American Tower Corporation (AMT) Q1 2010 Earnings Report, Transcript and Summary

Good morning, my name is Kanesha and I will be your conference operator today. At this time I’d like to welcome everyone to the American Tower 1Q 2010 Earnings Conference Call. [Operator Instructions] I would like to turn the conference over to Ms. Leah Stearns, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Kanesha. And good morning, and thank you for joining American Tower's conference call regarding our first quarter 2000 financial results. Please note that we have posted a brief presentation to accompany this morning's call on our website, www.americantower.com. If you haven't already done so, you may want to download the presentation, as we will refer to it at various times throughout our prepared remarks. The agenda for this morning's call will be as follows: I'll provide a brief introduction and highlight certain key metrics from our first quarter 2010 financial results. Following this, Tom Bartlett, our Executive Vice President and Chief Financial Officer will deliver go over our financial results and provide an overview of our expectations for 2010. Finally, Jim Taiclet, our Chairman, President and Chief Executive Officer will give closing remarks, including his current thoughts on key industry trends. After these comments, we'll open up the call for your questions. To maximize participation during the Q&A portion of the call, we kindly ask that you limit your questions to no more than two parts. If you do have more than two questions or if you think of additional questions, feel free to line up again in the queue and we'll do our best to answer as many questions as possible in our allotted time. Before I begin, I would like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include statements regarding our 2010 outlook, our stock repurchase program, our pending acquisition of Essar Telecom Infrastructure Private Limited and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release and those set forth in our Form 10-K for the year ended December 31, 2009 and in our other fillings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances. And with that, I will begin the call with some highlights from our first quarter 2010 results. Please turn to Slide 4 of the presentation, which provides a summary of our first quarter 2010 results, compared against the year-ago period. We reported total revenues of approximately $454 million, reflecting growth of 11.2% from the year-ago period. Tom will provide additional color on the core growth of our Rental and Management segment, which excludes the impact of foreign currency fluctuations and straight-line lease accounting. Our adjusted EBITDA for the quarter was approximately $312 million, which is a 10.8% increase from the prior-year period. Additionally, our operating income for the quarter increased 19%, to nearly $179 million. Income from continuing operations was approximately $96 million or $0.24 per basic and diluted common share, attributable to American Tower Corporation. During the quarter, our effective tax rate was 22.7%, which reflects a year-over-year decline of over 17% and was primarily the result of the implementation of one of our tax-cutting initiatives in Latin America, which was discrete for the quarter. For the full year 2010, we anticipate our effective tax rate will be approximately 40%. And now, I would like to turn the call to Tom, who will discuss our results in more detail.

