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Crown Castle International (NYSE:CCI)

Q1 2012 Earnings Call

April 26, 2012 10:30 am ET

Executives

Fiona McKone - Vice President of Finance

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

W. Benjamin Moreland - Chief Executive Officer, President and Director

Analysts

Jason Armstrong - Goldman Sachs Group Inc., Research Division

James M. Ratcliffe - Barclays Capital, Research Division

Brett Feldman - Deutsche Bank AG, Research Division

Simon Flannery - Morgan Stanley, Research Division

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Jonathan Chaplin - Crédit Suisse AG, Research Division

Michael Rollins - Citigroup Inc, Research Division

Batya Levi - UBS Investment Bank, Research Division

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Crown Castle International Q1 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, April 26, 2012. I would now like to turn the conference over to Fiona McKone, Vice President of Finance. Please go ahead.

Fiona McKone

Thank you. Good morning, everyone, and thank you all for joining us as we review our first quarter 2012 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 Factors section of the company's filings with the SEC. Should one or more of these or other risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. Our statements are made as of today, April 26, 2012, 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, funds from operations, funds from operations per share, adjusted funds from operations and adjusted funds from operations per share. Tables reconciling such non-GAAP financial measures are available under the Investors section of the company's website at crowncastle.com.

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

Jay A. 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 first quarter, exceeding the high end of our previously issued guidance for site rental revenue, site rental gross margin and adjusted EBITDA.

We completed the acquisition of assets from Wireless Capital Partners, which we refer to as WCP on January 31, and the acquisition of NextG Networks on April 10. And we are making good progress integrating these acquisitions.

We believe these acquisitions and the other investments we made during the quarter will enhance long-term AFFO per share.

The strong year-to-date results from our site rental business, together with continued strong results from network services and the completion of the acquisition of NextG and the WCP assets, allow us to increase our 2012 outlook for site rental revenue and adjusted EBITDA by approximately $108 million and $88 million, respectively.

Further, we saw a 25% increase in leasing activity in the first quarter of 2012 compared to the same quarter last year with the 4 major carriers in the U.S. accounting for approximately 83% of the activity.

Turning to Slide 4. I'd like to highlight a few things from our first quarter results. During the first quarter, we generated site rental revenue of $498 million, up 9% or $41 million from the first quarter of 2011. Approximately 6% of the growth came from new tenant additions, reflecting the increased leasing activity driven by the 4 major U.S. carriers upgrading their networks. The acquisition of the WCP assets contributed approximately 1% to the growth in site rental revenue. Growth from the existing base of business from contracted renewals and contracted escalators net of any churn contributed another approximately 1% to the growth in revenue. Further, we had approximately $5 million of nonrecurring items in the first quarter of 2012 as compared to $9 million in the first quarter of 2011.

Site rental gross margin defined as site rental revenues less cost of operation was $375 million, up 11% from the first quarter of 2011, reflecting an incremental margin of 89%. Furthermore, our Services business performed very well, posting another record quarter with the contribution from services gross margin increasing year-over-year by 45%.

Adjusted EBITDA for the first quarter of 2012 was $360 million, up 13% from the first quarter of 2011.

As shown on Slide 5, AFFO was $198 million, up 13% from the first quarter of 2011 or $0.69 per share, also up 13% from the first quarter of 2011.

As reflected on Slide 6, we significantly exceeded our previously issued outlook for the first quarter for site rental revenue, site rental gross margin and adjusted EBITDA due to outperformance in our core business and the benefit of the acquisition of WCP, which was not included in our outlook for the first quarter.

We exceeded our first quarter adjusted EBITDA outlook by $22 million due to an increase in leasing activity in the base business of approximately $7 million, a $6 million contribution from the WCP assets, which was not in our original guidance issued on January 25, 2012.

Approximately $5 million of nonrecurring items and the higher services margin contribution of approximately $4 million beyond that which we had included in our previously issued guidance.

With respect to AFFO, the outperformance and adjusted EBITDA was offset by the additional interest expense we incurred on the debt we raised to pay for both of the acquisitions we closed this year.

Turning to investments and liquidity. During the first quarter, as shown on Slide 7, we spent $182 million on acquisition, $180 million of which was to acquire the assets of WCP. The WCP portfolio includes approximately 2,300 ground lease related assets, including over 150 related to Crown Castle towers, with 80% of the cash flow from the assets generated from the big 4 wireless carriers.

We also assumed approximately $320 million of debt associated with the WCP assets.

Additionally, during the first quarter, we purchased approximately 700,000 of our common shares for $36 million.

Since 2003, we have spent $2.7 billion to purchase approximately 101 million of our common shares and potential shares, equal to 1/3 of the company's share at an average price of $27 per share.

With regards to our capital expenditures during the first quarter, we've spent $65 million. These capital expenditures included $28 million in our land lease purchase program.

As of today, we own or control for more than 20 years the land beneath towers representing approximately 77% of our growth margin.

We continue to enjoy significant success with this program as evidenced by the fact that today 39% of our site rental gross margin is generated from towers on land that we own, up from less than 15% in January of 2007.

Furthermore, the average term remaining on our ground leases is approximately 32 years.

We believe this activity has resulted in the most secure land position in the industry based on land ownership and final ground lease exploration. And we continue to believe this is an important long-term effort that provides a long-term benefit as it protects our margins and controls our largest operating expense.

Of the remaining capital expenditures, we've spent $4 million on sustaining capital expenditures and $33 million on revenue-generating capital expenditures. The latter consisting of $26 million on existing sites and $7 million on the construction of new sites, including distributed antenna system deployment.

