Crown Castle Inc (CCI) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Crown Castle International first-quarter 2013 earnings conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for your questions.

(Operator Instructions).

Today's conference is being recorded, April 25, 2013. I would now like to turn the conference over to Fiona McKone, Vice President of Finance and IR. Please go ahead.

Thank you. Good morning, everyone, and thank you all for joining us as we review our first-quarter 2013 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 be no assurance that such expectations will be proven 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 April 25, 2013, and we assume no obligation to update any forward-looking statements whether as the 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 investor section of the Company's website at crowncastle.com. With that I'll turn the call over to Jay.

Thanks, Fiona, and good morning, everyone. As you've seen from our press release and as outlined on slide 3, we had an excellent first quarter, exceeding the high end of our previously-issued guidance for site rental revenue, site rental gross margin, adjusted EBITDA and AFFO. We continued to make good progress integrating the T-Mobile towers and expect to be substantially complete within the next few months. The strong year-to-date results from our site rental revenue business, together with the significant contribution from network services, in addition to a meaningful increase in applications to go on our site, allow us to increase our 2013 outlook for site rental revenue, adjusted EBITDA and AFFO.

Turning to slide 4, I'd like to highlight a few things from our first-quarter results. During this first quarter we generated site rental revenue of $615 million, up 24%, or $118 million from the first quarter of 2012. Site rental gross margin, defined as site rental revenues less the cost of operation, was $438 million, up 17% from the first quarter of 2012. Our services business performed very well, posting another record quarter, with the contribution from services gross margin increasing twofold year over year, from $23 million in the first quarter 2012 to $47 million in the first quarter of 2013. Adjusted EBITDA for the first quarter of 2013 was $441 million, up 22% from the first quarter of 2012. AFFO was $291 million, up 47% from the first quarter of 2012, and $1 per share, up 45% from the first quarter of 2012.

The significant outperformance in the first-quarter AFFO compared to our outlook issued in January 2013 was primarily due to the outperformance in adjusted EBITDA that I mentioned and approximately $8 million in contributions related to the construction of conduit to hold customer-owned fiber to our towers. These contributions are accounted for as deferred site rental revenue and recognized over the estimated period the contributions are earned, which is currently about eight years.

Turning to slide 5, during the first quarter we spent $160 million on capital expenditures. These capital expenditures included $16 million in our land lease purchase program. Since we began this important effort, we have completed over 13,000 individual land transactions. As of today, we own or control for more than 20 years the land beneath towers representing approximately 75% of our gross margin. We continue to enjoy significant success with this program, as evidenced by the fact that, today, 37% of our site rental gross margin is generated from towers on land that we own, up from less than 15% in January of 2007. Further, the average term remaining on our ground leases is approximately 32 years.

Of the remaining capital expenditures, we spent $7 million on sustaining capital expenditures, $94 million on revenue-generating capital expenditures, the latter consisting of $58 million on existing sites, and $36 million on the construction of new sites. Additionally, we spent $13 million on acquisitions during the first quarter. Also during the first quarter, we purchased approximately 300,000 of our common shares for $24 million. Since 2003, we have spent $2.8 billion to purchase approximately 101 million of our common shares and potential shares, equal to a third of the Company's share, all of this done at an average price of $27 per share.

During the first quarter, we chose to limit our discretionary investments as we're assessing several potential acquisitions. While we have no assurances that we will be successful in any of these processes, the total value of these potential acquisitions would represent less than 3% of our total assets as of the end of this last quarter. Consistent with our past practice, we evaluate these potential acquisitions on their expected long-term contribution to AFFO per share compared to the purchase of our own common shares. With regards to our debt outstanding, we ended the first quarter of 2013 with total debt to last-quarter annualized adjusted EBITDA of 6.1 times and adjusted EBITDA to cash interest expense of 3.5 times. In April, just a few weeks ago, we refinanced our existing $1.58 billion term loan B and effectively lowered the rate on the loan by 75-basis points, saving approximately $12 million in annual interest expense. Currently, the average coupon on our total debt outstanding is 4.5%, with an average maturity of 6.5 years.

Turning to our 2013 outlook, as shown on slide 6, we expect site rental revenue of between $612 million and $617 million and adjusted EBITDA between $426 million and $431 million for the second quarter of 2013. The sequential change in adjusted EBITDA from Q1 to Q2 and this year is impacted by approximately $4 million of nonrecurring items, and site rental revenue that benefited the first quarter of 2013 and are not expected to recur in the second quarter. Approximately $3 million increase in repairs and maintenance expected in the second quarter, reflecting the increased level of activity as the weather warms, and a $12 million lower expected contribution from services in the second quarter compared to the contribution we enjoyed in the first quarter. While we are delighted with the significant contribution from services, we are forecasting a lower contribution for the second quarter and the balance of the year. Over the last couple of years, we've been pleasantly surprised by the contribution from services, but we will continue to take a conservative view on potential levels of the Service activity.

As we mentioned in the press release, we have seen a significant increase in applications since the beginning of the year, representing a more than twofold increase in the application volume by revenue compared to the same period last year. This twofold increase in application volume by revenue includes both new and amendment activity. In the first quarter, we saw a similar level of increase in new license application, with new license activity representing 60% of application volume by revenue. We believe this activity suggests that some of the carriers are in the early stages of in selectivity, to help ease capacity-related issues. In addition, we are benefiting from amendment activity by the carrier, which is outside the scope of previously-announced customer agreements, wherein we presold certain amendment activity.