Thanks, Leah. Good morning, everyone. I'm pleased to report that our first quarter 2010 results came in right on plan as we continue to execute on our strategic priorities for the year. Please turn to Slide 5. And I'd like to begin with some highlights from our Rental and Management segment. Overall, we reported Rental and Management segment revenue growth of 12.1%. Excluding the impact of foreign currency fluctuations and straight-line lease accounting, our core growth was 9.2% relative to the first quarter of 2009. Our reported revenue was negatively impacted by approximately 1.8% as a result of three discrete items, which we discussed last quarter including: First, incremental churn resulting from the sunset of some analog broadcast services; second, the wind down in the fourth quarter of 2009 of a take or pay agreement with one of our customers; and lastly, the completion of the amortization of a customer settlement, which wrapped up at the end of last year. Excluding the impact of these items, our core growth would've been over 11%. In the U.S., core growth for Tower revenue was 8.8%, excluding the impact of these discrete items. We experienced a strong leasing environment during the quarter with signed new business up by nearly 40% from the same quarter of 2009. Our leasing demand was led by customers like Clearwire, AT&T and Verizon, who continue to invest in their networks as demand for data services grows. Our solid performance in the U.S. was complemented by over a 25% core growth in revenues from our international markets. This is a result of our recent investments we made in both Brazil and India, plus the organic growth which our international portfolios are experiencing. For example, as of the first quarter, the average tenancy on our sites in India, nearly all of which have been acquired or constructed over the past 18 months, was approximately 1.5 tenants per tower. This rate illustrates this strong lease-up demand we are experiencing in India, which in fact are about 2x our other served markets. And finally, as I've previously highlighted on our year-end earnings call, we successfully completed a contract extension with one of our major U.S. customers. This extension was the primary driver of the $3.7 million increase in straight-line revenue from the year-ago period and a $6 million increase on a sequential basis from the fourth quarter of 2009. Turning to Slide 6. I'd like to highlight the current distribution of our Rental and Management segment revenue, as well as our expectations regarding our sources of new business for 2010. We continue to generate approximately 83% of our Rental and Management segment revenue in the U.S., with the remaining 17% from our international markets. Pro forma for a pending transaction in India, revenue from our international markets will increase to about 21%. We continue to expect that the sources of our new business in 2010 will be balanced across our diverse site portfolio. Specifically, our customers in the U.S. continue to invest in their 3G networks while planning for or deploying their initial 4G network overlays. This activity will also be complemented by Clearwire's aggressive rollout of WiMAX. Our international markets provide additional diversification with demand in 2010 coming from carriers such as Vodafone, Telefonica, Nextel International and Tata. Further, we expect that as spectrum auctions are completed in our international markets, many of our customers will further seek to invest in expanding their footprints as well as deploying 3G across their existing networks. These trends support our conviction that the leasing environment will be solid in 2010 as our international strategy continues to provide us with a complementary source of growth. Turning to Slide 7. Our reported adjusted EBITDA growth from the first quarter of 2009 was 10.8%, with core growth of 8% on a currency-neutral basis and excluding the impacts of straight-line lease accounting. In addition, the impact of our discrete 2010 items, which I mentioned earlier, negatively impacted adjusted EBITDA growth by about 2.6%. Excluding these items, adjusted EBITDA core growth would have been well over 10%. During the quarter, we maintained our adjusted EBITDA margins of 69%. We experienced a lower adjusted EBITDA conversion rate, which was a direct result of the following: First, the impact of pass-through revenue expense related to our international markets reduced our conversion rate by about 10%. Additionally, since the beginning of the first quarter of 2009, we've added nearly 4,000 new sites to our portfolio, which currently have gross margins of approximately 57% due to their average tenancy of approximately 1.3. Of these new sites, approximately 1/3 were added in the U.S. and Latin America with the remainder related to our launch of operations in India. As we continue to increase the utilization of these sites, we expect their margins to approach our legacy portfolio levels. In addition during 2010, we continue to make selective investments in our regional overhead, systems and corporate functions, including professional services to provide guidance as we explore potential conversion to a restructure. We believe that these investments will position us well to help us scale and support our objective of generating significant, sustainable value for our shareholders. As outlined in Slide 8. During the first quarter, we continued our disciplined approach to capital allocation. Specifically, we spent a total of $55 million on total capital expenditures, including $32 million of spending on discretionary capital projects, primarily related to the completion of 236 new sites and approximately $9 million on land purchases. We completed the acquisition of 164 sites in the United States for approximately $89 million. And we spent approximately $52 million to repurchase 1.2 million shares during the first quarter. For the remainder of 2010, we expect to continue to ramp up new site investment in the United States and our existing international markets. Additionally, we continue to seek expansion opportunities in new markets, where we can exceed our risk-adjusted hurdle rates. As a baseline, the location must meet our international operational risk criteria, including favorable macroeconomic and political characteristics, and there must be a vibrant and competitive wireless market where co-location can add value to the deployment of wireless networks. Internationally, our risk adjusted return hurdle rates have been in the low- to mid-teens. Turning to Slide 9. We delivered approximately 17% growth in both recurring free cash flow and recurring free cash flow per share in the quarter versus the year-ago period. This growth was primarily driven by the following: Our core growth in adjusted EBITDA; lower capital expenditures, which were primarily a result of an international site augmentation project, which was substantially completed in the first quarter of 2009; and the impact of our recent refinancing activities, which have lowered our interest expense and