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Crown Castle International (NYSE:CCI)

Q2 2011 Earnings Call

July 28, 2011 10:30 am ET

Executives

W. Moreland - Chief Executive Officer, President and Director

Jay Brown - Chief Financial Officer, Senior Vice President and Treasurer

Fiona McKone - Vice President of Finance

Analysts

Gray Powell - Wells Fargo Securities, LLC

Jonathan Schildkraut - Evercore Partners Inc.

Philip Cusick - JP Morgan Chase & Co

Batya Levi - UBS Investment Bank

James Ratcliffe - Barclays Capital

Jonathan Atkin - RBC Capital Markets, LLC

Michael Rollins - Citigroup Inc

Richard Prentiss - Raymond James & Associates, Inc.

Simon Flannery - Morgan Stanley

Clayton Moran - The Benchmark Company, LLC

David Barden

Brett Feldman - Deutsche Bank AG

Jason Armstrong - Goldman Sachs Group Inc.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Crown Castle International Second Quarter Earnings Call. [Operator Instructions] This conference is being recorded today, July 28, 2011. I would now like to turn the conference over to Fiona McKone, Vice President of Finance and Investor Relations. Please go ahead.

Fiona McKone

Thank you. Good morning, everyone, and thank you all for joining us as we review our second quarter 2011 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 Investors section of our website at crowncastle.com, which we will discuss throughout the call this morning.

This conference call will contain forward-looking statements and information based on management's current expectations. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to have been correct.

Such forward-looking statements are subject to certain risks, uncertainties and assumptions. Information about the potential factors that could affect the company's financial results is available in the press release and in the Risk Factor sections of the company's filings with the SEC. Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. Our statements are made as of today, July 28, 2011, and we assume no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

In addition, today's call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA, recurring cash flow and recurring cash flow per share. Tables reconciling such non-GAAP financial measures are available under the Investors section of the company's website at crowncastle.com.

With that, I'll turn the call over to Jay.

Jay Brown

Thanks, Fiona, and good morning, everyone. As you've seen from our press release and as outlined on Slide 3, we had an excellent second quarter and are excited about the ongoing deployment of wireless data networks. The strong year-to-date results and our expectations for the second half of the year allow us to meaningfully increase our outlook for site rental revenue, site rental gross margin, adjusted EBITDA and recurring cash flow outlook for the full year 2011.

Also, since the end of the first quarter, we have invested over $180 million purchasing our common shares, which we believe will enhance long-term recurring cash flow per share.

Turning to Slide 4, I'd like to highlight a few items from the second quarter. During the second quarter, we generated site rental revenue of $457 million, up 12% from the second quarter of 2010. Site rental gross margin, defined as site rental revenues less the cost of operations, was $336 million, up 14% from the second quarter of 2010.

Adjusted EBITDA for the second quarter of 2011 was $320 million, up 14% from the second quarter of 2010, with an incremental margin of 90%, reflecting our continued focus on managing our costs. Recurring cash flow, defined as adjusted EBITDA less interest expense, less sustaining capital expenditures, was $189 million, up 22% from the second quarter of 2010. And recurring cash flow per share was $0.66, also up 22% from the second quarter of 2010.

It is important to note that these growth rates were achieved almost entirely through organic growth on assets we owned as of April 1, 2010 as growth from acquisitions was negligible. Site rental revenue and adjusted EBITDA benefited by $1.6 million and $1 million, respectively, from a stronger Australian dollar than assumed in our outlook for the second quarter. Further, there were no significant nonrecurring items in the second quarter.

Turning to investments and liquidity as shown on Slide 6. During the second quarter, we purchased approximately 3.6 million of our common shares and an additional 700,000 shares in July. Year-to-date, we have spent $220 million to purchase our common shares. Since 2003, we have spent $2.6 billion to purchase approximately 98 million of our common shares and potential shares, representing 1/3 of the company's shares and potential shares at an average price of about $26.50 per share. Further, in July, we used $6 million of cash to purchase a portion of our 6 1/4 preferred shares.

Also during the second quarter, we spent $64 million on capital expenditures. These capital expenditures include $30 million on our land lease purchase program. As of today, we own or control for more than 20 years the land beneath our towers, representing approximately 73% of our U.S. gross margin, up from less than 40% in January 2007 when we completed our acquisition of Global Signal.

Further, the average term remaining on our ground leases is approximately 34 years. We continue to focus a significant amount of effort on purchasing land beneath our towers and extending our ground leases. We believe this activity has resulted in the most secured land position in the industry based on land ownership and final ground lease expiration. This is an important effort, because it provides a long-term benefit as it protects our margins and controls our largest operating expense.

During 2011, we expect to close approximately 1,700 land transactions. Based on our pipeline of yields, we would expect about 1/3 of these transactions to be purchases. I believe our current level of spend on this activity is likely to continue for the foreseeable future.

