FiberTower Corporation Q4 2008 Earnings Call Transcript

FiberTower Corporation (FTWR)

Q4 2008 Earnings Call

March 13, 2009 11:30 am ET

Executives

Kurt J. Van Wagenen - Chief Executive Officer, President

Thomas A. Scott - Chief Financial Officer, Senior Vice President

Gus Okwu - Investor Relations, DRG&E

Analysts

Mark DeRussy - Raymond James

Kevin M. Roe - Roe Equity Research

Christopher B. Cook - Zazove Associates

Joseph Stauff - CRT Capital

Presentation

Operator

Welcome to FiberTower’s fourth quarter and full year 2008 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instruction). This conference is being recorded today, Friday, March 13, 2009.

I would now like to turn the conference over to Gus Okwu of DRG&E.

Gus Okwu

Good morning everyone. Thank you for joining us for FiberTower Corporation’s fourth quarter and full year 2008 conference call.

Joining me today on the call are Kurt Van Wagenen, FiberTower’s President and Chief Executive Officer; and Thomas Scott, the company’s Senior Vice President and Chief Financial Officer.

FiberTower issued a press release yesterday with details of the company’s quarterly and full year financial and operating results. This document is available in the Newsroom section of the company’s website at www.fibertower.com. A re-play of today’s call will be available beginning one hour at the completion of this call until 11:59 pm Eastern Time on March 20th. The re-play may be accessed by dialing 303-590-3000, the access code for the replay is 11126390#.

Please note that information reported on this call speaks only as of today, March 13, 2009, and therefore you are advised that time sensitive information may no longer be accurate as of the time of any re-play. Additionally, please note that this conference call is being broadcast live through an internet webcast system that can be accessed on the company’s website at www.fibertower.com.

I should also mention that our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Information about the potential facts that could affect the company’s financial results are available in the Risk Factors as updated in the company’s quarterly SEC filings and in our 2008 Form 10-K which will be filed by March 16, 2009.

The highlights for the quarter and the year were as follows.

Revenue for the fourth quarter of 2008 grew 7% of $14.3 million from the previous quarter. Revenue for the full year grew 81% to $49.2 million from year end 2007. Adjusted EBITDA loss for the fourth quarter was $4.9 million representing a 23% reduction from the previous quarter. Year-over-year adjusted EBITDA loss was reduced by 37% from $53.2 million at December 31, 2007, to $33.6 million at end of the 2008. Year-over-year net loss was reduced 8% from $272.1 million at December 31, 2007, to $249.8 million at end of 2008.

Billing customer locations at the end of the fourth quarter was 6096. Billing sites per sites deployed were 89% at the end of the fourth quarter. Backlog at the end of the year was 1463 customer locations.

Now, I’d like to turn the call over to Kurt Van Wagenen.

Kurt J. Van Wagenen

Good morning everyone. I will begin my comment by focusing on two general areas of the business as follows.

First, I will review the company’s 2008 performance relative to our objectives including assessment of the areas where we made good progress and an identification of our continuing areas for improvement. Second, I will provide a high-level overview of our 2009 growth plans. In this section, I will discuss ways that we are enhancing our core backhaul business and identify several new initiatives that we are pursuing to supplement our business. I will then ask Tom to provide more color around our financials including some of the highlights that Gus just mentioned.

When I joined FiberTower in April of last year, I worked diligently with my management team to put in place a comprehensive plan to solidify and strengthen our operating platform. The goal of this plan was to ensure that by the end of 2008, we would be well prepared both operationally and financially to take advantage of the positive growth trends in the wireless backhaul segment of our industry.

The plan we put in place addressed three primary areas; first, we sought to improve our financial performance by growing revenue, reducing costs, and pursuing profitable investment opportunities; second, we endeavored to enhance our customer experience by improving network quality and turning up our sold customer locations backlog; third, we set out to better leverage our unique assets and capabilities to expand growth opportunities in our current geographic footprint beyond our traditional T1 cell site backhaul business.

The objective in this area was to develop a suite of products and services that more fully leverage assets in our existing market. These assets include 24 GHz and 39 GHz spectrum, recently developed advanced microwave technology, a significant core fiber-based network, and an extensive building list.

