American Tower's CEO outlines merger possibilities for Crown Castle, SBA and others
July 31, 2008 - In response to an analyst's question about acquisition opportunities of tower companies that could be left in the U.S., American Tower Corporation Chief Executive Officer James Taiclet discussed some "theoretical" alternatives that may or may not be available in the future, butAmerican Tower focused upon the possibility of a merger with Crown Castle International or SBA Communications.

During American Tower's second quarter conference call yesterday, industry observers were given an overview of the available prospects by Taiclet who said he was pleased to "talk about the universe for a few minutes."

Although Taiclet and former CEO Steve Dodge have been frequently asked about potential merger opportunities during earnings calls, this is the first time the topic has been answered at length where candidates were identified. 

"First and foremost is our peer company and one we have a lot of respect for, it's Crown Castle, very similar in size to American Tower in many respects. It's our peer and probably the only peer of such size in the industry today, obviously a merger candidate if you will, theoretically," Taiclet said.

SBA is next
"SBA is the second public company in the peer group. Versus American Tower and Crown Castle's 23,000, 24,000 size, we are talking about a smaller number. SBA has been doing some acquisitions lately and bulking up a bit, so maybe they are at the 7,000, 8,000 tower range by the time it's all rolled in, and that again is another very well managed high-quality company in the public market."

"And then you get down to a couple of somewhat sizeable privately owned tower companies that are out there like Global Tower Partners. But now you're down into sort of the 2,000 to 3,000 tower range and then it goes down from there," Taiclet told analysts.

"So, and even some of those candidates in the say 500 tower range lately have been acquired, there is a fairly limited number of third-party tower companies of any kind of scale that are available. But, of course, there are also the carrier-owned tower portfolios that are still owned by those companies, the biggest one we believe is AT&T, probably about 8,000 towers, most of those legacy AT&T wireless sites."

"T-Mobile, which publicly announced an auction that was then discontinued for about a 6,000 tower size, and of course recently Sprint sites were sold. So, 3,500, but they are off the market now. So again, a fairly limited universe of U.S. tower acquisition opportunities, but they could range from a couple of hundred million dollars to Crown Castle, valued at upwards of $15 to $16 billion."

"Nothing that I can say today is imminent or available to our knowledge among the group. In Latin America, there is a very broad range of opportunities for us," Taiclet continued.

"First of all, in the existing markets we have you may recall that this year we acquired about 250 towers, 200 or so in Mexico and about 50 in Brazil from Nextel International that already occurred in the first quarter. So, periodically we do get those types of opportunities to acquire branches of existing carrier towers in Mexico and Brazil. We are also building in Brazil, specifically this year at a higher rate than we ever had before. There's a lot of opportunity down there with companies like Oi and Claro and Unicel that are either expanding their territories or are new to the market."

"And finally, in Latin America we are very eager to open up adjacent geographies, countries like Peru, Colombia, Argentina, Chile are candidates for these kinds of things. And in addition to being close to operate since we already have, they also have common customers with their current operations."

"So we are going to keep trying to figure out ways to work with our customers to enter some new geographies in Latin America and that's a very high priority for us. Each of those could be between 300 and 1,000 towers over the first couple of years, depending on how many countries we could get into. So that's really the landscape in the western hemisphere," Taiclet said.

He also said that American Tower was prospecting in Asia and in Europe, Africa and the Middle East as well.

Stellar second quarter earnings and credit rating reported
American Tower said it swung to a profit in the second quarter, helped by a hefty tax benefit related to the liquidation of its subsidiary Verestar and demand for tower space worldwide.

Earnings for the three months ended June 30 totaled $158.8 million, or 38 cents per share. In the year-ago quarter, American Tower lost $20 million, or 5 cents per share.

American Tower's revenue rose 10 percent to $393.7 million from $358.4 million last year, beating Wall Street's expectation of $390 million in sales.

Taiclet said the company upped its outlook for the full fiscal year, and said it now expects adjusted earnings of $1.08 billion to $1.1 billion, from its earlier forecast of $1.07 to $1.09 billion.

"Given the strong financial health of the bulk of our customer base, our recent experience is that they are continuing on with their technology migration plans from 2.5 to 3G, while continuing to invest in network quality," Taiclet said.

Taiclet stated that due to the company's longer initial contract alliance with their customers, American Tower leads the industry with over $8.5 billion worth of non-cancelable lease backlog, which he says is nearly six years of backlog at the current revenue run rate.

He also said that American Tower has the strongest balance sheet in the sector, and the highest credit rating of BB plus.

"Our weighted average maturity of our debt is approximately 5.5 years, compared to approximately three years at our peer group company. We believe that being the most resilient growth company in a resilient growth industry enables American Tower to offer something that many investors might find important over the course of the business and economic cycle, and that is consistency," Taiclet said.

During the quarter, American Tower completed the construction of 66 towers and four in-building installations, and acquired eight new towers.

Capital spending on land acquisitions totaled $11 million in the quarter and they also spent approximately $4 million to prepaid ground leases that were extended as part of their land management program.

Although distributed antenna systems are a small percentage of the company's revenues, Taiclet said it is a niche solution for coverage and should not be considered as a substitute for towers.

"As we work closely with our customers to deploy their networks, our goal is to offer a comprehensive solution of sites to fit their needs. And today, with American Tower, this includes tower sites, indoor and outdoor DAS and rooftop managed sites, along with select site services to help customers get on the air quickly," Taiclet said.

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