Of the remaining capital expenditures, we spent $5 million on sustaining capital expenditures in the quarter and $26 million on revenue-generating capital expenditures. The latter consisting of $19 million on existing sites and $10 million on the construction of new sites, including distributed and tenant system deployments. Additionally, during the second quarter, we increased our revolving credit facility by $50 million to $450 million, of which $220 million is currently drawn. We ended the second quarter of 2011 with total net debt to last quarter annualized adjusted EBITDA of 5.3x, the lowest in the company's history, with no meaningful maturities in the next 3 years, and adjusted EBITDA to cash interest expense of 3.2x.

Moving to the outlook for the third quarter and full year 2011 as shown on Slides 7 and 8, we expect site rental revenue of between $461 million and $466 million, and adjusted EBITDA of between $319 million and $324 million for the third quarter 2011.

Turning to the full year 2011 outlook, based on our first half results and our visibility into near-term leasing activity, we have meaningfully increased our full year 2011 outlook from what we provided in April, increasing site rental revenue by $20 million, site rental gross margin by $17 million, adjusted EBITDA by $28 million and recurring cash flow by $27 million. This increase in our outlook for adjusted EBITDA is driven largely by the following items: Increasing our expectation of the leasing activity by approximately 15% to 20% for the balance of the year; secondly, higher run rate site rental revenues as we exited the second quarter; third, increasing our expectation of the contribution from our services business by approximately $8 million for the full year; and finally, the expected benefit of favorable foreign exchange rates in our Australian business from our previous outlook.

We now expect site rental revenue growth in 2011 of approximately 9%, comprised of approximately 4% growth in the existing base of business and 5% growth from the expected additional tenant equipment to be added to our sites and recurring cash flow growth of 15% year-over-year.

As shown on Slide 9, we expect to generate approximately $380 million of recurring cash flow for the balance of the year and spend approximately $160 million on capital expenditures related to the purchases of land beneath our towers, the addition of tenants to our towers and the construction of new sites including distributed antenna systems. The remaining portion of the recurring cash flow, ignoring our financing capacity, represents approximately $220 million of cash flow for the balance of 2011 that we could invest in activities related to our core business, including reducing common shares outstanding, as well as acquisitions.

Consistent with our past practice, our 2011 outlook does not include the benefit from expected future investments such as share purchases, tower acquisition, new site construction and land purchases that we believe will maximize long-term recurring cash flow, which, again, we believe is the most important long-term measure of shareholder value today.

In summary, we had an excellent second quarter as we continue to execute around our core business.

And with that, I'm happy to turn the call over to Ben.

W. Moreland

Thanks, Jay, and good morning to all of you. And thanks for joining us on the call this morning. As Jay just mentioned, we had an excellent second quarter, exceeding the high end of our outlook for site rental revenue, site rental gross margin, adjusted EBITDA and recurring cash flow, which, together, with our expectations for the second half of the year, allowed us to significantly increase guidance for the full year 2011.

AT&T and Verizon continued their aggressive rollout of LTE, and as Sprint announced yesterday, we are very pleased to be partnering with them as they deploy their multiyear Network Vision plans. As you might have seen, Sprint announced a spectrum hosting agreement with LightSquared this morning. Crown Castle has amended our contracts with Sprint to include provisions, which would allow Sprint to host LightSquared spectrum on their new Network Vision equipment for an adjustment in rent.

As the largest single provider of sites to Sprint, we are well-positioned to capture a greater share of the economics of this build relative to our peers. We are pleased to play a significant role in facilitating this efficient approach to network deployment that should improve the prospects for a successful launch, while fairly compensating Crown Castle for its valuable assets. With all 3 of the largest U.S. carriers actively engaged in network upgrades, we believe we are entering a period of increased revenue growth associated with these deployments. In addition, our services business continues to perform very well, demonstrating our ability to execute for customers and their willingness to give us an increasing amount of this work.

Consistent with our longstanding practice and approach to capital allocation, we invested over $180 million since April 1 in our own common stock, which in our judgment, was the best investment available to us during this period.

Before I turn the call over to questions, I'd like to make a few comments about the trends in the wireless environment, from which we are benefiting. Smartphones continue to drive wireless data revenue, and according to Nielsen's May survey of mobile consumers in the U.S., 38% of the population base now own smartphones compared to 23% at the end of 2009, and 55% of those who purchased a new handset in the last 3 months reported buying a smartphone instead of a feature phone, and that's up from 34% just a year ago. In fact, smartphone penetration is expected to surpass 50% in 2012. Similarly, the amount of data the average smartphone user consumes per month has grown by 89% from 230 megabytes in the first quarter of 2010 to 435 megabytes in the first quarter of 2011.

A look at the distribution of data consumption is even more revealing. Data usage for the top 10% of smartphone users has doubled, while the top 1% has grown their usage by 2.5x from 1.8 gigabytes in the first quarter of 2010 to over 4.6 gigabytes in the first quarter of 2011. Consumers with iPhone and android smartphones consumed the most data, 582 megabytes per month for the average android user and 492 megabytes for the average iPhone user, with the android market -- android operating system now ranking as the top system, with 38% of smartphone subscribers, while Apple, in the #2 position, with 27% of the smartphone market.

The continued penetration of smartphones and other data-enabled devices, coupled with the ever-increasing appetite for and consumption of data requires the carriers to increase the density of their network and upgrade their existing sites. This is a trend that has been ongoing for a number of years.

