Son Nguyen - Vice President and Treasurer Jay Brown - Chief Executive Officer Dan Schlanger - Chief Financial Officer.

Simon Flannery - Morgan Stanley David Barden - Bank of America Merrill Lynch Brett Feldman - Goldman Sachs Phil Cusick - JPMorgan Nick Del Deo - MoffettNathanson Ric Prentiss - Raymond James Jonathan Schildkraut - Guggenheim Matthew Niknam - Deutsche Bank Amir Rozwadowski - Barclays Matthew Heinz - Stifel Robert Chatfield - New Street Research Batya Levi - UBS Mike McCormack - Jefferies Walter Piecyk - BTIG Michael Bowen - Pacific Crest.

Please standby, we are about to begin. Good day. And welcome to the Crown Castle International Fourth Quarter 2016 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Son Nguyen. Please go ahead, sir..

Thank you, Alicia, and good morning, everyone. Thank you for joining us today as we review our fourth quarter 2016 results. With me on the call this morning are Jay Brown, Crown Castle’s Chief Executive Officer; and Dan Schlanger, 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 refer to throughout the call this morning.

This conference call will contain forward-looking statements, which are subject to certain risks, uncertainties and assumptions, and actual results may vary materially from those expected. Information about potential factors, which could affect our results is available in the press release and the Risk Factors sections of the company’s SEC filings.

Our statements are made as of today January 26, 2017 and we assume no obligation to update any forward-looking statements. In addition, today’s call includes discussions of certain non-GAAP financial measures.

Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the Investors section of the company’s website at crowncastle.com. With that, I will turn the call over to Jay..

Thanks, Son, and thank you everyone for joining us on the call this morning. As you saw from our earnings release, we finished 2016 on a strong note, delivering another quarter of great financial results. During 2016 we generated AFFO per share growth of 10% and increased our dividend share by 8%.

These results exceeded our long-term annual growth target of 6% to 7%, as well as our initial expectations for 2016. We generated this growth by focusing on serving our carrier customers needs as they seek to enhance network quality and capacity to meet the increasing demand for wireless connectivity.

Additionally, during the year, we continued executing on our strategy of allocating capital to build and acquire assets that we believe will drive long-term growth in our AFFO and dividend per share.

Towards this end we strengthened our leadership position in wireless infrastructure, both by adding towers through the TDC acquisition, as well as by increasing our fiber footprint and small cell capabilities by completing the integration of Sunesys and the acquisition of FiberNet, which closed earlier this month.

I would like to thank all of our employees both FiberNet and Crown Castle, who are working hard to ensure that the integration process goes well. Our early view of the operating performance of FiberNet is consistent with our underwriting assumptions for the acquisition. Turning back to our results as Dan will talk about in more detail.

We increased our 2017 outlook to reflect higher expectations for our base business, as well as the inclusion of FiberNet. Looking out beyond 2017, we believe a steady and healthy leasing environment driven by the continued significant growth in mobile data positions us to deliver long-term growth.

Mobile data traffic in 2017 is expected to be roughly twice what it was consumed just two years ago in 2015.

And by 2020 mobile data traffic is expected to be six time 2015’s level, with the growth driven by a combination of factors including the adoption of data intensive applications such as video streaming, an increasing number of connected devices and potential new applications such as fixed wireless broadband.

In order to capitalize on this anticipated growth in mobile data, we believe that wireless carriers will continue to enhance and upgrade their network through cell site densification and deployment of additional spectrum for years to come.

As the leader in shared wireless infrastructure in the U.S., we believe we are well-positioned to capitalize on the positive trends that we see in the industry, as the shared infrastructure model continues to represent the most efficient and cost-effective way for our carrier customers to deploy wireless infrastructure.

With our recently completed acquisition of FiberNet, our portfolio of wireless infrastructure across the top metro U.S. market now consist of approximately 40,000 towers and 26,500 route miles of fiber supporting small cells.

Towers remain the core element of wireless network and the first option in network deployment providing both coverage and capacity. Consistent with this we anticipate a long runway of growth for our tower business driven by technology upgrade, deployment of additional spectrum, and cell site densification.

Importantly, there remains a substantial amount of spectrum yet to be deployed by our carrier customer across our wireless infrastructure, including AWS-3, the build out of FirstNet and spectrum from the current broadcast incentive auction.

Additionally, our portfolio provides a substantial opportunity to drive organic growth and meaningful incremental returns from additional tenant leasing across those towers.

Building on the foundation of a great tower business, we are investing in our small cell business, which we believe could represent an opportunity similar in size and returns as towers.

Today our fiber footprint of 26,500 route miles provides us with significant growth potential in top metro market such as Boston, Baltimore, DC, Chicago, Los Angeles, New York, Philadelphia and San Diego to name a few.

In addition, FiberNet substantially strengthens our footprint in Miami and Houston, both markets where we are seeing significant small cell demand.

The route uniqueness, density and capacity of our fiber footprint combined with our extensive real estate, network engineering and node construction capabilities, provide us with meaningful opportunities to generate attractive long-term return.

Our returns on small cell increased like towers as a result of the shared economic model and our ability to leverage our initial fiber investment for multiple tenants. Today we are building small cell systems with initial yields of 6% to 7% that increased to low-double digits with the second tenant and higher yields with the third and fourth tenants.

Given the growth in small cell, as our carrier customers identified their network and deploy spectrum closer to their customer, the lease up of our fiber assets is occurring faster than we experienced on our towers at a similar stage of maturity.

With faster lease-up and higher initial yield from towers we have good reason to be optimistic about the future of our small cell investments. As the only shared wireless infrastructure provider with expertise that scale across both towers and small cells, we believe we are uniquely equipped to help wireless carriers deploy their networks.

This enabled us to drive organic growth and significant incremental returns on our existing assets, while deploying capital towards attractive opportunities that we believe will extend and enhance our long-term growth in AFFO and dividends per share.

Our strategy, focus and disciplined approach related to execution and capital allocation have driven significant growth and value creation, delivering over a decade of consecutive AFFO per share growth. Looking ahead, I am excited by the opportunity and prospects for Crown Castle.