I am pleased to report that we made good progress in each of these areas during 2008, and that entering 2009, we are much better positioned operationally to take advantage of the expanded set of growth opportunities that are available to the company.

Specific highlights of our 2008 progress in each area of focus are as follows.

With respect to financial performance, we grew revenue 81% on a year-over-year basis by turning up a significant portion of our backlog and pursuing additional business with both existing and new carrier customers in our market. We realized over $12 million in annualized cost savings by downsizing our workforce to 28% and reducing other non-employee related costs, such as facilities leases, professional fees, and fiber service provider cost.

Our decision to focus on selling into existing markets in 2008 yielded solid investment returns as evidenced by our achieving field EBITDA positive on a consolidated basis starting in July and seeing improvements in those numbers on a consistent basis.

With respect to customer service, we realized vast improvement in network availability for 2008 by decreasing outage minutes on a consolidated basis by approximately 50% over 2007. The network quality results were achieved despite reducing our workforce, almost doubling the size of our network, and turning up over 60% of our backlog.

Our progress related to enhancing customer service is significant because carrier class networks are expected to operate at very high performance levels and carrier customers won’t tolerate anything less.

I fully believe that a primary differentiator of competitive backhaul companies going forward will be customer service as it relates to network quality, on-time service delivery, and the process in which service providers work with carriers to address network issues.

With respect to expanding our product portfolio, we have received significant feedback from our customers regarding their future bandwidth needs. As a result, we launched a comprehensive set of high capacity services to supplement our traditional T1 and lower capacity Ethernet services. We now offer a full suite of backhaul solutions that include DS3 and OC3 services to cell sites; 50, 100, and 150 megabits per second Ethernet services to cell sites with planned scalability to 300 megabits per second and above as well as high capacity TDM Ethernet and wavelength services between building locations on our core fiber network.

As we add new locations, we are striving to use recently developed microwave technology that more cost effectively leverages our 24 GHz spectrum and provides highly scalable bandwidth. We are also providing point-to-point bandwidth services on our core network which consists of over 5500 route miles of fiber and over 300 fiber-fed buildings. FiberTower’s full and flexible suite of bandwidth solutions allows our customers to scale from low capacity to high capacity service and migrate from TDM to Ethernet service on their own timeframe and at individual cell sites in other core network locations.

Overall, we made good progress in these target areas during 2008. However, we are not satisfied with our progress and we know that we have much more to address. Specifically, while we did a good job of turning up our sold customer locations backlog, we did not do nearly as good a job at refurnishing that backlog when you sold orders.

As we have previously stated, we remain cautious with respect to sales and revenue growth in the near term due to the long sales cycles we are experiencing with customers and the uncertain economic environment. Clearly, improving sales performance remains a primary area of focus for us. In addition, we need to do a better job of fully leveraging our unique spectrum assets on a broader geographic basis.

Lastly, while we made good progress in the area of network quality and customer service, we need to raise the bar around performance in this area because, as I previously stated, I believe this will be a key differentiator of companies in our space going forward.

In closing, on our 2008 performance, let me say that the progress we made across multiple fronts enabled the company to achieve the financial target that we set for the year. Specifically, we achieved field EBITDA positive at the front end of our target period. We achieved our internal revenue and adjusted EBITDA objectives, we came in below our capital spending range, we significantly exceeded our year-end cash guidance.

By exceeding plan with respect to year-end cash levels, we were able to begin addressing our capital structure by repurchasing approximately $52 million in par value debt. Tom will provide more detail on these debt transactions, but let me just say that we do not know whether this opportunity will exist for the company going forward, however, we do believe that our cash position continues to provide us with flexibility, open terms of how we pursue investments in our core business, as well as how we view capital market opportunities.

I will now provide an overview of our 2009 growth plans. We focused on solidifying our financial and operating platform in 2008 in an effort to position the company to pursue new growth opportunities in 2009. I will share with you several areas that we are actively pursuing, but let me first emphasize that our core business is providing cell site backhaul solutions to major carriers in the US. We remain fully committed to ensuring this is the cornerstone of our business in 2009, and we continue to believe that we are well positioned to take advantage of the growth opportunities with these customers.

The expansion of our product set in 2008 is a key component of how we will better serve this primary customer base in supporting their current and future backhaul requirement as they launch their next generation networks.