As the largest owner of sites in the top 100 market, we are benefiting from this trend, which is continuing unabated. The impact of the previous statistics is evident in the U.S. wireless market as data services grew 23% year-over-year to reach $15.4 billion in the first quarter of 2011. In fact, data revenues are expected to exceed voice revenues in the U.S. market in 2013.

As can be seen in the wireless carriers’ results, the demand for data services and the resulting revenue and margin growth is yielding high incremental returns on the investment of capital required to provision additional data capacity. We are clearly a beneficiary of this virtuous cycle of investment.

Looking out beyond the current deployment activity, there is a significant amount of spectrum available to be deployed in the hands of companies like Dish, Clearwire and LightSquared. We believe this spectrum has the most value in the more densely populated areas and having the largest portfolio of towers in the most populated areas in the U.S., we are uniquely positioned to facilitate the future deployment of this spectrum.

Before I wrap up, one quick comment on the Sprint press release that many of you have seen from yesterday. We are obviously thrilled with the relationship and the continuing partnership to assist them in building out their Network Vision plan. Some of you have already asked about the specific financial terms of the contract, and as has been our practice, we won't comment beyond what Sprint put in their press release yesterday. However, I would say, this contract establishes the price and the process by which they can access our sites but gives us no certainty of future amendment activity.

So to wrap up, I'd like to reiterate a few points from this morning. We are very pleased with our results, and I believe they demonstrate the quality of our assets, combined with our ability to execute for our customers. As always, we remain disciplined and focused on maximizing long-term recurring cash flow per share through opportunistic investments such as in the most recent quarter, buying back our own common stock. And at a macro level, we are incredibly excited about the trends we are seeing in wireless and our position to capture value from them.

We are focused on the U.S. market, because it is the largest market in the world, with revenues estimated to be over $186 billion this year, and still growing 7% year-over-year. Further, smartphone penetration is only now approaching 40%, suggesting a long runway of profitable investment for wireless carriers, and by extension, additional demand for our sites in the coming years. We have the best located assets in the industry and significantly more towers in the top 100 markets of the U.S. than any of our peers. Our customer surveys continue to indicate that Crown Castle delivers the highest level of customer satisfaction in the industry, something we remain very proud of.

So in closing, we had an excellent second quarter and look forward to finishing the year strong.

With that, operator, we'd be pleased to turn the call over for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley

Jay, a question on the balance sheet. Strong free cash generation, you noted the leverage was down to 5.3, very impressive. You've got a lot more cash here – cash flow coming in the rest of the year. How are you thinking about your medium-term leverage targets and the ability to maybe use some financing here to get a little bit more aggressive on the buybacks versus balancing the kind of the potential weak conversion down the road and having a conservative capital structure?

Jay Brown

Sure. Thanks for the question, Simon. We haven't changed our target of thinking about the balance sheet in 4x to 6x of debt to adjusted EBITDA level, and we're approaching sort of a midpoint of that, which is, I said in the past, I would expect on most days, that's where we're going to operate the company in and around that level. As we've delevered, I think, what we've done is created some opportunity for us to be opportunistic as maybe an acquisition or other opportunity comes along. And we wouldn't necessarily be opposed to seeing the leverage tick up for the right transaction. But again, I think, most of the time, you're going to see us operate the business in and around 5x. And the second part of that question really leads to how much cash flow do we have available in the business? And in a normal year, we're growing recurring cash flow or adjusted EBITDA, if you wan to think about it that way, in the neighborhood of $100 million per year. So if we were to maintain in the neighborhood of 5x the leverage, that would give us the capacity of an additional $500 million of borrowing in addition to the cash flow that we're producing in the business within the neighborhood of $750 million. So there's meaningful amounts of flexibility that we have at this current level of leverage. The other part of your question, as we think longer term about REIT conversion, today, we have about $2 billion of net operating losses, and I would expect that we would exhaust those before converting to a REIT, and that would put us somewhere in the neighborhood of 2015 or 2016 before we would expect to make that REIT conversion. And I do think there is probably value at that point in time to having an investment grade credit rating once we're in the area of converting to a REIT. And that would suggest a leverage level that may be slightly below that 5x target. So we'll just have to look at it over time, and continue to manage the balance sheet appropriately, and I would just -- I would indicate that we'll continue to do that with an appropriate level of flexibility. And I think that's really what we've -- what I'm trying to point out by saying that we are down to the lowest level in the company's history. I think we're at a place now where we do have some flexibility, maybe in past periods, where we didn't have that flexibility.

Operator

Our next question comes from the line of Phil Cusick with JPMorgan.

Philip Cusick - JP Morgan Chase & Co

I understand that you don't talk about customers, but can you give people a little bit of comfort that the network-sharing deal sort of protects you for the long-term? And give us an idea of where the pricing for that comes in versus a sort of a regular amendment you would've gotten anyway with Sprint because of their Network Vision plan, and versus sort of a new tenant?