overall cost of debt. We are optimistic about our ability to capitalize on growth opportunities, deliver consistent operational results and reduce our diluted share count, all of which we believe will continue to drive recurring free cash flow and recurring free cash flow per share growth. These trends, along with our recent investments and attractive discretionary projects, including the acquisitions we've made over the past five quarters, where we have targeted near 10% IRRs in the U.S. and low- to mid-teen IRRs in our international markets, have resulted in the consistent improvement in our return on invested capital, which today stands at 11%. Turning to Slide 10. As a result of our performance to plan in the first quarter of 2010, we are reaffirming our 2010 outlook. This includes full year Rental and Management segment revenue of $1.81 billion to $1.84 billion, which represents year-over-year growth of approximately 9% to 10%; adjusted EBITDA $1.26 billion to $1.29 billion, which represents year-over-year growth of 7% to 9%; and cash provided by operating activities of $950 million to $980 million, representing an increase of 13% to 17% over 2009. Please note that until we close our acquisition of Essar Telecom Infrastructure in India, we will not include the impact of these new sites in our outlook. But I will provide some details on our expectations for the portfolio in a few minutes. Turning to Slide 11. I'd like to reiterate our expectations for revenue growth in our Rental and Management segment for 2010. We expect our Rental and Management segment to produce about $140 million to $170 million of incremental revenue in 2010, which reflects our contractual lease escalations, a stronger site leasing environment in 2009, the full year contribution of new sites added in 2009, as well as approximately 1,200 to 1,600 new sites, which we expect to construct during 2010. The impact of customer churn is expected to be approximately 80 basis points higher than normal in 2010, which is specifically attributable to broadcast customers. We expected the majority of this activity will be completed during the first half of 2010 and then our churn will return to historic levels within the range of 1.5% to 2% annually going forward. We have the two additional discrete items as I mentioned previously, including the take-or-pay agreement and customer settlement, which combined are negatively impacting our revenue growth in 2010 by approximately 1.1%. Finally, we continue to expect an overall increase in straight line revenue for the year of $14 million compared to 2009, which is primarily the result of the customer lease extension we completed during the first quarter in the United States. With respect to foreign exchange, our outlook reflects stronger currencies in Mexico, Brazil and India relative to their 2009 average levels. Turning to Slide 12. We expect to generate about $80 million to $110 million of incremental adjusted EBITDA in 2010, which reflects a lower adjusted EBITDA conversion ratio than 2009 primarily attributable to the cost and related pass-through revenue related to more than the 3,500 new sites we added to our Rental and Management segment portfolio in 2009, as well as the construction of 1,200 to 1,600 new sites in 2010. Additionally, we are making selective investments in SG&A, which we believe will better support our strategic operational and financial initiatives. These investments include staffing our India operations and DAS sales team in the United States, hiring select administrator functions to ensure we have the scale and breadth to pursue our growth initiatives, implementing common IT systems globally and finally, we are incurring costs related to the diligence work pertaining to our exploration of a REIT structure. Turning to Slide 13. I'd like to highlight our investment profile for 2010. Through the combination of our outlook for cash provided by operations and anticipated incremental borrowing during the year, we will have access to nearly $1.5 billion of capital to deploy in 2010. Consistent with our capital allocation strategy, we will first seek to invest this cash back into our current portfolio through our annual capital plan, which is currently expected to be between $300 million to $350 million. This includes the expected construction of between 1,200 and 1,600 new sites. In addition, to CapEx, we will seek to add new assets pursuing select acquisitions, which year-to-date account for approximately $519 million. This includes the $89 million spent in the first quarter for the 164 towers purchased in the United States, as well as our pending acquisition in India. Finally, we expect to return our excess capital to shareholders via our stock repurchase program. During the first quarter, we repurchased approximately 1.2 million shares for $52 million. We expect to increase the pacing of our share buybacks during the second quarter. Turning to Slide 14. And in conclusion, I'd like to summarize a few key takeaways for the quarter. First, our first quarter results were on plan with total signed new business increasing approximately 40% from the year-ago period. Second, we remain disciplined and consistent with our investments in capital allocation strategy. In the first quarter, we added 400 sites to our portfolio primarily in the U.S. and India. Our current new build pipeline is robust and we expect it to ramp up towards the second half of 2010. Third, we are currently progressing through the regulatory review process for our acquisition of the Essar Telecom towers. The transaction will support our strategy in India and we expect an IRR in line with our mid-teen targets hurdle rates. Pro forma for the transaction, approximately 6% of our Rental and Management segment revenue, will be attributable to our presence in India. Assuming a mid-year close, subject to the completion of customary closing conditions and regulatory approvals, the portfolio would add approximately $40 million to $45 million in revenues, $20 million to $25 million in tower cash flows and $15 million to $20 million in adjusted EBITDA to our 2010 results. Our key focus in India, post-closing, will be to integrate the organization and drive strong organic growth on our existing tower sites. Fourth, we continue to seek opportunities to expand our presence, including those end markets which we currently serve. Our first priority is to invest in the United States. However, we also have teams in various geographies, including Latin America, Asia and EMEA who are working with counterparties to explore acquisitions or build-to-suit opportunities. Fifth, with respect to our balance sheet, we currently have approximately $975 million of liquidity. As a result, we expect we will begin to utilize a portion of our current financial capacity to increase the pacing of our share repurchases. And finally, we will continue to monitor the capital markets to seek opportunistic transactions that lower our cost of debt in the ladder and extend our maturities. With that, I'd like to turn the call over to Jim.