Further, during the first quarter and in April 2012, we used $56 million of our cash to purchase $24 million of our 9% senior notes and $28 million of our 7 3/4 senior secured notes.

After the quarter end on April 10, 2012, we closed the NextG acquisition for $1 billion.

We ended the first quarter of 2012 with total debt to last quarter annualized adjusted EBITDA of 5.9x and adjusted EBITDA to cash interest expense of approximately 3.2x.

Turning to our second quarter and full year 2012 outlook as shown on Slide 8 and 9, we expect site rental revenue of between $509 million and $514 million and adjusted EBITDA of between $360 million and $365 million for the second quarter of 2012.

The sequential growth in site rental revenue from the first quarter 2012 to the second quarter 2012 includes the benefit of approximately $21 million of additional site rental revenue from NextG and the WCP assets.

As we noted last year, we expected our growth in site rental revenue during the second quarter to be offset by churn during the period, and this continues to be our expectation.

Further, we expect minimal benefits from nonrecurring items in the second quarter.

The cumulative impact of these items is in expected net sequential growth in site rental revenue of approximately $15 million from Q1 2012 to Q2 2012. The sequential growth in adjusted EBITDA from Q1 2012 to Q2 2012 is muted by the aforementioned nonrecurring items in the first quarter and our expectation of approximately $4 million less of service margin than the first quarter and the normal expected increase in seasonal repairs and maintenance of approximately $2 million.

As shown on Slide 9, our increased 2012 outlook suggests that annual site rental revenue growth of approximately 10%, adjusted EBITDA growth of 12% and AFFO growth of 13%.

The $190 million of expected growth in site rental revenue from 2011 to 2012 is comprised of the following: approximately $100 million of the growth attributable to additional tenant equipment added to our sites, reflecting the strong leasing activity we have enjoyed since the beginning of the year; and approximately $90 million of site rental revenue from our acquisitions of NextG and the WCP assets. The $154 million of growth in adjusted EBITDA from 2011 to 2012 is comprised of approximately $50 million to $55 million of benefit from our acquisitions of NextG and the WCP assets and $100 million of growth in our base business, which is up from $57 million of the expected growth in our base business and the previous outlook that we'd provided.

I'm delighted with the outperformance of our base business and our increased expectations for the balance of 2012.

We expect AFFO growth of approximately 13% from 2012. This reflects our increased expectations for adjusted EBITDA, offset by the higher interest expense cost associated with the debt we incurred as a result of the acquisitions.

We would expect to augment this AFFO growth through opportunistic investment of cash flow and activities such as share purchases, tower acquisitions, new site construction and land purchases.

Consistent with our past practice, our outlook does not include the benefit from these expected investments.

Even with our recent acquisitions of NextG and WCP assets, we expect to have significant cash to invest in activities we believe will maximize long-term AFFO per share growth.

For the full year 2012, we expect to generate approximately $830 million of AFFO and invest approximately $325 million on capital expenditures related to purchases of land beneath our towers, the addition of tenants to our towers and the construction of new sites, particularly distributed antenna system.

Ignoring our borrowing capacity, the portion of our AFFO after expected capital expenditures represent a little over $125 million per quarter of cash flow we could invest in activities related to our core business, including purchases of our shares and acquisitions.

Consistent with our past practice, we are focused on investing our cash in activities we believe will maximize long-term AFFO per share. I believe this level of capital investment can add between 4% and 6% to our organic AFFO per share growth rate annually.

In summary, we had an excellent first quarter as we continue to execute around our core business, and I'm excited about our prospects for growth and investments as I look forward to the remainder of 2012.

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

W. Benjamin Moreland

Thanks, Jay, and thanks to all of you for joining us on the call this morning. We realized it's a very busy week in the market.

As Jay just mentioned, we had an excellent first quarter, exceeding outlook for site rental revenue, site rental gross margin and adjusted EBITDA. And we're excited about our business as we look to the balance of 2012. For the first time since the late '90s, all of the major wireless carriers are engaged in major network upgrades simultaneously and we are enjoying unprecedented visibility in the future revenue growth as reflected in our increased guidance.

These positive trends are reflected throughout our entire business, including organic site leasing activity, our distributed antenna system business, our network services activities and our Australian business.

Leasing activity grew 25% in the first quarter of 2012 compared to the same quarter last year. The big 4 U.S. carriers accounted for approximately 83% of the growth in the first quarter, and as you expect, amendments made up approximately 80% of their activity in the first quarter as they continue to focus on upgrading their networks.

Further, I'm very encouraged by the application activity we are seeing in the business, which we expect would translate into revenue later in the year. Consistent with their public statements, we are seeing continued activity by Verizon and AT&T in upgrading their networks to LTE, Sprint's Network Vision related activity and the resumption of activity by T-Mobile.

Additionally, we look forward to assisting T-Mobile in their announced plan to upgrade approximately 37,000 cell sites to LTE over the next 2 years.

In addition to a strong quarter of site leasing, our U.S. network services business performed exceptionally well as you might expect. Service revenues were up 27% and service margins were up 46% compared to the same quarter last year. This success results from a diligent effort to capture more of the opportunities to assist customers in locating or upgrading installations on our sites.

Further, we enjoyed meaningful growth in our Australian business as the carriers are actively upgrading their networks to accommodate capacity challenges brought on by expanded data services, just as we have seen in the U.S.

Finally in the first quarter, we closed on the acquisition of the ground lease assets from WCP, and earlier this month, we closed on the NextG Networks acquisition, which positions us as the industry leader in distributed antenna systems or sometimes referred to as the small-cell site solution business and builds on the DAS success we have already enjoyed.

