Mark DeRussy - SBA Communications Corp. Brendan T. Cavanagh - SBA Communications Corp. Jeffrey A. Stoops - SBA Communications Corp..

Amir Rozwadowski - Barclays Capital, Inc. Simon Flannery - Morgan Stanley & Co. LLC Ric H. Prentiss - Raymond James & Associates, Inc. Spencer H. Kurn - New Street Research LLP (US) Nicholas Del Deo - MoffettNathanson Colby Synesael - Cowen and Company Matthew Heinz - Stifel, Nicolaus & Co., Inc.

Michael Bowen - Pacific Crest Securities David William Barden - Bank of America Merrill Lynch Jonathan Atkin - RBC Capital Markets LLC.

Ladies and gentlemen, thank you for standing by, and welcome to the SBA 2016 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. Also as a reminder, today's teleconference is being recorded.

At this time, we'll turn the conference over to your host, Vice President of Finance, Mr. Mark DeRussy. Please go ahead, sir..

Good evening, and thank you for joining us for SBA's third quarter 2016 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer, and Brendan Cavanagh, our Chief Financial Officer.

Some of the information we will discuss on this call is forward looking, including but not limited to any guidance for 2016 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business.

Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in today's press release and our SEC filings, which documents are publicly available.

These factors and others have affected historical results, may affect future results, and may cause future results to differ materially from those expressed in any forward-looking statement we may make. Our statements are as of today, November 1, and we have no obligation to update any forward-looking statement we may make.

Our comments will include non-GAAP financial measures, as defined in Regulation G and other key operating metrics. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and the other information required by Regulation G can be found in our Supplemental Financial Data package.

In addition to the Regulation G information, this package also contains other current and historical financial data. This is located on our Investor Relations landing page at ir.sbasite.com. With that, I will now turn the call over to Brendan to comment on our third quarter results..

Thank you, Mark. Good evening. The third quarter was another strong one for SBA. We were near the high end of our guidance for both site leasing revenue and AFFO and above the high end of our guidance range for tower cash flow and adjusted EBITDA.

Our solid performance was driven by both favorable moves in foreign currency and by operational outperformance on the leasing side of our business. Total GAAP site leasing revenues for the third quarter were approximately $1.7 million above the midpoint of guidance we provided last quarter.

GAAP leasing revenues were negatively impacted in the quarter by a one-time negative adjustment to straight-line revenue of approximately $1.7 million. As a result, cash site leasing revenues were approximately $3.4 million above our outlook.

Leasing activity during the quarter was as expected and in line with activity seen during the first half of the year.

The primary contributors to the outperformance during the third quarter were a stronger Brazilian real than we had projected when providing guidance, which contributed approximately $2 million of incremental cash leasing revenue, as well as some higher non-recurring miscellaneous revenue items, some of which were originally anticipated for the fourth quarter, and some of which were incremental to our total expectations.

Same tower recurring cash leasing revenue growth for the third quarter was 4% over the third quarter of 2015. On a gross basis, the same tower growth was 8%. The net same tower growth calculation was negatively impacted by 2.2% of iDen related churn and 1.8% of other churn.

This will be the last quarter that the iDen related churn materially impacts our same tower growth numbers.

Domestic same tower recurring cash leasing revenue growth over the third quarter of last year was 7.6% on a gross basis and 3.1% on a net basis, excluding 2.5% of iDen related churn and 2% of other churn, a little over half of which was related to Metro, Leap, and Clearwire decommissioning.

Internationally, on a constant currency basis, gross same tower cash leasing revenue growth was 11.1%, exclusive of 50 basis points of churn, most of which was from one narrowband customer in Canada. Gross organic growth in Brazil was 12%. As mentioned, leasing activity in the quarter remained steady and as expected.

Approximately 70% of incremental domestic leasing revenue added came from amendments, and the big four carriers represented 92% of total incremental domestic leasing revenue added during the quarter. International leasing activity was up a little bit during the quarter over Q2 with solid contributions from all of our markets.

During the third quarter, cash site leasing revenue denominated in currencies other than U.S.

dollars was 12.1% of total cash site leasing revenue, the substantial majority of which was from Brazil, with Brazil representing 11.3% of all cash site leasing revenues during the quarter and 7.9% of cash site leasing revenue, excluding pass-through revenues.

Tower cash flow for the third quarter was approximately $3.8 million above the midpoint of guidance we provided last quarter. Better than expected foreign exchange rates benefited tower cash flow by approximately $1.3 million relative to guidance.