Thanks, Tom, and good morning to everyone on the call. American Tower got off to a strong start in 2010, achieving our objectives for revenue, adjusted EBITDA and recurring free cash flow growth for the first quarter. We also continue to drive opportunities to add new assets that we believe will meet our return on investment criteria. We added 400 new sites in Q1, which increased the size of our portfolio to nearly 28,000. As you can surmise from our actions, we strongly believe in the future of the Tower Leasing business and are continuing to seek attractive opportunities to further expand our asset base, both in the U.S, where we completed our most recent transactions and in selected international markets, as Tom said. In American Tower, we're confident that the advancement of wireless communications and now entertainment to the next major stage is fully in progress. Processes at this stage of the wireless industry’s development can be measured in three dimensions: First, what are the effective transmission rates of wireless devices? Second, how many of those devices are in service and over what period of time are they being adopted? And third, in which markets are these devices being deployed? As to the first question, device average transmission rates on the downlink are inexorably increasing from roughly 500 kilobits a second at 2.5G. to one megabit per second at 3G, to about three megabits per second for upgraded 3G and on to five to 10 megabits per second at 4G. As for the second question of device penetration, deployment of these advanced handsets in the U.S. is increasing rapidly. Our research indicates in the range of about 30% basic 3G or better Smartphone penetration, currently. And that's going to be growing to the range of 60%, we think, over the next three years. In addition, network demand generated by these Smartphones will be further augmented with their growing adoption of faster mobile computing devices, such as USB modems, embedded chip modems and tablet-type devices. I just got my 3G iPad yesterday. As for the third question of geography, the U.S. and other developed markets are in the midst of this technology migration today. With the U.S. being perhaps the most vibrant developed market per share of wireless infrastructure providers like us. Moreover, we also believe that many emerging markets are at earlier stages of a similar deployment curve that we're seeing in the U.S. now. Consequently, we expect to see similar developments in advanced wireless communications and entertainment in countries such as Mexico, Brazil and India. And these will be beginning to ramp up during the next few years. Given the trends in device speeds, the rapidly expanding number of these high-speed devices and the global geographic pattern of their deployment, we're taking an active approach to capturing as much of the related infrastructure demand as we can. While at the same time, we're maintaining our disciplined return on investment criteria. And so to capture the optimal amount of growth opportunities while simultaneously enhancing returns, we're taking a balanced approach on a number of dimensions. For example, we seek to balance out our customer lease duration, so that we extend renewal dates into the future and limit the proportion of renewals that occur in any given year. These lease extensions often come with an increase in straight-line revenue, which we explicitly identify for you each quarter. We also seek to balance out our underlying ground leases, by either extending their termination dates well into the future or by buying the land outright. And within that, we further balance our land management program by applying our return on investment discipline to land purchase decisions versus capital leases. We also have a balanced approach to investments in new assets. We're very active in pursuing M&A opportunities in both the U.S. and overseas. For example, we are expanding the resources and management time dedicated to pursuing small acquisitions in the U.S., along with any large portfolios if and when they become available here. Similarly, we put in place regionally-based teams and are committing management time also to evaluate and pursue additional assets in both our existing and potentially new international markets. We believe that this opens up a much wider horizon of investment opportunities, from which we can choose the most attractive, based on our risk-adjusted return criteria. I would offer that American Tower has developed a capability to assess, negotiate and integrate wireless infrastructure assets on a global basis as a true core competency of our company. Our balanced approach to growth and returns is reflected in our recent allocations of capital. In 2009, we deployed over $750 million on behalf of you, our shareholders. About 40% was invested in acquisitions, about 33% to our capital expense program and the balance was returned to our investors via our share repurchase program. Similarly in the first quarter of 2010, we deployed nearly $200 million, about 45% for acquisitions, 28% for CapEx and about 27% for buybacks. Optimal capital allocation is a top priority for Tom and I. And we continually adjust the balance to achieve what we calculate to deliver the best long-term results for the company and for our investors. And so in order to accomplish this, we also take a balanced approach to our capital structure. We strive to maintain efficient access to capital to fund our aspirations for asset growth, while also providing attractive returns on equity for our investors. We believe that our target financial leverage range of three to 5x net debt to adjusted EBITDA provides this balance. We seek to further reduce financial risk by actively extending debt maturities and by laddering these maturities over time. Within our capital structure, we also take a balanced approach of the types of financial instruments that we employ. Of our $4.2 billion in debt, approximately 42% is securitized today, 25% is unsecured bank debt at the holding company level, and 33% is in the form of unsecured bonds, also at the holding company. And as we take this active approach to optimizing our capital allocation and capital structure, we also place great emphasis on getting the best performance we can out of our existing assets. For example, we continue to work with each of our major customers on how we can better synchronize our operational processes with theirs and how to best invest our capital to support their strategic objectives, thereby improving our revenue growth prospects. We're also enhancing things like IT systems that can enable direct customer visibility via the web into our lease processing pipeline and to provide online site applications on the internet, to name just one other of our operational focus areas. To do all this requires a great team of people and I'm fortunate to be working with a terrific management team, and motivated, enthusiastic folks throughout our organization. Many of whom will be enjoying the upcoming Red Sox sweep of the Yankees this weekend. So thanks to everyone for joining in the call today. And operator, you can now open the line for questions at this time.

