberate actions to enhance our profile, if you will, in the US, and I think long term that is going to pay tremendous benefits.

I would just point out, as we conclude here today, we did 18% AFFO per share growth last year in the midst of an enormous amount of activity around integrating the NextG organization and our friends that joined us there. In fact, if you adjust for the negative interest carry we took on for the T-Mobile sites, we actually hit my 20% bogey for the full year 2012. And then we have shown up here in January with guidance for you that is 21% on a forward basis.

So we are feeling really good about our business and the prospects, and we have got a lot of work to do. We have got a lot of working people working hard on integration, at the same time dealing with unprecedented level of activity in the business, so a lot going on here.

But we are very pleased to have you join us on the call, everybody. And we will talk to you on the first quarter call. So thank you very much.

Thank you. Ladies and gentlemen, that does conclude our conference for today. We would like to thank you for your participation. If you would like to listen to a recall -- sorry, a replay of today's call please dial 303-590-3030 or 800-406-7325 and enter the access code 4581 -- I'm sorry, 9198. Again that is 458-9198. Like to thank you again for your participation and you may now disconnect.