W. Moreland

Yes, Phil, I appreciate the question and know full well why you would want to understand that. But here's the situation. We are very comfortable with the transaction that we've struck. As Sprint alluded to, we think, it's fair for both sides. It provides a very efficient way for, in this example, LightSquared to be deployed across the Network Vision equipment, at the same time, compensating us appropriately for the rights that they're going to gain by doing that. I'm not going to go into really any of the economics, and if for no other reason, let me impress upon you one particular reason. I don't necessarily believe this is the last of these we'll see. We may see more opportunity with Sprint or we may see other opportunities to host other parties’ spectrum across existing networks from others of our customers. And I just don't think it's in our interests or frankly, in our customers’ interest for us to be talking about the economics. We're very pleased with the transaction. It's implied in our guidance both for the rest of this year. And then obviously as we look forward to next year, we'll roll it in as we see activity and then make our judgment for next year and the years to come. But that's really where we're going to come out on that.

Philip Cusick - JP Morgan Chase & Co

Maybe if I can press my luck a little bit, and follow up on what you just said, can we be assured that there's incremental revenue to be had for each additional entity that would be hosted?

W. Moreland

Yes.

Operator

Our next question comes from the line of James Ratcliffe with Barclays Capital.

James Ratcliffe - Barclays Capital

Just 2 if I could, quickly. Can you tell us if the new deal with Sprint or for that matter, LightSquared, is any part of the increase in the second half, revenue or EBITDA guidance? And secondly, regarding capital structure and the like, clearly buybacks and you accelerated significantly this quarter, any thoughts around a dividend potentially in advance of having to issue one as part of a REIT structure?

Jay Brown

James, thanks for the question. With regards to your first question around the increase in our outlook, I think as we talked about on the first quarter call, we didn't expect to see in calendar year 2011 much activity from Sprint. We thought that most of the Network Vision activity would be a really late 2011 event, potentially not even see that until the beginning of 2012. And as I mentioned in my comments, we've increased the amount for activity of leasing that we would expect to see in the second half of this year by about 15% to 20%, and a big portion of that would be related to what we're seeing from Sprint. So it absolutely is embedded in some of that, but it would all be -- basically, all of it would be forward-looking based on the activity that they talked about it this morning on their call, as well as the activity that we're seeing from the work that we're doing with them, currently. The second part of your question, in terms of accelerating a dividend ahead of the REIT conversion, I think, we've been really clear over a long period of time that there's a certain level of CapEx that we would expect to spend in the business around the core activities of adding additional tenants to the tower, as well as things like distributed antenna systems that we've done and the land purchase program. And beyond that, that excess cash flow, to the extent that they are not acquisitions for us to purchase, we would expect to return that capital to shareholders. And we've been committed to returning that capital to shareholders over a very long period of time. That's why we can think about it as investing or having returned to shareholders $2.6 billion since 2003. So I think that's an activity that we're committed to. We do look carefully and have looked carefully over a long period of time at the trade-offs between paying a dividend and buying back shares. And I would imagine on an ongoing basis, we'll continue to look at that and study that, and make the decision at future dates as to what the appropriate thing to do was. At this point though, we've decided that as for the last quarter that share purchases were the appropriate way to returning capital to shareholders.

Operator

Our next question comes from the line of David Barden with Bank of America Merrill Lynch.

David Barden

Two, maybe if I could. Just a follow-up, again on the Sprint situation, Jay. Maybe if you could kind of give us a sense. You said that some of the second half guidance benefit is coming from accelerated leasing. Is that Sprint? Or is it other carriers? And is that related to cash income? Or simply changes in the life of the agreement, which are giving us a non-cash benefit? If you could kind of elaborate on the cash versus non-cash and how substantive Sprint is in that second half number, that would be helpful. And then, I guess, the second question maybe is for Ben, which is that, obviously, for the last couple months, we've all been looking in the rearview mirror, and there's been a lot of handwringing about the AT&T, T-Mobile deal. And I think that we're -- people are starting to get comfortable that it could actually yield more benefits than risks in the short-term. But as we look out into the headlights, we've got Charlie Ergen consolidating spectrum in the S band. We've got the cable companies reportedly doing more strategic thinking around their business, the public safety, both the Republican and Democratic proposals look to be funding public safety networks. Is there any kind of bubbling up in the surface that you're seeing of the new demand conversations that you weren’t having before; anything tangible about the new opportunities that as we look into '12 and '13?

Jay Brown

Dave, on your first question, there's a litany of things that are running through the revenue line there that helped us increase our outlook. I would mention all of them, because, I think they're relevant, if you're looking at site rental revenue. And the 3 components would be the benefit that we've seen in FX. Secondly, where we saw run rate revenues. I mentioned the FX adjustment in the second quarter to bring you down to where revenues would have been on a like-for-like basis relative to the outlook, and we came in even above, slightly above our outlook for the second quarter, even adjusting for FX. So that run rate, obviously, flows through the balance of the year, which helped us increase revenues. And then, the leasing activity of the increase of 15% to 20%. As Ben mentioned, specific to Sprint, the arrangement that we have with them gives certainties to both parties around the price and process at which they deploy their new Network Vision equipment. But it doesn't give us certainty of activity in terms of what we will actually see related to that. So I think you will see the revenues follow as the activity follows. And that's embedded in that 15% to 20% increase that we're expecting in actual leasing activity. And therein lies the increase for the outlook for the balance of the year.

