Oct 31, 2007
Executives
John Kelly - President and CEO Ben Moreland - CFO Jay Brown - Treasurer
Analysts
Vance Edelson - Morgan Stanley Jonathan Atkin - RBC Capital Markets Jason Armstrong - Goldman Sachs David Barden - Banc of America Securities Brett Feldman - Lehman Brothers Rick Prentiss - Raymond James and Associates Gray Powell - Wachovia Securities Michael Rollins - Citigroup David Janazzo - Merrill Lynch
Operator
Good morning ladies and gentleman, thank you for standingby. Welcome to the Crown Castle International Corp Third Quarter 2007 EarningsCall.
During today's presentation all participant are in a listenonly mode. Following the presentation the conference will be open forquestions.
(Operator Instructions) This conference call is being recorded todayWednesday, October 31st, of 2007. I would now like to turn the conference over to Jay Brown,Treasurer.
Please go ahead, sir.
Jay Brown
Thank you. Good morning everyone.
And thank you for joiningus, as we review our third quarter 2007 Results. With me on the call this morning are John Kelly, Crown Castle'sChief Executive Officer; and Ben Moreland, Crown Castle'sChief Financial Officer.
This conference call will contain forward-lookingstatements and information based on Management's current expectation. Althoughthe Company believes that the expectations reflected in such forward-lookingstatements are reasonable, it can give no assurance that such expectations willprove to have been correct.
Such forward-looking statements are subject to certainrisks, uncertainties, and assumptions. Information about the potential riskfactors that could affect the Company's financial results is available in thepress release and in the "risk factors" section of the Company'sfiling with the SEC.
Should one or more other of these risks or uncertaintiesmaterialize or should underlying assumptions prove incorrect, actual resultsmay vary significantly from those expected. In addition, today's call includesdiscussions of certain non-GAAP financial measures including adjusted EBITDA,recurring cash flow, and recurring cash flow per share.
Tables reconciling suchnon-GAAP financial measures are available under the "Investors"section of the Company's website at crowncastle.com. As you know on January 12th, 2007 we closed the merger withGlobal Signal.
The reported results for the third quarter 2007 include theaffect of the merger which is compared in certain cases to pre-merger,historical results of Crown Castle for prior period. During the call this morning, we will refer to pro formaresults for the three months ended September 30, 2006, and the nine monthsended September 30th, 2006 and 2007, which are also included on page five ofour third quarter earnings release that we put out last night.
The pro formaresults combine the results of Crown Castle and Global Signalas of the beginning of the periods presented. With that, I'll turn the call over to Ben.
Ben Moreland
Thanks Jay and good morning everyone. As you've seen in ourpress release, we've reported a solid quarter of results and we are pleased toshare some of those highlights with you this morning.
During the third quarter, we generated revenues of $351.7million, which was comprised of site rental revenue of $326.8 million up $147.8million or approximately 82.6% compared to the third quarter of 2006. Service revenue was $24.9 million, pro forma site rentalrevenue growth was approximately 7.3% compared reported to third quarter 2007results to pro forma third quarter 2006 results, exclusive of approximately$1.1 million and $6.5 million of out of run rate items in the third quarter of2007 and the third quarter of 2006 respectively.
Gross margin from site rental revenue, defined as powerrevenues less cost of operations, was $214.9 million, an increase of $91.2million or up 73.7% from $123.7 million in the third quarter of 2006. Pro formasite rental gross margin increased approximately 10% comparing the thirdquarter of 2007 results, to pro forma third quarter 2006 results, exclusive ofthe previously mentioned out of run-rate site rental revenue.
Adjusted EBITDA for the third quarter 2007 was $195.8million, an increase of $85.5 million or up 77.5% from the third quarter 2006. Capital expenditures during the quarter were $66.3 million,sustaining capital expenditures totaled $5.6 million, and revenue enhancing orrevenue generating capital expenditures were approximately $60.7 million.
Thiswas comprised of approximately $34.7 million of land purchases, $11 millionrelated to the addition of new tenants on existing sites, and about $15 millionfrom new sites. Recurring cash flow, defined as adjusted EBITDA lessinterest expense and sustaining capital expenditures, was $100.8 million,inclusive of approximately $18.9 million of additional interest expense on the$1.15 billion of borrowings in the fourth quarter of 2006 and the first quarterof 2007, to reduce actual and potential shares outstanding by approximately33.7 million compared to $61.6 million in the third quarter of 2006.
Recurring cash flow per share was $0.36 per share for thethird quarter 2007, again, inclusive of the negative $0.02 of dilution from thepreviously mentioned borrowings used to reduce the potential and actual sharesoutstanding, compared to $0.31 per share in the third quarter of 2006.Exclusive of the dilution I just mentioned, the current cash flow per sharegrew approximately 23% year-over-year. As we’ve previously stated the additional borrowings toreduce the share count over the past year have had a short-term dilutive impactto recurring cash flow per share, we believe these actions we've taken willdeliver long-term growth in this measure consistent with our long-termobjectives to grow recurring cash flow 20% to 25% annually.
Sequential growthand recurring cash flow per share from the first quarter of 2007 to the thirdquarter of 2007 was 20%, and illustrates the expected annual growth from a currentcash flow per share with a static capital structure. Turning to the balance sheet as of the end of third quarter;securitized tower revenue notes totaled $5.3 billion for the quarter and otherdebt totaled approximately $712 million, for total debt at the end of thequarter of approximately $6 billion.
The other debt was comprised of ourcorporate credit facility which was strong $648 million and $64 million of our4% convertible notes. We also hedged $313.6 million outstanding on thesix-and-a-quarter convertible preferred stock outstanding as of the end of thequarter.
Total debt to latest quarter annualized adjusted EBITDA atthe end of the third quarter was 7.7 times, and adjusted EBITDA at interestexpense as of at the end of third quarter was 2.2 times. As you’ve seen in ourprevious filings, the $5.3 billion of securitized notes are not subject tointerest rate fluctuations for 10 years from their respective initialissuances, due to the interest rate hedges that we have undertaken, on the anticipatedrefinancing dates of each of the issues.
At quarter end, we had approximately $120 million of cash,excluding restricted cash and $250 million of availability under our revolvingcredit facility. Moving to the outlook for the fourth quarter of 2007, weexpect site rental revenue for the fourth quarter of between $333 million and$338 million.
We expect site rental gross margin for the fourth quarter ofbetween $218 million and $223 million. And we expect adjusted EBITDA for thefourth quarter of between $202 million and $207 million, and interest expenseof between $88 million and $90 million.