I believe we are well-positioned to create shareholder value with the unique combination of meaningful growth and high quality predictable cash flow. I also believe that our current dividend yield approximately 4.3% combined with our targeted annual growth of 6% to 7% and dividend per share represents a very compelling total return.

As we start 2017, we are excited about the leasing activity we are seeing from customers, we are focus on increasing the returns on our portfolio and we remained disciplined on looking for additional opportunities to drive long-term growth and dividend per share. And with that, I will turn the call over to Dan..

Thanks, Jay, and good morning, everyone. Capped off by solid fourth quarter results, 2016 mark another terrific year for Crown Castle in several fronts. From a results perspective, we delivered 10% growth in AFFO per share, reflecting the attractive demand backdrop for our leading portfolio of wireless infrastructure and solid execution by our team.

With respect to our portfolio, we’ve strengthen our asset base with the acquisition of TDC and FiberNet, the integration of Sunesys and our continued investment in both towers and small cells.

And we did all of this while increasing our financial flexibility as we increased the average maturity of our debt, lowered our average interest rate and achieved investment grade credit rating, which reflect the quality and stability of our business and cash flows.

Turning first to full year 2016 results as shown on slide three, site rental revenues grew approximately 7% or $215 million as compared to full year 2015, including 6% growth in organic contribution to site rental revenues.

Our full year 2016 results for site rental gross margin, adjusted EBITDA and AFFO per share increased by 8%, 5% and 10%, respectively, as compared to full year 2015 results.

Moving on to investment activities for full year 2016, we invested $557 million in acquisitions and $874 million in capital expenditures, including $90 million for the sustaining capital expenditures.

As Jay discussed, our discretionary investments were allocated towards opportunities in both our towers and small cell businesses that we believe will generate compelling returns and enhanced the long-term growth in our dividends per share.

Additionally, during 2016 we returned significant capital to our shareholders through our quarterly common stock dividend totaling $1.2 billion in the aggregate or $3.605 per share representing growth of 8% as compared to full year 2015.

We continue to believe by providing a portion of shareholder returns in the form of dividend aligns well with our business, which is characterized by high quality long-term recurring cash flows.

Turning now to slide four, we are increasing the full year 2017 outlook at the midpoint for site rental revenues, site rental gross margin, adjusted EBITDA and AFFO per share.

Importantly, our improved outlook for 2017 reflects both an increase in our expected operating results exclusive of FiberNet, as well as the expected contribution from FiberNet, which closed earlier this month.

At the midpoint and compared to the previously provided full year 2017 outlook, we have raised site rental revenues by $154 million, site rental gross margin by $115 million and adjusted EBITDA by $95 million. These improvements result in AFFO per share being $0.02 higher than on our prior outlook.

Of the increases, FiberNet is expected to contribute approximately $150 million despite rental revenues approximately $105 million for site rental gross margin. Additionally, general and administrative expenses related to FiberNet are expected to be approximately $20 million.

Ignoring the contribution from FiberNet on an apples-to-apples basis we have increased our current outlook for site rental revenues, site rental gross margin, adjusted EBITDA and AFFO as compared to our previously provided outlook for 2017.

Our higher expectations for 2017 reflect the continued strength of our business and the healthy leasing environment we are seeing. Turning to slide five, I want to walk through the approximately $206 million of expected growth in AFFO from 2016 and 2017 at the midpoint of our updated outlook.

Moving from left to right, our expectation for organic contribution of site rental revenue growth remains unchanged relative to the previously provided 2017 outlook at approximately $155 million.

This expected growth in revenues is partially offset by an approximately $20 million increase in operating G&A expenses, which represents a less than 2% increase as compared to 2016. This is particularly noteworthy since we expect to continue to build additional assets and increase our capabilities in small cells throughout the year.

Moving to the right, our expectation for services gross margin contribution of $245 million during 2017 is unchanged from our previous outlook and is a reduction of $25 million as compared to 2016. Our assumption for network services is that we return to more historical levels of capturing from the elevated levels we experienced in 2016.

Continuing to the right, the impact associated with the conversion of the mandatory preferred stock remains unchanged from our previously provided outlook at $44 million.

This represents the amount of annual preferred dividends we paid in 2016 as we are no longer obligated to pay in 2017 as a result of the conversion that took place on November of 2016. And finally, 2017 AFFO growth is expected to be positively impacted by approximately $55 million on a net basis from other items.

Relative to our previously provided 2017 outlook, the $55 million impact incorporates the benefits of FiberNet, partially offset by higher interest expense from the debt acquisition financing of FiberNet and from higher expected LIBOR rates during 2017.

With both an increase in the expected operating results in the base business and the contribution from FiberNet, we are increasing full year 2017 outlook for AFFO per share from $5.01 to $5.03 representing approximately 6% growth when compared to full year 2016.

As Jay discussed, we remain excited about the long-term opportunity in front of Crown Castle as we have turned the page on another successful year for the company in 2016.

We believe our portfolio of towers and fiber-based small cell systems combined with industry-leading expertise in delivering shared wireless infrastructure at scale presents us with the tremendous opportunity to both meet our customer carriers -- our carrier customers’ needs as they continue to build out their wireless networks and to create long-term value for our shareholders.

With that, Alicia, I’d like to open the call to questions..

Thank you, sir. [Operator Instructions] We’ll go first to Simon Flannery of Morgan Stanley..

Thanks very much. Good morning. Jay, I think, you touched on the opportunities from FirstNet AWS-3, WCS. Can you just give us a little bit more color about where we are in those processes and if FirstNet is awarded say in March, how does that flows through ’17, ’18, ’19, et cetera, so your perspective on that.

I know some of the carriers are sort of been waiting for some of this bands to get into the devices and to the iPhone before they move to aggressively. So any more color on that and how that impact leasing first half versus second half will be great? Thanks..

Yeah. Thanks for the question, Simon. We have not embedded any of that in our forward guidance for ’17. As we talked about things like FirstNet and the spectrum auction, those would effect and help our long-term forecast.

And one other things that has been true about our business for a long period of time is, anytime there is new spectrum that’s deployed across the network, it results an additional leasing for us.

And so we look at it and believe that’s -- that give credence to our view if there is a long runway of growth in the business as that additional spectrum begins to be deploy..