I would also point out that the application volume by revenue on the T-Mobile sites we recently acquired, is more than double what we expected when we originally forecasted 2013. As a result of our strong results in the first quarter and the significant increase in application volume from our customers, we have increased our 2013 outlook, which now reflects annual site rental revenue growth of 17% and AFFO per share growth of 27%. This increase in our outlook represents an expected increase in incremental growth in site rental gross margin of approximately 18% compared to our original expectation. Given the expected timing, our increase in expected new leasing activity is most impactful to our site rental run rate as we head into 2014.

Turning to slide 7, in addition to the organic AFFO growth we expect to achieve this year, we would expect to augment this growth through opportunistic investment of cash flow and activities such as share purchases, tower acquisitions, new site construction, and land purchases. Our outlook does not include the benefit from these expected investments. For the full-year 2013, we expect to generate over $1.1 billion of AFFO and invest approximately $400 million to $500 million on capital expenditure related to the purchases of land beneath our towers, the addition of tenants to our towers and the construction of new sites, leaving approximately $600 million to $700 million to invest in activity related to our core business, including purchases of our own shares and tower acquisitions. Consistent with our past practice, we are focused on investing our cash in activities we believe will maximize long-term AFFO per share. I believe this level of capital investment can add between 3% and 5% to our organic AFFO per share growth rate annually.

In summary, we had an excellent first quarter and I'm excited about the significant increase we're seeing in leasing application. We are off to a great start in 2013. With that, I'll turn the call over to Ben.

Thanks, Jay. Thanks all of us you joining us on the call this morning. As Jay just mentioned, we had an excellent first quarter, exceeding our outlook for site rental revenue, site rental gross margin, adjusted EBITDA, and AFFO, and we are excited about our business as we look to the balance of the year. As you know, there's a significant amount of activity in our industry currently, as all four major US wireless carriers are engaged in major network upgrades simultaneously, and we are enjoying a significant ramping of leasing activity as reflected in our increased 2013 guidance. In fact, over 75% of the 2000 -- 2013 leasing activity contemplated by our outlook is already in our application pipeline.

As Jay noted, we saw more than a twofold increase in application volume by revenue in the first quarter compared to the same quarter last year, which we expect will translate into new site rental revenue during the second half of 2013. Of the significant increase in applications in the first-quarter 2013, approximately 60% of the activity was from new tenants colocating on towers they were not previously on. This is a trend we've been anticipating for some time, as some of the carriers are nearing completion of their LTE nationwide buildout. We have been expecting to see [in field sites] or (inaudible) as a second wave of LTE network deployment providing us with a longer runway of expected future growth, as the carriers strive to maintain network quality and reliability through cell splitting in the face of exponential growth in mobile technology demand. Given the urban concentration of our sites with 74% in the top 100 markets where we expect the majority of network (inaudible) to occur we are excited about our prospects as the next wave of leasing materializes.

In the first quarter, we also made significant progress on integration of the T-Mobile towers, which we expect to complete in the next three or four months. While these integration activities are ongoing, the business opportunity continues to grow and we are seeing meaningful pent-up demand from carriers to go on these sites. As Jay mentioned, only four months post closing, application volume on the T-Mobile sites is already significantly ahead of what we underwrote.

Turning to small cells, we closed on the NextG acquisition just a little over a year ago, and I am very pleased with the performance and the growth of our small cell networks, which had exceeded our initial expectation. In fact, organic leasing growth on small cell is tracking above our business plan and we're excited should be investing for growth in this area. Our initial expectation upon closing the NextG acquisition were that we would grow adjusted EBITDA five to six times within five years and we are tracking towards that goal.

While small cells represents a small percentage of our overall site rental revenue, we expect and are seeing growth from small cells contribute significantly more than its relative size to the organization. This activity is consistent with the continued adoption by the carriers of small cells to create a better and more seamless experience for consumers in areas that are not adequately covered by traditional macro tower infrastructure. Based on what we can see, we anticipate multi-thousand small cell deployments annually for the foreseeable future and we are working to capture a significant portion of this opportunity. With every passing month, we see more examples of Crown Castle offering carriers integrated solutions in towers and small cells to meet their network requirements. As the industry leader in small cells, we remain excited about our future prospects in this extension of our business.

Before I turn the call over to questions I'd like to make some comments on the trends we are seeing in the US. As evidenced by our results and our investment of $4 billion last year in the US market with the NextG and T-Mobile tower acquisitions, we remain firmly convinced that the US wireless market has significant opportunities as the fastest-growing and most profitable wireless market in the world and where we are well positioned at the preeminent wireless infrastructure provider in the US. According to Cisco's latest forecast, US mobile data traffic grew 62% during 2012, and is expected to grow nine fold from 2012 to 2017, enabled by the faster and more robust LTE networks being deployed.

As carriers deploy LTE, it's interesting to note that US 4G connections represent still only 7% of mobile connections today, yet they account for 25% of mobile traffic on the networks. The impact of 4G connectors on traffic is significant, because 4G connections generate a disproportionate amount of mobile data traffic. This is the driver behind all four major carriers multiyear plans to enhance the coverage and capacity of their networks. We believe this is illustrative of the US wireless consumer behavior and is an important trend for our business.

So, in closing, to wrap up -- and then we'll take some questions -- we're the largest wireless infrastructure provider in the US, with an urban-centric portfolio where leasing activity and demand for mobile technology is the highest. We remain focused on the US market, the largest and fastest-growing market in the world, where the ability of wireless carriers to make profitable investments is most apparent and barriers to entry remain high. As consistently demonstrated by our results, we believe our well-located tower portfolio and the ability to execute for customers allows us to maximize the opportunity in the US market.