We expect sustaining capital expenditures to be between $6million and $8 million, rest recurring cash flows expected to be between $106million and $111 million for the fourth quarter. We expect site rental revenue for the full year of 2008 tobe between $1.377 billion and $1.392 billion.
We expect 2008 site rental grossmargin of between $930 million and $940 million. We expect 2008 adjusted EBITDAto be between $850 million and $862 million, which is approximately 14% growthin adjusted EBITDA year-over-year, and interest expense between $355 millionand $360 million.
We expect sustaining capitalexpenditures to be between $21 million and $26 million. And this 2008 outlooktranslates into expected recurring cash flow for the full year of 2008 ofbetween $474 million and $484 million or approximately a $1.70 per share basedon the 282.6 million shares outstanding for the three months ended September30, 2007.
The expected 2008 recurring cashflow per share of approximately $1.70 is the 25% increase from the expected$1.36 for the full year 2007. Our 2008 outlook impliesapproximately $100 million of annual site rental revenue growth, $100 millionof annual site rental gross margin growth and $100 million annual adjustedEBITDA growth.
We believe there are manyvariables that could potentially drive additional growth in this outlook for2008. Its just to early to tell, but we’re pleased with the fact that our 2008outlook, which is based on revenue growth and leasing growth, at the same rateas we expect to finish 2007, translates into approximately 25% annual growthand recurring cash flow per share or the top end of our previously stated longterm goal of 20% to 25% growth in recurring cash flow per share.
Over the past few years we'vemade many significant investment decisions, most notably the purchase ofapproximately 30% of our fully diluted outstanding shares since 2003, and theacquisition of Global Signal which closed in January of this year. Due to the solid performance ofour core tower business, and the diligence we have demonstrated throughrefinancing our balance sheet and purchasing a substantial amount of our actualand potential shares outstanding.
We have positioned ourselves to effectivelytranslate core tower business revenue growth in to recurring cash flow pershare growth. Consistent with our past actions, we expect to continue touse our recurring cash flow, and the additional borrowing capacity we're nowgenerating, to make investments based upon their impact on long term recurringcash flow per share.
We have not included the impact of these potentialinvestments in our outlook. As of the third quarter 2007, our debt-to-adjusted EBITDAratio was 7.7 times, and our interest coverage level had increased EBITDAdivided by interest expense had increased to 2.2 times, implying that we arenow creating borrowing capacity within our targeted leverage ratios.
As we look to the balance of 2007 and into 2008, you shouldexpect us to continue to invest our recurring cash flow and borrowing capacitytowards the high end of our leverage range six to eight times. In order to makeinvestments based upon their long term impact recurring cash flow per share.
Although the credit market environment has been lessfavorable, as over the last couple of months, we continue to believe we haveaccess to the credit markets at our targeted level of leverage, based upon thequality and predictability of our cash flows. While credit spreads for additional debt, new debt we wouldtake on have widen out by approximately 70 basis points to 100 basis points.
Wecontinue to believe that prudent leverage at our current levels enhances ourlong term expected equity returns. Potential investment opportunities includes stock purchases,land acquisitions, tower builds, tower acquisitions, and other revenuegenerating investments around our core tower business.
Again, we are pleased with the results for the quarter andlook forward to a strong finish in 2007. With that, I am pleased to turn the call over to John Kelly.
John Kelly
Thanks, Ben. And thanks all of you for joining our call thismorning.
We had another solid quarter of results in the third quarter as weexceeded the mid point of our outlook for site rental revenue, site rentalgross margin, adjusted EBITDA and recurring cash flow. I would like to make a few comments about some recentlyreported wireless industry statistics and the spectrum options, both ones in2006 and the ones coming up in 2008.
And, also, give you a brief update on ourintegration efforts before I turn the call over for questions. I am pleased with the third quarter performance.
As Benwalked through the numbers with you, I believe we reported very solid resultsat the high-end of our operating targets. And the backdrop for this performanceis the continued growth in the broader wireless market.
As many of you are aware CTIA has just released its summerannual wireless industry survey. I’d like to spend a few minutes to discusssome of those broader wireless industry statistics that I believe are criticalbecause of the effect that they have on the growth in the power industry.
First one was wireless subscribers were up to approximately243 million for the first half of 2007, as of approximately 24 millionsubscribers or 11% from the first half of 2006, which is in line with theconsistent growth we’ve seen in recent years. Now, more importantly than wireless subscribers increasing,wireless minutes of use exceeded 1 trillion minutes of use in the first half of2007, an 18% increase from the first half of 2006.
In my opinion, an unbelievably large increase on apercentage basis given that the base is so large. And very interesting statisticsalso out with this report is that wireless data service revenues for the firsthalf of 2007 rose depend on a $0.5 billion, which represents a 63% increaseover the first half of 2006 when data revenues were $6.5 billion.
Wireless data revenues now account for 15.5% of all wirelessservice revenues, which is a significant increase from approximately 4% that’swireless data revenues were of total wireless service revenues in 2004, now to15.5%. Another staggering statistics, there were 28.8 billion text messagesreported in amongst of June 2007 alone.
It's almost 1 billion text messagecomes a day, which represents an increase of 130% over June 2006. And then, finally, wireless subscribers sent 2.6 billionmultimedia messages in the first half 2007, almost as many as were sent in allof 2006.
I believe these statistics reinforce and substantiate the overarchingtrend we are experiencing of the migration from wireline telephony to wirelesstelephony, which we talked about on prior calls. With this trend, we believe the need for towers willcontinue to increase as carriers continue to acquire infrastructure to buildout their wireless networks to support these data-centric and bandwidthintensive applications.
I give a few specifics for expected 2008 growth. One of thebig changes in 2008 from 2007 is that clearing process with the AWS spectrumthat was auctioned by the SEC in 2006 is well underway.
And we believe thatleasing power points continue to grow for the balance of this quarter in 2007fourth quarter, and into 2008 as a result of this AWS spectrum being deployedby companies like T-Mobile, Leap, and Metro PCS. I believe it's likely we will start seeing the impact offragment for revenues from these activities in the first quarter of 2008.Clearly, leasing that occurs in the fourth quarter 2007 does little forrevenues in 2007, but will have an impact we believe starting in the firstquarter of 2008.
For longer term, we are also looking forward to the resultsof the FTC's upcoming 700 megahertz auction, which is expected to begin inJanuary 2008. We believe that whatever the outcome the auction of this primeband of spectrum will have a positive effective on the tower industry.
Our assets are the best located in the tower industry, with72% of our portfolio in the top 100 BTAs. And as such, we believe we are in afavorable position to partner with the ultimate winners of the auction todeploy their new networks or deploy new applications using the spectrum onsites in place to day.