And on the sort of timing first half, second half of leasing?.

Yeah. The year is backend loaded as a typically year is in the tower business. Typically in most years it’s about 40% in the first half, 60% in the second half and this year looks very similar to a typical year..

And are the carriers, are they each kind of continue at the same pace that they were at like some of them being pretty activity but other ones being pretty quite?.

We are seeing activity across all of the carriers and it’s levels that are very similar to what we saw during 2016 is our estimation, so in total as we talk about we think our revenue growth will be in the neighborhood of about $90 million on the tower side and about $70 million from small cells and we think the year is going to stack up in terms of revenue growth very similar to what we saw in 2016..

Great. Many thanks..

We’ll go next to David Barden of Bank of America Merrill Lynch..

Hey, guys. Thanks for taking the question. I guess, first one, just looking at the slight increase in the midpoint churn expectations for ’17.

I was wondering if you can talk a little about the source of that, is it just timing or is it some people, I guess, would fear that, maybe you are saying some sort of abandonment from some of the higher cost leases? And I guess, second if I could, I guess, Jay, I know you are trying to be, you kind of alternative to talk about things, but on the AT&T on their call talked very specifically about rolling out AWS-3 maybe back to AWS-1 working with FirstNet to layer on new RAD centers in their 700 megahertz D block.

Sprint has been talking about CapEx increases this year as their permanent process for small cells is starting kind of flow-through. The T-Mobile has been talking about trying to get aggressive on deploying 600 megahertz as soon as they win auctions and the auction seems to be ending sooner than expected.

So, I mean, it does feel like there's a lot more moving parts this year than last year, and I guess, that’s certainly because you have a services component, you’ve been hearing that AT&T’s pre-positioning, their turf vendors to get ready for this big deal.

I mean, can you give us some sense of of what things on the ground you are actually seeing that would validate getting maybe a little more excited about the back half of the year? Thanks..

Okay. Dave, I will take the first one on churn, basically what we did is pulled up a bottom in the range. There is no real difference in what we see going forward from what we had seen before, there is a tightening up a range a bit from what we've seen.

And I don't think there's anything you can read through to what the carrier activity is, specifically just more understanding of what’s going on and more conversations and thoughts around tightening the range a bit..

Yeah. Dave, on your second question, it’s obviously very early in the year and on the landscape of conversations that are going on among the carriers and what they said publicly, those are all positive milestones that you are speaking about. And as we go through the course of the year we may need to update where we are today.

But at this point, we see the year stacking up pretty similar to the way that we saw in 2016. And one other thing I would just draw everyone’s attention to is the nature of our business.

We have a lot of predictability around the cash flows and so as we sit here, as we go into any given year, most of the leases that we will sign on that will impact our financial results.

We have got those basically cycled and know where they are by this point in the year and so the opportunity to outperform in any given year or underperform is relatively low and the activities that you spoke about, those are likely to be impactful and positive as we start to think about our 2018 results and beyond.

So we will certainly update everyone as we go through the course of the year and as some of those start to materialized and start to impact leasing, I think, those are more likely to impact our run rate activity as we go into 2018 and they are necessarily to impact our financial results for ’17..

Great. Thanks, guys..

We’ll go next to Brett Feldman of Goldman Sachs..

Thanks for taking the questions.

It’s kind of the big picture one, we look at the way the sector sort of changing before our eyes to see US Telecom cable sector, more consolidation obviously continue growth in data traffic? And I am wondering if it’s cause you to have some big picture conversations around what type of company you suppose to be position for this.

You have obviously made a decision that being in the small cell business is a nice compliment to what you are doing in towers and I think we are starting to see some benefits there? But as you spend more time operating fiber networks and engaging with customers, are you thinking that perhaps there is a broader infrastructure model that you guys can be pursuing and if you do what is the ultimate way you think about whether this types of deals would make sense for you, is it all about growing the dividend or is there other considerations that weigh heavily as you evaluate your M&A funnel and really the strategic direction of the company?.

Yeah. Brett, that’s a great -- that’s a good question. I appreciate you are asking it.

From a broad perspective, our business is a shared infrastructure model and that shared model has been through a number of economic downturn, consolidation, technology shift and it has through all of those cycles and movements delivered really strong returns and growth, because it’s the most effective and cost efficient way to deploy wireless network.

And as we consider sort of our strategic focus, we believe we are best aligned by continuing we may -- to keep that our core focus as a business. So as we watch the landscape and we do, we are trying to position ourselves as that shared infrastructure provider.

And where we found the most benefit has been historically towers and we believe small cells are very similar to that. There may be opportunities for both us to use our towers and our real estate assets, as well as the fiber underlying small cells.

We may find opportunities for additional revenue growth and we are happy to consider those and to the extent they can increase the return and the yield we will pursue them, but the primary focus is today around wireless for both towers and small cells.

And all of the conversations that you reference are encouraging to us, because they indicate the comments that I was making around the expectation of continued growth and data -- wireless data and we think those trend lines are very supportive of our underlying focus on towers and small cells..

Great. Thanks for that color..

We’ll go next to Phil Cusick of JPMorgan..

Guys, thanks. Following up on Brett’s question, can you dig in to what’s going on in the Sunesys and the new business in terms of enterprise sales? Sunesys had a salesforce when you bought it.

We have talked about them selling not only that but your legacy fiber? What's happening there? Is there any momentum and how do you think about that changing in 2017?.

Yeah. We have found as we have talked about before, we have found some opportunity to use the fiber that we have required for some enterprise services in places where we have a dense urban fiber footprint.

Our focus and analysis around what fiber is interesting to us is driven by the opportunities that we see on the small cell side, but to the extent that we can use the pipe in a shared infrastructure model in a way that drive additional returns and yields from fiber services in certain cases, we think that make sense.

Obviously, there is a tremendous amount of expertise that we received in the Sunesys acquisition up in the Northeast in several markets. The same thing is true, as I mentioned, from FiberNet in the South Florida market, as well as in Houston.

And so we believe there will be opportunities there, but the main strategic focus is around small cells and around the edges that expertise enables us to increase the yield on the asset..