Leveraging our experienced management team, customer relationships, and services offerings across our unrivaled tower footprint, together with our leadership in small cell networks, positions us to be the provider of choice as carriers continue to enhance their networks to meet ever-increasing wireless demand. We believe providing carriers access to our 30,000 sites, extensive small cells and the fiber resources through a shared infrastructure model remains the most efficient means of delivering mobile technology to consumers. We like how we are positioned and look forward with great anticipation to the future.

It's a privilege to come on these calls and announced these results. I want to take a quick moment to thank our employees who continue to deliver these excellent results while integrating two major acquisitions. Delivering record levels of services revenues and meeting customers expectations in gaining access to our site at the heightened level of application volume we are seeing reflects the talent and dedicated professionals we have at Crown Castle. So in closing, we had an excellent first quarter and we look forward to the balance of the year. With that, operator, we'd be pleased to take some questions.

(Operator Instructions). Philip Cusick with JPMorgan.

I guess first on the fundamentals, can you talk about what kind of visibility you have into the Services business? As you said, it's been surprising you to the upside for quite some time. Is this contracted a quarter or a month out, or is it even shorter than that? And what do you expect in terms of sustainability over the next year or so?

Yes, Phil, thanks. Obviously it's been growing and we've been doing more, including increasing the scope of work on each individual application over time. But it is hard to forecast. It's hard to forecast in terms of volume, and then as well as timing, because not all of the timing relates to things that we can control, some of it beyond our control, things like zoning, availability of equipment, lots of other things that actually impact when the timing of the jobs get done and the recognition of revenue. So given that it is a lumpy -- it has been going up -- in relation to the application volume and the activity that we've seen, we have high expectations for it, certainly, and would expect that this year -- full year, would be substantially greater than last year. But still, $47 million of margin in the quarter is unprecedented by a long shot for us and so we're going to be a little gentle as we forecast that.

Sure. As you think about the guidance there, is that services revenue guidance that you give essentially known and then there's extremely likely or only potential upside from there, or do you really put it on sort of the potential that that could miss during the quarter?

Well, we try to basically come out with things -- a level that we, obviously are pretty sure we can make. I don't want to come on a call and talk to you about why we didn't make the number. As we've said, given the activity over the last 12 months, which has been ever increasing, -- it's been -- we've been beating that number, obviously, every quarter. But I'm cautious because there may come a time when that number flat lines or even heads back down and we've just got to be very careful about getting too far out on our skis on that one.

Okay. And if I may --

And again, the last thing I would add is remember, carriers are not compelled to use us and so while we're very pleased the activity and we work very hard to secure that business, they don't have to use us. So while it is related to the activity in the market, we certainly can't absolutely control it.

Got it. If I may on just a completely different subject, I think there was an article in Barron's this weekend talking about a lot of companies are moving toward REIT status and I worry about this. What are your advisors telling you about the situation in DC toward REITs, and is any possibility you might move this ahead a little bit in order to get yourself in 2014, rather than wait until 2015?

Sure, Phil.

We've already started some of the preliminary work on REIT conversion, in terms of considering who are advisors will be and legal counsel and how that would look. We've spent a considerable amount of time internally looking at what we would need to do in order to make the conversion. I would tell you just broadly, and there have been a number of articles written about some of the businesses that are trying to make themselves look as close to real estate as they can, in order to pursue a single taxation-type model.

When you look at the Tower business this is a Real Estate business. Certainly, when they set up the pass-through entity status and looked at real estate as one of the prime examples that has taken advantage of that, that's what we are. We're a real estate business and it's not a stretch to figure out how our Business relates to that.

Broadly, on tax reform, there may be tax reform over time and if there is tax reform, then obviously we'll have to look at what we think is the best approach for the Company. But, I think some of the concerns about what the IRS may or may not do in terms of including various businesses in -- as REITs, it's hard to imagine how you could define real estate and not include towers. So, I think we feel pretty comfortable about it and we've already started the work. You're right to say we'll burn through our NOL in about 2015, beginning of 2016. And so I think our conversion is in the next -- inside of the next 24-to-36 months and we've already started the early work to get that done.

Thanks, guys.

Jonathan Atkin with RBC Capital Markets.

So, I was interested in the Services business and the cost structure. As revenues go higher or lower is that primarily a fixed-cost basis, or are there variable costs where you're using contractors? Just wanted to get a little bit more of a flavor for that.

Then, it sounds like from your comments there was a point erring 1Q where there was a trigger where you -- the prepaid amount of activity was exceeded and from this point forward a lot of the activity level then gets reflected in incremental site leasing revenues. Am I thinking about that correctly and are there other MLAs where we start to might see that trigger later on this year?

Jon, I'll take the first one. On the services business, we do have some variable cost structure built into there, and we have added people over the last year, really almost at an unprecedented rate for Crown Castle, given that it's -- we run with lots of assets and few people. We've added a number of folks to handle this work load. We do have some variable costs in there, a number of them are contractors.

I think the essence of your question is, if it were to flex down can some of the cost structure come out? And the answer is absolutely. So we always keep an eye on what do we think is sort of baseline core services activity and then what is -- what are we seeing based on all this activity, appreciating that we've added a third to the portfolio, too, so you're going to have a higher increasing rate of activity just because the portfolio's bigger. But there is a significant amount of variable cost in that business that could flex appropriately.