In the first quarter of 2009, we supplemented our sales force with individuals that bring significant carrier experience to FiberTower. The most senior of these is Patrick Coughlin who was hired as our senior vice president of sales and marketing and will lead overall revenue growth efforts for the company. Patrick has extensive industry experience including selling to a broad array of carrier wholesale and enterprise customers. His expertise in the wholesale and enterprise space will help us make progress in two new lines of business, specifically the wholesale in government segments. He also brings expertise selling transport services to a broader array of customers that we believe will allow us to better realize opportunities on our core fiber network.

Earlier this year, we undertook two new initiatives that we believe provide attractive opportunities to complement our core backhaul business, that more fully leverages our assets and capabilities, and that provides attractive longer term opportunities for the company. Specifically, we kicked off efforts to launch a wholesale line of business largely focused on selling to or partnering with fiber-based companies that are seeking to extend their networks by employing a proven fixed wireless solution. We view this as an opportunity to continue to serve our core customer base across a broader geographic footprint in a capital efficient manner.

We are talking with companies that have applications that include both cell site backhaul solutions for carriers as well as fixed wireless extensions to buildings for various other customer segments. We believe that we are a natural microwave partner for many of these companies because we can easily and cost effectively leverage our years of experience, our nationwide spectrum assets, our recently developed advanced technology, and our proven operating platform to provide time to market coverage and cost advantages.

We expect that the opportunities in this line of business will allow us to expand our geographic footprint and better leverage our assets and capabilities including our nationwide spectrum. I will caution, however, that since this is a new area of growth for the business, it may take time to develop and we are not forecasting a material impact on revenue from this new line of business in the near term.

We are also increasing our focus on developing a more significant government line of business. We’ve had a presence in Washington DC for many years as a result of our need to ensure that we comply with requirement related to our spectrum licenses. Joe Sandri, our Senior Vice President of Regulatory and Government Affairs leads these efforts for the company. Joe and his team have had success in negotiating an MSA with the rising government group that identifies FiberTower as their fixed wireless partner on the GSA networks contract.

We are also participating in activities related to the broadband initiative and we believe that our assets and capabilities including our nationwide spectrum give us the ability to assist greatly in our country’s efforts to expand broadband to underserved communities. Let me caution, however, that the government segment opportunities are very uncertain at this point. So, we are not forecasting any material near-term revenue benefit in this area.

Before I turn the call over to Tom, let me make a few quick comments about the performance of our stock.

We are very much aware of the pressure that our stock has been under as well as the market’s concern over our balance sheet. We do not believe that the current stock price reflects secular trends that are driving the backhaul industry or our recent operating performance. We remain committed as a management team to driving good operating results which in turn we believe will provide us with greater flexibility as we continue to evaluate ways to strengthen our balance sheet over the long term.

In summary, we reported a solid fourth quarter as we accomplished a number of our key operating objectives for the year. We continue to believe that the company is well positioned to support the growing demand for bandwidth in our industry. With our improved operating platform, our expanded product portfolio, and our 2009 plans, we will strive to further scale the business and provide options to address our balance sheet. We will continue to do this with a constant focus on maintaining financial and operating discipline.

I will now turn the call over to Tom for a further review of our financial performance

Thomas A. Scott

As we have discussed on the prior calls, we continue to focus on several key financial areas driving revenue, controlling cost, and maintaining cash in order to develop and implement success based investment opportunities.

In the fourth quarter, we experienced significant improvement in cash flow consumption to a decrease in adjusted EBTIDA loss and capital expenditures. The improvement in adjusted EBTIDA was the result of continuing growth in field EBITDA and the full benefit of our cost reductions. We also continue to add customers to existing sites thus targeting our capital spend to drive high margin incremental revenues.

Cash consumption for the fourth quarter was approximately $9.1 million as compared to approximately $13.9 million in the third quarter. This improvement enabled us to maintain a higher cash position than originally forecasted with the company ending 2008 with $154 million in cash and cash equivalents. This enhanced liquidity has positioned us to be able to pursue the attractive investment opportunities Kurt mentioned during his remarks.