As part of this acquisition, we're excited to have the NextG team joining Crown Castle, and believe we will benefit from their expertise going forward. The integration of both these acquisitions is on track and proceeding very well. I know it is early days with NextG, we are even more excited about the future prospects of our combined organizations as the market leader in this exciting new extension of our business.

In fact, small-cell architecture received a lot of attention at Mobile World Congress in Barcelona earlier this year. Globally, there were over 50 operators that have committed to deploying small cells in the first quarter of this year. In the United States, operators are augmenting their traditional infrastructure with small-cell solutions to boost network capacity and operators are starting to see all these technologies as key parts heterogenous networks.

Importantly for us, the benefit of the shared wireless infrastructure model we enjoy in towers is present in small-cell deployments, and we are excited about this new extension of our business.

The combination of all these positive trends allows us to increase our 2012 outlook, which now suggests AFFO growth of approximately 13% for the year compared to last year. And as is our practice, we'd expect to further enhance this growth by disciplined discretionary investment of our cash flow in tower and DAS acquisitions, share purchases and land acquisitions, and had aspirations that these investments combined with our organic growth can achieve AFFO per share growth rates in the mid to high teens as we've delivered in the past.

Finally, before I turn the call over for questions, I would like to discuss some of the key trends we are seeing in mobile Internet demand. Cited in recent reports by Cisco, which validate the growth we're seeing from carriers as they continue to invest in their networks to meet the onslaught of demand, the mobile Internet.

According to Cisco's latest forecast, global mobile data traffic grew a 2.3-fold in 2011, more than doubling for the fourth year in a row. And the expectation is that mobile data traffic will double again in 2012, an amazing accomplishment off of an ever increasing base.

The proliferation of high-end handsets, tablets and laptops on mobile networks is a generator of traffic because these devices offer the consumer content and applications not supported by previous generations of mobile devices.

The evolving device mix and growth in usage of devices continued to drive growth in global mobile data traffic. In 2011, while smartphones still only represented 12% of global handsets in use, they accounted for 82% of total handset traffic.

Further, the growth in usage per device is expected to outpace the growth in the number of devices by a wide margin, driven largely by increased connection speed and network capacity improvements.

As the carriers prepare for LTE, it's interesting to note that while 4G connections represent less than 1% of mobile connections today, they already account for 6% of mobile data traffic. The impact of 4G connections on traffic is significant because 4G connections generate a disproportion amount of traffic. And in 2011, 4G connection already generated 28x more traffic than an average non-4G connection, giving you some sense of the challenges that carriers are facing as we migrate from 3G to 4G services.

Cisco forecasts that by 2016, 4G will represent 6% of the connections, but 36% of total traffic. And a 4G connection should generate over 9x more traffic than a non-4G connection.

Importantly for our business, the success of the global transition to the wireless Internet is concentrated in developed markets with the U.S. leading the way, having the largest 3G subscriber base in the world. To that end, as it pertains to the U.S., the statistics are even more compelling. In 2011, mobile data traffic grew 2.7-fold in the U.S., and Cisco estimates that mobile data traffic will grow 16-fold from 2011 to 2016, that's a compound annual growth rate of 74%.

Adoption rates for smartphones continue to accelerate, generating 14x more data traffic per month than a basic handset, driving wireless data traffic and increased tower demand from carriers striving to maintain a suitable level of network quality and reliability.

The number of smartphones in the U.S. grew by 59% in 2011, reaching 128 million, and is expected to double again by 2016.

Further, smartphones accounted for 24% of the mobile traffic in the U.S. at the end of 2011, are expected to account for over 60% by 2016.

These impressive growth statistics and the attendant required network investment are why we are excited about the U.S. market. It is the largest and fastest-growing wireless market in the world.

In order to keep pace with this anticipated growth, we see wireless carriers continuing to invest in networks by adding capacity to existing sites, splitting cell sites and utilizing small cell such as DAS where traditional macro site is not feasible.

To that end, I believe our tower portfolio and our ability to execute for customers best positions us to capture this anticipated activity in the form of site leasing revenue growth as carriers continue to upgrade and add sites to meet this increasing consumer demand for wireless Internet.

Having the right assets in the right locations is critical to meeting the demands of carriers today as they are working to add network capacity. We have the best located towers in the industry with 71% of our towers in the top 100 BTA, and we are now the largest provider of small-cell solutions.

And as indicated by our quarterly surveys of customers, we continue to deliver the highest level of customer service in the industry, something we are very proud of. This is further enhanced, evidenced by our success in growing the network services portion of our business.

To wrap it up, today, I'm excited on many fronts. Data growth in the U.S. market and the prospects for profitable investment by carriers and network enhancements to support this growth. Our position and focus on monetizing this opportunity through leadership in the U.S. market and the opportunities I see to invest in our core business to augment the strong organic growth we are seeing is very exciting. As we've said in the past, our focus is on maximizing long-term AFFO per share through opportunistic investments which is going to include acquisitions, share purchases and land purchases as we've done in the past.

Finally, I want to say thank you to our employees for their hard work. As the volume of new business and network services opportunities and company are reaching unprecedented levels, and on top of that, we're in the midst of integrating these 2 new businesses we recently acquired.

It's an exciting and busy time here at Crown Castle, and I'd also like to welcome our new employees from NextG listening to this call.

With that, operator, I would be happy to turn the call over for questions.

Question-and-Answer Session

Operator

.

