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American Tower Corp. (NYSE:AMT)

Q3 2007 Earnings Call

November 7, 2007 8:30 am ET

Executives

Michael Powell - Director of IR

Brad Singer - CFO

Jim Taiclet - Chairmanand CEO

Analysts

Vance Edelson - Morgan Stanley

Ric Prentiss - Raymond James

Brett Feldman - Lehman Brothers

David Barden - Banc of AmericaSecurities

ClayMoran - Stanford Financial Group

Dave Coleman - RBCCapital Markets

Operator

Good morning. My name is Darlene,and I will be yourconference operator today. Atthis time, I would like to welcome everyone to theAmerican Tower Third Quarter 2007 Earnings Call. Alllines have been placed on mute to prevent any background noise. After thespeakers' remarks, there will bea question-and-answersession. (Operator Instructions).

I will now turn thecall over to Mr. Michael Powell, Director of Investor Relations. You may beginyour conference.

Michael Powell

Thank you, Darlene. Good morning,everyone, and thank you for joining American Tower's conference call regarding ourthird quarter 2007 results. As we've indicated, we will begin with commentsfrom Brad Singer, our Chief Financial Officer. We will then turn things over toJim Taiclet, our Chairmanand Chief Executive Officer. As Darlene indicated, we will then open up thecall for your questions.

However, before we begin andbefore I turn things over to Brad, I would like to remind you that this callwill contain forward-looking statements. These forward-looking statementsinvolve a number ofrisks and uncertainties. Examples of these statements include statementsregarding our full year 2007 and full year 2008 outlook, our stock repurchaseprogram, future financing activities, and any other statements regardingmatters that are nothistorical facts.

You should beaware that certain factors may affect us inthe future, and couldcause actual results to differ materially from those expressed inthese forward-looking statements. Such factors include therisk factors set forth inthis morning's press release, and those set forth inthe Form10-Q for the quarterended June 30, 2007, and our other filings with theSEC.

We urge you to consider thesefactors, and we remind you that we undertake no obligation to update theinformation contained inthis call to reflect subsequently occurring events or circumstances.

And with that, I will now turnthings over to Brad.

Brad Singer

Thanks, Michael. American Tower continues to demonstrate itsability to deliver consistently strong operating results during thethird quarter. Our third quarter total revenues increased 10% to $367.6million.

Inour core rental andmanagement division, our revenues and gross margins increased 10% and 13%, toapproximately $359 million and $278 million respectively inthe third quarter2006.

Our revenues included aone-time positive settlement of $4.3 million related to certain utilityreimbursements, and our expenses included approximately a$3 million one-time positive item as aresult of reversal of certain expenses that had previously been accrued.

As we had previously anticipated,our third quarter leasing activity increased with over $100 million ofannualized signed leases, thehighest level in thepast four quarters.

Our total selling, general andadministrative and development expense was $49 million, including $15.3 millionof non-cash stock-based compensation expense. Our selling, general andadministrative and development expense also included $6.1 million of costsassociated with thestock option review and related matters.

Thestock option review costs increased to reflect ahigher-level activity for thequarter to complete several keylegal deliverables. Including thepositive-one-time items offset by thecosts associated with thestock option related matters, ouradjusted EBITDA increased 14% to $248.6 million, and our adjusted EBITDA marginwas 67.6%.

Our operating income for thequarter increased to $98.5 million, and our income from continuing operationswas $60 million, including a$41.7 million tax benefit related to therealization of future usage of state net operating losses.

Our capital expenditures totaledover $39 million. During thequarter, we completed theconstruction of 42 towers and 6 in-building installations. Theaverage unlevered day one return on new towers and in-building projects wasapproximately 11%, with strong prospects for additional tenants furtherincreasing our future returns on invested capital.

We anticipate completing 165 newsites, including in-building installation by theend of the year. Inaddition, we continue to increase our land repurchase activity from theprior year, acquiring over $10 million of land inthe third quarter,with the anticipationof completing $40 million by theend of the year.

With our solid revenue growth, costcontrol and disciplined capital spending, we produced approximately $142.3million of free cash flowfor the quarter. Wedefine free cash flowas cash provided by operations, less allcapital expenditures.

Please note that thefree cash flowcalculation includes approximately $6 million of costrelated to our stock option review and related matters, as well asapproximately $27 million of discretionary capital spending on new siteconstruction, land acquisition, as well as capital improvements related toredevelopment augmentations atour current sites.