I would also like to note that in 2008 the company had material non-cash impairment charges totally $163.1 million. These charges are mostly associated with write-downs in goodwill, FCC licenses, and property and equipments. The write-down of intangible assets was primarily driven by the significant decrease in the company’s enterprise value over the last 12 months. As a consequence of the $54.5 million impairment charge to our FCC licenses, we also recognized a corresponding income tax benefit of $20.2 million related to the decrease of the company’s deferred tax liability.

The company performed its annual impairment test for its FCC licenses as of November 1, 2008. This evaluation was performed utilizing an income-based approach which determined that the carrying value of the company’s licenses was greater than fair market value. Further impairment evaluations of our FCC licenses could lead to additional material impairment charges.

We recognize that our balance sheet dominates a great part of the discussion surrounding our company. As of December 31, 2008, we had $436 million of outstanding debt in a single issue of senior secured convertible notes, all of which mature in November 2012. Subject to certain conditions, beginning on May 15, 2009, we have the option of making any or all of the four semi-annual interest payments due to in 2009 and 2010 with additional notes in lieu of cash. The interest rate applicable to any such interest payment made in additional notes will be 11%. Thereafter, the interest on the notes would be payable only in cash. We currently expect our May 2009 interest payment to be made in additional notes.

In the first quarter of 2009, the company repurchased approximately $52.3 million par value of its convertible senior secured notes. These purchases were made at an average price of approximately $28 per $100 of par value or approximately $14.8 million in cash plus accrued, but unpaid interest of $1.2 million. The repurchase of the notes result in a recognition of the gain on extinguishment of debt in the quarter ended March 31, 2009, of approximately $40.3 million, net of a reduction of approximately $1.2 million in unamortized debt issuance cost.

However, we expect this gain to be offset by the company’s current year losses, in prior year net operating loss carry forwards. This early retirement of debt will result in a reduction of annualized interest expense of approximately $4.7 million. There is no guarantee the company will have this chance again, but we will continue to evaluate our options and weigh them against all of our other investment opportunities.

Given the current economic environment, we monitor payments and collection trends very closely and are fortunate to have a customer base consisting of large carriers. As of this date, we have no issues with payments and collections.

In 2009, we are not giving formal guidance given the uncertain economic environment, but do plan to continue investing capital in compelling investment opportunities. We expect capital spending to range between $25 million to $40 million with less than $10 million expected to be spent on maintaining and upgrading our network to ensure we’re able to sustain our fine network performance.

In summary, we will continue to assess and to address our overall leverage and evaluate all opportunities which present themselves. FiberTower is positioned to take advantage of the overall market opportunity and has the cash resources needed to continue to execute it.

Now, let me turn the call back to Kurt for closing comments and Q&A.

Kurt J. Van Wagenen

As discussed, we had both a solid fourth quarter and a good year on an operating basis. We remain focused on executing on our business plan and driving scale while we evaluate and pursue new ways to grow shareholder value. Now, let me turn the call back to the operator for questions and answers.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Mark DeRussy - Raymond James.

Mark DeRussy - Raymond James

Kurt, as a CEO, on of your jobs is to allocate capital, and in the fourth quarter you really throttled back on investing in the business and reduced your capital structure, and I just want to know if that was more of a tactical flash opportunistic decision or is it a more strategic decision? Are we at a level of site as in the fourth quarter that we should extrapolate into 2009 and are you able to potentially continue to repurchase your converts in the marketplace?

Kurt J. Van Wagenen

In terms of capital allocation, it’s very much a tactical decision. It’s based on our interaction with customers. We continue to believe that we will be adding sites in 2009, but very much on a success basis with a very disciplined rate of return model surrounding the addition of new site adds. As we’ve discussed on previous calls, our goal in early 2008 was to complete the build-out of our markets and then sell aggressively into those markets to drive those markets EBITDA positive. We accomplished those goals. We also thought to turn up our sold customer locations backlog to drive revenue per site growth, and again, we accomplished a significant portion of that by turning up a little over 60% of our sold customer backlog.

Going into 2009 we continue to look for attractive investment opportunities as both Tom and I mentioned in our remarks, and we do expect to invest in the network and grow the network, both tactically and strategically with these new initiatives that we’re pursuing. At the same time, as we mentioned, we’re opportunistic about capital market opportunities and try to take advantage of those in the first quarter. So, we’ll continue to monitor all opportunities to invest our capital and to use our cash wisely, but I do expect that a portion of that will be used towards building new sites on a going-forward basis on a success basis in 2009.