[Operator Instructions] Your first question comes from Tim Horan with Oppenheimer. Timothy Horan - Oppenheimer & Co. Inc.: Tom, can you give us a little bit more color on your international? I know you gave revenues, going to be 21% of revenues. What is the EBITDA as a percentage of revenues? And I know you gave some stats there on the EBITDA margins for India, but is there any reason over time that it couldn't be the same as U.S. margins? And then lastly, just on India. Can you give us a little bit more insight what's going on in the competitive market over there? I think there was some talk of the carriers creating consortium to be able to kind of own and run their own towers.

I'll do the first one and Jim can do the second one. With respect to the acquisition in Essar, we would expect that the margins in 2010 would be kind of in the 40% to 45% range. But I don't think that there's any reason that we wouldn't expect them to get up to and approach the levels that we're seeing on a consolidated basis. And we still have the impact of some of the pass-through. But the good news is that given the tenancy of the 1.8, we would fully expect to be able to ramp that back up, particularly with the explosion of and growth in the market place.

And Tim, on the competitive site in India. For a number of years now, there have been a couple of major carrier consortia that operate on mainly a cost-sharing basis for their infrastructure, but they also lease it out as well. There has also been a couple of companies on the carrier side that have gone alone and again, mainly to drive their own network, but leasing some of the towers to others in addition to that. That's typical and we see it in all markets. The consortium is the one thing that might be a bit different. We’ve operated within that environment successfully in the last two years. And now we're the second-largest truly independent operator. So I think we've proven that we can be very successful in that Indian environment.

Just the percentage of revenues in EBITDA. I know it’s 21% of revenues on international. But what's the percent of EBITDA international?

About the same. Just right about at the same levels. I also want to make one point and just terms of EBITDA margins is that while the margins are below where our consolidated is, we're excited about it because it really added, even within a 24-months time, about 100 basis points of growth to our overall consolidated EBITDA growth rates. So that's really what's driving the value and what's driving our excitement about some of these international markets.

You're next question comes from Jason Armstrong.

Maybe first on the 2010 guidance. You guys published a strong quarter. You left the guidance where it is, though, but said new business activity up 40% year-to-year. That matches sort of what others have said about the exit trends from 1Q. Just wondering why that doesn't push you higher here. If you can offer any more granularity around the up 40%, what's contributing to that? And then it’d be just a second question on the capital allocation story. A lot more was sort of pointed towards India Tower builds and U.S. Tower purchases. If you look at the purchase multiples in the U.S., at this point well over 500,000 per tower. I'm just wondering given that sort of entry point, why isn’t that actually push you more towards share repurchases? Or buying land under your towers in the U.S.?

It's Tom. With regards to kind of the first quarter, it's really what we expected. Don't forget, we did just give guidance about a month and a half ago. So we had pretty good visibility in terms of what the first quarter was going to be. So I don't think it's unexpected in terms of what the sign was or even the commence was, which was in the 15% and the 20% with new builds. So I think with regards to the transaction in India that will add the $40 million to $45 million and the incremental EBITDA. So from that standpoint, although we're not including it in guidance because we haven't concluded the deal -- because we hadn't haven't concluded the deal as of yet, we would consider that expected assuming that we do close the deal for the balance of the year. With regards to the kind of the capital allocation, the way we're looking at this allocation has been consistent for a number of years now. Our Tower builds, we believe, average in the 14% to 16% IRR ranges. The acquisitions that we're doing, IRR is in the low teens. The U.S. they're around a 10% range. But offshore, they're in the 14% to 15% range. So I think we feel really good about the kind of IRRs that we're able to generate there. In terms of some of the multiples, you may see some of the larger multiples on some of the larger deals, but there are a number of other transactions that you may not have as much visibility into where the multiples aren't quite as high. And as we produce more cash, then we're able to reinvest back into the business, we feel it is best to return to the shareholders via our buyback programs as our leverage ratios are optimized. So again, we're going to stay right down the middle in terms of what our allocation programs is. And as we say, we feel good about the IRRs we're generating both in builds as well as on the acquisitions.