The balance of the outperformance came primarily from the higher cash leasing revenue I mentioned earlier as well as some savings achieved by controlling the direct costs associated with our towers.

The quality of our assets, our excellence in execution, and our lease agreements allows us to continue to have the strongest operating margins in the industry. Domestic tower cash flow margin was 81.7% in the quarter, and international tower cash flow margin was 68.6%.

Adjusted EBITDA in the third quarter was approximately $2.7 million above the midpoint of our provided guidance range. This beat was the result of the outperformance in tower cash flow, offset by slightly higher SG&A and a weaker services contribution than anticipated.

Adjusted EBITDA margin was 70.1% in the quarter, compared to 69% in the year earlier period. Approximately 99% of our total adjusted EBITDA was attributable to our tower leasing business in the third quarter. AFFO in the third quarter was approximately $2.5 million above the midpoint of the guidance range we provided last quarter.

The incremental adjusted EBITDA just discussed was the primary contributor to this beat, with higher cash taxes being offset by lower than expected nondiscretionary CapEx. AFFO per share increased 7% to $1.53.

Excluding the impact of both iDen churn and the positive changes in foreign currency exchange rates, AFFO per share increased 9.8% over the year earlier period.

When further adjusted to exclude the year-over-year declines of $4.3 million in services margin and $2.1 million in augmentation reimbursement amortization, AFFO per share increased 13.3% over the year earlier period. We continue to selectively deploy capital towards portfolio growth.

In the third quarter, we acquired 157 communication sites for $30.9 million in cash. We also built 93 sites during the third quarter. These additional sites are located in both domestic and international markets. We continue to invest in the land under our sites, as this is both strategically beneficial and almost always immediately accretive.

During the quarter, we spent an aggregate of $11.5 million to buy land and easements and to extend ground lease terms.

At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 73% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 33 years.

Looking forward, our earnings press release includes our outlook for the fourth quarter and the resulting updated outlook for full year 2016. We've increased our full year 2016 site leasing revenue guidance, primarily to reflect improved assumptions around foreign currency translation.

Our core expectation for fourth quarter organic leasing growth assumes steady amounts of incremental revenue added for the balance of the year, indicative of the stable leasing environment we've been in all year, and now includes approximately an additional $1 million of Metro, Leap, and Clearwire consolidation churn.

With regard to future consolidation churn, we are currently producing approximately $50 million of annual recurring run rate revenue or approximately 3% of current total leasing revenue from leases with Metro, Leap, and Clearwire that we ultimately expect to churn off over the next three years.

Based on termination requests received year-to-date, we anticipate the impact of consolidation churn from these customers to be greater in 2017 than we've experienced in 2016. Regardless of the timing, this consolidation churn has been expected and is not anticipated to impact our long-term goal of producing $10 or more of AFFO per share in 2020.

In addition to positive FX related changes, our full year guidance for adjusted EBITDA and AFFO have been updated to reflect our expectation that the level of services activity in the fourth quarter remains depressed and to incorporate higher SG&A costs in the fourth quarter related to our previously announced REIT conversion and the associated S-4 filing as well as advisory costs related to the Oi bankruptcy.

Incremental reconversion related costs are expected to be $2 million to $3 million in the fourth quarter. AFFO has also been adjusted to incorporate the interest savings achieved through our successful third quarter refinancings and lower expected nondiscretionary CapEx for the year.

We expect the fourth quarter to be another positive one and to continue to show steady growth in AFFO per share. With that, I will turn things over to Mark who will provide an update on our liquidity position and balance sheet..

Thanks, Brendan. SBA ended the quarter with $8.4 billion of net debt, and our net debt to annualized adjusted EBITDA leverage ratio was 7.4 times, back within our targeted range of 7 times to 7.5 times. Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was a healthy 3.5 times.

During the quarter and subsequent to quarter end, we cumulatively spent $77.4 million to repurchase 0.7 million shares of common stock at an average price per share of $108.67. We currently have $472.6 million of authorization remaining under our stock repurchase program. Quarter end shares outstanding were 124.3 million.

During the quarter on July 7, we issued $700 million of secured tower revenue securities out of our existing Tower Trust. These notes have a coupon of 2.877% and an anticipated repayment date of July 2021.

A portion of the net proceeds of this offering were used to prepay the full $550 million outstanding of our 5.101% secured tower revenue securities. Also during the quarter on August 15, we issued $1.1 billion of 4.875% senior notes due 2024.