Although the television broadcasters currently using thespectrum, are not required to fully transition to digital television untilFebruary 2009. Crown Castle is spending time,currently working and proactively planning with our customers to determine howto best meet their needs, and to have sufficient co-location options availableto them in deploying the new 700 megahertz spectrum.
And we believe we are extremely well positioned for thegrowth opportunities in 2008 and beyond due to our considerable progress on theglobal signal integration. We've made significant progress since January on theintegration in number of areas, including operations, IT, property management,accounting and human resources.
I am very pleased with the remarkable progressof our integration teams, and quite frankly all of our employees have madeduring this transitional time. And we expect to be substantially complete withthis integration effort by the end of the year.
We have also realized, as a result of all the integrationefforts to date, we have realized annualized run rate G&A synergiescomparing full year 2006 to annualized third quarter 2007, are more than doubleour original estimates. These synergies are included in our 2008 outlook.
Thusfar, the results from the Global Signal acquisition have exceeded ourexpectations for revenue growth, synergies, and the resulting benefit toadjusted EBITDA. So, before I turn the call over for questions I want toreinforce that, we reported a great quarter of results, we are optimistic aboutthe increased leasing, we believe will occur towards the end of the year andinto 2008 from the AWS deployments.
And certainly, looking forward in to 2009,there should be some positive from the results of the 700 megahertz auction. An important point, I would like to emphasis is,notwithstanding the opportunities for growth in 2008, it is still only justabout the beginning of November.
And so, would have difficult to forecast into2008 with perfect clarity, what leasing will look like? So, I am especially pleasedwith the efficiency of our capital structure that we built over the last fouryears, which translates 2008 revenue growth that is forecasted in our outlookto be comparable to the 2007, in to recurring cash flow per share growth at thehigh end of targeted range of 20% to 25%.
That occurs because of the efficiencyof our capital structure. I reiterate the points about the integration efforts.
Weexpect to be substantially complete with the Global Signal integration by theend of this year. And as Ben discussed, we are poised to resume our practice ofborrowing funds, and investing in our core tower business including stockpurchases.
So, with that operator, I would like to turn the call overto you, to organize the question-and-answer period please.
Operator
Thank you. Ladies and gentlemen at this time we will beginthe question-and-answer session.
(Operator Instructions) And our first questioncomes from Vance Edelson with Morgan Stanley. Please, go ahead.
Vance Edelson -Morgan Stanley
Thanks a lot. Congrats on the quarterly results.
Ben, onyour share buyback, I think the approach is always a made lot of sense buyingopportunistically rather than announcing a specific amount over a specifictimeframe, which would just drive the price up before you can buy. That said,we haven’t seen any buybacks in some time, what’s you current thinking on thisas a potential use of cash?
How attractive do you think the shares look nowrelative to other potential uses of cash? Thanks.
Ben Moreland
Vance thanks for a good question. We did not invest any inthe third quarter, as we were just coming down under our, sort of, our eighttimes leverage targets finished the quarter at 7.7 times.
But as we said in theprepared remarks, at this point, clearly, we are building capacity and we’vegot some cash that’s unspoken for at the moment. So you should expect that our appetite to continue to investin our shares is as robust as it’s ever been.
As you think about, now thatwe’ve got 2008 outlook outstanding for year-to-date and look at the forwardgrowth rate of 25% in recurring cash flow, we are trading at less than, sortof, one times multiple to growth rate. And so we continue to be veryoptimistic.
And if you think that’s a compelling investment, I guess the otherthing I would say is now that we’ve got the '08 outlook out there $100 millionof EBITDA growth in the remaining leverage that eight times requires that youcan borrow $800 million over the next 12 months. And with the 480 of our current cash flow on top of that andthat $280 billion is a significant amount of capacity that we have over thennext 12 months to invest.
And even if you make certain assumptions aroundcapital expenditures associated with the core business like land purchases,power builds, some smaller acquisitions, we can still come up to a verysignificant amount of money, maybe, even approaching $1 billion that could beyear mark for purchases, if we don’t otherwise buy assets that bring cash flowwith it. So, we are still very, very interested in proceeding with our plan,and think the ability to borrow in an around 6.5% or a little less dependingupon where the five year lot or swap is, is still a very compelling propositiongiven what we think the targeted for the -- our expected returns on the equitywill be?
Vance Edelson -Morgan Stanley
Okay. I appreciate the color there.
And speaking of towerbuilt or bought, just on the house keeping front, I didn’t see it in therelease, can you tell any were bought and built during the quarter?
Ben Moreland
There were 42.
Vance Edelson -Morgan Stanley
Okay, great. And finally, could you just elaborate on theland purchases, would you continue to spend fair amount on remind us what thecriteria are for making a purchase, and as it getting more or less difficult tofind accretive opportunities there?
Thanks.
Ben Moreland
Yeah. Vance, we continue to be very optimistic about theland purchase business.
We’re committing some time and resource, and obviouslysome capital for that. And find that we're able to continue to buy these, sortof, in and around, sort of, that 12 to 14 multiple consistently, which theneliminates the ground rep and the acceleration forever.
So, it's a verycompelling return on investment from what is effectively refinancing what isessentially an off balance sheet data obligation on balance sheet. And so, we think about it to a similarly to refinancing injust the cold financial reality, but also it obviously solidifies the long-termcontrol of the asset, which we want to pursue.
So I think you should expectthat we’re going to continue, sort of, at these levels and perhaps evengreater, if we can find the right opportunities.
Vance Edelson -Morgan Stanley
Okay. That’s sounds good.
Thanks a lot.
Ben Moreland
Thanks.
Operator
Thank you. Our next question comes from Jonathan Atkin withRBC Capital Market.
Please, go ahead.
Jonathan Atkin - RBCCapital Markets
Yes good morning. Thanks for the color on the AWS spectrumclearing and some of the build out or leasing activity that you are starting tosee.
Can you talk about any notable changes in the activity level at the majorcarriers on their exciting networks, as well as perhaps provide a perspectiveon WiMAX?
John Kelly
Yeah, Jonathan, as I mentioned in the prepared remarks, whatwas a delay in 2007 on AWS clearly was the ability for those companies that hadsuccessfully bid in the auctions in 2006, that have unfettered access to thatspectrum, to deploy either new systems or in the case T-Mobile their 3Gnetwork. There was a spectrum clearing process that they had to undergo,essentially to move the people that were already using that spectrum, and inthis case there was a private industry, but also government users in thatspace.
And the government user side it took a little longer than I think somehad perhaps originally forecast. And so, it was impossible quite frankly, for them to deploywithout them interfering with the incumbent user, that was being moved outand/or interference been created on their networks.
So, that really is wellunder way at this time. And that certainly is something that we have visibilityinto as we see it to-date for 2008.