[Operator Instructions] And the first question comes from the line of Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Just maybe a question on the second quarter guide, first of all. You talked about it being up $15 million. I think the deals contribute $21 million and then you're hurt by nonrecurrence of the $5 million onetimer. So I guess, on a net basis, you're assuming the potential for a slight decline in site rental revenues. I know you've talked before about churn and sort of pegged it to Alltel. Can you just give us a sense as to what you're expecting that churn to be and maybe what the base business is actually doing? So is that still moving up and Alltel churn is just a decent amount so we get to the net number that's relatively flat or slightly down. And then second question, I guess, is just on taxes between NextG NOLs and then you talked, I think in the release, about some valuation reversals in 2Q that impact taxes. Does any of this move the needle on the NOL balance sort of in total and hence, influence the retiming in your mind?

Jay A. Brown

Great. On your first question, we had originally, when we put out the outlook for the first quarter and the second quarter of 2012, that back in January of this year, we had assumed both in the first quarter and in the second quarter that the churn that was scheduled, a portion of which was related to Alltel, would offset the normal escalations that we were seeing in the business. And for the first quarter, we did a little better than that, a little better than expected. In the second quarter, we stuck with the original assumption and we'll just kind have to see how it plays out. So we made a lot of comments here about the leasing activity on -- if you could just look at the stray number, think about it as newly originated site rental revenue in the period, that amount of activity where we're seeing new tenancy, they go on the towers that were not previously on those towers or tenants adding additional equipment to the sites they're already on. That activity in total is up about 25% from the first quarter of last year and it's early days of the second quarter, but we're in and around that range. So I think the trajectory of the guidance, as you look at the balance of the year, we're certainly picking up in the third and fourth quarter as we move past kind of the first and second quarter amount of churn that we had. We'll kind of see how it plays out in the balance of the quarter. Does that answer your question?

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Jay, is there any way you can quantify the Alltel churn? You actually did see it in 1Q. I know you said it was later than expected, but any dollar amount you pin to it?

Jay A. Brown

We don't like to get specific about individual customers. So it wasn't Alltel. We called it out the last time we gave outlook just to give you some flavor of what was happening, but I'd rather not go all the way to that level of detail. The second question you asked around taxes, none of the acquisitions, either WCP or NextG, have any significant impact to our timing of NOLs, so we continue to believe that we'll exhaust the current NOLs in late 2015, beginning of 2015. And as we've talked about in past quarters and on past calls, we're sort of planning, if you will, to think about reconversion no later than the beginning of 2016, which would enable us to avoid corporate taxes to a large extent. So no change there on any of the adjustments that we've made related to these acquisitions or our forecast related to those acquisitions.

Operator

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

James M. Ratcliffe - Barclays Capital, Research Division

Conceptually, are you seeing any change in, call it, the ratio of usage per square meter and data from, say, dense urban versus rural? In other words, clearly, to a degree, the rising data tide list -- lists all boats. But are you seeing the mix shift, where it's listing, let's say DAS on a relative basis more than, say, traditional macro towers or the other way around?

W. Benjamin Moreland

I think, James, just in general, we're seeing continued capacity constraints being evidenced in these networks, and increasingly, those are happening in areas where it's difficult to solve the problem with macro tower sites or rooftop sites, hence, the need for some of the small-cell sites that we've talked about and our strategic direction with the acquisition of NextG. I think you're going to expect that to continue going forward as all of us as are consuming a lot more bandwidth and the spectrum is a relative finite resource, and so the size of these ultimate cell sites continue to shrink. I think it's important to note, as we're now in both businesses in a big way, we continue to see the small-cell site opportunity as very robust, but complementary to the macro site business. Clearly, a macro site where that's a viable alternative is the preferred approach, and that's a business that we're -- in our tower business, we're obviously still focused on in a huge way. So the way we think about the small cells and the DAS opportunity is to literally augment with a very same business model. I think this is really important. The very same business model in terms of a shared common element instead of it being the tower, being the fiber typically here where we can share it among a number of providers in the market and make it very efficient for them to access our systems. So that's really what we see, and I think time will play out. It's still very early days in this evolution of these sites and how the networks develop, but we see a long runway.

James M. Ratcliffe - Barclays Capital, Research Division

And can you just -- also just help us think through what the impact of Verizon selling 700 megahertz spectrum, say, B-block spectrum to an AT&T would be in terms of the relative impact on you of, say, Verizon deploying that spectrum versus AT&T or another carrier?

W. Benjamin Moreland

I think that's putting a pretty fine point on kind of what our expectations would be. I think, typically, we see carriers working very hard to accommodate the demand that we're all placing as consumers on the networks, and how carriers ultimately elect to allocate spectrum and acquire spectrum is something we don't spend a lot of time on with them. I think it is interesting though to just consider the fact that the spectrum they're acquiring is of higher band than what they're selling, which certainly suggests given the penetration and the propagation characteristics of the spectrum that small cells or smaller cells are certainly going to play a role going forward where you don't necessarily need the propagation characteristics of the 700 megahertz spectrum because the cell site size that you're trying to accommodate here will certainly be accommodated with a higher frequency. So we thought that was sort of interesting in the observation. But beyond that, I really wouldn't have a comment for you.

Operator

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

Brett Feldman - Deutsche Bank AG, Research Division

Sprint has been talking about how they're moving along with the Nextel turndown a little faster than they had anticipated. Could you just remind us how you restructured your relationship with them, so we understand the extent to which it matters? Or does it matter? How quickly they go ahead with that? And then secondly, T-Mobile keeps talking about maybe selling their towers. Presumably, all the major operators would look at it if it was on the market. You've always viewed the -- what do you need to believe approach to doing these deals? A lot of people think that T-Mobile might end up putting its -- itself up for sale at this point after they do this. What do you need to believe in order to buy a portfolio of towers from a carrier that might be a takeout target themselves?