As indicated inour press release, we arerefining our 2007 outlook and introducing our 2008 outlook. Atthe lowend of our guidance, we areraising our 2007 revenues, gross margins and adjusted EBITDA by approximately $10million.

As we look to 2008, we anticipatelevels of commenced new business to behigher than 2007. We expect incremental tower revenues to increase byapproximately $115 million to $135 million, offset by approximately a$25 million decrease innon-cash straight-line revenue.

Thedecrease instraight-line revenue is anormalized decline that would have occurred in2006 and 2007 without themultiple tenure extension signed with our national carriers that we hadpreviously disclosed, which increased straight-line revenue in2006, and slightly increased revenues year-over-year in2007.

On acash basis, we anticipate tower revenues increasing 8.5% to 10%, and 6% to 8%on a GAAP towerrevenue, inclusive of thestraight-line effect. We anticipate gross margins increasing approximately 85%to 90% on incremental revenues. Inaddition to typical inflationary levels of increases inSG&A, we expect a$4 million to $5 million increase related to our international expansioneffort.

We expect 2008 EBITDA to increasebetween $74 million and $104 million inthe midpoint of our2007 outlook, including thereduction instraight-line revenue, or approximately $25 million, and excluding any costsrelated to potential expense related to thestock option review in2008.

We expect slightly higher levelsof capital expenditures relating to improvements inaugmentation in 2007.We anticipate increasing thenumber of new towers that we will build to 250 to 350, based on severalinitiatives we have been working on.

We also expect to increase ourland acquisition activities and aretargeting investing between $40 million and $50 million.

Total capital spending weestimate to be between$155 million and $185 million. If we aresuccessful inexceeding our preliminary ranges with our build and land purchase initiatives,our capital spending may increase beyond our initial outlook.

Our financial position remainssolid, due to strength of our operations and fundamentals of thewireless industry. During thethird quarter, we continue to process and recapitalize our balance sheet, toextend our maturities ata reasonable cost,while maintaining anappropriate level of financial flexibility.

On October 1st, we successfullyissued $500 million of 10-year notes that further extend our maturities andcreate an investmentgrade covenant package. With thesenior notes in place,we have established three diversified sources of debt funding, to enable thecompany to appropriately balance thecost, duration and structure of financing, based on our long-term goals andcapital market conditions.

During this third quarter, werepurchased $8.2 million of our shares for approximately $339 million, with anadditional $2.9 million shares for $125 million subsequent to theend of the quarter. Asa result, we haverepurchased over thepast year and a half$1.8 billion, representing $47 million shares, with $477 million remaining onour plan.

We intend to finance theremaining share repurchase plan, with cash on hand, cash generated fromoperations, our existing credit facilities, and new financing. With thebaseball season completed and theRed Sox continuing to demonstrate their AMT-like consistency with another WorldSeries victory, I will now turn things over to our Chairmanand CEO of American Tower, Jim Taiclet.

Jim Taiclet

Thanks, Brad, and good morning toeveryone on the call.As our third quarter results and increased full year guidance indicate, American Tower is delivering astrong second half performance for 2007 that we anticipated.

We expect that many of thedrivers of tower demand will remain robust into 2008, leaving theanticipated sustained high levels of new business, as Brad discussed earlier.

Today, I will outline thesources of our expected new business for '08, describe thefactors that should enable American Tower to capture asignificant share of these new opportunities, list theinitiatives that we will pursue to add additional assets to our company, andclose with a fewremarks concerning our capital structure.

As many of you know, we conduct anexhaustive three-dimensional assessment of future demand each year as part ofour strategy and budgeting process. First, we discuss future sitting andupgrade plans with senior leadership with our customers, which provide thetop-down view. Second, we performed amarket-by-market, customer-by-customer buildup, driven by our local sales andmarketing teams, which provides abottoms-up view.

Finally, we validate ourconclusions with our customers' public statements regarding capital spendinginitiatives, analyst reports, and our independent technology consultant'sinput. Based on this process, we expect that thefor U.S.incumbent national carriers will once again inaggregate be thelargest source of new business for thetower industry in 2008.We anticipate that AT&T, Sprint, T-Mobile, and Verizon will add sites forquality of service and coverage, while continuing to augment selected siteswith 3G service related equipment.