David Barden

So just to -- and I apologize, Ben. If I could just quickly follow up on that, Jay. So that is to say that this is actually new business that you're doing with Sprint rather than some part of this agreement being lease extensions, which are giving you some accounting benefit, which is part of the guidance increase.

Jay Brown

Yes, the guidance increase that we talked about would be related to our activity base, the work that we're doing for all of the carriers. And we're culling out Sprint. There's actually increases from more than just Sprint, but in trying to answer your question, that's embedded in that 15% to 20%.

W. Moreland

Dave, I guess, what -- the second part of your question around basically spectrum, that's been aggregated and is idle, I'll park that for just a moment, because I want to make sure we hit a theme of this call that I wan to impress upon everyone, and that it is our pleasure, frankly, that we're seeing in 3 national carriers being very active in upgrading their networks. With Sprint's announcements and their commitment to this Network Vision plan, and what that suggests in terms of upgrades and activity, improving their network, providing additional capacity to their customers, and now, facilitating a very efficient way to launch LightSquared, should they choose to proceed on that basis. We are extremely excited that you're going to see all 3 national carriers be very aggressive in upgrading capacity, and that is a marked change for our business, at least, from my chair. So I just want to make sure we've got that point across this morning. Now going forward, I think, we've all witnessed a lot of spectrum being aggregated and accumulated, and some of it deployed and some of it not, over time. I think, we, along with most on this call, sort of wait with baited breath to see how some of that spectrum attempts to come to the market. I think, in the example this morning, with Sprint and the hosting arrangement, it provides a very interesting roadmap for an efficient way to launch spectrum without a completely new greenfield build. And as I've suggested, we'll be very supportive of that and facilitate that in a way that we think benefits both parties. But beyond that, I can't identify for you a specific additional spectrum build that's coming to the market in any particular timeline. But I remain very optimistic that given the consumer demand that we've seen and the capacity requirements, and as that continues to grow, that this spectrum will get put to use in some form or fashion, in some business plan, that maybe we haven't contemplated yet. And certainly, our assets would play a material role in facilitating that coming to the market.

Operator

Our next question comes from the line of Brett Feldman with Deutsche Bank.

Brett Feldman - Deutsche Bank AG

Just 2 questions. I know you can only get into so many details about the agreement with Sprint. But Sprint did indicate in their LightSquared announcement this morning that there are conditions that could cause the agreement to be terminated. So I'm just curious, if that were to happen and they just really can't get this off the ground, would you actually owe any refunds to Sprint for any work you might have done already?

Jay Brown

No.

Brett Feldman - Deutsche Bank AG

Okay, good. And then just a bigger-picture question. This is sort of a follow-up to something that was -- that came up a bit earlier. If I look at the way you're investing your money this year, the buybacks and other investments have essentially been contained to the size of the cash flow that you're creating in 2011. But because of where you're getting with regards to your leverage level, it seems like your total investment capacity as we move into next year might actually be greater than the amount of cash you create from operations, and so there'd be sort of disproportionate increase in your investment capacity relative to your cash flow growth. Is that an appropriate way of thinking about it?

Jay Brown

Yes, Brett, I think, that naturally happens as we approach that 5 turns of leverage level to the extent that we maintain that level of leverage, then $750 million roughly of recurring cash flow, and then you subtract out the amount of CapEx that we're spending on an annualized basis, somewhere in the neighborhood of about $300 million to $350 million of CapEx, leaving you $400 million of excess cash flow. At that point, if we are borrowing to maintain 5x and growth in EBITDA is around $100 million, then you're more than doubling the amount of excess cash flow available for investments, be that share purchases or tower acquisitions or other investments around the core business. So you're right. There is the opportunity for that number to increase in terms of capacity.

Brett Feldman - Deutsche Bank AG

But it's potentially a lot. I mean, that $220 million that you have available for the rest of the year, it's arguably half the run rate you could have next year, if you're comfortable doing more work in the capital markets. Is that reasonable?

Jay Brown

That's correct.

W. Moreland

That's correct.

Operator

Our next question comes from the line of Rick Prentiss with Raymond James.

Richard Prentiss - Raymond James & Associates, Inc.

Sort of to follow up a little bit and trying to keep us honest with the straight -- the LightSquared-Sprint agreement and what your MLA change it. Sprint, yesterday, in their press release, talked about a uniform rate, I think, that they were going at. And you've mentioned a couple of times, the price certainty and the process certainty. If Sprint were to put up new equipment that was Vision without LightSquared, would that be a different rent to you guys as opposed to Sprint with LightSquared? And to piggyback on Phil's question, if it's Sprint plus LightSquared plus somebody else, is that a third in the hire rent? In other words, is there like an A, B, C of that uniform rate that Sprint was talking to?