Has there been a low momentum in doing that or any sort of increased amount of investment there or is it just moving on slowly?.

It’s very limited capital investment on that front and the momentum I would describe as being pretty fairly consistent with what their historical practice has been around being able to use that fiber for those fiber services..

Okay. Thanks, guys..

You bet..

We’ll go next to Nick Del Deo of MoffettNathanson..

Thanks. So thanks for taking my question. I want to ask about your underwriting for the FiberNet deal. Yeah, so, when you have done large tower transactions in the past, you have generally indicated they are predicated on securing something like one tower or, sorry, one tenant over 10 years to make the math work or something those lines.

With effect of FiberNet what is the business pace require in both for the business you assumed, as well as for the small cell volumes you are going to layer on top?.

Yeah. Nick thanks for the question. Typically, we are assuming on the small cell side about one tenant over a 10-year period of time is roughly our underwriting assumption in this acquisitions of fiber.

We obviously believe there could be a lot greater upside than that to these fiber assets, but that’s what we are roughly underwriting in both the FiberNet acquisition, as well as the Sunesys acquisition..

Okay..

And Nick, just before you can get on, we haven’t seen faster than that lease-up, that’s what Jay mentioned earlier, so we think of those assumptions we can probably outdo, but for now the underwriting has been based on that small cell demand at that pace..

Okay.

For the existing business you assume, assume some sort of modest growth baked in?.

We basically assume that business is roughly flat. There are some growth assumptions in some cases depending on the location and the market, but the returns are being driven by small cell..

Okay. Great. And then, just sort of in a similar vein, these deals are partially about capital avoidance.

In the past you have talked about investing something like hundred grand net per node that you rollout, how far that fall in markets where we have acquired this big fiber inventories in advance?.

It fall significantly, because the fiber is very similar to a tower, so the analogy when we look at small cell business, fibers is the tower and in the tower business we would typically describe a RAD center, that’s the level on the tower where the tenant would install their equipment.

In the small cell, in small cell, an installation of a small cell node is like a RAD center on the tower. So we are leveraging the assets to fiber and then adding small cell nodes across that fiber to drive the return.

And to the extent that the fiber is acquired through one of these acquisitions or previously built for another acquisition, we were adding additional tenant to that fiber.

And I talked in my comments about the incremental return if we are building it from scratch, we are in the neighborhood of an initial investment of about 6% to 7%, which is about where we acquired Sunesys and FiberNet, and then we are adding to that additional tenants, which moves the returns with one tenant into the low double-digit on a yield basis and then the third and the fourth tenants take returns well beyond that..

Okay. Great. And then maybe one quick one and then I will hop off.

Also network services revenue jumped a lot in the quarter, any commentary behind that or if it’s a leading indicator for the segment?.

It’s really, how we get there as we have equipment that we buy on behalf of our customers and we get a small margin on that, that’s a services you see in the small cell business.

It’s just a reflection of the activity we had in the quarter, which we had talked about before is, there is a high level activity in small cells in the fourth quarter and that’s where you saw that services coming from..

Nick, sometimes we also see as the carriers come back and optimize their networks, their existing small cell networks, they will pay us to perform a service where we analyze re-optimizing those network and ultimately that looks like to your question about co-location as they go through that optimization process, they end up coming back and adding additional nodes across the fiber or adjusting the networks like slightly which results in us getting some services fee from that..

Okay. Great. Thanks so much guys..

We’ll go next to Ric Prentiss of Raymond James..

Thanks. Good morning, guys..

Hi, Ric..

Hey, a couple of questions, one on FirstNet, what would cause the FirstNet equipment to trigger a new RAD center and be like a co-location versus being able maybe to slip in to an existing RAD center and come in as an amendment activity.

In other words, I think, back in the day when Sprint LightSquared were thinking of doing stuff, it was seen as being more amendment activity, but just wondering, how are you viewing FirstNet’s opportunity when it does start materializing?.

Yeah. Ric, I think, at this point, probably, too early to be able to answer that question. We really need to know ultimately who is going to be the provider and the distributor of the service and then we need to understand the network that they want to build. So it’s probably too early to really be able to comment on that.

Both of them are good for us, obviously, there is a meaningful, if they are deploying brand new spectrum in that kind of scale nationwide and it’s an amendment that would be great for us, if it’s a new installation that would be well -- that would be good as well..

Right.

But there is nothing contractually, they says, they have to go to a new RAD center, it’s a spectrum that they don’t own either?.

No. We -- whenever there is a transaction like this or a new deployment, we will sit down with them and understand what their needs are and we will try to structure something that make the both -- the most interest for both parties.

They have been times you brought up one with LightSquared years ago, whether it’s a co-planning arrangement, where they want to go on same level on the tower, there have been other occasions that I could point to where they want the separate installation and the separate RAD center on the tower.

So we would have to just understand the lot more and then work with them and what make the most sense..

Okay.

And then just given all the convergence and consolidation that others have mentioned on the call, can you update us just on what your Sprint, T-Mobile overlapping exposure is and remaining life of leases and maybe also just what percent of revenue AT&T represent at year-end ’16?.

Yeah. So each Sprint, T-Mobile around 6% on overlapping sites and we have about five to six years left on both of those contracts.

So what we think is that if two of them were to get together the implication would be that they want to compete on network quality and to do so, they would have to increase their investment in their networks, not try to minimize the number of towers they would be on.

So as a historically been the case, we see the consolidation doesn't necessarily equate to them coming off every tower they possible could, because they are really trying to invest in the network. AT&T I think is 28% of revenue for 2016. You can see that in our supplement..

Okay. Great. One final quick one, since you close FiberNet earlier this month, a large portion that was funded by equity raise back in November, but I assume you use some debt.

Can you let us know what kind of debt placement you did to handle the remaining portion of the cash for FiberNet?.

Right now it’s on our revolver and we have not -- we not said how exactly we would fund that overall in the future, but it is in right now it’s just part on our revolver..

Thanks so much. Looks like it can be exciting ’17 and ’18. Thanks guys..

Thanks, Ric..

We’ll go next to Jonathan Schildkraut of Guggenheim..

Hi. Great. Thanks for taking the questions, fitting me in here.