Also inthe U.S.,2008 will be perhaps themost impactful year with respect to emerging and regional carriers whileincumbent regional carriers such as Alltel and U.S. Cellular will most likelycontinue on their typical annual build pace.

We expect meaningful increases innew site deployments from MetroPCS and LeapWireless. Both companies have made progress inplanning and staffing for thedeployment of their Auction 66 market.

And by 2009, these two companiestogether are expectedto have established theequivalent of a fifthnational network. This result should play out, regardless of whether Metro and Leapmerge or remain independent, as there is little overlap intheir respective licenses.

Inaddition, we do expectthe initial deploymentof 4G WiMAX networks in2008. While the timingof a more broaddeployment of WiMAX will bemore clearly refined with future developments of theefforts of Clearwire and Sprint, we areoptimistic of theemergence of this new technology.

It's also important to note thatwith AT&T's recent purchase of theAloha 700 megahertz spectrum, and its stated intent to participate inthe upcoming 700megahertz auction, that AT&T and other incumbent carriers may also bepreparing for additional high speed deployments inthe future.

Moreover, there areadditional sites that will bedeployed from other sources, like governments and smaller emerging companies,including a company inthe U.S.focused on ground to aircraft data service and theFederal Aviation Administration's next generation of airtraffic control system. We arepositioned well to capture asubstantial share of this new type of business.

Inour Mexico and Brazilmarkets, we expect similar trends innetwork deployment, as both established carriers and some new market entrantswork to improve network quality and to build out 3G and WiMAX networks.

Given the solid prospects for leasingdemand in 2008, the preparations that we have madeover the past few years to contribute toAmerican Tower capturing a significant share of the available opportunity.

First, thesources and qualities of our tower assets provide important strengths. As manyof you are aware, thesources of our towers area combination of sitesbuilt for co-location by ATC or acquired tower companies and acquisitions fromcarriers that utilize 800 to 900 megahertz spectrums, such atNextel, SBC and Alltel.

From both of these sources, thetowers tend to have sufficient height, ample structural capacity, andsufficient ground space for multiple tenants. These attributes enable ouroperations teams to add additional tenants with less incremental capitalexpenditures and operating costs.

Moreover, themore tenant-ready thesite, the faster thetimeline to get thecustomer on air, which is especially important for carriers engaged innew market launches. Also helpful to our marketing efforts and our co-locationtimelines is the factthat we effectively integrated theSpectraSite towers last year.

Thetimeliness of this acquisition enabled our company to establish largervolume-based contract platforms with most of our major customers and to applyour Six Sigma basecontinuous improvement program to further reduce co-location timelines tobenefit those customers.

As we strive to maximize theperformance of our existing assets, we arealso highly active inseeking additional assets to add to our operating system atappropriate risk-adjusted rates of return.

Inthe U.S.,we consistently assess tower portfolios that come available and acquired aspossible tower acquisitions that arenot necessarily in aformalized process. We believe that given our existing scale, quality of ourcustomer relationships and contracts, operational track record, and provenability to integrate significant portfolios, that American Tower is anadvantaged buyer of these assets. However, we arealso committed to price discipline, and theevaluation of domestic as well as international towers.

Additionally, inthe U.S.,we plan to expand our Tower Build Program in2008 and to continue to establish new in-building systems driven by customerdemand. Similarly, we plan to pursue aggressively new Tower Build opportunitiesin Brazilin 2008 and arein theprocess of evaluating potential mid-sized acquisition opportunities inBrazil and Mexico,too.

As noted inour press release, we areplanning to double new site construction across thecompany, from approximately 165 in2007, to a range of250 to 350 in2008. American Toweralso remains dedicated to understanding theopportunities for international expansion outside our existing markets inthe U.S.,Mexico, and Brazil.

During thepast couple of months, we have added two extremely talented and deeplyexperienced industry leaders to our senior management team. Amit Sharma, based inIndia, andSteve Marshall based inLondon.

Amit joined American Tower from Motorola, where hehad been responsible for business operations and development inIndia and Southeast Asia. Steve was CEO of National Grid Wireless, one of thelargest tower companies inEurope, and hasextensive global business development expertise as well.

Amit and Steve join Hal Hess, who has been integral to the development of our Latin America business, and Steven Moskowitz,who has very successfully led our U.S. business, in the continuing assessment ofopportunities to add assets to our company, again using the disciplined approach that has served us well in the past.