W. Moreland

Yes, Rick, let me help you with that. That's pretty straightforward. There is a price certainty, which they were alluding to on the Network Vision equipment installation, which we granted them, price and process. There's also price certainty, should they elect to host LightSquared, and then there'll be yet to be determined, but it is specific to LightSquared, but to the extent they wanted to bring others to host, we could certainly have a conversation about that. But it's, at the moment, LightSquared-specific as to price.

Richard Prentiss - Raymond James & Associates, Inc.

Right. And if some -- if a second posting, it would be another price certain for the extra add-on from that one?

W. Moreland

I mean, we would entertain a conversation at that point if there were more. But it's not contemplated today.

Richard Prentiss - Raymond James & Associates, Inc.

Because, I think, the market is a little concerned that Sprint's adding “$9 billion from a company that doesn't really have that much money.” So people are trying to make sure Sprint's not spending money they don't have and then passing on money that they have to pay you in rent that maybe isn't going to be able to be good money.

W. Moreland

Yes, I think, we've probably commented as far as we're going to go on the pricing. Again, it's one level for the network upgrade; it's another for sharing, specifically, to LightSquared. And then anything beyond that would be open for discussion.

Richard Prentiss - Raymond James & Associates, Inc.

To piggyback on David's comments, earlier and yours, I think. While you haven't given 2012 guidance yet, maybe 1, do you anticipate getting 2012 guidance in your typical timeline of third quarter call? And given the macro that you've discussed about 3 national carriers now building versus 2, is it a fairly safe assumption on a macro level without any numbers attached to it, that leasing activity in '12 should very well be higher than the leasing activity we saw in '11 in the U.S.?

W. Moreland

Rick, I appreciate the question, and I think I'm about to step in something I don't want to. We would expect to give guidance in the third quarter and the great benefit of giving guidance in the third quarter for next year is we can wait until October to determine what we think about 2012 leasing. So I’ll leave it at that.

Richard Prentiss - Raymond James & Associates, Inc.

But the common thread is 3 national guys building that one, you've just been experiencing really, 2.

W. Moreland

That's not bad break for the second half of 2011, yes.

Operator

Our next question comes from the line of Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs Group Inc.

Just, I guess, quickly on capital allocation, that the sort of decision tree buying back your stock, tapping private markets for deal activity, or buying land, 2Q you've over-indexed on buybacks. Relative to where you stand right now and sort of looking forward over the next few months, has anything in that calculation changed? I mean, we heard about private multiples being too high on the first quarter call. Has that backed off at all? Should we expect more activity there? And I guess second question is just a refresher on the international framework. You guys historically have sort of thought differently about the risks associated with a lot of the international markets that your peers have gone into. I'm wondering if you could just sort of remind us if the thinking is still there? Or have the risks in your mind changed at all?

Jay Brown

Okay, on the first question, Jason, I don't think currently anything has changed from what we talked about last time in the domestic market. Obviously, that could change tomorrow. So I don’t know that that's a forward-looking statement but commenting on relative to what we saw during the quarter it looks like domestically, nothing has changed in that environment and that's why we spent the money we did on buyback of shares.

W. Moreland

I mean, it's no secret. We’ve, for the past years, earned the multiple down 30% in this business. And that continues to be sort of less than we're seeing in the private market. And given our position and ability to execute around our sites, we're quite happy to acquire more of our site. It's been our practice for some time. But against that, we always look at other alternatives and your question about international is, 1, we continue to spend time on and look at, but we see international transactions trading, frankly, within reasonable shouting distance of our current multiple, which we just can't quite get there on. The second thing I'd say about international is our international business in Australia, we haven't commented on this call, but we do have high expectations next year around growth. And that market is looking increasingly like it's going to hit another inflection point that has been somewhat slow for the last 2 or 3 years. And so we are excited about what we see down there. And again, not a huge component of our business, but could be a larger component of our growth going forward. So we are anxious and working now already on executing and preparing for next year. So Jason, it's really, business as usual. We're going to continue to look international opportunities. If you see us do something, you can assume that it's because we believe that presents a longer-term greater value creation on a risk-adjusted basis than acting on something here in the U.S. But as I mentioned in my prepared remarks, we are extremely excited about what we see in the U.S. market right now, and we're going to continue to execute like we are.

Jason Armstrong - Goldman Sachs Group Inc.

And so then your optimism on Australia, is this where you're positioned with the existing assets? Or would you want to get ahead of this inflection that you're talking about with increased exposure in that market?

W. Moreland

Well, we would certainly look at additional assets to the extent they were available. I'll just leave it at that. But certainly, we've got a long way to go to optimize and exploit our existing assets so there's opportunity on both sides there.

Operator

Our next question comes from the line of Jonathan Atkin with RBC Capital Markets.

Jonathan Atkin - RBC Capital Markets, LLC

A couple of questions. G&A expense declined a bit, sequentially. I wondered what kind of levels we should expect going forward? And then, the Sprint Network Vision plan does contemplate, ultimately, the removal of iDEN equipment maybe after next year at some point. And is that treated separately under your agreement with them? Or is that already contemplated in the agreement that was announced yesterday?