Two if I may, the first is, yet another follow-up on the fiber for small cell business, you guys have done a bunch of acquisitions here and the business has a bunch of different revenue streams, is it fair to assume that sort of all of the acquired revenue streams flow into the small cell business. And then sort of the derivative question.

Is there anything that we should know about that legacy business characteristic wise, churn, contract, things like that, which would distinguish it from sort of the business that you are organically building on top of that asset? And then my second question and I know you guys have addressed this in one form or another in the past, but considering the amount of work that is potentially in the pipeline from U.S.

carriers whether it is FirstNet, AWS-3, WCS or other sort of spectrum rollouts. You guys have been very open sort of the MLA process in the past and again this one seems like would be fairly complex relative to some of the stuff we are seeing historically, is there any desire conversations thoughts about new MLAs? Thanks..

Sure. On the first question I wouldn’t distinguish the revenue or cash flows on the businesses from our small cell business. Any of the revenue that’s you are referring to specifically to your question that is included in the small cell segment, so those revenues and cash flows fall through that. We are excited about that business.

We believe it is a good business. We believe it’s recurring and do expect on some level we can grow it in some way as I spoke to in my earlier comments.

On the MLA process and I am assuming that you're referring to what we have done in the past in some occasion where carriers have been willing to commit to certain level of activity and then effectively paying for that ahead of their anticipated work. Jonathan, those agreements worked out really well for us financially.

We were pleased with the outcome. I believe our carrier customers were pleased with that, because it gave them greater certainty and expedited the process of getting on towers.

So we would certainly entertain those agreements again and if we were to do them then they would have to make financial sense for us and accomplish the same goal for the carriers. So we would be open to them. I view those, frankly, in hindsight having done a couple of them over with multiple carriers over a lot of different years.

At the end of the day, I think, financially they worked out well for us and they accomplished the perfect for carriers well looking for in terms of expediting activity. So those two things aligned again. They will probably make sense.

But we may just do it as we do on a normal basis of just taking leases as they come and obviously that -- if that works well for both parties as well. So lot to see how it develops but we leave it open as an opportunity..

Great. Thanks, Jay. Appreciate it..

We’ll go next to Matthew Niknam of Deutsche Bank..

Hey, guys. Thank you for taking the question. One on -- just on fiber and strategy, if you can maybe talk about your appetite for further expanding on the fiber and small cell front, just having closed FiberNet and given where you are on leverage in a rising rate environment? And then just one housekeeping item on tower site rental expenses.

They ticked about $5 million sequentially. They’ve usually been down seasonally in 4Q, so maybe if you can just shed some more light on what went on there? Thanks..

Mathew on your first question, we are -- as we’ve talked about lots of times, when we look at investments and whether that's capital invest -- capital expenditures that we would do on a quarterly basis and report a larger acquisition, the filter through which we run those is whether or not they increased long-term dividends per share.

And so if we have the opportunity to invest in additional fiber, which we’re certainly looking for and seeking out opportunities to do that, they're based on our views that there's going to be significant small cells in dense urban markets around the U.S. and that our investment in those needs to be aligned with our overall cost of capital.

So you raised the point that in a rising rate environment as we underwrote the most recent asset we certainly didn't need current financing rates to look at what we thought the long-term returns were we used forward curve in terms of interest rates to account for that.

And then we've got to get comfortable that over the long-term we can get it return for the weighted average cost of capital depending on the size that we may need to use equity at points which was done in the past.

But we will consider that as a part of the overall return and make sure that it's compelling and ultimately the measure that is whether or not it increases dividends per share and that dividends per share obviously accounts for the effect of, however, we finance the asset we've got to drive incremental returns from what we would consider absent doing any of those actions..

And as Jay pointed out we have thought about and baked into our outlook and increasing interest rate environment to the extent that we would have to look in an acquisition we would do so again and just try to take a view on what that would look like.

The second thing I would point out on the equity if you look at what we did for FiberNet is, we had assumed cost to capital in our modeling and therefore we went out and sold the equity where we could clear that cost to capital back in fourth quarter even before it closed, because we want to be very true to that increasing dividend per share to make sure we lock in that cost of capital and returns that we're looking at.

With respect to tower site rental expenses going up, there are a few things that happened in the fourth quarter that, I think, the important part is that we did not include in our 2017 guidance and outlook. So we have not made them continue through to 2017. So you can take away from that those things that we don't expect to incur going forward.

So there were its just small things here and there that added up in the quarter that we don't include in the ‘17 guidance..

Okay.

And if I could just follow-up on the first question, are you seeing any demand from your carrier customers in markets beyond the top 10? I know I think in the past you've talked about sort of supporting carrier needs for densification and some of the larger markets but are you beginning to see that sort of spread beyond these larger markets to-date?.

We are seeing it spread beyond the top 10 markets. There are a number of markets inside of the top 50. Well outside of the top 10 where we're seeing small cell activity. If you look at the majority of the activity, as well as the majority of the capital that we are spending, we're still on the top, probably 10 to 15 markets of the U.S.

and -- but I -- we do expect that will continue to grow well beyond just the top 10 markets in United States..

And like we pointed out in our last quarter in the case study around Chicago, it’s not only expanding from the top 10 and beyond, but also from the central business district in the top 10 to more the suburban area. We see the expansion both ways of the demand for small cells..

Got it. Thank you..

We’ll go next to Amir Rozwadowski of Barclays..

Thanks very much. Just wanted to follow-up on some of the prior questions and what seems to be a rapidly evolving end-market structure.

A lot of the combinations that seem to be discussed in the market seem to drive a lot of discussions around the initial deployment of 5G and whether or not it actually can provide the type of services promised to the meaningful level.

If you look at the opportunities over the next few years, are you factoring in a meaningful opportunity based on these initial deployments or should we think about the deployment of current fellow spectrum and densification that's in the hands of the carriers at the moment as the primary opportunity for the foreseeable future..

Yeah. It would be the letter and not the former.

As we think about our business, we tend to look at our forecast and the activity, and we are really not assuming all of the potential upsides that could come, which has been the great thing about both the tower business and now we believe about the small cell business is, you really don't -- you don’t have to believe in upside usage case on mobile data in order to justify the investments that we are making or to deliver significant returns for the shareholder and that's a great place to be.