Jon, your second question around prepaid activity, as you probably saw of from the release, we added an additional footnote to the straight-line revenue disclosure that we've given over the last year plus when we went to this AFFO metric that the industry has gone to show you the one component of that number that has some volatility in it, which is related to prepaid activities, so we've called that out.

In periods where there's significant month of construction and activity going on, we're going to see more prepaid. I think we've talked about in past quarters directionally that straight-line revenue number, in the absence of any construction activity, is headed to about breakeven in the 2016 timeframe. So, just as a simple example, if you were to say we didn't have any prepaid activity in 2016, we would expect the current drag that is straight-line revenue of about $130 million to go to zero. So just growth in absolute cash received from our tenant licenses is going to grow significantly over the next couple of years.

So we were trying -- we're trying to spike that out a little bit to show you the one component of that that does have some volatility. And I guess I'll make a similar comment to what I made around services, that we'll continue to take a pretty conservative view there and a lot of it comes down to timing. I think directionally we feel great about the year, which you can certainly take from our comments about where application volume is. Then with regard to services and construction activity, we'll have to see how it develops over the course of the year. It's harder for us to predict exactly where those items are going to fall.

Okay. Finally, on the applications that you talked about and the increased levels for new colocation applications, does that then really start to take the financials not into 2014, or could that benefit this year's site leasing performance?

It does reflect somewhat in calendar year 2013. As I mentioned in my comments, we took up our fourth-quarter site rental gross margin in terms of incremental growth year over year by about 18%, so that's a direct result of that leasing activity and the applications that we're seeing. It is, as you point out, though, most impactful to the 2014 run rate.

Generally speaking, we have about four to five months from the date we receive an application until it becomes revenue. So that application activity that we saw in the first quarter really becomes revenue into the third quarter, and you get the impact there for the balance of this year, but most impactful as we think about run rates into 2014. I think we are really encouraged about broadly what we see the carriers working on and where that application activity is going as we transition from what has been the last couple of years a predominantly amendment mix to now seeing a significant number of brand-new lease applications where carriers are desiring to go on towers they're not currently colocated on. That's having a big impact as we think about the fourth quarter and where we head into 2014.

Thank you very much.

Rick Prentiss with Raymond James.

A couple questions. I want to follow up on Phil's REIT question as we get ready to go to NAREIT pretty soon. Jay, you mentioned the conversion in 24-to-36 months. Given that tax status is for a calendar year, would you actually maybe consider converting to a REIT in the middle of the year? And how would that logistically work given the accumulated EMP dividend repayment, et cetera?

Yes, I think the first step after we lay out the plan is to pursue the Private Letter Ruling from the IRS. There have been a number of tower companies and brand lease companies that have gone down this path, both public and private companies, so there's a pretty good track record there, in terms of how the IRS responds to those. So, we feel pretty good about that but that would be the next step.

Then once we've received that Private Letter Ruling then it just becomes an election for us to convert to a REIT and those two things don't necessarily have to go together. So we could pursue and obtain the Private Letter Ruling and then wait before we -- wait to make the REIT conversion decision at a later date.

I think I've broadly just go to how we think about capital allocation in that discussion. Given the amount of growth that we're seeing in the business and where we see cash flow per share growing over the next couple of years, we thought it appropriate to maintain the flexibility to use our cash flow to be able to go out and either buy acquisitions or buyback our own shares. We think we've done that really successfully over a long period of time.

So, by waiting on the dividend until it's the most tax advantageous approach in the Business we think we can deliver outsized return to the shareholders. But it's something that we are certainly considering and I wouldn't dismiss the possibility that we don't go a little bit early. We're just in the early stages of working on it and would make the decision when appropriate.

And, would it be a decision that would be tied to a January 1 kind of date like American Tower did for the whole tax year, or is that something you could do within a tax year and go back? Just trying to think of the calendar timing.

I think the practical answer is we would probably do it on January 1. There are ways that you wouldn't necessarily have to do that, but in all likelihood we would think about it as a calendar year decision.

That makes great sense. One follow up on the T-Mobile side. You said it was doing twice your forecast, the T-Mobile towers that you've brought in. Is that just that you guys start of the underwriting maybe thinking that they would start slowly? Then also, on the 60% of the applications have been new co-los as a revenue base, are the T-Mobile ones seeing that, too, I would expect?

Yes. Rick, this is Ben. So on the -- look, it's only been four months so we're happy to tell you that we're ahead of plan but it's four months in, and we obviously had a long-term leasing forecast, so we're ahead of plan, significantly, already with the T-Mobile assets. Yes, I would suggest to you that they're attracting co-los, as well as amendment activity.

Okay. Thanks, Ben.

Jonathan Schildkraut, Evercore Partners.

I was wondering if you could give us a little but more color in terms of the activity by carrier? Then as the second question, you talked about the timeframe from getting an application to seeing the application turn into revenue. I imagine that the four-to-five months for new sites is longer than what you might -- an amendment process. If that is the case, do you feel like you have more visibility into the forward business today than maybe what you were expecting a quarter or two quarters ago?

Jonathan, let me start with the first part by carrier. We generally resist calling out individual carriers and their deployment plans and what's going on. Obviously, we have a pretty good window into that from our seat. But you can certainly take from their comments, the carriers public disclosure, where they are in terms of their initial LTE deployment, and they're in varying stages of completion, if you will, on the first level of amendment activity through their existing networks.

As we anticipated for some time, we will see infill or [diseffication] resulting from either increased small cells in areas where they're capacity challenged, where consumers essentially are consuming the LTE capacity that's now available on the macro side, or now a redeployment of capital back into adding additional sites that may have been on the list for a long time, but were de prioritized based upon the need to go ahead and get the original first cut LTE deployment overlay done, and now they come back and address the obvious places that for some time they've needed some help, which is handled first and foremost by macro sites and then, obviously, infill in more urban areas by small cells.