The net proceeds of this issuance along with cash on hand and revolver borrowings were used to redeem in full both our 5.75% notes and our 5.625% notes and pay the associated call premiums. The 5.75% notes were redeemed during the quarter, and the 5.625% notes were redeemed subsequent to the quarter end on October 1.

We ended the quarter with $150 million outstanding under our $1 billion revolver, and we have $100 million outstanding as of today. At quarter end, the weighted average coupon of our outstanding debt is 3.5%, and our weighted average maturity is approximately five years.

We are very pleased our capital structure and believe it maximizes our ability to drive growth in AFFO per share.

Our primary capital allocation focus continues to be portfolio growth that meets our investment return requirements, which will likely continue to be augmented with share repurchases at prices that we believe are below intrinsic value, consistent with what we have done over the past several quarters. With that, I'll now turn the call over to Jeff..

Thanks, Mark, and good evening, everyone. As you heard from Brendan earlier, we had another solid quarter. Our site leasing business demonstrated continued steady demand in all of our markets, which our operational excellence was able to translate into continued strong margins and EBITDA growth.

We allocated capital to a mix of stock repurchases and portfolio growth, reducing leverage slightly and back within our target range. AFFO is growing, and share count is shrinking.

Through the combination of these factors, we were able to continue to grow AFFO per share, and our results and actions in the third quarter positively contribute to achieving our goal of over $10 per share of AFFO in 2020.

In the U.S., customer activity has remained steady now for five straight quarters in terms of type of activity, contract volume, and revenue added. The type of work we are seeing continues to be primarily around the reforming of 2G and 3G spectrum to LTE as well as AWS-1 and 700-megahertz deployments.

We still have not yet seen much in the way of AWS-3, WCS, or 2.5-gigahertz spectrum deployments, all of which remain opportunities ahead of us. By application and executed contract volume, the activity remains substantially amendments. Three of the four nationwide U.S. carriers were responsible for substantially all of our domestic activity.

This steady level of activity underscores the current and future importance of macro sites at our customers' network plans. We expect the investments in macro sites by our U.S. customers will remain heavily weighted towards amendments for the remainder of this year and into 2017.

Our backlogs remain solid, and our view of domestic leasing activity for the fourth quarter remains unchanged and materially the same as the first three quarters of the year.

Our services results were at the low end of our expectations for the quarter, reflecting a very competitive environment for work that has existed all year and our choice to pass on profitable or less profitable business. Fourth quarter services results are expected to be similar.

Internationally, leasing activity was up slightly in the quarter but generally in line with our expectations. Activity was more balanced between new amendments and new leases compared to the U.S. Brazil was once again one of our best markets in terms of same tower revenue growth.

Oi has been current with all post-petition payments and continues to work towards a judicial reorganization. We are actively engaged in the process and expect more clarity on the final outcome in early 2017, and we continue to expect all of our Oi leases to be reaffirmed. We continue to grow our portfolio internationally.

We crossed the 10,000 sites owned threshold in the third quarter in our international markets. We entered Chile, where we purchased approximately 100 towers with the right to purchase several hundred more. We like Chile a lot.

It is a stable market, a leading Latin American economy, four nationwide wireless carrier customers, a growing demographic, and a need for improved wireless networks but with very disciplined siting regulations. We will look to both build and buy additional sites in Chile.

We expect to be able to operate in Chile very efficiently by leveraging our very substantial existing Latin American resources. We intend to continue to grow internationally with continued primary focus on the Western Hemisphere but keeping an eye out for opportunities worldwide.

We expect all future investments to provide a strong return on invested capital, further contributing to our current companywide ROIC of 10.1%, as detailed in our package of supplemental financial data. This return is well above our cost of capital and demonstrates we are creating value every day.

A high-yield deal we priced in August was done at some of the most attractive terms we have seen in a number of years and had the effect of lowering our weighted average coupon and at the same time increasing our weighted average maturity.

We have plenty of liquidity, and over the next 12 months, we expect our liquidity to remain over $1.5 billion, including the cash we generate. Hopefully, everyone saw our announcement of our board's decision to elect to be taxed as a Real Estate Investment Trust starting with the 2016 calendar tax year.

We have been operating as a REIT since some time last year, so we were ready for this, and, of course, it is something we've been contemplating for a long time. Our window for the election before we generated positive earnings and profits was either the 2016 or 2017 tax years.

We decided to elect this year simply to get ahead of any changes that may arise from the results of the November elections.