And can see the activity levels for thosecompanies that were the winners of the AWS spectrum are reinforcing at thispoint. I think speed is of the essence in building out and adding this newapplication.
With respect to the question on WiMAX, very clearly Jonathan,we think it is reasonable, given some of the change that has occurred at thecompany that is the primary advocate of the WiMAX technology today. We believeit's reasonable to expect that there could be some rethinking about thedeployment scheduling.
Don't think that there is going to be any changes to thetest markets, the original markets being deployed, and we certainly see theactivity in that particular regard. And that would be something that we can becomfortable with as we look forward to 2008.
But, as you look at the deployment schedule, and what wasorganically contemplated. We think it is reasonable that, given some of themanagement shift, there may be some rethinking relative to the pace at whichthose markets deploy.
Now that's something certainly that the specific carrierin question is going to be asked on their call, and certainly will have theirperspectives on it. And we will be listening carefully.
But it was that oneparticular element that as we looked forward into 2008, we didn't have enoughvisibility to be comfortable with that in the outlook.
Jonathan Atkin - RBCCapital Markets
And then in terms of conventional network activity by thebig four, any changes recently compared to say the first half of the year?
Ben Moreland
What's interesting is, we try not to get into too muchspecific details Jonathan about each specific carrier. But what I would say isthis most recent wireless data service trends are quite frankly beingmanifested in some of what we see these carriers are planning for 2008.
In essence, the carriers I think are very definitely, theother big four carriers are very definitely committed to in showing that thewireless data experience that their customers have is going to be as robust, aswhat they have been trying to do on the both side of the equation. And thatdoes require additional build out.
We're beginning to see if there is somecapacity building taking place to ensure that geographic areas that currentlyhave EV-DO or UMTS systems are, in fact, enhanced and some additional expansioninto market that don’t have those technologies deployed currently. A little more of the capacity on the side of the equation atthis juncture than pure expansion into new markets, but there is still thepriority set of new markets having 3G look deployed from the outset.
So that, Ithink, is going to be continuing trend into 2008, and with one of the carriersthey have been fairly consistent. They do pretty much the same level ofactivity quarter after quarter after quarter.
So I wouldn’t expect too much ofa ramp-up in their place. But another one of our big four customers, I wouldexpect to see more activity in 2008 than 2007.
We are just waiting to see, kindof, what their final 2008 budgets reflect on as we then continue to prepare forthe New Year.
Jonathan Atkin - RBCCapital Markets
Thank you. And, then,briefly for Ben, the '07 EBITDA guidance was lowered nominally compared to thehigher call revenue and higher cash for guidance.
I assume this service isrelated, but can you elaborate a bit on that?
Ben Moreland
This service is related. And some had maybe gotten a littlebit confused and thought it was G&A, it’s not.
It’s the ramping of servicesas we had expected from Q3 to Q4. I realize we don’t give you that guidance.
Wedon’t have that visibility. It is still ramping quarter-to-quarter and, infact, not insignificantly but it’s not going to ramp at the levels from thesecond quarter to fourth quarter that we initially thought.
And that’s our bestjudgment of how we're going to finish the year. So, it's going to ramp, sortof, in the range $2 million or $3 million instead of $4 million or $5 million.And that’s the difference in why once we get into the fourth quarter we have totrim the high-end of that EBITDA range.
Jonathan Atkin - RBCCapital Markets
Margins in the business are pretty steady?
Ben Moreland
Yes, yes. It's purely an activity level, and it's growingand has grown as we expected it would across the second half for the year notinsignificantly, but, again, based upon initial expectations from the beginningof 2007 and it came in a little light in terms of pace where you finished theyear.
Jonathan Atkin - RBCCapital Markets
Thank you.
Operator
Thank you. Next question comes from Jason Armstrong withGoldman Sachs.
Please, go ahead.
Jason Armstrong -Goldman Sachs
Great, thanks. Good morning a couple of questions.
Firstjust, maybe, how to think about balance sheet positioning in strategicopportunities in light of the comment about credit markets, sort of, 70 to 100basis points write-off a year method of financing, at least one largetransaction that's sitting out there. You stay around eight times just gotbuyback shares to land acquisition et cetera.
You still have the willingnessand ability to extend the balance sheet for the right deal and maybe put someparameters behind that? And then second question on '08 guidance, just in terms ofhow it was constructed from an EBITDA perspective, 100 million increases inrates, 100 million increased in EBITDA.
Just how you thought about full throughmargins versus some of the expense pressure that goes away related to Modeo orGlobal Signal synergies et cetera? Thanks.
Ben Moreland
Okay, Jason, sure. Let me take both of that in order andJohn can certainly jump in.
On the balance sheet positioning, you know, I thinkit's very important to reemphasize. As a practice, we do not put in ouroutlook, the expected deployment of this additional capacity that I talkedabout.
So, it’s in the round numbers of call it a $1.280 billion. We justtalked about it on the previous question again, the eight times that capacityat the $100 million of growth in the recurring cash flow.
So, we don’t forecastthat, and I guess you could well, you could have and then we could had morerevenue or EBITDA or alternatively recurring cash flow per share if you areshrinking the share count, but we don’t. But our view around the credit markets are, the ability tocontinue to borrow in or around 6.5% on a long term basis, is still verycompelling.
What we see is the long term growth prospects, certainly of our ownstock, based upon our own ability to drive recurring cash flow per share growthas we demonstrated in this outlook. And our longer term views, which are stillunchanged, and very consistent with our long term statement of the 20% to 25%growth.
To the extent we would deviate from that and approach anasset acquisition, particularly in size. We would have to believe more of thesame and that would be more compelling, more attractive to the long termgrowth.
And it would likely come at a lower initial multiple or higher initialyield, and by definition buying our own stock. And that’s where you are payinga public multiple, which we wouldn’t expect.
So, you probably come with more short term impacts, in termsof benefit against the cost of debt in the short-term. And so, we remain veryengaged and committed, but I wouldn’t suggest that the cost of debt hasn’tcertainly impacted the way we would've analyzed an acquisition.
I think wecertainly look at that, because again, at a given cost of debt it shouldultimately impact how you think about an acquisition at least at the margin. I hope that answers that question.
On EBITDA construction,the easiest way to think about that is take the fourth quarter, annualize sortof fourth quarter either revenue or EBITDA, and roll forward $50 million, whichwill be the half year convention on the $100 million year-over-year. It is sortof how you get to that number, and while it is a little unusual for us toforecast a 100% incremental margin, because as we've said for many years,that's not long term, probably sustainable.
