Prepared remarks
Good day, and welcome to the Q2 2026 Crown Castle Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Hamilton West, Vice President of Corporate Finance and Treasurer. Please go ahead.
Thank you, Nick, and good afternoon, everyone. Thank you for joining us today as we discuss our second quarter 2026 results. With me on the call this afternoon are Chris Hillabrant, Crown Castle's President and Chief Executive Officer; and Sunit Patel, 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, that will be referenced throughout the call. 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 section of the company's SEC filings. Our statements are made today as of July 22, 2026, 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, let me turn the call over to Chris.
Thank you, Hamilton, and good afternoon, everyone. We delivered solid second quarter results, increased our guidance for full year 2026 AFFO and continue to execute against our best-in-class U.S. tower strategy. On May 1, we completed an important milestone for Crown Castle and became the only publicly traded pure-play U.S. tower operator by successfully closing the sale of our small cell and fiber businesses. I want to thank our Crown Castle teammates for the determination and resilience they have shown as we quickly completed this transition and began the next phase of transforming Crown Castle into a best-in-class U.S. tower operator. Your hard work is making a difference. We now expect to drive additional cost savings this year as we continue to drive operational excellence. Longer term, we will continue to transform Crown Castle, enhancing our operational efficiency and effectiveness by focusing on the following areas: First, we continue to increase land ownership purchases under our towers, which improves margins, increases operational control of our assets and allows us to deliver more quickly for our customers.
Second, we are investing in systems that streamline and automate processes, enabling our teammates to make better and faster business decisions. Third, we continue to improve cycle times and our customer experience. In the quarter, we also made progress towards recovering the remaining payments owed under our original DISH agreement. In May, the FCC approved the EchoStar Spectrum sale transaction to AT&T and SpaceX, but made the transactions contingent on the implementation of a $2.4 billion escrow account for the benefit of its vendors. We applaud Chairman Carr for his efforts to advance spectrum policy to maintain U.S. global telecom leadership while implementing protections for U.S. wireless infrastructure providers. Now that DISH Wireless has filed for bankruptcy, we will be pursuing our $3.5 billion contractual claim in the bankruptcy court. The bankruptcy-remote escrow account provides a source of funding that is not subject to the normal bankruptcy estate waterfall and is intended to satisfy network-related obligations, including certain infrastructure claims.
As I step back and look at the discussions we are having with our customers, I am excited about the multiple demand drivers that we expect will benefit Crown Castle's future growth, including increasing deployment of edge compute infrastructure, continued growth in mobile data demand and additional spectrum coming to market. As I mentioned last quarter, we have initiated several trials with edge data center providers and continue to see growing interest in how our portfolio can support distributed compute deployments. We believe the edge opportunity is gaining momentum as demand for storage and compute continues to accelerate, while many large data center deployments face multiyear construction and power delivery delays. Crown Castle is positioned well to serve this demand in a capital-efficient manner through its nationwide network of tower sites, each with existing power and broadband connectivity and can provide distributed move-in ready locations for deployments requiring less than 0.2 megawatts.
We are seeing interest from businesses seeking to deploy scale distributed infrastructure to support inference workloads and other high value-add applications, including cybersecurity, fraud detection and real-time data processing. Additionally, the industry continues to see strong growth in mobile data demand. According to Ericsson, U.S. mobile data consumption for smartphones is expected to more than double over the next five years from 25 to 52 gigabytes per month, driven in part by AI-enabled applications and a projected threefold increase in uplink traffic as devices increasingly transmit video, sensor and telemetry data to the cloud. We believe the industry will benefit from an infrastructure demand cycle as Chairman Carr and the FCC advance what has been described as the largest spectrum pipeline to date with at least 800 megahertz of additional spectrum slated to be made available for commercial wireless use over the coming years.
In addition to the recently announced EchoStar spectrum transactions, the FCC has announced its plan to auction at least 165 megahertz between 2026 and 2027. Shifting to a topic that has been top of mind for many investors lately, satellites are a potential alternative to terrestrial networks. Let me summarize the key reasons why we believe that terrestrial networks will continue to be essential for mobile phone service based on reports available on the WIA website and analysis from sell-side research. First, satellite services generally require a clear line of sight to the sky and provide weaker indoor coverage, which is significant given approximately 90% of mobile usage occurs indoors or in vehicles. Because satellite signals travel hundreds of miles farther than the terrestrial connections, their signal strength is approximately 10,000x weaker, challenging performance in dense environments where buildings, obstructions and interference can further degrade the signal.