At this time, we are proposing no changes to our capital allocation strategy and intend to use our net operating loss carry forward positions for tax purposes to eliminate any distribution requirements, which we think will be the case at least through the end of 2020.

Looking forward, we see many years of continued solid activity from our customers, which will generate additional revenue opportunities for SBA. In the U.S., the AWS-3, WCS, and 2.5-gigahertz spectrum deployments I mentioned earlier will come, and deployments will occur of the Dish spectrum, the FirstNet spectrum, and the 600-megahertz spectrum.

More spectrum is anticipated to be made available in connection with 5G, which we also expect to provide opportunities for us. Even without new spectrum, 5G will require new equipment on the tower. All these items and I am confident others will keep macro sites a critically important part of our customers' networks.

We see similar dynamics and prospects in our international markets. The deployment of the 700-megahertz spectrum in Brazil is an example of a large spectrum deployment yet to come.

With our high-quality asset portfolio that we have spent close to 20 years carefully assembling, we are very well positioned to participate in this activity, which over time we expect to be very material. We are very optimistic about the future and take a long-term approach to the business.

Speaking of our long-term approach, we continue to focus our attention and energies on our long-term goal of producing more than $10 per share of AFFO in 2020. We had a very steady third quarter and expect a stable and similar fourth quarter.

We accomplished a number of things this quarter that directly and clearly help us achieve our goal of more than $10 per share of AFFO in 2020, and we look forward to reporting and measuring future results with that perspective in mind. Tony, at this time, we're ready for questions..

Thank you very much. We'll take our first question from Amir Rozwadowski with Barclays. Please, go ahead..

Thank you very much. Jeff, you've talked about some of the new spectrum deployments that could potentially take place. I was wondering what your thought process is around timing.

It does sound like we've got some suggestions that some of that spectrum deployment is sooner rather than later, but that's something that we had heard in the past, so I would love to hear your thoughts around that.

And then, one of the other major issues that's impacted the broader sector over the last couple of years has certainly been the focus of the carriers when it comes to the allocation of their capital, be it for purchasing new spectrum or some of it obviously involved in very large M&A.

What are you hearing sort of from a carrier perspective here, and how should we frame that in terms of your growth opportunity over the next 12 months to 24 months? Thanks very much..

Yeah, I think, Amir, and thanks for the question, on the spectrum, particularly the bands where multiple people want it, the AWS-3, I think you're going to see some differences in the timing of deployments.

And I don't want to get too specific based on what our customers have told us, but I do believe, for example, AT&T has publicly said they're really not going to get cranked up around that until some time next year. Some of the others may be a bit sooner.

And I think the same would hold true for the WCS spectrum, and we are seeing some increasing, although at least for us still not material, signs of 2.5-gigahertz activity. So a little more visibility, a little more clarity as we move through each quarter.

And it definitely feels like 2017 should see some spectrum deployments that we did not see in 2016. And in terms of allocation of capital, these are big organizations, our customers that are public and have return on investment goals and a variety of calls on their capital.

I think the one thing we know for sure is that over time, great wireless service, particularly when you're talking video, which a lot of investment has recently gone into the content side to pump over the wireless networks, you're going to need a lot of equipment for that.

But by the same token, just as any organization I think would see it this way, money is not unlimited, and every budget cycle goes through the allocation of capital and the prioritization, and there's been a number of different things that our customers have spent their money on, and for those that are dividend payers, that certainly is extremely important, that they be able to continue to pay their dividends.

So I don't think capital is unlimited in our industry.

I think all that really means for us is an elongated and stretched out period of time for which investment will occur, because the one thing that doesn't change is the law of physics, and as you pump more and more traffic and more and more video through the mobile networks, you simply must have additional equipment..

Great. Thanks so much for the incremental color..

Thank you. Our next question will come from Philip Cusick with JPMorgan. Please, go ahead..

Hi, this is Richard (24:07) for Phil.

On the churn commentary, could you give us a little more color on how we should think about it with normal churn, consolidated churn, and iDen churn kind of going away or ending? How should we think about it as we move to the end of the year and into next year?.

Yeah. Sure, Richard (24:24). So, first of all, the iDen churn, which in this quarter represented on a domestic basis about 2.5% of a drag on our same tower growth rates. Most of that churn or really all of that churn took place in the fourth quarter of last year.

So, as we now move into the fourth quarter of 2016 and our next reported year-over-year analysis, you will no longer have that. So, you'll see a pickup in the net growth numbers because the iDen churn will be behind us. As it relates to the non-iDen churn, we have seen that pick up a little bit recently.