Mark DeRussy - Raymond James

Then as a followup to that, how much of your capital budget next year is committed towards these new revenue initiatives that you talked about; that’s part A, and then part B, on the wholesale side, would you contemplate doing stuff outside of your existing footprint; in other words, you’ve got a nationwide spectrum portfolio; could you potentially leverage that?

Kurt J. Van Wagenen

In terms of your first question around committed CapEx dollars to the two new lines of business we’re pursuing, the hotel line of business and the government line of business; we don’t have committed CapEx dollars per se. As Tom indicated, we currently are expecting a capital spending range in the $25 million to $40 million for 2009. We will look for success-based opportunities, both in our core business, stuff like that, core business with our large carrier customers, as well as the hotel and government lines of business, but at this point we have no specifically committed dollars to those new lines of business.

In terms of wholesale outside of our footprint to leverage us our nationwide spectrum assets, absolutely. That is absolutely one of the strategic reasons we are pursing the wholesale opportunity that we believe over the long term could be pretty significant for us both in terms of revenue growth as well as leveraging our spectrum assets.

We’ve gotten questions on a repeated basis in the past around when we’re going to expand outside our existing 13 markets, and what’s interesting about it is there has been few questions about how we’re going to do that what I’m trying to address is both of those questions on this call.

Number one, we are going to do it and we’re doing it now; and number two, how we’re going to do that; we’re going to do that largely with a wholesale model and in partnership with largely we believe fiber players who are looking to extend their footprints and we believe the microwave extension off of their fiber networks is a good opportunity to do that cost effectively and quickly. So, at this point we’re trying to pick the geographic constraints off of our business so that we can better leverage our nationwide spectrum assets and take advantage of growth opportunities outside of our regions.

Mark DeRussy - Raymond James

It’s good to see that you guys are going to in fact try to leverage that portfolio that you’ve got. Just to put a finer point on the CapEx guidance; I know you said you’re not committed to investing in these new initiatives, but within that range of guidance have you contemplated potentially investing in these new lines of business; just trying to understand if some opportunities present themselves and things work out that we might see a pickup in the CapEx.

Kurt J. Van Wagenen

We have not specifically broken out on a CapEx per line of business, but we’re going to be very opportunistic about taking advantage of opportunities in all three of these lines of business that we believe will allow us to grow shareholder value.

Operator

Our next question is from the line of Kevin Roe - Roe Equity Research.

Kevin M. Roe - Roe Equity Research

Last week Clearwire touted using their own backhaul. Can you update us on the ability to retain the old Dome business and try to grow that to the new Clear business, and I understand the sensitivity around guidance given all the uncertainties, but is it your expectation to EBITDA positive for 2009 and regarding your cash balance; is there a minimum cash balance you’re looking to maintain through the year or at year end, or I guess another way to look at it is what do you expect your cash to be by the end of the year?

Kurt J. Van Wagenen

Let me address the first part of your question Kevin, and then I’ll let Tom address cash balance and EBITDA positive guidance. In terms of Clearwire; many folks on this call are aware Dome is a pretty significant customer, has been a pretty significant customer for FiberTower for some period of time. With the completion of the Clearwire Dome transaction, Clearwire is now a pretty significant customer for FiberTower, and being a significant customer, we engage with these customers, all of our major customers, on a regular basis and we’re constantly in dialogue with these customers about how we can better meet and support their growth objectives going forward.

What we take out of the Clearwire discussions and their earnings call is that they have very very aggressive growth targets and their growth targets, many of them, are in markets that we have substantial network, and we believe we’re well positioned to help them meet their growth targets in a cost effective manner and also help them meet this from a time a market perspective. So, we’re going to continue to support this customer as we have Dome in the past and look for opportunities to grow with that customer.

Thomas A. Scott

Kevin, to your other two questions, I’ll try and link them together. On the EBITDA positive question, the management team here is very focused on continuing to decrease the EBITDA loss in the business and drive towards EBITDA positive. If we take a look at our fourth quarter run rate we exited the year with an approximately $20 million annualized EBITDA loss and believe that we have the business in front of us to continue chipping away at that through the course of the year to put us in that positive trajectory, but we’re not putting out a formal guidance in terms of when we can hit that.