So, we are seeing that, I would say, almost in direct relation to where the carrier is in their LTE deployment. That's about as far as I'll go with you, but you can sort of walk through, okay, where is everybody and their LTE deployment and you can assume that's how we're seeing this play out.

The four-to-five-month lag on applications to revenue is pretty consistent. That hasn't really changed over time. There's some variables in there that we control and there's some variables in there that out of our control, things like, again, availability of equipment, zoning, availability of crews, there's just a lot of things that have to happen there. Consents from landlords, just a long list of things that typically, on average, takes in that four-to-five month recognition period, so I'd say that's pretty consistent.

Jonathan, one thing I would say, which we talked about at some length last quarter, is that we're in an unprecedented time of public -- by the carriers -- public disclosure around their multiyear plans for CapEx spending. Historically they've given some public comments generally about the next nine-to-12 months and what they're going to do in any given year.

You have most of the carriers who have come out with at least two-to-three year CapEx plans and what those plans are going to entail, in terms of both small cell deployments and macro sites and amendment activity, and so I think we have -- we probably have about the same amount of visibility on a quarter-by-quarter basis as we've ever had. But the one thing that has changed is the longer-term view that the carriers have taken about their network, and we're just working through that as we go through the near term.

All right, thank you for taking the questions.

Mike McCormack with Nomura Securities.

Ben, can you just comment on the environment out there. You guys talked a couple times about acquisition opportunities, I think AT&T has been pretty vocal about looking into that. Is there any change in the carrier behavior on that side? Then, secondly, you guys evaluate looking at the Dish-Sprint combination. What kind of opportunities would that provide for you guys? Thanks.

Sure. On the acquisition front, as Jay mentioned, there's always things in the pipeline, and there's a couple, I'd call the medium-size things that we're looking at. I think Jay used about less than 3% assets, that's about right. We would effectively fund that out of cash flow and so that's why we're looking at maybe holding off a little bit until we know the end of -- the outcome in those.

But in general I'd say the industry -- if I could editorialize for a minute -- has gotten pretty comfortable with third-party ownership of independent towers and we own, as an industry, a very significant component of the cell sites in the US that are made available on a shared basis, and that model is working very well and is a very cost-effective and efficient way for carriers to occupy their infrastructure. So, I think that's well established and certainly will continue.

With respect to the Dish and Sprint discussions, or Softbank or anyone else that you might hear about on radio or TV, seemingly every day, that wants access to wireless networks and ultimately consumers, it's very heartening for us. Because when we hear about those discussions and it just describes to us or confirms the fundamental value that's resonant in these wireless networks, way above and beyond what's evident today,

So, whether you talk about Dish or their obvious business purpose around an augmentation for their satellite TV strategy, or whether you talk about Softbank or any other technology company that constantly is looking for access to wireless consumers through devices, the whole mobile technology wave to us is very exciting and suggests a long-term run here on the need, the necessity to access to the infrastructure that we own. Again, I keep coming back to this shared model because we think it's a very attractive way to provide infrastructure on a common or a shared basis to these carriers. A very efficient way and it's not just resident in wireless, there's a number of other examples where that's the case. So, we are very excited about the long-term prospect and those things out there on the horizon that we don't talk about or certainly don't put in our forecast. I would include FirstNet in that discussion, so lots more to come in our expectation.

Great. Thanks, Ben.

Jason Armstrong with Goldman Sachs.

Couple questions. First, Jay, obviously a very big hike to the AFFO number here. We've got a few of the piece parts but not everything, can you walk us through maybe a bridge to the AFFO increase and maybe talk through site rental gross margins, network services gross margins and then maybe changes in customer prepayments, how that all fits together and contributes?

Second question, I guess, maybe just going back to the acquisition landscape. When you talk about deals out there that in total are 3% of assets, with your leverage back down to 6.1 turns are you saying these are the assets that are out there and hence that's what you're engaged in, or are you saying you still can't engage in bigger deals if they are out there, because it seems like with the leverage where it is you probably could engage in larger deals? Thanks.

Sure. On the increase in outlook, we've got about $9 million in the calendar year related to interest savings, which I alluded to in my comments when we repriced our term loan B. There's another about $29 million that's related to increases in adjusted EBITDA from where we were previously for the full year. Then we have the benefit that we talked about from fiber in the first quarter, as well is there will likely be some for the balance of the year, and that basically bridges the balance of the year, in terms of the total increase in AFFO.

Jason, I think maybe I would point to just that level of activity in my comments before about construction and where applications go. Ultimately, that will be somewhat of a driver as we get into the balance of the year. If it's at an elevated level we may do a little bit better from those kind of activities, but very difficult for us to predict it at this point. So most of it is just adjusted EBITDA growth and that's coming from the outperformance in the current quarter, as well is our raise in terms of expectation for site rental revenue. That's the driver there for the growth in adjusted EBITDA. The interest savings and then what really what we already achieved in the first quarter makes up the bulk of it.

On your second question around leverage at 6.1 times, really my comment for what I was alluding to was if you look at capital spending or share pur -- and share purchases and acquisitions, we didn't spend all the cash flow that we earned during the first quarter, which has normally been our practice to invest most of it during the quarter. That 3% represents specific assets -- less than 3% of our total assets, those represent specific acquisitions that we're in the process of looking at currently.