As indicated in our comments, we expect 2017 to be higher than 2016 on a full year-over-year basis. We've gotten some additional notices recently. This is primarily or it's entirely consolidation churn. So, you're talking Metro, Clearwire, and Leap Wireless related churn. It's not unexpected at all.

I think when we provide our 2017 guidance with our fourth quarter results, we'll be able to give you our most current view at that time, but within the right context, I think the point is that we're – we've expected to see this churn happening in either case.

The timing still remains to be seen a little bit, but it doesn't really have any impact on our long-term ability to hit our $10 of AFFO goal by 2020..

Great.

And in terms of in the international business, I guess entering Chile, should we expect more acquisitions in new countries in Latin America or around the world, or do you think is Brazil stabilized enough where you'd be interested in starting to do more acquisitions there again?.

Yeah. I think for the right price, we definitely would continue to grow in Brazil. And in fact, some of the acquisitions that we completed in the third quarter and some that we have on our books to complete going forward are in Brazil. So, we are continuing to invest in Brazil, and it's really all a function of the price.

We continue to believe that long term, Brazil will be a very, very good market. So, we're doing a little bit of both..

Great. Thank you..

Thank you. Our next question in queue will come from Simon Flannery with Morgan Stanley. Please, go ahead..

Thanks a lot. Good evening. Jeff, you talked about the 5G opportunity. I think there's been a lot of talk about using microwave spectrum with a small cell architecture.

So, can you just be a little bit more specific about what you see as the opportunity? Is it more about using low-band spectrum as well, or do you think you can get involved with the microwave stuff? And then, just a quick follow-up. The REIT costs in Q4, is that really a one-time, or will there be ongoing additionally REIT costs in 2017? Thanks..

Yeah. Brendan will hit the second one, but on the 5G, Simon, we've been spending a lot of time with folks who are spending all their time figuring out what this will look like. I think when it finally gets here in our markets, it will be a combination of low band and all the way up to the high band frequencies.

So, I do think we're going to see at a minimum a lot of equipment changes to support the 5G. And in fact, my understanding is that even because of the oscillation and the cycles of the frequencies, even reusing the same spectrum to produce 5G is going to require all new equipment.

So, I do think there's going to be a lot of touches to the towers, and I do think we're going to have a chance to benefit from that..

And, Simon, on the REIT costs, those incremental costs in the fourth quarter that are in SG&A are one time.

The vast majority of that is related to the filing fee associated with the S-4, which is based on market cap in addition to some legal costs and other advisory costs associated with going through the conversion process that we announced earlier this month..

All right. Thank you..

Thank you. Our next question in queue will come from Ric Prentiss with Raymond James. Please, go ahead..

Thanks, good afternoon..

Hi, Ric..

Couple of quick ones. First, just to make sure on the churn thoughts, next year churn versus 2016, that is on the kind of core churn, right, not including that iDen drops off? So, it's kind of like your non-iDen churn would be up year-over-year.

Is that what you were saying?.

That's correct. That's correct..

Okay. And then, Jeff, you talked about refarming 2G activities have been going on.

What exactly happens when they refarm 2G spectrum? Do you expect there to be more work as 2G networks get turned off, or will there be a pause as they get that spectrum freed up to use for non-2G services?.

I don't think there'll be a pause just because traffic continues to grow, not all the new spectrum is yet being deployed. I think it's more efficient for them to refarm. And what we're typically seeing is swap outs of equipment where you kind of get like-for-like numbers of antennas. You may lose some base stations on the ground.

You may pick up some radio heads at the top of the tower, which is typically the architecture that everyone is using for LTE today. But we're pretty busy, Ric, with all the amendment work. It's actually there's a lot of very high percentage of our sites are being touched..

Okay. And the final question is the stock buyback pace was a little bit lighter than 2Q and what we were expecting. Talk to us a little bit about the pacing of the buyback, and you mentioned a couple of times that you're back into your target range of 7 to 7.5.

Should we assume that you don't want to go above the 7.5 anymore?.

No. I don't think you should assume that. I don't think you should expect us to get up to something with an 8 handle on it. But I think given what we did in the prior couple of quarters where maybe we took advantage of some opportunities and bounced around a 7.6 or a 7.7, then delever back and kind of stay around there.

I mean, that wouldn't be out of question. In terms of the amount, it's very simple. We set price targets periodically, and we either hit the target or we don't. We're not yet, and I don't know if we ever will be, we're not just spending a certain amount of money. We are buying stock at the best prices we can..