Finally, I would like to take amoment to reaffirm thefundamentals of our approach to capital structure as we prepare to enter 2008.Our target leverage range remains four to sixtimes adjusted EBITDA.

We intend to complete thecurrent $1.5 billion share repurchase program by February 2008, and during ourscheduled February Board meeting, we will determine thefuture shape and size of our capital repatriation program.

We also remain committed todiversification on our balance sheet, both interms of the types ofinstruments employed invarying durations. Thevalue of diversifying our financial sources hasbeen apparent with thedislocation of several of thecredit markets over thepast few months.

Consequently, we will continue toevaluate longer-term debt instruments that reflect thelong-term nature of our assets and our customer contracts. Our priorities are,first, to use our free cash flowand debt capacity to reinvest inthe tower leasingbusiness at attractiverisk adjusted returns and then to return theexcess cash that may remain to our shareholders.

Our fundamental strategy remainsto focus on achieving scale intower leasing in ourserved markets, driving returns on assets through operational excellence andmaintaining financial diversity and flexibility to act on opportunities to growthe asset base.

To allof our investors on thecall, thank you for your continued confidence inour management team. And atthis point, Brad and I will bepleased to take your questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Yourfirst question comes from theline of Vance Edelson with Morgan Stanley.

Vance Edelson - Morgan Stanley

Okay. Thanks alot. Congrats on thequarter. Brad, you had mentioned that thekey deliverables thatcontributed to the $6million spent on thestock option review, and I think that amount was up from about $2 million lastquarter, could you just give us afeel directionally for which way that might head from here?

Brad Singer

Sure. What I would sayis it isunpredictable, but thethird quarter was also unusually high. We would guess, and this is just anestimate, it may goabove, it may gobelow. It's probably somewhere more inthe $2 million to $3million range in thecurrent quarter, than above $3 million or below $2 million.

Vance Edelson - Morgan Stanley

Okay. That is helpful. Thanks.And could you comment on the42 tower builds. It’s anumber that sounds like it's going to accelerate into theNew Year. How easy is itfinding locations? I can't imagine itis getting any easier, sohow attractive arethese locations, and doyou typically have one or more anchor tenants when you pursue thebuild?

Brad Singer

Interms of our new construction, we always have ananchor tenant when we pursue thebuild. That is why our initial returns arearound what we disclosedthis quarter was 11% day 1, which rises clearly over time as you keepadding tenants.

We have done agood job of cultivating relationships where we can take that anchor tenant andmaking sure that sites that we find areattractive to other carriers and that is U.S.,Mexico and Brazil.So it's allthree areas in whichwe operate today. And we think that theinitiative that we have inplace will actually enable us to increase thesize of our build plans, and we arehoping for 250 to 350, and itlooks, and we feel that is anumber that should beachievable.

Vance Edelson - Morgan Stanley

Okay, thanks. And, Jim, youmentioned you are anadvantaged buyer of tower assets. I didn't seeany mention of tower purchases during thequarter. So, just from ahousekeeping perspective, can you let us know if you bought any towers during thequarter, and maybe let us know how you think about thebuild versus buy decision, since you're leaning towards building more atthis point it seems.

Jim Taiclet

There area few dozen inprimarily Braziland Mexico,more or less one-off purchases, Vance, sothe acquisitions wererelatively small this quarter. What I was referring to beyond that, however,was both auction portfolios, and also tower assets that we can getinto negotiated agreements with thecounterparty on.

Sothose would be morematerial, obviously, how we can succeed inthose, but again, theprice discipline that we’ve committed to over thepast few years and hasserved us well is something that we aremaintaining.

Vance Edelson - Morgan Stanley

Okay. Thanks alot.

Jim Taiclet

Sure.

Operator

Your next question comes from theline of Ric Prentiss with Raymond James.

Ric Prentiss - Raymond James

Hey, good morning, guys. Thoughtwe would have a littlemore celebratory Red Sox comments from Brad than we got.

Brad Singer

I’m just still alittle under theweather from all thattime spent at theparade.

Ric Prentiss - Raymond James

There you go. Couple of quickquestions for you. First Jim, on theguidance, you mentioned that you include theinitial 4G WiMAX but not themore broad. What do youmean by initial? Is that thefull 100 million, 70 million atSprint, 30 million POPs covered atClearwater that was discussed?