Jay A. Brown

Okay, great. Brett, on the first question with regards to Sprint and their turndown of the iDEN network, which they'd indicated they can do. Again, the bookend of the exposure we have their, we think that's about 2% to 3% of consolidated revenues if they were to turn down all of those sites. We entered into an agreement with Sprint, which we publically talked about at the end of last year and that agreement provided them the ability to take down those sites under the timeline that they had originally announced, which would basically turn down the network in about 2014, which is commensurate with the average term they have remaining on those iDEN leases. So I would say if you're trying to factor it in and you want to take all of that out, take the wide end of it out, assuming that 2013, 2014 timeframe that we see a turndown of about 3% of consolidated revenues associated with iDEN. And right now, that's the best view that I have for you. And then we'll just kind of go from there.

W. Benjamin Moreland

Brett, I'll take the second one with respect to a potential tower process that maybe going on with T-Mobile sites. Look, as we always do, we look at anything available in the market and we always underwrite transactions like that with a heavy view towards reinvesting those proceeds or that capital in our own business in the form of share purchases. And so we would look at a relatively immature tower portfolio and back into what do you have to believe about future leasing to drive higher AFFO per share than we could have otherwise driven with those same proceeds in our business over a sort of a medium-term horizon. Jay mentioned earlier in the question about our anticipated or expected conversion to a REIT, that's our working assumption. It becomes very simple around here then if you start thinking about what is the objective, and the objective is to maximize the perspective dividend post 2016. It's very simple. And so we believe that's how we'll be measured. We think that's the basis for the AFFO per share calculation that we're all undertaking today. And so anything we do, including the NextG acquisition we just closed, we expect will drive a higher dividend capacity in the company in 2016 than otherwise we could have done with the other alternatives presented to us at that time. So that's how we'll look at any acquisition and that's how we've done it in the past and you should assume that will continue.

Brett Feldman - Deutsche Bank AG, Research Division

And to just sort of summarize there. If you were to do a very large transaction that may be required an equity component, you would be willing to endure maybe a little near-term dilution around, say AFFO per share, so long as you had high confidence that by the time you are operating as a REIT, you would be clearly better off than you otherwise would have been even if there were some M&A risk in the portfolio you're buying?

W. Benjamin Moreland

Sure. In a theoretical, sort of academic answer, sure, absolutely. We don't draw any hard and fast lines about what we will or won't do, but I'm happy to share with you what our objective is, and that is to maximize the dividend capacity in a sort of a medium term when we think that's going to be so important.

Operator

And the next question comes from the line of Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley, Research Division

You raised your guidance for the year and you talked about the big 4 spending, but can you just talk a little bit more about specifically Clearwire and T-Mobile who are both planning LTE builds, but really haven't started yet. Is that more of a 2013, 2014 revenue opportunity or is that -- have you baked some of that into your $100 million underlying improvement for this year? And specifically on T-Mobile, is this going to be a situation like Sprint where you need to negotiate a new MLA and where do you stand on that?

W. Benjamin Moreland

Sure. With respect to kind of current activity, we haven't booked -- baked any of that into our future guidance, into our outlook for the rest of the year. So there's nothing going on within those 2 carriers in the order of magnitude of sort of a brand new LTE overlay that would suggest we put it in the guidance today. We're still in the early front end of that. We are seeing nice activity out of T-Mobile in what I would call the sort of a normal resumption of network enhancements and roaming overbuilds and things that they're doing. So that's certainly nice to see. We are on the front end and I don't think have not really commenced the process around the LTE overlay that they've described publicly. And Simon, I'm probably not going to get into a lot of detail on what our terms or MLA terms or things would look at. There's certainly options around negotiating a new master agreement with them. There's certainly the option to just proceed on a site by site basis sort of business as usual. We've done both in the past and have been successful in both regard, so we'll see what best suits them as we go forward, but none of that is in the current guidance today.

Operator

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

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

A couple of questions, if I could. First, the wireless carriers in the U.S. that have reported so far had kind of a light first quarter CapEx for wireless compared to where some of the equipment analysts' expectations were at. Can you talk a little bit about what you saw, you mentioned the 25% leasing applications, but have you seen any kind of pause or slowdown? And then also, talk to us maybe a little bit about your visibility that how your leasing would related to the CapEx spending cycle?

W. Benjamin Moreland

Yes, I think what we're -- the short answer is no, we haven't seen any slowdown. In fact, to the contrary, our application volume is up. And when we give you the revenue, that 25%, that's a revenue comparison in terms of originated revenue. The volume of activity is actually up beyond that in terms of numbers of application. And so we see a very high level of engagement on the part of our customers. Again, we would be sort of the leading indicator if the application cycle takes sometimes 6 to 9 months to actually turn into revenue. And so as we look out to the back half of the year, we see a lot of activity turning into revenue. I really couldn't speak to the equipment flows in terms of availability of equipment, but that's just one component of a fairly long cycle time of doing the installations and the upgrades on the sites. And so we are well underway with really all 3, and most recently in most volume being Sprint through their Network Vision activity that they've described. It's very, very busy around Crown Castle right now.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

That's good, thanks. On your full year guidance, you updated a time on what the deal or acquisition impacts were on revenue, site rental revenue and EBITDA. How about can you address what the impact might have been on AFFO and maybe lump in the financing costs just so we can get gauge how much acquisitions plus financing?