Makes sense. Thanks for the color..

Thank you. Our next question will come from Spencer Kurn with New Street Research. Please, go ahead..

Good afternoon, guys.

I know you've been pretty clear about not planning to pay a dividend until 2020, but I was wondering if you could just talk about your thoughts on the trajectory of a dividend going forward after that? So, some of your peers have opted to smooth out dividend growth, whereas others have gone straight to a full maximum AFFO payout. Thanks..

Yeah. Without getting into numbers, Spencer, I think our bias today, and we'll have four years to refine this, is for a measured and growing approach so that there's ample capital for all things, dividends, acquisition, portfolio growth, and maybe some continued stock repurchases, as well..

Got it. Thanks. And one more if I may. I think this looks to be the first year in ages where you might fall short of your 5% to 10% portfolio growth target.

Could you just talk about the newbuild environment that you're seeing both domestically and internationally? And do you see any opportunities to increase international builds next year?.

Yeah. We do see opportunities. We think some of the shortfall in our initial newbuild projections for this year are just delays and not changes in ultimately what gets built. And I think we'll probably end up just a tad short of 5% this year, something with a 4 handle on it.

And what it really comes down to on whether it's newbuilds, Spencer, or acquisitions, it's all about the terms that we can originate assets on versus looking at our own stock and focusing on maximizing out that return on invested capital. So, it's all a capital allocation decision. It's not about volume. There's a plenty of opportunities out there.

It's all about thinking or trying to do our best to spend the money as wisely as we can..

Great. Thanks so much..

Yeah..

Thank you. Our next question will come from Nick Del Deo with MoffettNathanson. Please, go ahead..

Hi, thanks for taking my question.

First, regarding the churn outlook, when PCS, Leap, and Clearwire are gone, is it reasonable to think that your domestic churn will be towards the lower end of the 1% to 1.5% rate you've experienced historically? I'd imagine there isn't that much else in the basic until we move the needle unless Sprint and T-Mobile eventually get together..

Yeah. I mean, that's right, Nick. I mean the vast majority of our non-iDen churn has been consolidation related, so as we move through that, there's – we would expect it to be towards the low end and maybe even below our historical low end..

Okay. And maybe one longer term question. There's an increasing belief that cable is going to eventually get into the wireless industry with some sort of facilities based offering.

And, obviously, the benefits for you guys would be pretty straightforward with the new customer, but on the flipside, there's also the risk that a new competitor could weigh on the financial health of the incumbents and their ability to invest, especially those that have a lot of debt and dividend commitments.

How do you think the pros and cons of that would shake out?.

Well, we have always said, Nick, since we got into this business, that the ultimate determinant of how well we do as a company is largely driven by the financial health of our customers because we know the operational needs will be never ending. So, I mean, obviously your question involves balancing.

It's nice to have a new, well capitalized entrant, but if it tilts the spectrum too far into bad business results for our customers, that's – I don't think would be the desirable result for the tower industry.

Just the mere fact that – and we're seeing this in – I mean, Brazil is a very good example, and I'm not suggesting that there'll ever be any transition in the U.S.

to the way Brazil is today, but, I mean, everybody knows that we need a ton of new equipment and new network in Brazil, but the customers are just choosing to slow roll that out based on their financial conditions..

Okay. That's helpful. Thanks, guys..

Thank you. Our next question will come from Colby Synesael with Cowen and Company. Please, go ahead..

Great. Thank you. Two questions.

One is just going back to the churn on Leap, Clearwire, and PCS, what is the aggregate dollar amount of churn from those three that you're anticipating in 2016 compared to I guess the $50 million that you're expecting to kind of attrit in aggregate over the next three years? And I think you said that's 3% of revenues, would you expect that to kind of roll off in 2017, 2018, 2019 at a fairly linear pace and it's just that that's up relative to 2016? Just a little color on that.

And then also, I think in your prepared remarks, you said you expect to maintain greater than $1.5 billion in liquidity through 2017.

Can you just – when we think about buybacks, which I think you guys have stressed are a key component of the way in which you plan to get to that $10 in AFFO, how might that constrain the ultimate amount to which you could potentially be spending on buybacks in 2017? Thanks..

Yeah. Let me take the last one first. I hope the remarks for that – we have $1.5 billion and not necessarily that we will maintain that. The driving kind of stake in the sand, Colby, that we look at is the leverage, and our access to capital is great. So, depending on where leverage is, that may allow us to move into that liquidity somewhat.