Certainly in 2008, we believe it'ssustainable, because we've incurred expenses in 2007 that are not recurring.So, when you look at the year-over-year benefit we think well within reason toexpect that cost will run pretty flat. Maybe there is even some room in that, that's again a very earlyread on 2008.
But we think we are within reason to say that costs are going torun flat comparative to full year 2007, and that's how we get to the 100% incrementalmargin. And that's part of the benefit of the synergies that we wound throughin 2007, but then you don't have it obviously on the run rate basis, you getthe benefit for the full year 2008.
Jason Armstrong -Goldman Sachs
Okay. Great, that's helpful, and just on the revenue sidesort of what you just talked about constructing the revenue piece.
Can you justhelp frame, what the upside to guidance might be, there is been comments on thecall suggesting AWS, you are actually seeing in the pipeline, 1Q '07 or 1Q '08?
Ben Moreland
Yeah, I think it's important, I am happy to do that and Iwill do it this way, again the theme we want to leave you with is, at thislevel of 8% revenue growth 14% EBITDA growth, which is consistent revenuegrowth to 2007. We are forecasting the high end of our recurring cash flowgrowth per share of 25%.
Now some out there had models that, and by the way that'spretty consistent, that's $100 million of revenue growth, it's prettyconsistent with what we have talked about in priors calls and other conferencesetcetera. Some had models out there that were substantially above that, forexpectations for 2008.
And I just wanted to give you a little flavor for kindof how those numbers would in fact work, I mean, for example if leasing were up20% over 2007 so if we saw a 20% impact on the positive side for the full year,again, starting January 1st to give the full year impact, you know, that wouldbe in and around $15 million to $16 million of out performance. Okay, so that’sthe order of magnitude, if you want you go up 20%.
Some of the models I saw would have, sort of, imply 50%increase year-over-year. In order back into the numbers and you know, in allphase face sitting here at the -- beginning in November, we can’t tell you we'dsee that today, 50% increase.
I meanjust we don’t see it. I mean if there is some upside, likely it will comestaggered throughout the years.
You’ll get some fraction, if it occurs at all.But I just thought it to be helpful to walk everybody through the unit map,again, sort of, that up 20% full year would be $16 million or $15 million. Andit’s, of course, half year, in the half of that.
So anyway, I think continued recognition maybe oneverybody’s part that the volatility on the up and down from leasing results,many of you heard me say this in conferences, it’s just not there. I mean,given the run rates we have today and the embedded base of free cash flow, thecurrent cash flow, leasing can go up or down 20%.
And you frankly hardly feel.
Jason Armstrong -Goldman Sachs
Yeah. That's helpful,Ben.
Thanks a lot.
Operator
Thank you. Your next question comes from David Barden withBanc of America.
Please. Go ahead.
David Barden - Bancof AmericaSecurities
Hey, guys. Thanks a lot and I apologize.
I would like tofollow-up on that point. Ben, I guess looking at the adjusted EBITDA guidancein '08 and this is not the first time, I think we’ve had these conversationsabout conservative expectation at the beginning of year and then, kind of, thingsunfolding more positively.
But looking back to 2006 when Crown Castlewas standalone company, just EBITDA quarter-to-quarter, kind of, was up $6million to $7 million in any given quarter that year. And then, obviously, wehad an issue with the Global Signal acquisition, but in third quarter EBITDAwas up $10 million sequentially.
In fourth quarter we got into up $9 millionsequentially. If I annualize fourth quarter number, the sequential rate ofgrowth in adjusted EBITDA would have to fall to below $4 million in each of thecoming four quarters.
And so, I guess when you guys say you believe that that’sgoing to happen, I think, it bags the question, why will…
Ben Moreland
It's very dangerous to annualize fourth quarter, forexample. When you will start getting into shortcuts, I am happy it can walk youthrough as much details as you can tolerate.
But for example, we areannualizing, if you annualize fourth quarter and that’s the shortcut methodwhich I would suggest is easy. But remember you are annualizing of a ramped upservice margin, but now you are going to annualize for full year 2008.
So itdoes, sort of, make that challenging. When we wouldn’t, again, we don’t give you this guidance.
Iknow you are slide is blank, but we wouldn’t necessarily believe that you wouldannualize service margin for the full year 2008, up from fourth quarter 2007that would be in and around substantial increase in service margin that weexpected to deliver this year versus next year. So, and again we are forecasting,again, I know you can't see this.
We are forecasting service margins to beroughly comparable to 2007. So, it gets a little bit challenging.
I think the simplestthing to do is, sort of, go to the -- because EBITDA has G&A and servicemargin impacting it. Simplest thing to do is, sort of go to site rental revenueand site rental margin and say, okay, what doesn’t that look like?
And that 100million of growth in both those numbers is, we believe consistent with kind ofwhat we've said and what we've delivered in 2007. And, again, could it behigher?
Yeah, it could be. But I think it's important to, again, frame thatorder of magnitude around what percentage of leasing do you expect outperformfor -- if any of these other events would have happened early enough in theyear to make it impactful…
David Barden - Bancof AmericaSecurities
Perfect, and just a follow-up again on the kind of, itsounds like an assertion, there is an appetite to kind of go back into thebuyback market. But obviously, there are other decisions that need to be madefrom kind of accepting or rejecting asset opportunities that are out theretoday.
I guess what I heard was that this decisions or actions that might betaken sooner rather than later, but I guess, is this more of a '08 kind ofevent? Do you want to have another board meeting before decisions are made orare you guys in a position to take action and make decisions today?
Ben Moreland
Are you referring to just deployment of the capital ingeneral, so it should be around share purchases or acquisitions?
David Barden - Bancof America
Yeah, obviously there have been a number of reports aboutthe T-Mobile assets out there, and that there is a second round of biddingthat’s occurring currently. And do you have to wait to see how that plays outbefore you are in the market, maybe looking at equity buybacks or can you dothat?
Ben Moreland
We’re not going to get into what we’re doing in particular,and I would say it just from the corporate governance matter, we do have readyaccess to our Board and get decisions kindly timely as required. And that sortof has been always our approach, but in terms of commenting on specificallywhich direction we may be leaning, I am just not going to get into that, atthis point I just can't.
David Barden - Bancof America
Thanks Ben.
Ben Moreland
Okay.
Operator
Thank you. Your next question comes from Brett Feldman withLehman Brothers.
Please, go ahead.
Brett Feldman -Lehman Brothers
Yeah, thanks for taking my question. I just wanted to drillin a little bit more into the cost structure, and I know you sort of alluded toit earlier, but let’s just say your cost of services per tower and they seem tohave stabilized on a monthly relative to the prior quarter.
Are we kind of at anew run rate level now, we can sort of look at that and begin to extrapolatethat forward, based on historical trends or is there any reason why that mightchange in the near term?