And Jason, this is Jim. On the signed new business for the first quarter. As Tom said, signed-to-commenced is right on our expectation in Q1. That’s baked into the guidance we have. And so the reasons for that is that at the first quarter of '09 was coming out of the financial crisis. Carriers weren't spending that much. And now we have in addition to that recovery, a broader landscape. As I suggested in the prepared remarks, we're operating in now four major markets. And we can see growth in places like India this year that we didn't even have a chance to capture last year.

The next question comes from Jonathan Atkin.

I wondered if you can comment on international spectrum auctions overseas. And what kind of the outcome you expect from that in terms of your leasing business? Maybe not this year, but in years ahead?

Sure, Jonathan. I mean spectrum auctions historically, wherever they’ve been accomplished, have led to usually one or both of the following: which are either new entrants coming in and building networks or existing carriers adding technologies and faster speeds to what the networks they already have. We think that's going to happen in Mexico, Brazil and India because there are 3G designated bands of spectrum being auctioned in all three countries this year. Auctions tend to take longer than everyone thinks. We expect that there will be spectrum awarded in 2010 in all three markets and processes are ongoing, as you know, in a couple of those already. And by the end of this year, there'll be lots of network planning going on. The winners of the auctions will know who they are. Those who didn't win will know who they are. And they'll be planning for deployments in 2011, which is a timeframe we think we'll see material commencements of leases that then hit our revenue based on these auctions.

And then overseas. Do you find the site density in general for the trusted networks is it comparable to the U.S. in terms of POPs per site or subscribers per site?

It tends to be comparable when two variables coalesce. One is what spectrum band is being utilized. The higher spectrum bands, of course, require denser networks. And then how many higher-speed devices or broadband users do you have on that network. And as those things begin to approach U.S. levels, the physics is essentially the same no matter where in the world you are. You're going to have those densities get there as well.

And then finally and Tom mentioned this in the guidance you’ve given only a short number of weeks ago and you’re pretty much on target. But if you look at the different moving parts, are there any particular types of [indiscernible] activity by the carriers that are more active than you originally anticipated? And are there any that you're probably be less active? If you could maybe provide a little bit of color into the moving parts there that would be interesting.

Sure, without necessarily naming individual carriers, 3G adoption on touch screen Smartphones is taking off pretty nicely. And our counterparts providing the networks and our carrier customers, I think, are addressing that actively for those carriers that have a fair amount of those kind of touch screen phones out there or plan to do more. So I'd say that's the most important thing going on right now.

You're next question comes from Brett Feldman.

I know you guys don't get into the nitty-gritty of quarter-by-quarter guidance, but just to sort of help to avoid some surprises here. One of your peers had a very nice improvement and their outlook for their year, although it was very back-end loaded with maybe a more stable trend into Q2. I know everyone's business is a bit different. But is there any color you can give us in terms of how you think demand is going to load throughout the year?

I think as we said previously, we would expect a stronger second half of the year than we did first half, which is typical in 2009. And what I've seen in years past, which lines up, I think, pretty accurately with how the capital gets spent by the carriers. So I would expect that kind of similar types of growth. And from a commence standpoint, I would expect a natural growth of commence new revenue on a quarter-by-quarter basis, which I think would again, would step up in the second half of the year. I think with regards to capital, I think probably 2/3 of our capital on new towers will be spent in the second half of the year, which is both a function of growth in the United States, as well as growth in our international markets, particularly India.

And then just from a spending standpoint, is there anything seasonal going on? I mean, we did see that at least one other operator had a relatively low repair and maintenance expense in the first quarter because of the weather. Was that similar for your business? And should we expect the seasonal uptick as we go into the summer?

You're right. We expected data for OpEx in the first quarter, which I think is pretty traditional given some of the weather issues. We expected it. It was in our guidance. I'm sure we will see a bit of an uptick in OpEx -- Tower OpEx, if you will, going forward throughout the balance of the year, which is also just baked into our outlook.

And Brett, this is Jim. Just to add one item. Speaking of teams working hard and getting things done, our team that handles property tax in the U.S. actually did some really good work and was able to get a reduction in that in the first quarter, which is something we're taking now and won't be repeated necessarily the next couple of quarters.

You talked about the increase in SG&A spend and why you went ahead and did that. Are we kind of at the new run rate now? Or is there any reason why that might change as we go into the rest of the year?

It may take up a little bit as we continue to bring on some more sales people and continue to develop it, but not significantly.

And we're going to be adding enough staff to handle 4,500 new towers in India as well, so that’ll contribute a bit also.