Jay Brown

On your first question around G&A, the sequential growth, a portion of that is the continued Verizon FX down in Australia. So that's a big portion of that. And I think, as you're modeling the business, Jon, for periods beyond 2011, I would expect that we'll continue to manage that G&A somewhere in the neighborhood of 3% or less as a growing number subject to any acquisition that we would do of any size would obviously drive that number up a little bit. But we're not seeing anything in the business that would suggest our long-stated approach of maintaining that number in and around 3% growth to change from that.

W. Moreland

On your iDEN question with Sprint, Jon, I would, really ask you to probably address that question to Sprint in terms of their decommissioning plans around iDEN. With respect to our company, we still maintain our Nextel leases have, I think, on average, about 3.5 half years of average life left in the book on that, and I think we can all reasonably assume as they've said, it's their objective to migrate that to their Network Vision equipment. But that's really for them to determine, and frankly, I think, that's still a couple years out as they see the progress on their CDMA side. And right now, our Nextel exposure is about 2% of revenues, if you will.

Jonathan Atkin - RBC Capital Markets, LLC

Okay, that's helpful. And then on outdoor DAS, any kind of updated views? How do you size that overall market opportunity?

W. Moreland

Yes, pardon me for not mentioning it on this call, only because it's still not a material, significantly material part of our financial results, but we are very excited about what we see around DAS, continue to see it growing rapidly. We're very pleased with our acquisition of NewPath, NewPath Networks Company last September. We've got a team now of about 45 individuals dedicated solely to DAS, as well as the shared resource in our sales organization. And so we are seeing significant amounts of activity on the DAS front, both outdoor and indoor, and we've got our plate full there, still maintain high expectations for growth there.

Operator

Our next question comes from the line of Clay Moran with Benchmark Capital.

Clayton Moran - The Benchmark Company, LLC

Maybe, you could give us an update on your portfolio of towers, the average capacity remaining, and maybe the percent that is full. And I also noticed that tower construction activity has ticked up pretty meaningfully this year, not really material but just wondering where you're finding opportunities and any reason for that change.

Jay Brown

Sure. On the first question around capacity, we continue to find capacity on the sites, and don't believe that we're nearing a point where the assets are full. We've learned to be pretty creative around how to create space and adjust, amend and extend these sites in order to hold additional equipment. And so, we're not really running into a capacity issue on the sites. On the second part of your question, around construction, we have seen that start to pick up a little bit. We've built a few more sites, and we're mostly focused on the Metro areas as we have done, historically. The biggest portion of the increase though if you look at the spend on new sites, would be related to the distributed antenna systems that we continue to invest in. And my guess is that for full year 2011, or certainly by the end of this year and going into 2012, we'll be at a run rate of spending in the neighborhood of about $50 million a year of CapEx specifically on the distributed antenna systems deployment.

Clayton Moran - The Benchmark Company, LLC

Okay. On the capacity question, can you just then give us average tenant per tower today?

Jay Brown

We're at about 3 tenants per tower, a little over 3 tenants per tower on a fiscal basis.

Operator

Our next question comes from the line of Jonathan Schildkraut with Evercore Partners.

Jonathan Schildkraut - Evercore Partners Inc.

Maybe, we could talk a little bit more about the portfolio. I noticed that you guys continue to cull some of the towers out. I guess I've been looking for this activity to kind of taper off and start to see some portfolio growth so maybe if you can give us a little more color on where you are in terms of working through some of the culling of the tower assets.

W. Moreland

Yes, Jonathan. Thanks for the question. We continue to look at the assets, and when we look at them, we're really looking at 2 areas. One is what's the current run rate of cash flows on the assets. And then secondly, we're looking at what's the prospect of additional growth. And as we work through the portfolio and there are changes, particularly with regards to some of the towers that we acquired back when we did the GSL acquisition. There was a portfolio that they had purchased that had some paging exposure to it, and some of those towers that would have had paging on them, where the paging has churned and maybe the tower is vacant, and today, we look at it and assess what we believe the future growth of the asset could be, to the extent that we don't see a lot of opportunities for it, then we'll go out and take the sites down. I think we're through most of that. I mean, there will forever be times when we're taking down towers. I would expect we'll have some of that every quarter. But I think the bulk of that analysis and work has really been done following our acquisition of Global Signal. So I think it will taper off over time. If you're trying to figure out what the impact of the results is, frankly most of the time that culling is the slight increase to adjusted EBITDA, and probably no impact to site rental revenue, if there are tenants on towers we're not going through and disposing of those towers. So I think on a net basis, it would be slightly positive to adjusted EBITDA and cash flows, but if the numbers is so small, you couldn't find it in the financials.

Operator

Our next question comes from the line of Batya Levi with UBS.

Batya Levi - UBS Investment Bank

Two questions. One on -- one more follow-up on the Sprint contract. Can you actually talk about if the contract is specific, spectrum-specific for Sprint and LightSquared's current spectrum band? And the other question I had was on the revenue growth trajectory for the second half. I think, the outlook implies that the growth will decelerate to 6% because of the MLA you signed a year ago. But then where -- but implied guidance for 4Q is actually looking for a further deceleration, maybe growth going below 5%. And with Sprint helping and actually Verizon spending a bit more than we thought, shouldn't we see a larger sequential bump in the fourth quarter?