We’ll let the upside to take care of itself. We obviously think the assets have a tremendous amount of growth and upside.

It's interesting and the nature of the question really drives some of the point, if we were on a conference call 15 years ago talking about towers, the discussion was around the transition from 2G to 2.5G and the opportunity and the returns that would drive and now we are talking about the opportunity of 5G, and throughout those periods and all of the successful technology shift, we have seen additional revenues and additional tendency across the assets and we believe that's the beauty of the shared infrastructure model, both on towers that we will continue to see activity on that front and then densification occurs and data traffic increases we are going to see the benefit of that small cells as well..

Thanks very much. And one follow-up, if I may, the debate on the sustainability of escalators seems to continue.

Now this is something as you folks have expressed your views on to sometimes so I won't deliver the point, but I would like to ask, what is the sort of potential middle ground that could take place between yourselves and the carriers? Is it reengaging in some of the MLAs as you had mentioned, would love any color if you can provide on that front?.

Yeah. Amir, we haven’t seen any change in the pricing environment. And as we talked about the model -- business model and propositions of the carriers is based on the value proposition.

The underlying cost of the real estate has escalated far faster than the escalators under their lease agreement, and far faster than the pricing increases that have occurred on the asset.

And we've been able to take upon ourselves that higher escalating costs and share that among multiple operators, which has limited the amount of growth in their costs that they would've otherwise occurred to them if there wasn't a shared infrastructure provider.

So I don't see any change in the pricing environment, and frankly, the value proposition I think continues to hold as we’re able to sustain a higher level of costs and be able to share that across multiple operators in order to hold their costs down..

That's very helpful. Thanks very much for the intellectual color..

We’ll go next to Matthew Heinz of Stifel..

Thanks. Good morning.

With respect to FiberNet and the footprint, I’m just wondering what sort of visibility or funnel you had on those markets as you're underwriting the deal in terms of carrier demand on your small cell sites? And I guess, whether that pipeline has changed at all since the deal was announced, maybe the breakdown of anchor notes versus co-location and when should we expect to see incremental site revenue showing up on the fiber?.

Matthew, I’ll take on the second part of those questions, I'll probably beg off on that level of specificity, but on the first part of the conversation, we're having significant conversations with all of the carriers and have a pretty good understanding we believe around how they’re thinking about the deployment of small cells in macro sites across the country and our FiberNet acquisition was based in part on the insight that we had from working with customers.

So we absolutely had insight, and as I mentioned, there is significant opportunity and activity going on in the South Florida markets that we gain fiber footprint and -- as well as Houston..

Okay. Thanks. And as a follow-up to that, as I think about your shared infrastructure focus, I guess, that is inclusive of a fairly broad range of potential asset types and as we consider the opportunity around commercial IoT kind of enabling that with edge computing notes.

Is that something you would like to capture in the long-term kind of beyond just the consumer mobility opportunity and what is your level of openness to alternative asset types beyond the tower and fiber focus you have today?.

Yeah. Our focus is in providing the infrastructure. As we look at the opportunity and I think you raised a good one around commercial Internet of Things. Those are likely to grow across wireless networks for which we would expect to be a significant provider of space to deploy those wireless network.

But we don't view quarter our strategy or ourselves owning wireless -- owning the wireless networks themselves or interfacing directly with the consumer and whether that consumer comes in the form of an individual or a commercial Internet of Things.

I do think, as I mentioned in one of my earlier answers, I do think there are opportunities for our tower assets in real estate to be used in greater ways in the more upside cases around what will happen with IoT over time and we're certainly focused on what those opportunities might be and could provide additional upside to our base case assumptions..

Okay. Thanks, Jay. I appreciate it..

Yeah..

We'll go next to Spencer Kurn of New Street Research..

Hi. This is Robert Chatfield for Spencer. Thanks for taking the question. I want to ask given recent comments about potential tie ups between U.S.

wireless carriers and cable companies, how do you see those potential outcomes or tie ups affecting both the existing lease up or the lease up of existing small cell deployments, as well as organic demand for new small cell deployments taken -- given consideration for the fiber plant that the cable companies might have?.

Yeah. I don't want to speculate specifically on any of the rumors that are in the market this morning.

But I think I would take you back, Robert, to the shared economic model, obviously, for a long period of time some portion of the carrier wireless networks have been self-performed, whether that was towers or the ownership and build of their own fiber.

But we found significant opportunity for our shared economic model and regardless of openly who owns the wireless networks and who is deploying wireless networks, we believe the shared economic model is the most cost effective and efficient way for carriers to deploy wireless networks and we would expect regardless of what consolidations occur and ultimately who the owners of those networks are that have shared solution will be the most cost effective and will be a part of the solution that they would use.

.

And Robert, just to add something, Jay said earlier to an answer to another question, which is the implication of all of this activity is mobile demand is going to grow significantly, because people are trying to get at that mobile demand as efficiently as possible and that may not be the only reason for those types of consolidations, but it is one of the reasons.

And that gives us yet another data point to confirm our belief that serving as the infrastructure provider to meet the mobile demand is a great place to be. So we think that all of these things do have potentially a positive implication for our overall business model and something I think would play out well for us..

Thanks. That's helpful. Sorry I wasn't trying to catch you in comments about the rumors, maybe I will ask the question a little bit differently.

As you look at the cable plant versus the fiber deployments that you might see in some of your small cell networks, what would be the differences between those existing in ground plant versus yours, again, that question might get to what I was trying to get at?.

Well, I would probably answer it honestly the same way. I think I understood that's where you are driving with the question.

If you look at the wireless operators today, many of them have significant fiber footprints and we are still seeing significant activity in small cells, because the route uniqueness of our fiber, the density of that fiber, the capacity of the fiber and the shared economic model that we offer is still the most cost effective way for those networks to be deployed.

It's also true that today carriers self perform some of those activities. So to the extent that there was a new owner of wireless networks, whether that was as an acquirer or as a building out a new network, I think, you would see a similar pattern where you have use of the shared economic model, as well as self perform.