We certainly don't need to maintain that kind of liquidity, given our access to capital. So, we will have that much, and we'll see where we are at the end of the year..

I guess, just to follow up on that then, Jeff, I mean, I don't know if you've seen some of the sell-side models that are out there, but it does seem like there's a decent assumption for a meaningful ramp in buybacks in 2017 versus 2016, and I think part of that is based on that commentary around getting to $10 and how you guys anticipate getting there.

I mean, do you think that this is more back-end loaded to an 2018, 2019, 2020 assumption, or would you assume that if buybacks are a big part of how you get there, that that should be ramping up pretty nicely starting as early as 2017?.

Yeah. I mean, we don't ever really guide to buybacks, but we have talked about buybacks being a material part of getting to the $10 by 2020. So, I think over time, and I'm just not going to get into whether 2017 is going to be bigger than 2018 or not, it's going to be more..

Okay..

And, Colby, on your first question about the churn, so in 2016, our non-iDen churn, or at least through the first – through September 30, our non-iDen churn represented, of our consolidated same tower growth, was about 1.8%. The Metro, Leap, Clearwire component of that is a little over half of that, so close to 1% of that is due to those guys.

We expect that next year will be higher than this year, and that's based primarily on an increase in the number of notifications that we've gotten from those guys recently. So, that's pushing up our expectations.

And we're not giving 2017 guidance yet, so we'll give you I think a clearer view on this when we do our next release, but I think it's fair to say that we'll see an uptick in that percentage as we move into the first part of next year..

Okay. Thank you..

Yes..

Thank you. Our next question will come from Matthew Heinz with Stifel. Please, go ahead..

Hi, thanks. Good evening.

You highlighted the uptick in the proportion of amendments relative to co-location in terms of new business activity, but I'm just curious whether that suggests an increase in the overall dollar volume of amendments this year or more of just a share shift from co-los? And I'd also like to hear what you're seeing in terms of the breadth of activity of those amendments across the big four, whether that's balanced out a little bit more as the year has progressed?.

Yeah, I don't think we said, Matt, that the shift, the mix has changed. It's been pretty steady all year long, mostly 2/3 to 70% amendments and the remainder co-los, and that's on a revenue basis. So, if you actually did it on a per contract basis, it'd be a lot more.

It'd be like 85 to 90 amendments and the rest co-los, and there hasn't been a material change in the mix all year long. And we're seeing that activity from all of them. Well, as I mentioned earlier, most all of our activity all year long has come from in the U.S.

three of the four nationwide carriers, and it's been remarkably steady and consistent for close to five quarters now..

Okay. Thanks for that. And then as a follow-up on the services segment, there seems to be a recurring theme of some softness in that area across your publicly traded peers. And I'm just wondering what you're seeing out there in the competitive environment.

Is it coming from smaller private companies? And we've also heard a lot of talk about drone usage for site surveillance.

I'm just wondering if that is at all cannibalizing the maintenance work out there on towers?.

I don't think it's the drones. I think it's really a function of if you go back to 2014 and you see all the work that was done, all those people are still around looking for work, and the amount of work that is being done today in services side compared to what it was in the peak periods of 2013 and 2014 is a fraction of that.

So, it's a classic supply got built up to meet demand, and then demand dropped off, and the supply is still there..

Okay. Good to know that the drones haven't taken over yet. Thanks..

Thank you. Our next question will come from Michael Bowen with KeyBanc. Please, go ahead..

Okay. Thanks. I just wanted to follow-up on a comment you made with regard to passing on some of the less profitable business and that you expected to see some more of that in the fourth quarter. And I have a quick follow-up. Thanks..

That's on the service side. That has nothing to do with the ownership of towers. I mean, there are some folks out there that are doing business at prices that we based on our company and how we would calculate things are actually losing money. We don't want that business..

All right. Thanks for the clarification. And then I guess I've had a lot of questions from investors also with regards to obviously the big acquisition AT&T proposed last weekend. Can you give us some of your thoughts on how that may or may not have any impact on not only your business, but the tower sector? Thanks..

Well, long-term, I think it's great because the comments and the strategy and the rationale behind the transaction are to provide content for mobile, mobile video, and you got to have a great network for that to pay off.

We will – we'll see when they actually get into the transaction what it may do to their short-term spend, but if it has any impact at all on short-term spend, I would expect it to be very temporal because of, again, the long-term view is you're going to need to have – if you want to monetize and maximize that content, you're going to want the best network that you could possibly have..