Jim Taiclet

Ric, within our range, there is acontinuum of assumptions on how WiMAX may or may not work out in'08. Remember, this is atleast a two-yeardeployment, and so wehave not front-loaded itin 2008. With respectto Clearwire, I think, we would characterize itas fairly modest and input itto our budget next year, and Sprint 4G program, much less sothan even that, in ourassumptions at themidpoint. So if thereis an acceleratedrollout or more clarity to theplans together or separately, that might offer alittle bit towards theupper end of the rangeor help us get there.But our midpoint I think is you could characterize itas, its some Clearwire business and even less Sprint 4G business.

Brad Singer

And I think, Ric, theone thing to take note of is that with Sprint and their 4G, most of that is aminimum activity of adding additional equipment to existing sites, rather thannew site development, such as Clearwire deployment.

Ric Prentiss - Raymond James

That is afair point. Also, Brad, you made thepoint about your cash revenue basis would beup 8.5% to 10% year-over-year. We always like to look atcash EBITDA. Can you help us out alittle bit? I know the 25 million change out, obviously not effectscash. There is other straight line inthe expense side.There is a stockoption expense. How should we think of, if you will, acash EBITDA number in'08 versus what would bea cash EBITDA number in'07? What would that increase look like?

Brad Singer

I will talk about mid-point ofguidance for both just for simplicity. In2007, we would have approximately thetotal cash difference of somewhere between $40 million and $45 million,depending on what ultimately happens. In2008, it's a dollarfor dollar decline basically of about $25 million. We have about $20 million ofdifference between cash EBITDA, which would belower than GAAP or theEBITDA we reported as adjusted inthe GAAP numbers.

Ric Prentiss - Raymond James

Whereas, in'07, it was $40million to $45 million delta?

Brad Singer

That is right.

Ric Prentiss - Raymond James

Okay.

Brad Singer

And if you look atour 10-K in 2006, thatwas $35 million, so itwent up slightly in2007, because in thefirst quarter earnings call, we discussed signing another 10-year lease. Thatis what increases thenon-cash component. These arevery large scale national multi-thousand year lease transaction.

Ric Prentiss - Raymond James

Okay. And then when you did that,that also reduced or increased cash EBITDA by thestock option expense, which is also non-cash?

Brad Singer

Thestock option compensation or thestock option review costrate, just to clarify?

Ric Prentiss - Raymond James

Thestock compensation.

Brad Singer

Thestock compensation is about $50 million to $57 million, I believe, 2008. Itis a comparable level in2007. 2007 does have some one-time items init that areabout $10 million inone-time items, maybe slightly less. Sothose are thelevels. We assume another grant in2008. That's why we increase it, given what theshare price is and volatility, and theaverage life outstanding that adds about $10 million of sequential expense.

Ric Prentiss - Raymond James

Got you. And then on theleverage, probably for both of you guys, Jim, you talked about how you arestill comfortable with the4 to 6 times. Brad, looks like you guys arestill kind of hanging right atthe 4 level. What areyour thoughts, as far as, where you would go within that range if theright opportunity presented itself, would you guys go beyond that range, orjust kind of how formal and how fixed is the4 to 6, and how should we think about your thought process there?

Brad Singer

I think, we areflexible in how wethink about it. The 4 to 6 is as we moveforward with some of thestrategic initiatives we aretrying to accomplish, we want to maintain flexibility. Soif a prospectivetransaction comes forward and it's compelling, if we would think longand hard, where do we movein that range orbeyond the range? Butwe want to bethoughtful, because what you aredoing, if you do takeon incremental financial risk, you want to make sure you getthe returnsappropriate with that increased financial risk. And you have also given upflexibility for your next deal.

Somoving up the range,beyond the range,those are allthings, we would think longand hard about. I think for themost part or ingeneral, we still will bewithin that range. And we look atit rather thanquarterize. We do lookat itLTM, which we areright around 4.2 or 4.3 times.

And that is where our leverage istoday, and it hasticked up over thepast few quarters, and you will seeit tick up thisquarter in particular,as we continue to buy inshare and complete theshare repurchase program. Jim, I don't know if you want to sayanything?

Jim Taiclet

I think that covers everything.