To compensate for the weaker signal, phones must operate at higher transmit power levels, increasing battery consumption. Second, satellite operators have access to significantly less spectrum. Direct-to-device satellite services generally have access to only tens of megahertz of spectrum, while each major U.S. wireless carrier controls hundreds of megahertz. Third, a typical satellite beam covers approximately 100 to 600 square miles versus roughly 3 to 20 square miles for a terrestrial cell site, requiring substantially more users to share the same spectrum resources. This means that for every megahertz of spectrum, terrestrial cell sites can support roughly 30x more users. More importantly, as satellite operators seek to improve capacity, mobility and indoor performance, we believe terrestrial infrastructure will become an increasingly important complement to satellite networks. We believe the long-term outlook for our industry remains bright, given continued mobile data demand growth, upcoming spectrum auctions and the momentum in edge data infrastructure.
We believe our clear strategy, aggressive balance sheet management and capital allocation framework position Crown Castle to maximize long-term shareholder value. With that, I'll turn it over to Sunit to walk us through the details of the quarter.
Thank you, Chris, and good afternoon, everyone. We delivered solid second quarter results as we successfully completed the small cell and fiber sale transaction. Starting on Page 3. Second quarter organic growth, excluding the impact of Sprint cancellations and DISH terminations was 3.9% or $38 million and included a $5 million increase in other billings. Second quarter organic growth increases to 4.2% if DISH revenues are excluded from prior year's site rental billings. Excluding the increase in other billings, organic growth was 3.6%. This growth was more than offset at site rental revenues by $5 million of Sprint cancellations, $49 million of DISH terminations and a $25 million decrease in noncash straight-line revenues and amortization of prepayment. Second quarter selling, general and administrative costs included a one-time $7 million increase in stock-based compensation expense which is not expected to recur and does not impact adjusted EBITDA and AFFO.
AFFO in the quarter benefited from a year-over-year $35 million decrease in interest expense and a $14 million increase in interest income due to the receipt of $8.4 billion in net proceeds from the sale transaction closing on May 1. We do not expect a higher level of interest income to recur in the second half of 2026. Turning to Page 4. We are increasing our full year 2026 outlook for site rental revenues by $5 million at the midpoint and maintaining our adjusted EBITDA outlook as the increase in revenue and a $15 million reduction in costs are expected to be offset by a $20 million decrease in services contribution driven by lower services activity, primarily in the third quarter. We also expect a $5 million decrease to interest expense, resulting in a $5 million increase to our full year 2026 outlook for AFFO. The higher site rental revenues are driven by a $5 million increase to other billings, resulting in 3.4% full year 2026 organic growth, excluding the impact of Sprint cancellations and DISH terminations compared to our prior guide of 3.3%.
Full year 2026 organic growth increases to 3.6% if DISH revenues are excluded from prior year site rental billings, which compares to our prior guide of 3.5%. We continue to expect 2026 to mark the low point for organic growth. As of the end of the second quarter, more than 90% of our full year 2026 organic growth, excluding the impact of Sprint cancellations and DISH terminations was contracted compared to approximately 80% at the beginning of the year. Our full year outlook for straight-line revenues remains unchanged at negative $60 million at the midpoint as we continue to expect a decrease in the second half of the year. The expected $15 million cost reduction consists of a $10 million decrease in site rental cost of operations and a $5 million decrease in selling, general and administrative expense excluding the impact of stock-based compensation expense, as we are seeing success with our ground lease buyout program and continue to drive operational efficiencies across the business.
We also expect a $10 million decrease in full year 2026 stock-based compensation expense at the midpoint, which does not impact adjusted EBITDA and AFFO. We remain on track to deliver our outlook for the second half of 2026 and first half of 2027 AFFO of $2.1 billion at the midpoint. Turning to the balance sheet. We ended the quarter with leverage at 6.3x net debt to EBITDA, which compares to our target investment-grade leverage range of 6 to 6.5x net debt to EBITDA. On May 1, we received $8.4 billion in sale transaction net proceeds, which we used to repurchase $1 billion in shares and repay more than $7 billion in debt in line with our previously announced capital allocation framework. We completed the $1 billion in share repurchases in the second quarter at an average per share price of $88.66 allowing us to retire more than 11 million shares and lowering our annual dividend obligation by $47 million.