With respect to minimum cash balance, we’re not putting a target this time, but I think what I would guide you to there is if you take a look at where we ended the year, the fact that we’re on an annualized EBITDA run rate loss of that $20 million in our capital guidance, we believe that we’re going to exit 2009 with pretty significant cash resources to enable us to be flexible going into 2010.

Kevin M. Roe - Roe Equity Research

Regarding the EBITDA positive commentary, is it fair to say that on a quarterly basis, you’ll exit 2009 or your expectations are you’ll exit 2009 EBITDA positive at the least?

Thomas A. Scott

We’re not putting that statement out, but what we’re saying that we believe that we’re going to significantly cut the losses throughout the course of the year.

Kevin M. Roe - Roe Equity Research

But not necessarily; you’re not willing to commit to it, it’s actually on either a monthly basis run rate or quarterly basis it actually turning over; so it’s doesn’t have to be for the full year EBITDA positive, but I’m just wondering if you expect to make that shift from negative to positive at some point?

Thomas A. Scott

We’re not making that commitment for 2009 at this point; that is correct.

Operator

Our next question is from the line of Chris Cook - Zazove Associates.

Christopher B. Cook - Zazove Associates

Just to make sure I understand the repurchase of $52.3 million of converts; par in that calculation, I think you said face amount, par in that calculation is 100 or 106.

Kurt J. Van Wagenen

100 in that calculation.

Christopher B. Cook - Zazove Associates

So, you have essentially $350 million left outstanding at 100?

Kurt J. Van Wagenen

That is correct. There is approximately $4 million in accretion on the notes that we repurchased in the quarter.

Operator

Our next question is a followup question from the line of Mark DeRussy - Raymond James.

Mark DeRussy - Raymond James

Just a basic sales process. Looking at the added customer locations, looking at the change in backlog versus last summer, it looks like things were fairly sluggish. Could you illuminate us on the sales pipeline? Are things just taking longer? Has there been an extension of the sales cycle? Are carriers pausing here? We’ve been at about 3.81 per carrier per site for some time now; can you just give us some color as to what the carriers are telling you?

Kurt J. Van Wagenen

As you know last year, going into the year, we had a pretty significant sold customers location backlog and we took advantage of that to drive revenue growth in 2008 and turned up a significant portion of that backlog. While we worked with our carrier customers to understand their longer-term bandwidth needs, what we’re hearing from the customers are that their longer-term bandwidth needs are really high-capacity needs at these cell sites, which include, for customers who still are using PDM technology, include the F3s and above, and for folks who are switching over to Ethernet, 50 megabits and above scaling up to 300 megabits as I mentioned in my remarks.

So, there’s a real need for all the major carriers, as they roll out their advanced, their next-gen networks, to get high-capacity backhaul solutions to the cell sites. We focused in 2008 on creating a full product portfolio that meets those high-capacity needs for our carrier customers.

In terms of the sales cycle and what we’re hearing, it is a longer sale cycle than the LEC T1 replacement model that you’ve seen with FiberTower in the past where we’re turning up T1s that typically replace LEC T1s. The high capacity service and sales cycle for many of these big carriers is an RFP process and what we’re finding is that it tends to be quite a bit longer than just the T1 decisions that we’ve seen in the past on a cell site basis with these carriers.

Operator

Our next question is from the line of Joseph Stauff - CRT Capital.

Joseph Stauff - CRT Capital

One operational question. With respect to your ability to allocate capital on a success base criteria, can you just help me understand the visibility that you have and how you determine whether or not the allocated capital that you’re going to have above from your maintenance is, is in fact success based. And then secondarily to that is your ability to manage your cost structure from here; are you effectively limited with respect to what you can do given your actions in 2008?