Ric Prentiss - Raymond James

And then on therevenue, any impact on pricing that you areseeing out there? Have prices continued to kind of go up with escalators, or hasthere been any pressure pushback? Alot of people look at theequipment operators and seehow they have been getting beaten up by thecarriers. Just talk alittle bit about your pricing power and what you areseeing as far as pricing trends.

Jim Taiclet

Ric, as we have said inpast calls, new site lease pricing for anew customer on existing tower hasbeen stable or slightly up over thepast few years and that is related to thefact that their next best choice typically, will beto build their own tower nearby as acustomer versus lease permonth. So new leasepricing has beenbetween flat and slightly up over thelast years, because those factors inproduction of a newtower have been flat to slightly up over thepast few years. Having said that, like-for-like equipment initial pricing hasbeen fairly stable or slightly up.

Ric Prentiss - Raymond James

Then thefinal question, quick one, you mentioned you would review atthe February Boardmeeting. Do you know thedate for that February Board meeting, just sowe all kind of haveour eyes open?

Jim Taiclet

Doyou want to speak, or doyou want to attend it?

Ric Prentiss - Raymond James

Exactly. Just give methe conference callnumber and thepassword.

Jim Taiclet

Itis the first half ofFebruary, Ric. I don't have my calendar infront of me, but first half of February.

Ric Prentiss - Raymond James

Okay. Great. Good luck, guys.

Operator

Your next question comes from theline of Brett Feldman with Lehman Brothers.

Brett Feldman - Lehman Brothers

Thanks for taking thequestion. Thanks for allthe color on thenature of your guidance for 2008. I just want you to maybe clarify something,you gave a little bitof insight as to how you were thinking about WiMAX, some of thevariability there. With regards to Leapand Metro, because of some of thespectrum they intend to use in2008 have not been cleared yet, I was just wondering if you can give us alittle more insight as to how you have thought about thepotential amount of business you could begetting from those operators next year and how it's factored into yourguidance.

Jim Taiclet

Brett, tactical market-by-marketdiscussions should probably go to thecarriers, but within our range, again, '08, '09, 2010 timeframe, that is whenthese all of theserollouts are going to befulfilled. And our view is that there will beenough successful spectrum clearing of those two customers and also withT-Mobile and their 3G rollout that we can maintain arange of guidance with theinputs from those customers.

Brett Feldman - Lehman Brothers

Okay. Then on aslightly different topic, considering how much flexibility you have inyour capital structure right now, based on your own targeted leverage levels,obviously, you may beable to put some of that to work on theinvestments you arelooking at, both internationally and inthe domestic market.But if you sort of step back, and you seethe size of thoseopportunities, relative to thesize of your flexibility inthe balance sheet, doyou think it isreasonable to assume that you could continue repatriating some level of capitalto shareholders, even if you were able to execute against more than one ofthose investment opportunities?

Brad Singer

I think, Brett, it is facts andcircumstances, in terms of what the opportunity is and how large it is. Forphilosophically, the most efficient way for us to build shareholder value ismaking good investments that are accretive to the shareholders.

If we have capacity and we wantto maintain repatriation, we probably would, inall likelihood dothat. We do, as we have been very consistent, think that financial flexibilityand having a goodstability through good and bad markets will enable to us have betteropportunities, not just through thegood markets, but through thebad ones. And so wehave been very straightforward, and that's how we view our financial position.

Brett Feldman - Lehman Brothers

Okay. Then with regard to yourcurrent buyback, you mentioned that thesources of thefinancing may include new debt or I guess you just said new financing. Areyou fully funded to complete the$1.5 billion? I think, you did a$500 million debt deal several weeks ago, which I think should getyou there, but are youplanning any incremental financing to meet your existing business plan?

Brad Singer

We aremore than fully funded by several hundred million just to execute on the$1.5 billion, you can dothe simple math fromwhere we ended up and you can seethat from that what we have to repurchase, I think we have under $500 millionleft, and we had un-drawn on our line of credit atthe end of thequarter pro forma. Forwhat we have drawn is over $500 million, and that doesn't count any free cash flowthat occurs during thequarter itself or between now and February.

Brett Feldman - Lehman Brothers

Okay. Great. Thanks for takingthe question.

Operator

Your next question comes from theline of David Barden with Banc of America Securities.