You're next question comes from Mike McCormick. Michael McCormack - JP Morgan Chase & Co: I know it's sort of early days on the LT build. But can you give us some thoughts around what you're seeing the carriers do? We’ve heard various things about swapping radios out, extending lease terms. I know we’ve had discussions in the past about whether these will be amendment or new leases. So just some thoughts in your heads on that. And then maybe sort of attached to that as well as the discussion around this phased approach, I know Verizon discussed it out at the CTIA, whether or not there's some sort of delay between phases and just your thoughts around that process.

It's Jim. Sure. Just to start off the conversation. Again, the vast majority of this touch screen phone and new tablets, et cetera, is going to be carried by necessity on 3G networks for the next few years. In advance of the next trend of growth, you're right, LTE is starting to be deployed, certainly by one national carrier and in trial a little bit beyond that by a second national carrier. And of course, when you talk about LTE, I think you do need to round out Sprint Nextel's play here, which is just a different chip technology that Clearwire is deploying on their behalf. So let me take those in two pieces. A traditional LTE deployment again, getting into your phased approach point, is going to happen and generally it’s three phases: The first one, Mike, that we talked about in the past is that there'll be certain markets that a signal will be put in place to cover that territory. That signal is not necessarily designed to carry much, if any, traffic. Once Phase 1 is completed then handsets and devices can be sold in those markets. Trends go up, of course, in usage and penetration. And then you get into Phase 2, which is sort of filling in the coverage holes and meeting the demand. And then once you get large numbers of penetration of these technology devices, you're going to have to handle a lot better coverage quality and you're going to have to handle a lot more capacity. So as you sort of suggested, Verizon, we think is, and they’ve said, is most of the way through Phase 1 in certain markets of the country. And so they're going to have a multi-year deployment plan. It's going to definitely be included in their CapEx spending for the next few years at an increasing level, I would imagine, vis-à-vis 3G. And then AT&T, based on the schedule they've announced will follow along after that. And of course, Clearwire right now is one of the largest spenders on network deployments in the country and they're in full swing. And you can probably consider them a sort of a Phase 2 program because of the schedule they have. So hopefully that helps a little bit, but we think this is going to be again another set of demands that feather in over the next few years for Tower space. Michael McCormack - JP Morgan Chase & Co: Jim, when we think about the Clearwire build. And I know you don't want to put any parameters around a particular customer. But how should we be thinking about 2011? Is there a meaningful change in growth rates if they sort of build out to 100 million POPs and then it slows down from there? Or is that not the way we should be thinking about it?

Well, I think assuming that financing is put in place, they'll add more markets in some of their Phase 1/2. And we hope their successful on gaining subscribers and when they do that, they're going to need to do, again, a more robust Phase 2 into Phase 3 in the existing markets. So that’s how I think it’ll play out. We hope that they do great in their deployment and in their gain of subscribers to support that.

You're next question comes from Rick Prentiss from Raymond James. Richard Prentiss - Raymond James & Associates: One quick question on guidance. You left it unchanged. Should we assume that the foreign currency assumptions are also unchanged? I think that was the reais at 1.8 and the peso at 13.25.

Yes, that's right, Rick. Richard Prentiss - Raymond James & Associates: And then on the real estate. A REIT still is it that you guys are going through. Can you update us on your NOLs? And when you think you might burn those up? And have you thought about structuring? Do you need to separate domestic from international on the REIT potential?

Just a couple of thoughts on the REIT. As you know, as we came into the beginning of this year we had about $1.3 billion of NOLs. Current course and speed, we would expect to utilize all the NOLs probably by the middle of 2012. Hopefully, we'll beat that and accelerate more quickly. But right now, kind of current course and speed is looking at the middle of 2012. We're continually moving down the path on a number of different fronts within the evaluation of the REIT. The first thing is that we’re just about ready to apply for a Private Letter Ruling with the IRS, which will connect all the I’s and the Ts. And while we think that our Tower assets are right down the middle in terms of what qualifies as a REIT, we want to make sure of it. Secondly, we are now in the middle of our kind of earnings and profits evaluation and E&P study that we need to do to determine if there will be any purging dividend, if you will, right prior to us moving to a REIT. And we continue to through all the due diligence work internally, looking at all of our MLAs and all of our assets to be well positioned to move into a REIT. So while we have a year and half, if you will, before we ran out of our NOLs, we want to make sure that we’re doing all of our homework right up front. With regards to the international assets, the way we're thinking about that is that most of our international assets, if not all, would fall into the taxable REIT subsidiary status. There are asset tests and income tests, as you well know, in a REIT structure. And we think that our international assets would fit nicely within the TRS structure, as well as perhaps other services that we're doing even within the United States that may not qualify as qualified REIT income. Richard Prentiss - Raymond James & Associates: That's been interesting this last quarter actually the towers are now trading at a discount to the typical REIT, which has been a pretty solid floor for the last six years, so it’s a little bit of a disconnect there on growth companies like the Tower company versus where REITs are trading today.