No promises that we'll be successful on those, but as Ben said, we think we can fund those out of cash flow and so we were, in essence, holding onto cash and not making investments, waiting for the outcome on those. I think broadly to the extent that something larger than what is relatively small acquisitions were come about then that would be a different discussion and we'd have to look at those assets. But this is -- my comments were related specifically to some specific assets that we were looking at and why we didn't invest all the cash flow that we earned in the quarter.

Okay, great, and if I could follow up on one other thing that's coming from the call. You talked about maybe an ability to pull forward going after Private Letter Ruling, is there -- I'm just not familiar with what sort of expiration or renewal would be required, how far in advance of actually converting could you actually achieve that and then wait to convert and have that sort of designation still hold?

Yes, it would be good for a couple of years. We wouldn't -- that Private Letter Ruling doesn't really expire.

Okay, great. Thank you.

David Barden with Bank of America.

Thanks a lot. There's been a lot of hand wringing over the last quarter, and I think we addressed a couple of the reasons. One was concerns that maybe towers were going X growth, and I think you guys addressed that with some of the applications demand you're talking about. Another reason was some of the M&A anxiety about four to three combinations and I think that is working itself out. I would say maybe the one last thing that has come up, again and again, has been subsequent to AT&T's announcement that it was going to do two things to expand its network; one was expand their macro cell sites accelerating it by about 50%, but also introducing 40,000 new small cells.

There's been anxiety about how small cells might be a substitute for the macro cell sites or how, as we densify the markets, which is going to be in more than urban areas where towers aren't, is the opportunity going to skew away from where the towers are. Probably nobody knows more about that then you guys other than AT&T, could you map us or walk us through -- maybe, Ben -- how the architecture works and whether it's complementary and whether we should be worried about the ultimate substitution nature of that business? Thanks.

David, that's a great question. Obviously, we believe and are experiencing the fact that it's complementary and it's really all of the above. We noted from our drive testing precisely which sites, existing macro sites, could solve existing needs in the marketplace. As I've said a few minutes ago, one of the things that's been -- we've seen, clearly, and it makes perfect sense, a little bit in hindsight, is the carriers' capital and focus has been on amending existing sites for obvious reasons. Multi-thousands of them, and as we disclosed I think last year we had 23,000 individual applications inside the Company. That's just a mind-boggling number.

Those are amendments primarily on the first pass of LTE. That doesn't -- we're not suggesting that they don't need any other macro sets, it's just that's first thing that happened. Now, as you're seeing, the next thing that's happening is they're going back and starting to address the obvious sites that would have satisfied additional coverage or capacity requirements with LTE being part of that installation as the second wave. We believe that'll continue and we see that happening in macro sites. We think are certainly the most efficient way to cover the capacity challenges and coverage challenges that remain out there today and that'll continue.

But that's not sufficient. There's a lot of places, as you point out in your question, where small cells can augment in a very small geographic area the capacity that may not be available from the macro side or even the rooftop site. So, while if you are standing there in that location you might actually have one or two bars of coverage on your phone from the macro side, it's not enough to do the mobile technology or the mobile broadband services that the carriers want to provide and that we're willing to pay for, apparently, because so that's what's happening.

So that's why you see the carriers talking about multi-thousand small cells being added as augmentation to add capacity and effectively reuse the spectrum in a microcell almost, if you will, and multiply the capacity that's available to the consumer in those urban areas. But it's really both, and I think what's driving -- what we've paid close attention to is the ability for the carriers to continue to make capital investments to add data capacity and densification and drive incremental EBITDA and margin through their Wireless businesses.

From what we can tell, that's very evident and that's there today and so that's why we -- one of the primary reasons we're so excited about what we see in the US. We, as consumers, are prepared to and expect to pay for data services, and we are doing that. And there's a lot more devices coming and applications coming. As I mentioned earlier, technology companies that want to access the wireless consumers, that I suspect we're all be paying for more services in the future and getting more out of it. That's basically how it's working, it's both.

Perfect. Then just, if I could, one last one. With respect to the different potential combinations out there -- sorry to put you on the spot -- but if you could come with the dream scenario for towers for Crown Castle, in particular, among the publicly-announced transactions that are going on out there today, what would you be rooting for, what would you be rooting against?

I don't think I'm going to touch that one. We like where we are and what we have, and the carriers, obviously, have their own business plans and they're working hard to do it. And we're focused on making sure that we're the most efficient and cost-effective means for them to deploy their network to consumers and that's what we are.

All right, I tried. Thanks, Ben. (laughter).

Simon Flannery with Morgan Stanley.

I wonder if you could talk about a couple of other revenue sources, microwave dishes, anything on generators in the post-Sandy world? You've seen increased demand there. And coming back to this 60% coming from new co-los, do think we've now flipped permanently, that we've gone from amendment dominated to a new co-lo dominated, or is that going to fluctuate around? And I think that was something that a lot of people thought would be more of a 2014 effect. So thoughts on that. Thanks.

Sure. Simon, we are seeing some microwaves on site and that's contributing to the revenue growth we're seeing. Then, in terms of predicting the mix of co-los, I think it, to a degree, is a function of sort of where we are in the deployment plans or progress with the various carriers on their LTE amendment. As we've noted, we got out in front of some of this pretty early with carriers on our sites, and so we've come through the crest, if you will, on LTE amendment activity. And so I think the natural, then, is to come back to the co-los.