David Barden - Banc of America Securities

Hi, guys. Thanks for taking thequestion. Handful of questions. First I guess just Brad maybe on thesequential rental and management revenue, theincrease, stripping out the$4 million one-timer was alittle bit below therun rate we have seen inhistorical quarters.

You arekind of guiding 4Q to amore traditional sequential revenue uptick, so, I was wondering if there is anytiming issues in thequarter and whether there was potential upside to 4Q as afollow-through on that.

Brad Singer

Let's just take one at a time.

David Barden - Banc of America Securities

Okay, sure.

Brad Singer

You usually have a litany.

David Barden - Banc of America Securities

Not as many as Ric, though.

Brad Singer

In the second quarter '07, we had$1.5 million of one-time items and so, if you add that back into thesequential, it was a typical $7 million added between the second and thirdquarter. We did also have a $1 million left of straight line revenue betweensecond and third quarter that you have to factor in so, all in, we think the thirdquarter is a pretty solid quarter in commencement.

Itis actually thehighest new business commencement quarter we have had inthe year, and we feelpretty good about thefourth quarter because of theamount of new business we signed this quarter going into thefourth quarter.

David Barden - Banc of America Securities

Perfect, good. And second question would just be on, you look at Leap and Metro and being an incremental part of the tower leasing profile goingforward, also the DAS carriers, or the DAS providers are actually becoming higherprofile in their role in the industry. Could you kindof talk about where theintersection between theDAS providers and thetower companies is interms of thecompetitive environment evolving?

Jim Taiclet

Yes, Distributed AntennaeSystems, Dave, is something that we have been assessing for acouple of years, and infact, our major player inthe in-building pieceof that space, is theleader in theindustry in thatregard. It stillremains a nicheproduct. DAS is aniche solution under current economic conditions for carriers. So, weparticipated inheavily in thein-building sites, outdoor, we aretrying to understand thesize and future of themarket and the bestway for us to participate inthat.

So, we areaware of the outdoorspace. We areinterested in it, andwe are weighing ouroptions now, but at theend of the day, itwill be amodest portion of network development for thenext few years probably.

David Barden - Banc of America Securities

Okay. And then my last…

Jim Taiclet

Very interesting, so.

David Barden - Banc of America Securities

Okay. Interesting. And then thelast question I guess would just be on India.Obviously, you have been staffing up with the announcement today and obviouslyAmit being hired previously. Are you getting any kind of sense that there ismomentum in that market or any kind of shift in priorities if that marketdoesn't seem to be developing on-track?

Jim Taiclet

Yes, there are a lot of potentialopportunities in that market. Internal to the Indian carriers, they are alltrying to make decisions and set direction on how they want to participate ornot in the infrastructure asset over time. So, we need to man that market andparticipate in it with some very high quality people that could be at the rightlevel of [confer] of these conversations with the carriers, and that is what wehave done in bringing on Amit and now Steve.

So, we're participating literallyat the highest levels of the carriers in those countries, in that country andothers, in trying to help guide where this may play out and if it's in a placethat we want to participate as an industry structure in that country, then wewill be positioned to do that.

And I think just to keep it incontext, the goal of our international initiative is diversification and growthover a period of time, over a period of a few years. It is not necessarily awholesale change in the expected center of gravity of the company, which will Ithink for the foreseeable future will be in the U.S.and with a portion in Latin America, as you know.

So, we want to make sure we arepositioned for long-term growth opportunity. To do that, our learning in the last year and a half, as you have to be present in the key markets, with senior peoplethat know the senior counterparts of the customers, and that'swhat Amit has beendoing and Steve will behelping with here shortly.

David Barden - Banc of America Securities

And any further sense on timing,Jim, like a drop dead date or any kind of…

Jim Taiclet

Itis really unclear that there areJV discussions going on among certain carriers and certain third parties likeus. There are auctionsbeing contemplated or launched inIndia and othercountries, and there aresmaller third parties that aretrying to figure out what to dowith their tower assets. So, thetiming has beenflexible in thelast year and a halfwe’ve been visiting and now participating inthe Indiamarket, and theclarity isn't quite there yet.

David Barden - Banc of America Securities

Okay, great. Thanks, guys.

Operator

(Operator Instructions). Yournext question comes from the line of Clay Moran with Stanford Group.

Clay Moran - Stanford Financial Group

Good morning. In the '08guidance, the incremental tower cash flow margin is 89%, is there any reasonwhy that is below the theoretical 90 to 95%?