W. Moreland

First on the spectrum question, Batya, it's specific to the LightSquared spectrum, again. So to the extent they choose to avail themselves of that option, it's called out specifically. And to the extent they wanted to do something else, then we're certainly pleased to engage in a conversation around that.

Jay Brown

I think in regards to your second question, it has to do with the percentage of changes versus nominal changes. If you look at the nominal change in dollars, we continue to perform very well on that basis sequentially, quarter-to-quarter. As you remember, last year in the third quarter, we announced the amendment with the customer that significantly increased the amount of rents that we were receiving, and the results of that, basically, makes a base that's lower in the first 2 quarters of last year that we're comparing against for the first 2 quarters of this year. By the time you get to the third quarter, you're comparing off of that then higher run rate. So we're getting larger, and that bigger base means, by definition, the percentages are going to come down. To the extent in the fourth quarter, I think obviously, we have some visibility in terms of what we see for the third quarter, and we'll have to see and play out how the fourth quarter develops.

Operator

Our next question comes from the line of Gray Powell with Wells Fargo.

Gray Powell - Wells Fargo Securities, LLC

I just had a couple of quick ones. And I think you've already kind of addressed this to some extent, but I really just want to make sure that I have it right. Last quarter, I think, you said that you expected activity in Q2 and the second half of 2011 to be flat from Q1 levels, and that overall leasing activity will be down around 15% from 2010. Just given that you had just raised guidance, what are your new assumptions for the second half of '11 versus the first half of the year? And then what -- how do you think activity for the full year 2011 compares to that of 2010?

Jay Brown

Sure. I think with regard to 2011 full year versus 2010, the change in our outlook for the balance of the year basically brings the full year 2011 back up to a level similar to what we did in 2010. And you're correct, leaving the first quarter, as I think I mentioned earlier, we thought that the majority of the activity that we would see in the full year was just going to come from the 2 largest carriers in the U.S. And so the change here is a little bit change in activity broadly across all carriers, but specifically, the timing and amount of the activity that we would expect from Sprint for the balance of the year as they get to work on Network Vision. And so I think that's really the -- that's the increase, and almost all of that would be third and fourth quarter related in 2011, not as much in the second quarter. But for the full year, I think, by the time we get -- we close 2011, we would expect, at least, today, that on a leasing basis, we'll be pretty similar to what we did in 2010.

Gray Powell - Wells Fargo Securities, LLC

Got it. That makes a lot of sense. And then, I mean, obviously, you said Sprint is contributing now. Is it safe to assume that AT&T and Verizon are still like, roughly half of leasing activity this year? Or is Sprint such that -- is Sprint becoming a bare component?

W. Moreland

Gray, we -- I don't want to comment necessarily specifically on the amount of activity by carrier. But they're obviously continuing to be meaningful, and so I'll leave it at that.

Gray Powell - Wells Fargo Securities, LLC

Okay. Then just last one if I may. Any thoughts on a potential public safety network next year?

W. Moreland

We can only hope. Obviously, we stand ready to facilitate it. We'll have to see. It looks like Congress is a little distracted here at the moment.

Operator

Our final question is from the line of Michael Rollins with Citi Investment Research.

Michael Rollins - Citigroup Inc

Actually, I just had more of a general question for you. As we get closer down the road of the tele companies becoming a REIT potentially into next year, how do you guys feel about disclosing metrics that relate to the way REIT investors look at assets? So providing what your comparison would be for like FFO, AFFO, and just giving people more information. I know you give already some stuff on your recurring cash flow metrics but have you given some thought in terms of extending the disclosure to some of those metrics so you could be more comparable to a larger peer group?

Jay Brown

Mike, thanks for the question. We have given some thought to that and we've noticed with interest that as you look at some of the fact sheets that the REITs produced, they'll put out sometimes 40, 50 pages worth of detail, where they show revenues by market, tenants by market and assets by market, in addition to the metrics that you’ve talked about. And I think we'll study that over time. And I think to the extent that the industry attracts a different type of an investor and we start to attract those REIT investors, I would believe that those will become increasingly important. And so moving from our recurring cash flow metric at some point in time, towards more of an FFO metric, probably makes sense in order to help us be comparable with other REITs that they would be used to looking at. So I think you'll see us watch that, look at it and then try to determine when is the appropriate time to do that. But longer-term, I think, certainly, that will be the case.

W. Moreland

All right. I think I'll just wrap up real quickly. I appreciate everybody joining us today. We are feeling great about the business obviously, with 3 active carriers in the market building significant upgrades to their networks as we've talked about. And then, we're executing a very high level on the opportunities before us as evidenced by our results. And for that, I certainly, credit our team, everybody involved. And we look forward to the rest of the year, and we'll talk to you in the next quarter's call. Thank you.

Operator

Thank you, ladies and gentlemen. That does conclude our conference for today. If you’d like to listen to a replay of today's call, please dial (303) 590-3030 or (800) 406-7325 and enter the access code 445-5448. We'd like to thank you for your participation, and you may now disconnect.

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