Ben Moreland
No, I think Brett, we’re very comfortable with these runrates, and I would tell you, we are probably not done, working on them on thepositive. But I think we are very comfortable with these run rates and shouldnot be probably a pretty good places start for as you go forward.
Brett Feldman -Lehman Brothers
I mean other than purchasing more land, how well else youget leverage on that cost item?
Ben Moreland
Well, we are continuing to get better and more efficientaround repairs and maintenance activities. Which is the bulk of our spendthere, after ground lease expense, you look at ground leased expense it is inand around $300 million a year for the overall company, repairs and maintenanceare in and around $45 million to $50 million a year, in the new combinedcompany.
You have got property taxes. That's an ongoing process totry to mitigate property taxes.
So, those are your biggest items, you look atheadcounts salary, sort of SG&A benefits, all of that combined is give ortake $135 million on a $550 million total cost structure, which includes theground leases. So, there are things you can certainly do around beingefficient, and we expect to get that.
That is part and parcel of the reason forthe 100% incremental margin forecast. But again, most of the 100% margin comesfrom again expenses that were incurred in '07.
We don't think we'll replicatein '08. Therefore, you get that nice run rate benefit year-to-year.
But I do expect as we go through time, we will find moreplaces to become more efficient. And we would see run rates.
I have expectationmaybe you will see them come down on cost and asset basis.
Brett Feldman -Lehman Brothers
That's great, and do you think really you have been buying11, 12 to 14 times, is that, did I get that right?
Ben Moreland
Yeah, that's generally the average, it depends on thetransaction, but that's in and around that average. And we would certainlycontinue to do that, it's a favorable way to refinance, and off balance sheetobligation on balance sheet if you will.
Brett Feldman -Lehman Brothers
And what about pricing of the private tower that’s outthere? Have you seen them changing muchdeep into gain to a level one, little bit or not, nearly as many opportunitiesas you previously seen?
Ben Moreland
There are still opportunities. Yeah, we still seeopportunities and we are actively looking at pretty much everything in themarket today.
We didn’t really do anything of any significance in the thirdquarter but we have a pipeline at any given time that we are pursuing. And weemploy, sort of, all our internal tools in terms of looking at long-termleasing demand against run rates that exists on the sites those were today, youknow a mature site with lots of revenue per power, you might expect to come ata lower multiple than an amateur site where you, kind of, have lot of lease uppotential.
So we are constantly trying to manage that balance but there is someactive pipeline and we’ve got a team working on it. And I would expect part ofour capital investment allocation in 2008 will go through those smaller typeacquisitions.
Brett Feldman -Lehman Brothers
Okay, and then, one, sort of, all of the questions here. Oneof your customers has actually indicated that some of the cash equivalents theyhad in their balance sheet or maybe not as liquid as their broker had led themto believe that they were.
Considering what’s going on in some parts of thecredit markets and the money markets, I am just curious how do you manage yourcash? When you have cash in the balance sheet, is that cash or you have lot ofit in cash equivalence and marketable securities?
And if so, have you actuallyhad any trouble liquidating those securities?
Ben Moreland
Yeah. It’s an overnight investment and they are all A1/P1graded paper.
And we’ve had absolutely no problem rolling any of that over orhad any price deterioration in any of our investments. And we have doublechecked that, after that equivalents like probably every corporate in America.And that sounds very pleasingly that our investments are, in fact, incompliance with our board authorization as you expect they would be and we'vehad absolutely no issue there.
Brett Feldman -Lehman Brothers
Okay. So you didn’t have to reallocate something that youthought was short-term item into long-term assets, this quarter?
Ben Moreland
Not at all, nothing there.
Brett Feldman -Lehman Brothers
Okay. That’s good.
Okay, great. Thanks, guys.
Operator
Thank you. Our next question comes from Rick Prentiss withRaymond James and Associates.
Please, go ahead.
Rick Prentiss -Raymond James and Associates
Hi. Good morning, guys.
Unidentified Company Representative Rick.
Rick Prentiss -Raymond James and Associates
Tough questions for you when I keep drilling down, I guesson the horse that everybody was beaten a little bit, there the '08 revenueguidance. I appreciate your comment about, even if you see pretty big revenueincreases.
It's 15 million to 16 million delta on the revenue side, but as welook at it, I think there maybe one just to get the conservative item handleupfront. Historically, I found you guys for a long time, kind of, maybe 1%swing it looks like what we saw in the '07 timeframe to, kind to keepyear-over-year revenue growth.
It will take it up quarter-over-quarter, anythoughts you guys are getting more conservative in your historical trends?
Ben Moreland
No, I want to be careful about that. We want to make sure weleave you with the right notion.
We are not timid or conformed, or haven't asequentially more negative view than we had on the last call. So I think that’svery important.
So anybody that would take away the view that we are worriedabout 2008 would be misstating our view. As you suggest that 1% revenue growthdelta, could it be there?
Sure it could. If that type of activity were to manifest itself early inless than a year, but as we sit here today, again what can you get comfortablein good faith putting out there.
I mean, you know, I'll just tell you in allhonesty, Rick, and for everybody listening, we had an active debate aboutwhether or not we just widened out the range to include that 1% growth, when wecan't -- we really don’t have visibility into the second half of '08, and soyou could have made a, put a $30 million revenue range out there, instead of$15 million and captured that in the upside. And maybe that would have made everybody a little sleepbetter at night.
That's just not been our approach frankly. We will take whatwe see, in our view it is more than sufficient to drive the kind of returnsthat we have committed to ourselves and to the street to provide.
And if it isthere, then we’ll adjust that expectation across the balance of the year. It'sjust an approach, I mean others can take a different approach, and put a widerrange out there and then you work to the higher range over the course of theyear.
John Kelly
I think the one point echo is well, or it is that when we'vetalked on conference calls in past, we talk about the 1.25 indicated need forour towers in the form of new tenants from project sell point. The only downside to that entire forecasting methodology is,we can’t tell you with absolute precision what years those are all going to betaken down.
There is a need to for this, 1.25 tenants we believe. But as far aswhat the rate and what the pace of that leasing is going to be fromyear-to-year, that’s of course much more difficult to predict.
And when you look across the wireless carrier landscape,what you find is and you and many others certainly follow the wireless carriersas you do the tower companies, is that there is really only one big wirelesscarrier that is incredibly consistent in their capital spend on new sitesyear-to-year, quarter-to-quarter. And so you can look to them for what youwould expect they will do in the New Year.
But many other carriers have more of a fits and starts kindof a capital program, relative to the kinds of activities that are going toimpact tower leasing. And so in some years, there is just a flurry of activity,and then there seems to be a digestion and a consideration of what that levelof activity should be following that flurry.