And ultimately I think this is sort of to the benefit of the tower industry, but that shared economic model because of its lower cost, the carriers are looking for opportunities to drive that costs in the network and we are the provider for that.

And so, I don't think any equation on that front would change as a result of the cable operator moving into the wireless space. I think, as Dan said, it’s supportive of the long-term view that the world is going wireless and there is significant mobile data the demand they had..

Okay. Thanks..

We will go next to Batya Levi of UBS..

Great. Thank you. Just couple of follow-ups, first just going back to the churn question, if you look at churn aside from the acquisition-related churn coming from PCS, Clearwire, Leap, it looks like there's an uptick this year.

Can you talk maybe what's driving that? And going back to the small cell, I believe that you had guided a similar CapEx level for small cell deployment this year versus ‘16, given all the activity in the market, do you see potentially an opportunity to accelerate that spend in the near-term? Thank you..

Yeah. To speak on the churn, there really isn't an uptick. It's really that normal churn of the non-consolidation non-renewals is still in the 1% range, which is relatively consistent with where it has been. To the extent there may be a small uptick, it's really not a big four, it wouldn't be in a big four customers it would be in other customers.

But we don't think that's it's a material amount at all nor do we think it's an indication of what's going on in the market. So we see the non-consolidation churn to be relatively consistent with historical..

Our underwrite on CapEx for 2017 for small cells as you stated is similar to what we saw in 2016.

Typically, the amount of timeline between when we sign up a customer and when they go on air that cycle is the 12 months to 15 months cycle in order to get small cell nodes to be built at a minimum sometimes it’s longer than that can be an 18 months to 24 months cycles.

So the uptick as we would talk about activity both that we’re talking about or talking with our customers about or that they publicly start to talk about.

The CapEx spend for that and ultimately the resulting revenue would be beyond in all likelihood beyond the calendar year 2017 both in terms of material capital spend, as well as then the ongoing revenue.

We -- I think absent other factors I think we are biased to believe that when I made the comment earlier in the call that ultimately we believe small cells could be of the similar scale as towers.

We certainly anticipate that there's going to be significant investment and opportunity in the years ahead and the scale of that would be much larger than what we are currently seeing. So our bias is that it is upward movement, but I think you are unlikely to see a meaningful increase to our activity in 2017..

Great. That's helpful.

Just one more follow-up on the macro side, would fiber -- would public safety network about to be planned and deployed? And maybe some of the national carriers not having a full coverage in the rule footprint, do you see an opportunity to build macro towers in more rural locations right now?.

There may be some opportunity for that, frankly, I would say that's not really where our focus is. We are focused right now on the major U.S. metro markets and believe most of the capital spend, as well as the return opportunity is going to exist in those markets. So there maybe opportunities to do that and we may participate in that.

I think we are more likely to be focused on investment in small cells..

Okay. Great. Thank you..

We’ll go next to Mike McCormack of Jefferies..

Hi, guys. Thanks.

Maybe Jay just a quick comment on what you're seeing out there as far as the small cell deployments go with respect to time to deploy and cost on your side to deploy as well, where that sort of pacing and how that looks? And then, secondly, maybe just a comment regarding the broadcast auction, it clearly seems like there has been fairly tepid demand there.

Just wondering as you look out over your longer term outlook, how that might change your view given what appears to be again sort of a low demand for that spectrum?.

Yeah. On the first question time to deploying cost, we’ve seen the cost stay relatively similar to what it’s been over the last couple of years in terms of the cost to deploy this system. Time to deploy is about the same as what it’s been, maybe a little more extended than the last couple of years.

I think it’s supportive of our notion that there are high barriers to entry in that business and it takes a long time to build new systems. So there is a big advantage of owning fiber in the market and being able to go out and co-locate tenants onto that existing fiber footprint.

And the time and cost deploy is really supportive of that view of the barriers to entry and the opportunity ahead of us for the assets that we own today. On the broadcast auction side, I won't speak to how much the spectrum band goes for, ultimately how it gets used.

But what I would point to is going back and looking at the business over a very long period of time. It's been terrific for the tower industry as spectrum is deployed and gets into the hands that operator who has capital to deploy that and use for it. And so, I wouldn't at all take it as a negative.

I think ultimately the spectrum that's in the market today under auction, as well as additional spectrum that the SEC has been pretty clear about, over the long period of time looking to find additional spectrum to put in the hands of wireless operators. I think that's a positive trend for the tower industry and the real tailwind for future growth..

Great. Thanks, Jay..

We’ll go next to Walter Piecyk of BTIG..

Thanks. Can you talk about the cadence of new leasing activity at small cells? I kind of just do the basic math it looks like it kind of yo-yos back and forth from quarter-to-quarter.

Towers seem to be a little bit more regular adding like $22 million or $23 million per quarter, where small cells, I think, it was less than $5 million, it was like $9 million last quarter.

So is that going to smooth itself out at some point or how do we think about small cells going forward?.

Yeah. I think as you described the yo-yo, it's probably more related to as these turn on as we’re building systems….

Sure..

It’s about 75% of the activity is related to as building new networks and about 25% is related to co-locating on existing systems. So you’re looking at the timing of construction starts and finishes roughly there.

Over time, I think, the other thing that will happen is if we’re right about the scaling of the opportunity, it will get so big that those movements aren’t noticeable and you're comparing those two business, one is about $400 million in revenue and the other is about $3 billion and so the tower business tends to look little more smooth just given the relative size of it.

So I wouldn’t you to anything that you could -- you frankly could predict or indicative of the business. I would point to as we've tried to do over the call today really focus on a year-over-year, so look at a 12-month period of time compared to the previous 12 months and I think that will give you the best indication of how we're doing..

And on that front as you know in our outlook that we think that small cell business is going to grow more in ‘17 than it didn't in ‘16 by about $15 million. So the year-over-year….

So you’re sticking to the $15 million, because the $15 million now is off at least for me a lower number, because the fourth quarter as far as the new leasing activity shows that your new leasing activity for the year is like $28 million, so it's $15 million off of that number as far as that increase for ‘17?.

No. I would go back to kind of year-over-year, we did about $55 million roughly of new leasing activities in the small cell segment in ‘16 and we think that's up about $15 million in 2017 to about $70 million..