How we would predict that it continues, again, we can see where there are obvious needs. It's challenging to predict exactly how they prioritize their capital. Obviously, four months into the year now we're very pleased with we've seen. I would point out, though, that in the guidance we were a little conservative. We didn't necessarily forecast that this level of activity continued the entire year. So, we obviously had great results in the first quarter and we expect that that'll pick up, that'll generate revenue, as Jay mentioned, in the third and fourth quarter, but we're still -- we're going to take this a quarter at a time and see how it goes.

Anything on generators?

A little bit. That's a difficult one. There's still a capital allocation discussion there that has to happen within each carrier. We do have, obviously, generators space. We've done shared generate a models in past for carriers.

It really comes down to a capital prioritization within the carrier, but we have, certainly, availability of ground space and the willingness to own and share generators when that becomes the preferred approach. There's a lot of things going on between battery back-up power, elevated platforms, mobile generators, and so we'll -- there's obviously been appropriate attention on the issue and we stand ready to help where we can.

Thank you.

Batya Levi with UBS.

I think in your guidance that you had provided in the beginning of the year, you had not included any Clearwire revenues from -- in it. Given the new guidance, do we -- have you included Clearwire in it now? Also wanted to just clarify the lag period that you mentioned, application to recognition of revenue, so four-to-five months. When Sprint talks that they're going deploy LTE on 800 in the fourth quarter, would they be starting that process today, or could that potentially provide upside throughout the year? Thank you.

Sure. And your first question with regards to Clearwire, we did not put them in the original outlook in terms of expectations for additional leasing from them and we've not included any in this current outlook, so no change there. On the timing, generally speaking if a carrier is indicating that a site is going to be on air on a specific date or inside a specific quarter the application would need to come to us four-to-five months ahead of that date in order to get them on air on their targeted date.

Okay, and just one more. How should we think about the new construction CapEx this year? And how many new towers do you expect to build? I think the new tower count this quarter was a bit lower than we expected. Do you expect that to ramp up throughout the year?

Most of the new construction CapEx that we're spending is related to small cell network deployments and so I don't think you'll see us build a whole lot of towers this calendar year. Most of that will be related to us spending on the small cell side, which we continue to find opportunities for. If I had to guess where we'll end up at the end of the year it'll be probably somewhere in the neighborhood of about $150 million on new sites.

As we've talked about, though, it's a bit of a soft outlook or soft guidance, because at the returns we're able to achieve in the building of new sites, whether that's small cells or towers, we'll do all that we can find. So that $150 million is really our best estimate of where the opportunities are, currently and if more opportunities show up we'd happily invest at a higher level than that.

Great. Thanks.

Kevin Smithen with Macquarie.

What is the current AFFO contribution from DAS, if it as positive, and when will this begin to have a significant impact in AFFO growth as you complete some of the initial CapEx?

Sure, it is contributing and it's positive to AFFO. We don't segment report our Small Cell business, it's run inside of our Tower business. So we try to give some color on some of the trend lines given the amount of capital investment we made last year and ongoing, but I'm not going to get into specific -- specifically how much it's contributing. On a growth basis, it's making a meaningful difference. As Ben talked about, a disproportionate to its size we're seeing a significant amount of activity and leasing associated with that business. So it's positively impacting AFFO and the flow-through down through EBITDA.

Have you seen any increases in tenancy on DAS? What is your average tenants per DAS site, and what was that a year ago?

Well, when you look at the average tenancy that's -- it's a mixed bag because what's happening and given the number of new networks we're building where we'll have a single tenant or maybe two tenants on day one, it will bring down the overall average tenant per DAS network. If we look at the older systems that are on there the vintage is exactly what we would expect.

As we compare that vintage to the legacy of towers, we're adding the second and third and fourth tenants at a rate faster than what we've historically been able to do with towers. So, if you were to track it on a system-by-system basis you'd see a rate of growth on additional tenancy that looks better than what we've seen over the last 15 years in towers.

And that's about 0.125 per year, or one tenant over eight years on the macro side?

Yes. That would be are about right on the macro side and it's tracking higher than that on DAS.

That's very helpful. Thank you.

Michael Rollins, Citi Investment Research.

Could you just clarify what the internal same tower growth rate was for the quarter? And do you have handy the prepaid rent number for the fourth quarter of 2012? I noticed you gave the 1Q 2013, 1Q 2011 -- sorry, 1Q 2012, but if you have that 4Q just to compare sequentially that would be helpful.

On the same tower sales basis, that number is in the ballpark of about $150 million of cash, and a little over half of that would be the cash escalators and then organic growth would be the rest of that, Mike. That would be separating out the significant ones that would be affecting that would be related to the T-Mobile acquisition that we did. If we go back and look at where the net prepaids -- the net straight-line impact was in the fourth quarter versus the first quarter, it's pretty similar. It moves about $3 million from the fourth quarter of 2012 in our favor in terms of higher cash, $2 million to $3 million from Q4 into Q1.

So, as you look at this then, does that imply that straight-line would have actually been higher in 1Q, so some of the sequential revenue growth may have been helped by straight lining? I'm just trying to get a sense of actual growth rate if they can turn on tower performance and just trying to understand the different impact that fiber, prepaid rents are now having on the financials?

Well, if you separated the activity that drives prepaids, as I was mentioning the construction activity and we spoke specifically about the fiber activity, if you were to strip that out, Mike, completely, that number -- the total number today is a drag on cash of about $135 million, and that includes the benefit we're getting currently because of the construction activity. If you were to take that number and forecast it out to 2016 and say that there was no benefit to the Company from construction activity, so this would be a theoretical environment where there's no leasing activity and no construction activity going on, that drag goes from a drag to basically breakeven in 2016, and the trend line between today and then is a relatively straight line.