And they slow down a little bit,and then they fix up. But that's difficult for us, because of the pace changes,what we do is and this is entirely consistent with how we handled that in prioryears, is we give you an outlook here in this October call for the New Year,and give an indication as to whether or not we see it getting worst than thecurrent year we just experienced or because we have absolutely visibilitysignificantly better.
But for the most part, we have reiterated the point that isimportant for us to wait until the capital budgets for the wireless carriersfor the New Year have been released, and have also been distributed to theirfield areas. So that we can begin the start seeing with granularity, exactlywhat's going to happen in the New Year, and so as we look forward to 2008 asBen pointed we certainly don't see the year being worst than 2007.
And there are certainly things that are going on that wouldsuggest it could be a better year. But we don't have all of carriers throughtheir positive process and distributing capital budget and as such weforecasted 2008 on the basis of similar growth and top client revenue, andleasing as was the case in 2007.
And then by virtue of the efficiencies, through theintegration efforts coming to a close, and so forth, we are able to translatethat rather effectively, 100% EBITDA and of course cash flow per share growthat the high end of the 20% 25% range and that is a consistent methodology to whatwe have done in the prior years.
Richard Prentiss -Raymond James & Associates
So, just to continue down that path a little bit further ifI may, John when you mentioned that, there was just name Sprint executivechange, could be rethinking their deployment, did you guys pull out of your '08thought process per year numbers all launches for Sprint WiMAX except for theDC, Chicago, data markets.
John Kelly
The short answer to that Rick is, we are waiting for moreclarity from Sprint as to what the specific deployment schedule beyond thesebeta markets will be before we are going incorporate that in to our outlook for2008. So, yes we are not focusing on large scale WiMAX deployments in ouroutlook until such times as we get greater visibility from Sprint itself.
Richard Prentiss -Raymond James & Associates
Okay. That helps a great deal because I think a lot of usmaybe we are thinking Sprint WiMAX could be say 3000 sale sides in '08.
If youguys got say at 20% share say 12,000 year, that could be a $7 million kind ofrevenue swing, if you pull that out, waiting to see who is running Sprint, isthe Board committed to building this out, those Clearwire pick it up etcetera.So, is that out of your numbers right now?
John Kelly
That's right.
Richard Prentiss -Raymond James & Associates
Okay. And then just a final question I swear, on theguidance.
A lot of people have been very spooked about all the equipmentcompanies that have being pre-releasing, warning, firing 4000 or more people atboth Lucent-Alcatel. Can you talk to us a little bit about, what we are seeingfrom equipment guys, and there are concerns about getting equipment sales intothe carriers, versus your comfort that '08 is no worth than '07 and hopefullybetter?
John Kelly
Yeah, I think that Rick as you know there is a pretty bigdifference between the electronics infrastructure providers and the level ofcompetition in that space between new foreign electronics firms. Some of theequipment is now coming out of China,that’s adding to the mix sort of American and European providers of theelectronics, and the whole tower side of the equation.
That is part of the issue clearly, and they will be muchmore eloquent in their description of what is going on than I can be, is just alevel of competition on electronic side that otherwise impacts the economicsassociated with deploying new applications on existing networks to a newnetworks to begin with, just in terms of pricing and margins on that particularside of the business. The trends associated with growth on the wireless industryare continuing, as I have indicated before in my prepared comments, with themove ever increasing to deploy robust state in networks.
The need for robustdeployments is there, but you can deploy these sites less expensively on aelectronic side than you could originally, because of what’s been going on inthat space over the years. And that certainly is a backdrop, perhaps to some of theannouncements that you see coming from electronics manufacturers, but by thesame token the need for protocol height, when you are deploying either a newnetwork or whether you are deploying an enhancement to an existing network forthings like data, is an absolute.
And the need for towers as such is anabsolute and the ability to build towers in this country is not getting anyeasier year-after-year, quarter-to-quarter. And as such I think the two sectorsare differentiated, and the reason why the tower state has a different dynamicthan you would see on the electronics infrastructure side.
Richard Prentiss -Raymond James & Associates
Yeah it’s nice, I mean your revenue for '08, [loss] bookedas opposed be an equipment company, who gets today 90 and might still need tomake a quarter?
John Kelly
Yes it is.
Richard Prentiss -Raymond James & Associates
One, final question for Ben on the investments, I think Iunderstood pretty loud and clear that obviously you guys have not included theability to put the balance sheet to work into your guidance. Is it fair to kindof bracket it to say when you put your balance sheet to work, whether itsstock, land, buy, build that we could see possibly 5% to 10% move in that freecash flow per share as you deploy that kind of balance sheet to put it workversus $1.70 per share?
Ben Moreland
The way the math would work is the cash that you would putto work as opposed to borrowings, definitely obviously brings that number up inthe vicinity of, compelling upon what's you are doing with it, $0.03 to $0.05,which put us close to 30% growth year-over-year, if you were to do that. When you start borrowing as we keep agonizing overall onthese calls, have reported in the short-term impact its negative, dependingupon what you bought with it.
Obviously if you are borrowing at 6.5% and youare buying stock on a 20 plus multiple then it's short-term dilutive, to thosenumbers. And so, the 2008 full year number, depending upon the mix of cashversus borrowings could move around few pennies up or down depending upon themix.
Rick Prentiss -Raymond James
I guess I should have talked '09, through more value, youguys are up '09 right now, and obviously the short-term effect will hopefullythen start playing out as you look outside of it?
Ben Moreland
Just like the standalone in the '08 numbers, where the '07dilution affect of the borrowings is obviously watched through, so the '08numbers are that much stronger.
Rick Prentiss -Raymond James
Okay, good luck guys.
Ben Moreland
Thanks Rick.
Operator
Thank you. Next question comes from Gray Powell withWachovia Securities.
Please, go ahead.
Gray Powell -Wachovia Securities
Hi, guys thanks for taking the question. I am not going toask about guidance, but I am just going to ask about the timing of leasingdemands going in 2008?
And specifically, if I look back over to 2007 trends, wesaw leasing demand increase each quarter starting of pretty small at thebeginning of the year, and then increasing, particularly going into Q4. So, aswe are looking at 2008, do you guys think that will be the same case again nextyear or do you think leasing demand will be more evenly distributed,particularly as AT&T and T-Mobile appeared to be getting more aggressive ontheir 3G overlays?
John Kelly
Gray based on what we’re seeing in the fourth quarter, that2008 is going to roll out differently than 2007. Were as you point out, we hadanticipated and it came true that 2007 is going to be characterized as abackend loaded year, as various different activities were been sorted out.