Okay. Just another question on the small cell boxes, I know I come back this every quarter, but I can't help myself.

Again if you look at those boxes where you can put two or three tenants in them, is your anticipation that one operator is going to take up that second slot and a lot of those locations or is it more likely that a second operator will take the second I don't know lot is the right term but I think you know what I am talking about when you crack those things open you've got two tenants that you can stick in that -- in those things that are up on the lamppost..

I think, Walter, you were going to have some of both. You are going to have some of those boxes where we have multiple tenants in them. We have -- I think we have showcased the number of systems including there in New York walking around showing folks or in some cases we have three tenants in some of those boxes..

Yeah..

On the bottom part..

Yeah..

Yeah. And in other places we will go next pullover and then….

Sure..

… add the tenant, so I think we have a mix of both, ultimately the way we price it comes back to return and the aesthetic of the community are going to drive ultimately. We put two or three on the same light pole….

Yeah..

… that's not really the economic reality, the economic reality goes to the fibers is the really expensive asset in the mix and it's across that fiber that we are driving additional return by adding tenants.

So whether it goes on the same pole over the next pole over, we don't really care, we are focused on the return across the capital investment that we make..

I get it. And then just one last one on that same type of question. Take Verizon as an example. But this could be the case for any carrier. They have existing AWS spectrum that they're putting in those small cells today those small radios.

When they are ready to do AWS-3, is it contemplated that AWS-3 spectrum will also be in the same radio as the existing AWS or is that going to have to take a second slot? I am not saying for, obviously, they go back, they are not going to bother to replace, they will just take the second slot.

But let's say we're out into 2018 where small cell business is ramping.

Is the expectation that they can pack all of that AWS spectrum, the existing stuff and the AWS-3 into one radio, so it's only taking one of those three slots in that box that's on the lamppost?.

I don't want to speak specifically for Verizon. So let answer that question….

For any one, exactly..

Yeah. Lot more generically for all of the carriers.

Small cell have amendment activity to them in the same way the towers do and that amendment activity as to the answer I just gave you looks in a similar way, so in some cases the amendment will be they will come back with an additional spectrum band or additional technology and they will go next pullover, because they put so much equipment in the first box that they are going next pullover.

Sometimes the answer is they are trying to optimizing the network differently, so they will go next pullover and then at other times they will go in the existing box and take up an additional slot in that box and that looks to us like any other new tenant that would go on there. So and we would….

Those are three examples, but that was not the example. I asked about. I said in 2018, let’s say it’s a new operator into a new market and they have all the spectrum, so they're not adding anything.

This is brand new to them, so they go into there, can they stack all of their AWS spectrum into just one of those slots or they’re going to need two slots for existing AWS, as well as AWS-3.

I understand everything you said I get that and you're going to get more money from those, but since we are still early stages in the small cell, I'm just interested in how much spectrum that can pack into one of those slots that’s on that lamppost..

The answer is theoretically technically possible to stack it all on one. So it’s possible that they could do that in the same way that it's possible on towers. I think that's a less likely outcome. I think you are more likely to see them add additional equipment either the amendment or a new lease for us.

But it's theoretically possible that they could combine the spectrum bands and do it with a single piece of equipment, but that's not then what we've seen so far..

Got it. Thank you very much..

We’ll go next….

I think we have time for maybe one more question..

We’ll go next to Michael Bowen of Pacific Crest..

All right. Thank you very much for squeezing me in. A couple if I may. Sorry if I missed this, but I wanted to make sure I understood with regard to the reduction in the organic growth projection in ‘17, if I'm correct, I think, went from 4.9% down to about 4.8%.

Can you help us with a little detail there of exactly what is baked into that? And then another question is we are hearing more and more about Project Loon over Google. Is that more as you see them, is that a friend or a foe, is that something you could potentially seek benefit or is that something that’s going to take business possibly away.

I mean, how are you thinking about that? Thanks..

Yeah. Mike, on the first one on organic growth, we kept organic growth consistent in our outlook from before until now, so it's not a reduction in growth. There's a higher base on which we provided it.

So it looks like, I think, you did the math and it maybe a little lower from a percentage basis, but we did not change our assumptions on the activity levels on the growth that we expect in 2017..

Yeah.

On your second question, I think, the carriers and operators will over time continue to look for opportunities to drive down the cost in their network and so there maybe a number of opportunities whether it's Wi-Fi offloading or other projects that the carriers come up with to offload some portion of the capacity off of their networks and that's good for them in terms of reducing the costs and good for us as consumers in terms of improving the coverage and capacity of the networks.

We don't see anything on the front -- on that front or otherwise at the moment or at on the horizon that is damaging to our overall business..

Okay. And one last one if I could, with -- you mentioned the yields on a per customer basis for small cell. Can you compare and contrast those with tower? I think you said 6% to 7% for the first customer on small cell and then increasing from there.

Is it similar or can you help us with that?.

Yeah. On the tower side where build projects are being done in the market or where we're seeing builds and for which we're not investing capital because we don't find the returns to be attractive.

There are some folks out building towers that initial yields that are in the 2% to 3% range we don't frankly find those that interesting given the other opportunities that we have in front of us.

As we look at maybe the larger acquisitions that have been done more recently, those treated in the 4.5% to 5% initial yield on the tower side, so the small cell returns are little higher at initial yields than what we've seen in towers from an acquisition standpoint and meaningfully higher relative to newbuilds.

That probably has to do in part though with the complication and difficulty of constructing those new tower builds are not being done in major metro markets in the U.S.

So I think both the risk with the opportunity and the difficulty of completion is factored into those returns that it may not be fair really, Michael, to compare those as apples-to-apples..

Yeah. That's helpful. Do you have any historic yields off of towers from past years….

We are typically…..

I’m assuming much higher?.

Yeah. We’re typically building towers in that 4% to 5% yield range maybe a little higher than that at some point. So small cells initial yields are higher than historical yields initially were for towers..

Okay. Great. Thank you..

You bet. Well, thanks, everyone for joining us this morning. We'll wrap up the call and look forward to talking to you next quarter. Thanks so much..

That does conclude our conference for today. We thank you for your participation..