Kurt J. Van Wagenen

Let me address the first part of your question and then I’ll ask Tom to address some of the cost continuing reduction opportunities that we have for the business. So our success-based capital investment model in our investing 13 markets is based on a business case process with pretty strict return on requirements, and it’s a fairly straightforward process at this point having years of experience at building out these networks in various markets and understanding what the key cost drivers are, we have a pretty good sense of the cost to either add new sites or add new customers adding distinct sites, and once we get an indication typically either committed forecast or sold orders from a customer, we understand what the revenue inputs are for that business, we understand what the cost drivers are; so it’s really a kind of a map that tries to make sure we’re meeting our rate of return and driving that kind of margins over the long term that we need.

Joseph Stauff - CRT Capital

Certainly the IRR announces, it’s a little odd if anything, and just planning those numbers, is there a certain period of time; just trying to delve down into the unit of economics; is there a period of time in terms of deployment capital, where you’re saying it is at least breakeven on a profitability aspect; is it profitable once the capital is committed or does it take several years to get to that point?

Kurt J. Van Wagenen

We look at both IRR and we look at payback on invested capital and our capital investment, the paybacks are not immediate; they do take some period of time, and depending on the sites, the customers, the growth opportunity associated with the project we’re looking at, we’re somewhat flexible in terms of payback at IRR, but we’re pretty disciplined in terms of the range of IRR and payback that we’re willing to accept.

Thomas A. Scott

Kurt, one thing I would add onto your statement there is while the projects take time to pay back the capital we target investment opportunities that create positive operating cash flow pretty much right out of the gate. So, we’re looking to get a decent amount of revenue off from the sites that we invest in today, where we’re hitting further EBITDA dilution for the business.

Joseph Stauff - CRT Capital

How about the cost?

Thomas A. Scott

Part two of your question on the cost structure, I think the management team here looks at really cost control as a process as opposed to an event. We went through several different processes last year that resulted in in excess of $12 million in annualized savings, which really saw us show up in a lot of EBITDA improvement that we saw throughout the course of the year. That process continues in 2009. We don’t believe that there are opportunities of the size that we’re able to achieve in 2008, but this is something that the management team will continue to diligently push away on to fund other ways to leverage what we have here.

Operator

Our next question is a followup question from the line of Kevin Roe - Roe Equity Research.

Kevin Roe - Roe Equity Research

Can you bring us up to date on the competitive landscape; my understanding was late last year or for much of last year, cable competition in certain markets was pretty aggressive, I guess Cox in Northern Virginia and Bright House in one or two markets. How has that trended in the New Year, any update will be great.

Kurt J. Van Wagenen

We’ve seen the same kind of competitive inroads that you’ve seen. We’ve seen cable companies interested in taking advantage of some of the cell site backhaul opportunities. We’ve seen in some of the regional fiber service providers taking a look at trying to pursue some of these opportunities as well. As you know, building of high-capacity backhaul networks is still pretty much in its infancy.

So, we’re not seeing a lot of direct competitive impact in the markets that we serve, but we are certainly seeing some companies more aggressive than others in trying to pursue the opportunities. It is difficult for us to assess the staying power of some of these buyers.

We certainly understand the cost and the challenges building up these networks and doing it profitably, and I’ve got to say it’s taken this company several years to truly understand how to do this and where to do this profitably and successfully, and I think others will face some of those same challenges that we face, but certainly we’ve seen some inroads from those major groups of cable companies and the fiber service providers, and we also know that our major carriers, several of them, continue to express interest in self builds as well.

Kevin Roe - Roe Equity Research

As far as in the New Year, has there been any material change from any of the major competitors; has anyone done anything new and aggressive in the New Year on pricing for instance versus last year?

Kurt J. Van Wagenen

It’s still very early in the New Year, but I can’t recall anything specific since the start of 2009 that’s any different than the trends that we started to see in 2008.

Operator

There are no further questions in the queue at this time. I would like to turn it back to management for any closing comments.

Kurt J. Van Wagenen

Thank you again for participating in today’s call. We hope you will join us again for our next conference call to discuss our first quarter 2009 results. I’ll turn it back to Gus.

Gus Okwu

Thanks for participating on the call today. As a reminder, this call will be available for replay beginning an hour after the call has ended and may be accessed until 11:59 pm Eastern Time on March 13, 2009, dialing 1303 590 3000 can access the replay, and the access code for the replay is 11126390#.

Operator

Ladies and gentlemen, this concludes the FiberTower fourth quarter and full year 2008 earnings call. Thank you for your participation. You may now disconnect.

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