Mostspecifically the AWS clearing, that been well underway as we have discussed, Ithink what you are seeing in 2008, is more of the leasing activity at leastfrom where we see it occurring in the first half, and then perhaps slowing alittle bit towards the second half as people are otherwise focusing more onwhat they are going to be doing with the 700mhz spectrum. However, that plays out whoever captures that, that willstart to become part of their longer term capital planning and they may in factdelay some activity towards the back half of the year as they start to focus onwhat does that 700mhz do for them relative to any enhancements that they wereplanning for their networks because it will.
There won't be electronicsnecessarily available, nor will that spectrum might have been cleared by thesecond half of 2008, as I discussed the broadcasters don’t have to clear out2009. But if you are a winner of that particular spectrum in whatever blocksthey might be a winner.
It could in fact have an impact. So I think 2008, it'sgoing to rollout a little differently and will be more in the first part thanperhaps in the second half.
And that's certainly how we're fundamentallylooking at the year.
Gray Powell -Wachovia Securities
Okay. That's makes a lot of sense.
And then, just kind ontop of that like I guess next year and even longer term, where do you see thebigger driver of growth, is it going to be new tenants coming on the towers orleasing amendments from existing tenants?
Ben Moreland
You know that's a great question, Greg. And, you know, whatwas interesting was in the third quarter amendments has reasoned pretty much inthe first half of this year and certainly in 2006 but was running close to 40%of total new leasing activity.
In the third quarter amendments were 20% of ourtotal new leasing activity. And so that that was backed down to what has been,kind of, a historical average pre-2006 where new leasing activity, newinstallations on towers were the much larger percentage, the 80% and amendmentwere 20 and then it built the other way and now it's coming back to what theprevious historical trends were.
As we move forward, I think that what we probably be seeingis a slight increase in the percentage on amendments. I think it could beupwards of 30% as opposed to the 20% that we're seeing right now.
As some ofthese networks are simply enhancing existing sites with new tenants in line fornew applications but I think that it's not going to go quite above the 60, 40sthat we were seeing in 2006. And that's because I think that a lot of theeffort today that wireless carriers are looking at in enhancing their networksfor data is around inbuilt capacity for these high bandwidth intensiveapplications.
There is a need for a very robust signal, number one and asthese minute of use trends continue the need for capacity. And so that’s notsomething that you necessarily get, which is simply enhancing an existing site,that’s something that you get with just putting a site and adding a new one.And so I think that whereas it could take up a little bit new licensingactivity, it’s going to be more in the 70% range than this 80%.
Gray Powell -Wachovia Securities
Okay, great. Thank you very much.
Operator
Thank you. Your next question comes from Michael Rollinswith Citigroup.
Please, go ahead.
Michael Rollins -Citigroup
Hi. Thank you.
Good morning. Just a quick follow-up, you'vealready explained it was on the incremental revenue growth assumptions in yourguidance.
But I guess one thing that that I think what surprising is, if youcan look at what you described when you brought Global Signal, the idea ofimproving performance overtime and being accretive in future periods. Whywouldn’t all other things be in terms ofsite leasing activity your ability to grow revenue year-over-year be bettera year after completing the Global Signal acquisition.
Presumably you had thatrunning at much fuller speed than when you bought that property. You wouldstill be executing the core business Australia should presumably stillbe doing what you have saw.
Why wouldn’t there be accretion in the incrementalamount of revenue from that Global Signal acquisition? Thanks.
Ben Moreland
Mike, the math is -- you are exactly correct. They are -- ona given level of demand, given the lower run rates with Global Signal you’dexpect there had been accretion to the growth rate.
And, in fact, we probablydon't have that level of granularity for '08 view to be able to demonstratethat to you. But, in fact, that’s probably already occurring.
In fact, of theaccretion to the growth rate and I can tell you that thus far through the yearthe Global Signal assets are outperforming our, sort of, regional expectationof what they would have done and that’s to the year of integration. So, as yougoing forward to your point do you better?
Perhaps, but again as our sales teamis likely to remind me, we can't manufacture demand. And so we have done thebest we can to forecast the demand we see.
But your point is exactly right to give reminder that acrossthis tower footprint and given level of demand across the GSO assets will drivea higher growth rate in across the legacy Crown side. And what's imply there inthat 8% growth, I think, frankly, it's probably already contributing somewhatto that, because remember that 100 million of growth across an ever increasingbase would obviously bring that percentage down every year.
And then, once youare doing something in adding assets you are doing something else. But on costand asset basis, that percentage change is going to decline every year.
That’s why we are trying to remind everybody to focus on thenominal numbers as much as the percentages in down and till you ultimately getto the one that matters, which is our view is the percentage change inrecurring cash flow per share, which sort of normalize this for everythingbased upon how you finance the company. Probably the best way I could answerthat is we think we are seeing that impact for the accretive growth on theglobal assets.
And that will likely continue as we add revenue comparably tothe Crown side going forward.
Michael Rollins -Citigroup
Thank you.
Operator
Thank you. And our final question comes from David Janazzo withMerrill Lynch.
Please, go ahead.
David Janazzo -Merrill Lynch
Good morning. Ben you had mentioned the significant servicesramp, how reliable an indicator is that for, say, on revenues?
And how do youfractured into your outlook?
Ben Moreland
It's pretty reliable, I mean, we see that as thepre-activity that it’s a tax on application, ultimately is the lease thatcommences in our accounting system and install on our site. And so that ramp wecontinue to note throughout the Q3 and Q4, again, not quite as the pace we'dinitially expected like I mentioned earlier, but still ramping and notinsignificantly through the year.
So that does bag the question then, I thinkits on many of your minds, if that’s the case in Q4 than what is at that, sortof, could roll forward in the Q1 to -- on in this 2008. We think it does.
Again, it gets somewhat fussy in thesecond half of 2008 as John was just mentioning. And that’s where you get alittle bit more tentative about putting that same level of, sort of, fourthquarter activity all the way through 2008.
It's just, it's impossible to dothat with any certainty today. And again, we could have just wind-up the rangewith less confidence around the number but we decided to take this approach.But it is definitely an indicator of activity
David Janazzo -Merrill Lynch
Thank you.
John Kelly
Alright, well, with that I think what we’ll do is concludethe call. We’re looking forward to finishing up the year strong and reportingto you in the fourth quarter how we did for the full year and any additionalvisibility, we have at that juncture on 2008 and certainly it is a topic on alot of people's minds.
But we thank you all for joining us on the call today.And look forward to talking to again in the near future.
Operator
Thank you. Ladies and gentlemen that will conclude today’steleconference.
We do thank you again for your participation and at this timeyou may disconnect.