Where most of the work that I’ve been doing over the last six months is ensuring that this is a check-the-box type of an event for us. And that nothing gets in the way of our fundamental operating model. And that’s Jim and my mantra. I mean to the extent that we ever thought it would, we would not go down this path. To-date, we don't think it will. So we’re confident that we’ll be able to generate the kinds of cash flow to be able to reinvest back into the business, as well as dividend out 90% to 100% of the pre-tax income.

Rick, I think you're hitting on something important which is, should we elect to go towards the REIT structure, we think we’ll be a pretty unique opportunity for investors there as to our size, as to our growth and as to our sort of global exposure in certain key markets that most REITs don't offer. So it should be, I think, a really interesting event potentially for investors if we go there. Richard Prentiss - Raymond James & Associates: Plus a large percent of your revenues and EBITDA come from some pretty big-named customers, nice concentrations in some big names.

Your next question comes from David Barden from Bank of America.

You talked about this major customer and the lease extension that you did there. Could you give us just some more color around that? Was that something that was just part of the natural evolution of the contract? What was the tenure of the new transaction? That sort of thing would be kind of helpful. Also second, I'd love to get maybe, Jim, you're color or perspective on whether you think that SkyTerra is real and could become kind of out-of-the-blue this incremental new network. Obviously, they don’t have funding yet, but it's getting a lot more attention. I was wondering if you're seeing anything in the background that might lead you to believe that they’re a serious potential new source of demand.

Sure, David. This is Jim. As to the lease extension, we want to position ourselves as a trusted partner with our customers. And as a result of that, we don't discuss individual, either transactions or extensions. But it's something we do in the normal course of our discussion, which are ongoing with each of our customers. We want to do a few things with them. As I said, we want to line-up strategically our investments. And we have the capacity to do that with what they need. We want to make sure that we extend the relationship as long as we can and don't have any sort of towers of lease terminations that might happen in any given year, et cetera. So those are constant discussions going on. We try to align all the interests and make adjustments to our master lease agreements once it's the right time to do that. Secondly to SkyTerra, it is certainly real. It's got a financial backer and it's got spectra. When we expect to get a commenced lease it depends on four things: One is the spectra being available. The second is not only the investor, but the full funding, as you said, needs to be in place. The third thing is a business plan that other investors can believe in over time and it is credible, which we're anticipating seeing hopefully from SkyTerra, but haven't necessarily yet in complete form. And then finally, you got to have as a carrier OEM and device selections, handsets and suppliers that are willing to support the spectrum you have and the business model that you're talking about. So when those four things are in place, we'll expect commenced leases. In advance of that, we're going to help customers like SkyTerra plan their network in hopes of them being successful.

Are you helping them plan that today?

Again, don't want to talk about specific customers, but someone with spectrum and business plan aspirations and potential funding, I think in any case, you would expect that our people would be making the time to work with them.

And your final question comes from Michael Rollins of Citi Investment.

First, with respect to the cancellations and take-and-pay settlements that you guys highlighted on the revenue bar chart. Can you give us a sense of timing whether all of that impact is fully in the first quarter in terms of the, what would be unusually large in terms of churn that you're experiencing. And then the second thing, if you look out to 2011, what's the normalized level of cancellations American Tower should expect in any given year versus this year where you have, I think, a few transitory things going on?

Michael, this is Tom. Good questions. I mean I think with regards to the cancellations they're principally done in the first quarter. There will be a little bit more in the second quarter and that's why in my remarks I said it will be completed within the first half on the broadcast cancellations. And I think also what I remarked was that you would expect it to get back down in the 1.5% to the 2.0%, which is what we've been experiencing over the last several years. So I think that's what you should expect going forward and even into the latter half of the year. With regards to the other discrete items in the quarter, I think you would expect them to be pretty well spread out throughout the year, a little bit more in the first half of the year and then winding down into the third quarter and into the fourth quarter. But pretty well and evenly spread throughout the year.

There are no further questions. Do you have any closing remarks?

Great, everybody. I really appreciate you being here with us this morning. If you have any follow-on questions, please give us a call. And have a great day. Thanks.

This concludes today's conference call. You may now disconnect.