Jay A. Brown

Sure, Rick. For the full year, the impact of the increased in interest expense is about $70 million. So you can net that off of the increase that we have in the acquisitions which is about $55 million or so. Remember there's a bit of a timing difference. We borrowed the money in January to prefund those acquisitions on a run rate basis. The acquisitions are basically a push at the AFFO line. So the growth in the base business is offset a little bit by the timing difference in when we began paying interest on the debt and when we closed on the acquisition, but the rest of the base business is -- or if you want to think about it as a run rate on the fourth quarter of this year, all of that growth in the base business falls through the AFFO line.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

That makes sense. And any unusual straight line items? I know you've given us the reconciliation there as far as old guidance versus new guidance, but was there anything unusual at either Wireless Capital Partners or with NextG coming up in next quarter's actuals?

Jay A. Brown

There's nothing related to those 2 acquisitions that should affect our straight line revenue in either WCP or in terms of NextG. I think if you look at the change in straight line revenues from the fourth quarter of last year to the first quarter of this year, most of that movement is related to the timing of cash received. Obviously, this is one of the reasons why we're excited about focusing on FFO because it takes us down to the cash line and gets us out of some of the noise that we'll see from time to time up at the revenue and adjusted EBITDA line. But directionally, we think that, that component of the noncash revenue is headed downward and obviously, again, that's the benefit of focusing on AFFO.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Great. And one other quick question. You mentioned how you look at stock buybacks versus deals. You guys did a fairly noticeable amount of debt buyback both in the quarter end and April. If I could just learn about what you're seeing there. Was it to look at the leverage or what else?

Jay A. Brown

Sure. That's just opportunistic financing, frankly. If you look at 2 components of our balance sheet, the current coupon on the debt is wide of what the market would bear today if we were to go -- do a new issue. There's the 9% notes which are issued by the holding company and then there's the 7 3/4 notes, that senior secured notes that are issued by one of our subsidiary. And both of those instruments I would expect, over time, that will go in and refinance and push into a longer data financing and lower the interest coupon. And so the 9% note has a call date in January of 2013, so I would look at that as just opportunistically using our balance sheet, our credit facility, our revolving credit facility which we'll do over time and then ultimately we'll turn that out into a longer dated financing as the market allows.

Operator

And the next question comes from the line of David Barden with Bank of America.

David W. Barden - BofA Merrill Lynch, Research Division

Just a couple, if I could. Jay, just -- if you could just kind of help me think through. If I take out the M&A impact from the forward 2012 guidance, the leftover is something like $18 million of increased revenue, but $35 million of EBITDA. If you could kind of just help us think about how we get that equation to balance between revenue and EBITDA? And then second, just a couple on the deployment side. One, have you gotten any sense that like someone like a DISH who's looking at build requirements coming through the NPRM that will come out for their terrestrial build is doing the ground work to get ready to do something possibly in the next year or so? And the flip side to that item shutdown question, Sprint shared that they had done about 600 cell sites in terms of their CDMA upgrade through the first quarter, but they had thousands and thousands that were about to start coming online. Could you kind of tell us how you -- how should we think about that build acceleration starting to kind of positively impact your growth through the rest of the year?

Jay A. Brown

Sure. I'll take the first and the third and let Ben take the second one. On the impact which we laid out and I think you've correctly discussed kind of the benefit of the base business, and the reason why EBITDA is maybe higher than revenue. Two reasons there. One is on the cost side, both site rental and direct cost and the benefit that managing G&A appropriately for the balance of the year, there is some benefit there. As we talked about with the NextG acquisition, we expect over time there'll be some synergy. So we're getting some benefit there. And then the second thing is from a services business contribution. From the services business, we obviously had a very good quarter in the first quarter and we slightly raised our expectation for the balance of future quarters based on the increased activity we're seeing in the site rental business. So I think that's most of that. And the third question around the guidance for the full year. This is -- as Ben talked about, this is something we haven't seen in a very, very long period of time where you have all of the major carriers working on significant deployments. And so as you think about AT&T, Verizon, Sprint and T-Mobile, all 4 of them are very active as they're either upgrading networks, deploying new cell sites but really enhancing their wireless networks, particularly as a result of all of the trends that Ben spoke about in the data space. And so over the course of the year, as we continue to roll here, we've seen activity across the board from all of the carriers and that's why leasing activity was ahead of our expectation. I hate to kind of zero in on any 1 of those 4 because I think the general trajectory of all of those 4 would appear to be higher than what we've seen in the past years for the balance of this year, and that's reflected in the changes that we made to our forward outlook as well as the benefit that we saw in the first quarter. And happy to give you maybe a little bit more clarity on how that plays out in the balance of the year, but right now the tail, it looks like a pretty strong tailwind for the balance of the year from all of us.

W. Benjamin Moreland

Yes. And specifically Sprint, we see a lot of activity as you indicated, and that's certainly a factor in our outlook going forward. Your second question, David, will be short on DISH. We're in active dialogue with them. I won't certainly attempt to speak for them or what their plans are on this call, but we're very excited about the prospect of that spectrum ultimately coming to market in whatever form or partnership or structure that it may take. We have assets and portfolio, whether it be macro sites or small cells. We are absolutely available and willing to work with them very aggressively on helping them deploy that spectrum. And so it's exciting for us sort of at a high level that you have someone entertaining a business plan with a notion of wanting wireless service through a spectrum they've acquired. Beyond that, we'll have to wait and see exactly how the deployment plan looks.

Operator

And the next question comes from the line of Philip Cusick with JPMorgan.