So as the construction activity happens, depending on the level of activity there, it's going to make that number get closer to breakeven in some period of time shorter than what it otherwise would if there were no amount of construction activity. So I think underlying this -- and maybe this is helpful just to backup a step -- from a cash standpoint looking at the $2.2 billion of cash revenues that we have, the average escalator there is just a hair under 4% and so there's about $80 million a year of cash growth just coming from the existing base of business.

That's going to happen on a relatively straight line basis from now through the average term of the leases remaining, which is about nine years, eight to nine years remaining. So we'll see that cash growth flow through and that will drive down that straight-line revenue number.

Okay. Thanks.

Michael Bowen with Pacific Crest.

Question for you with regard to what you're seeing in trends for the 4G LTE build in 2013 versus 2014. We had heard that there might be a little bit of a push out from 2013 into 2014, not a decrease but a push out. That seems to be maybe going against what I'm hearing from you guys, but I'd like to hear your color on that? Thanks.

No, I wouldn't agree with that. We're not seeing a push out. We're seeing a lot of work happen. Again, though, we are -- we've been on this amendment work for the last two years in a very big way and so I would venture to guess, speculate with you, that in 2013 we'll do less LTE amendments than we did last year, only because we're sort of getting through the halfway point of our overall portfolio and more, as we talked about several times, significantly more colocation than we did last year.

As it relates to Crown's portfolio, and obviously the only one we can speak to, I'd say we're probably past the halfway point in aggregate between all four carriers combined. I'd say we are probably -- this is unscientific, but we're probably right about halfway and it's certainly not slowing down.

Okay. One follow up on the small cells. If there's a small cell deployment that's not on one of your towers or not on one of your sites, is there any way that a carrier can go in and negotiate a building right up themselves, or would they still be doing it through you?

Well, let's sort of go back through that. Obviously it's a tower, it's our tower and we won't negotiate with ourselves. If a the small cell, we'll have fiber in an area. So if it's a -- let's just take an outdoor situation where we have fiber. There's nothing technically precluding them from laying their own fiber but that would be very cost inefficient relative to ourselves.

You already have a shared model there and so neutral host model, just as in the towers, is alive and well and working in our favor and making it more efficient for the carrier to operate on a small cell they would add to an existing network. With respect to a building, the general rule is on a building we have an exclusive right. If we're in a public venue or a stadium or a basketball arena or something like that then it's an exclusive right in partnership with the building owner, or a municipality where we're on typically a revenue-share basis and they have to work through Crown.

And one last thing. As far as the small cells we've hearing a lot about, I guess, multiband small cells. How important do think it is and how far along are the equipment providers with regard to that and what type of impact do you think that could have, positively or negatively?

I think certainly positive. To the opportunity to add additional capacity in the small cells is essentially what we're doing. There's a physical constraint, sometimes, on each individual poll, so you have to go next pole over if you're on an outside data system just based on zoning and just physical limitations. But combining multi-bands is already happening and in some cases that's actually -- when we think of the vernacular of tenant we try to keep it simple, but tenants oftentimes in the small cells is additional band, additional slots in the box and that's additional revenue. One more question, please.

Colby Synesael with Cowen and Company.

I actually just want to talk about interest rates. I think one of the things that we have been hearing from investors certainly through the course of this year is a concern that with rising interest rates that it could be negative for the tower providers, particularly as it relates to M&A. I was wondering if you could just share with us what you've seen as related to interest rates with the potential debt instruments that you look at to finance some of your transactions.

Has what's happened with interest rates pushed you to one type of instrument versus another one, perhaps CMBS? If you can give us a little bit of color that helps get little bit more comfortable on the ability to continue to pay the multiples that you are paying and still have these transactions be accretive. Thanks.

Sure. I think the first point we would make is the comment that I made during the prepared remarks. If you look at the current balance sheet, we've got about seven year -- almost seven years remaining on the average term and the average coupon's about 4.5%. That mix of our current debt is about 70% fixed rate and about 30% floating rate. So, over the next 6.5, seven years, the exposure that we have to near-term rates is about 30% of our overall mix. We have seen over a long period of time, obviously, in the business those interest rates fluctuate and the cost of debt fluctuates and when it does, the cost of -- and our willingness to buy assets can fluctuate, as well.

Today in the market, we could be an issuer of long-term debt, ten-year debt as a parent company somewhere in the neighborhood of 5% to 5.5%, so the debt is still attractive. And as you pointed out, we've looked at other opportunities where we've gone down at the asset level and limited the amount of leverage that we put down there to achieve an investment-grade credit rating and have found very attractive fixed rates on debt that we can do for long periods of time. So it's more than a single-pronged question.

It relates both to what's the cost of debt, and then based on that we can adjust what our willingness to buy assets at. So over time we think the -- we think we've got a pretty good structure in terms of flexibility around where we can finance the assets, whether at the asset level or up at the parent level, and to the extent that we pursue acquisitions, again, it's relative to our other alternative, which is buying back our own stock and that's proven to be a very attractive investment over a long period of time.

Okay. Great.

I think with that we'll wrap it up. Again, I appreciate everybody's attention this morning and joining us on the call. We're very pleased with how the year has started off and look forward to visiting with you on the next quarter call. Thank you very much.

Ladies and gentlemen, this concludes our conference for today. If you'd like to listen to a replay of today's conference you may do so by dialing 1-800-406-7325, or 303-590-3030 and entering the access code of 4611818 followed by the #. Thank you for your participation, you may now disconnect.