Great. Sorry, one last one, I lied here. With regard to CCI today with FiberNet, there's definitely more than one player doing backhaul in Florida, not – or actually, sorry, there's not a lot of competition in Florida.

So, I wanted to find out if that impacts you guys at all, whether you're a customer of them, or if there's any relationship there?.

Doesn't impact us at all..

Okay. Thank you..

Thank you. Our next question will come from David Barden with Bank of America. Please, go ahead..

Hey, guys, thanks for fitting me in, two questions if I could. Just, Jeff, you maybe alluded to this, but on the 2.5-gigahertz deployment potential for 2017, obviously we've got a particular owner of that who is suggesting permitting processes are kind of coming to fruition and maybe guiding for the possibility of higher CapEx down the road.

In your services business, are you seeing a materialization of that permitting process coming to fruition in some of your deployments that you're doing for the carriers? And then the second issue or question would be, the companies – the carriers themselves are kind of advertising how their networks are all quite similar now in terms of capability, imperceptibly different in a lot of ways.

I know that the tower companies frequently have drive tests, and you guys are canvassing the territory looking for where weak spots might exist, and the opportunity to market to the carriers presents itself.

I was wondering if you have any way to validate how the networks have evolved in terms of their capability on a national basis and if you still see very narrowing differences or still very wide gaps in places? Thanks..

Yeah, David. The answer to your first question is we've seen some but not much activity on the services side.

And the second question is, yeah, we do have some visibility into that, and not sure that all of the networks on a nationwide basis are quite as similar in terms of capacity as what you stated, but we kind of have some views on that, which are actually more geographically regionalized than nationwide, but I'm not going to get into our views as to who's better where..

Maybe I could just follow up on that, Jeff.

Just relative to history, do the gaps that you see today mirror in magnitude some of the gaps that have existed and have been the reasons why we've seen the investments being made we have over time, or are they much narrower, and maybe question marks about what incremental investment is required could be made?.

No, I think, whenever historically, whenever you see a coverage build and then a total technology upgrade like we saw 3G to 4G, those are going to be your peak points of activity. But what we are seeing and what our amendment activity in particular is bearing out is that capacity holds develop constantly.

And as you continue to look to pump more and more through the networks and particularly as you're adding video, we see – you may not see a 2013, 2014 period again, David, but I think you're going to see years and years and years of steady demand for what we do..

Got it. Thanks, guys..

Thank you very much. Our next question will come from Jonathan Atkin with RCB (sic) [RBC]. Please, go ahead..

Thanks. It's RBC.

So, I was interested in the EBITDA guide down entirely reflects or solely reflects REIT conversion costs, is that correct?.

It primarily is reflecting that. There is also a slightly weaker contribution from services than what we had projected previously..

Okay. And then, two questions.

One, any kind of update on small cells? I know you've been kind of examining some of the opportunities and for outdoor DAS or outdoor small cells, do you view the opportunity differently if you were to get right away exclusivity versus Dot (49:46)? And then on the tower build guidance, I notice that that increased, and what are – in which geographies, and what were some of the factors behind the increase in the build guidance? Thanks..

Yeah. On the small cell side, Jonathan, we have a couple, maybe a hand full of projects that we're currently working on that were generated through our managed site business in the back and where we have exclusive relationships. Those are primarily in building opportunities, which I think is where we will continue to focus.

So, I don't think our views have changed around the small cell opportunity at all for over a year now. And I think, we're having a chance to continue to see more and more different aspects of it, and it really just confirms and reaffirms where we've been on that.

Brendan, do you want to-?.

On the newbuilds, we did not guide to an increase, so, in fact, we actually expect it'll be a little bit lower than what we previously said. We're expecting we'll probably finish the year with about 400 newbuilds as opposed to I think we were somewhere around 450 last quarter when we mentioned the full year expectations..

Is that because demand has subsided or that independent SARD has taken a greater share of the pie?.

No, it's, I mean, Jeff mentioned earlier, much of the reduction is due to timing.

I mean, we still have an expectation that a number of these sites will be completed next year instead of this year, but there's also some competition around the sites, and we're just making what we think are wise capital allocation decisions to not participate in some of those opportunities due to either poor economic or other terms..

Thank you..

Thank you very much. At this time, there is no additional questions in the queue. Please continue..

Great, well, I want to thank everyone for joining us this evening, and we look forward to reporting our fourth quarter results. Thank you..

Thank you. Ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&T's Executive Teleconference. You may now disconnect..