Philip Cusick - JP Morgan Chase & Co, Research Division

Can you delve a little more into the services business? It was pretty nice beat this quarter. You said you did take it up a little bit, but what in particular is -- has been the source of the improvement? Do you feel like you're a little conservative now going forward or could that even ramp a little further?

W. Benjamin Moreland

Yes. The services -- thanks for asking because it's a lot of work and we got a lot of people deploying, working hard for customers on that effort, but we're continuing to increase our take rate in terms of opportunities among carriers touching our sites and then increasing the scope of what we're actually doing in those individual installations. And won't get into a whole lot of detail there, but we've increased the scope of work that we're typically taking on for customers there. We are always, and I'm the first one on this topic, we're always conservative about how we anticipate or forecast future growth there. It's just difficult. It's volume based, it's transaction based and it's a discretionary purchase on the part of the carrier. So it's a very difficult thing for us to forecast. We are very pleased to see that its trajectory has been up and we've been doing very well with it. And frankly, the way we think about it is it covers a lot of overhead and a lot of the activities that we undertake to bring us closer to our customers in the high touch experience that they enjoy working with us, but we are going to always sort of take a little bit of a haircut on our forward outlook until we ultimately deliver and maybe that provides a little bit of an upward surprise from time to time, and that's a good thing. We've been on the reverse of that as well, as you remember. So we're going to try to keep it on the side.

Philip Cusick - JP Morgan Chase & Co, Research Division

Can you remind me, because I forget, is that more a construction driven or is it more permitting and amendments driven?

W. Benjamin Moreland

It's all of the above. It's everything from permitting and zoning all the way through the construction management cycle of the installations that were the amendments on our sites. It's really a turnkey process.

Operator

And the next question comes from the line of Jonathan Chaplin with Credit Suisse.

Jonathan Chaplin - Crédit Suisse AG, Research Division

Two quick questions, if I may. First, just a basic housekeeping question. Can you remind me, I think Sprint told us that they've done the zoning and permitting on about 10,000 of the 12,000 sites that they hope to build this year. What point does it go into guidance for you guys? Is it once the zoning and permitting is complete? And then the second question, I think we've heard very supportive comments from 3 of the major carriers so far this quarter about a much bigger push into small-cell networks. What's a little bit unclear to me is in which situations they're building those networks from cells, certainly in the case of PCS. It sounded like that it was more of a build than using a third-party provider. How do carriers decide between when they build it themselves or when they use something like NextG's assets to make those deployments?

Jay A. Brown

Sure, Jonathan. On your first question, any of the carrier activity, we put it into the outlook or into the guidance when we have reasonable basis to do so. And that can either be based on the conversations we have with the carriers or alternatively when we have application. The applications give us about 3 to 6 months worth of visibility. And so as you're looking at any cycle early in the year now, we would have pretty good visibility as to what the second quarter and a portion of the third quarter would look like in terms of the applications coming online. The end of the third quarter and the fourth quarter activity would be largely based on conversation, and that's true regardless of which carrier customer you're talking about.

W. Benjamin Moreland

To your next question on the interest on the part of the carriers around DAS networks and small cells, here's how our experience has gone in terms of -- and we're gratified the see that basically we're involved in existing agreements and ongoing conversations with really all the major carriers at this point. And the decision to purchase decision that they make in our experience is most largely driven by speed and execution capability, which we are thrilled to death to tell you that in our judgment, NextG is the best in class at that. So in terms of getting networks on the air, on time and on budget, there's nobody better. The second area that I think is incredibly compelling is what I was speaking about in my opening remarks around the nature of the shared wireless infrastructure model that we promote and utilized in the tower business where the carriers are able to spread the cost of data occupancy among their tenants, their co-tenants on our towers. The same is true in a DAS system where it's going to be much more economically efficient for one party, in this case, ourselves, to own a system and share it among carriers in that market. We are in a -- we believe have adequate or superior return above our sort of cost to capital for the effort and the risk profile we're undertaking. But for each individual carrier, it's a significantly less expensive proposition to occupy our site or our system than it is to try to build themselves. I would say it's in that order that I suggested the first criteria, given the network challenges is speed and execution capability. But we always have an eye toward making sure that it's economically compelling for the customer so that we're always on the right side of that equation. And so far, we are very pleased with what we see.

Jonathan Chaplin - Crédit Suisse AG, Research Division

So when they do deploy their own systems, are they using them as multi-tenant systems and competing against your NextG assets, if they build it, it's exclusive.

W. Benjamin Moreland

Well, it's very early days, but there's certainly nothing preventing them from that. I think experience and just logic would tell you their primary objective is to satisfy their own capacity challenge on their own network. And to the extent co-location is an opportunity, you have to ask them, certainly, on a venue, in building situation, that's often the case. But there's a big market out there and we're certainly not going to be the only party in this business and we'll have a number of parties in the business as we have today, as well as our carrier customers self providing, building for themselves because, frankly, there's a lot of need out there and they can't always be met by the independent parties that are in the market.

Operator

And the next question comes from the line of Michael Rollins with Citi Investment Research.

Michael Rollins - Citigroup Inc, Research Division

I was wondering if you could help us think through for the NextG business? For the revenue and the EBITDA, how do we think about the revenue that comes from the long-term nature of the lease itself versus the accrual of revenue that's for the reimbursement of the capital spending that you're performing on behalf of the tenant and they're paying you upfront for that deployment of the equipment?