Brad Singer

Clay, we do have costs that do go up, and so whether it'sland rent, whether it's real estate taxes or utility, repairs and maintenance,and so it was an inflationary factor in there and other things that we work on.I think 90% is probably a pretty good target in terms of the incremental.

Clay Moran - Stanford Financial Group

Okay, and some of your commentaryimplies that you aremore inclined today than maybe since theSpectraSite deal to doa tower portfolioacquisition, and you mentioned advantaged buyer. You also mentionedparticipating inauctions, which I don't think you have done inthe recent past. Why areyou more inclined to buy today than you have been inthe recent past?

Jim Taiclet

Clay, I wouldn't necessarily saywe are more inclinedto buy. We have always been inclined to buy atappropriate asset pricing, and you saw us dothe first major publictower company acquisition. You mentioned SpectraSite acouple of years ago, which I think was agroundbreaking merger for theindustry. We did itbecause we thought itwas at theright risk-adjusted return.

We’ve done similar deals muchsmaller size in LatinAmerica over the pastfew years, and we have looked ateverything that's come down thepike, auction or not. Infact, as I said, we have tried to ask questions when there weren't auctionsgoing on about tower assets, and we act when we have theright combination of asset quality, counter party and entry price. And wehaven't seen it over thelast year or so ina major way, andthat’s why you haven't seen us act. So, our attitude hasn't changed;our criteria hasn't changed.

One thing that we have understoodis that you do need tohave talent located external to theU.S. markets tobe aviable evaluator, frankly given theasset. So, that’s theonly adjustment we’ve made is to asset talent. Everything else is veryconsistent from thetime that Brad and I have been managing thecompany.

Clay Moran - Stanford Financial Group

Okay. There was a questionearlier about pricing and the trends there. Can you give us what the averagemonthly rent is at this time?

Jim Taiclet

We haven't disclosed that inthe past, and we havegiven ranges. I think it’s between 1500 and 2000, depending on themarket per month inthe U.S. Clay, butagain, the trend hasbeen stable to up on new leases, and theescalator has beenabout 3.5% consistently over thelast few years.

Clay Moran - Stanford Financial Group

Okay, thank you.

Jim Taiclet

Sure.

Operator

Your last question comes from theline of Dave Coleman with RBC Capital Markets.

Dave Coleman - RBC Capital Markets

Thank you, just a few quickquestions. Brad, what are the cap rates that you are buying the underlyingground-for-ground lease purchases?

Brad Singer

David, we have been buying thembetween 10 and 11 times, soyou can take theinverse, so 9% to 10%on the run rates, andif you factor in thefact that they doincrease 3% a year,you can add that to thereturn rate.

Dave Coleman - RBC Capital Markets

Okay, and then the incrementalrevenues during the quarter from new leases versus lease amendments?

Brad Singer

It is 75% new leases, 25%amendment.

Dave Coleman - RBC Capital Markets

Okay, and then your 2008 guidance,are you including any impact from the cable operators putting their AWSSpectrum to work?

Brad Singer

We are not.

Dave Coleman - RBC Capital Markets

Okay, and then the last question,you mentioned on new tower builds getting 11% ROIs. It’s a few hundred basispoints lower than I believe what you indicated in past quarters. Is theresomething going on with the pricing or lease-up in Mexicoand Brazil thatwould be leading to lower ROIs?

Brad Singer

Itwas actually a mix, the11% rather than the 13%or we had last quarter wasa mix issue. We had more U.S. ones, which generallyhave a little bitlower initial return buthave a greater in terms of getting thatsecond tenant much quicker. So, that’s really what resulted init. We anticipate allour towers will achieve our stated goals of returns, domestic andinternational.

Dave Coleman - RBC Capital Markets

Of the towers acquired during thethird quarter, how many were in, I guess 48 towers built in the third quarter,how many were in the U.S.versus international?

Brad Singer

Itis about a third U.S.,two-thirds international, and theones we acquired, 51 towers during thequarter, and that was entirely international.

Dave Coleman - RBC Capital Markets

Okay, great. Thank you.

Jim Taiclet

Okay. Well, thanks for everyonefor joining the call this morning. Appreciate it, and have a great week. Bye,now.

Brad Singer

Thank you.

Operator

This concludes today's conferencecall. You may now disconnect.

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