W. Benjamin Moreland

Sure Mike. Good question. This is a -- I would describe it as a venue-by-venue discussion depending on where the system is built. It's also a carrier by carrier conversation. And so depending on what the desire of the venue and the economics of how that relationship is structured, it can be structured as an upfront payment that's required to the venue in order to secure the system, for the rights to build the system in the area. Sometimes they would rather have a share of ongoing revenues. Sometimes they would like a fixed ongoing payment in the future, and that to some degree drives then the conversation that we have with the carriers when they are interested in going onto the systems. It is typically structured like the tower business, where most of the value is driven by ongoing revenues that are paid on the quarterly -- on a monthly basis over a long period of time. Some portion of those revenues, depending on -- largely dependent on how we think about the payments at the initial date to do that for capital deployment, considerations or payments to the venue, sometimes we'll ask them to pay a portion of their rent in the form of a prepaid rent that they pay day one. And so I wouldn't describe there to be a norm yet in this industry. My guess is after a couple of years, there will be something that becomes more normalized, but today, it's a transaction-by-transaction basis. And as we evaluate it, we're looking at it on a return standpoint. So as Ben described earlier in the conversation, how we evaluate alternatives, we can certainly talk about that on a broad basis around how we think about investments and buying back shares or tower acquisitions for DAS investments. When you get down to the more specific level, we would look at each individual transaction or opportunity that we may choose to bid on or not bid on based on the economics that we think are available there. And that would be a combination of what are the economics to the venue and then what are the economics we're receiving from the carrier, and then we balance those and strike a deal that we think delivers the appropriate return for the risk that we're taking.

Michael Rollins - Citigroup Inc, Research Division

And if you had to take a look at either the heritage tower portfolio you have versus the NextG, is there a different percentage of revenue that comes from this sort of noncash, I guess you call it CapEx reimbursement? So if you were to compare the 2, is that a meaningful difference in revenue contribution?

Jay A. Brown

Mike, we've owned the NextG assets for a couple of weeks, which is the majority of what we have in terms of DAS site. And those only have one and a quarter tenant on them. So I think that will probably be a question we'll be better able to answer over time as we structure more of these deals and negotiate with the carriers. But right now, it's such early days. I think, in general, if you were to look at kind of past practice and kind of where we're at today, the portion of prepaid rent that the carriers have been willing to pay broadly in the industry is maybe higher than traditional towers. But keep in mind a lot of that was driven by the fact that a lot of the folks in the business were funded by private equity and so they really didn't have an opportunity or an ability to have capital put to work on behalf of the carriers like we do. So my guess is that, over time, the migration will probably look more like the traditional tower business, but it's so early that it's really hard to say that. And again, this is driven on a deal by deal economics, and so I think we're looking at driving returns given a certain set of investment opportunities that are in front of us and maybe ultimately the carrier's view and desire is to go to a structure that looks more like paying a higher portion of the rent day one. And we'd be open to that structure. It just comes down to the economics and the returns around certain assets. But I think, honestly, you're going to have to give us a little bit more time and we'll kind of see how the market develops.

W. Benjamin Moreland

Whatever develops ultimately gets washed out at the AFFO line though, right, because that's ultimately just cash. So it's all about returns at the end of the day.

Operator

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

Batya Levi - UBS Investment Bank, Research Division

Just a quick couple of follow-ups. First, what were some of the onetime items that contributed to the $5 million help in the quarter? And also just a follow-up on the guidance, I think the deed in the first quarter was about $7 million better on the base business, but you shook out the acquisition benefits for the full year guidance, the raise is about $12 million, $13 million. The reason that the bps slows down, is that a function of the churn that you mentioned or is there any other items that takes it down? And last question, I believe you said that you expect some margin dilution on the services business in the second quarter. Can you talk about what would drive that?

Jay A. Brown

Sure. On the onetime items, there are things where we find, as we do normal reviews of the portfolio, we will find that the carrier has installed some equipment that maybe we weren't notified about and so there will be some nonrecurring benefit that we'll pick up revenue from the last time that we ought to visit the site and they pay us for that. Some of it is just timing around when leases get into the system against when they were installed on the site. So there's always going to be a little bit of that noise. It's a little higher this quarter, honestly, than what it normally is. Normally, we're in the kind of 2 to 3 range and up at 5 in the first quarter. So a little higher than the normal, but not completely unusual. The impact for the balance of the year, I mean, I spoke to the question earlier around how much visibility we have. We certainly had a very good first quarter. We have pretty good visibility based on applications for about 3 to 6 months. And for the last half of the year, we're just doing it based on either conversations we've had directly with the carriers or what they've said publicly, and we've maybe mitigated a little bit from current levels of activity in the back half of the year and the outlook we gave and we'll just kind of see how it develops. And then in your last question around how the services business performs and why we're assuming that it's down. As Ben spoke to, there's a lot of volatility there and we don't have as much visibility or clarity on exactly the services that the carriers will engage -- gauge us to do. So we're generally pretty conservative in terms of the outlook that we give. If you were looking at it in past periods and you were to look at changes either up or down, that's largely indicative of the movements in the carrier's leasing activity and how much deployments they have going on. So in periods where the carriers are deploying more equipment, they're busier when they offload more of that work to us. Where there's not as much activity going on, those would be reflected in slowdowns in that business. That's the generalization. But as we give outlook, we're generally pretty conservative against that. So sometimes, there's a bit of a divergence between what we talked about in terms of lease applications and that environment and then what we baked into our outlook for our services business.

W. Benjamin Moreland

All right. Thanks. I think with that, we're right at the bottom of the hour. I know it's a busy time, so we'll let everybody jump. Thanks for joining us on the call. We've got a lot going on, look forward to the rest of the year and some exciting things happening at Crown Castle. So have a great rest of the day. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation and you may now disconnect.

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