Since last quarter, we repaid approximately $7.2 billion in debt, including approximately $5 billion of floating rate debt across our commercial paper program, revolving credit facility and term loan, $500 million in open market debt repurchases, $750 million in unsecured notes maturing on June 15 and $1 billion of unsecured notes maturing on July 15. In connection with the sale of the small cell and fiber businesses, we decreased the capacity of our revolving credit facility from $7 billion to $4.5 billion to better align with becoming a stand-alone tower business. Lastly, our outlook for discretionary CapEx remains unchanged at $200 million or $160 million net of $40 million of prepaid rent received at the midpoint. To wrap up, we believe we have an opportunity to generate attractive long-term shareholder returns with our investment-grade balance sheet, disciplined capital allocation framework and goal of becoming a best-in-class U.S. tower operator. With that, operator, I'd like to open the line for questions.
Questions and answers
I was curious if you could discuss a little bit more details around the lower services activity that you're now expecting for the third quarter, does that affect the leasing activity that you're seeing from your customers? And then just finally, you mentioned that 2026 to be the low point for organic growth. If you could maybe frame that a little bit more and share maybe some of the things that are giving you the conviction on the opportunities to improve organic growth going into 2027?
Yes. Great. Mike, thanks for the question. We'll start with the first one, which is that the lower services activity, there isn't a straight line that you can draw just between the service levels and the leasing activity. And so we kept the guide for leasing unchanged with a range of $60 million to $70 million. If you look at our progress over the course of the year, we started off the year with about 80% of our organic growth contracted, we're now at 90%. So we made progress there throughout the course of the year. In terms of why we're saying this is the low point for organic growth, I think there's a number of factors that I'd share with you. I frame these in my mind in short, medium-term and long-term. In the short term, as we've stated previously, we do have MLAs in place that give us strong visibility into the future contracted activity. And then as you look at the midterm, you look at the spectrum acquisition that AT&T has with the 600 megahertz, I think I read this morning in the release that's expected to close later this month.
And once that transaction closes, I think that's a midterm driver potentially for that 600 megahertz to be deployed. We're seeing additional activity in new products for us that I mentioned in my comments here around edge infrastructure in that ecosystem, which currently is in the trial phase, but I think we have hopes that this could be something more significant over time. Then as you start to look from the mid- to long-term, there's the mobile data demand that continues to grow. I think it's expected to double over the next five years and that's supported by the emergence of new AI-enabled applications that drive increases in uplink traffic, think across smartphones, think across smart glasses, wearables, the agentic AI assistance that the operators are talking about to drive that demand. And then longer term, the FCC is making available 800 megahertz of spectrum that's starting to be auctioned in 2027. It's the combination of all of these activities, which have led us to be able to make that statement that we believe this, in fact, is the low watermark in terms of that growth.
I just have two. First, just on network activity. I was just wondering if you could comment on what you're seeing from a network densification and kind of FWA-driven densification this quarter? And then second, I was just wondering if you could comment a little bit about the $240 million combined DISH and Sprint headwind for the full year, pacing a bit below that through the first half, anything that would drive the incremental headwind in the second half?
Yes. I think the activity levels have been much in line with what we forecasted, hence the progress we've made on leasing in the first half of the year. This has pretty much played out as expected. From our perspective, I think more broadly across all three MNOs, there's been some pullback in the services activity that obviously showed in the results. What's driving that? We think it's a combination of some of the leadership and strategy changes that have occurred across those companies. But again, we kept our leasing guide unchanged for the year.
Yes. I think on the DISH thing, it's just timing. I think we've talked about it previously where the timing was more back-end loaded, and it's contracted. So that was just what we had expected. And I think we talked about it before at the beginning of the year.
A couple of quick questions for you. Obviously, glad to see AT&T say they can finally get the spectrum purchase over the finish line this month. Does that then trigger the contribution to the escrow account? And then we've been getting the question a lot lately, who owns the equipment that's still on your towers that DISH put there. Is that something DISH owns, but with the agreement termination, do you guys own that equipment? First, does the escrow get funded with the AT&T closing? And who owns the DISH equipment? I'll have a follow-up.
Yes. So your assumption is right. The funding of the $2.4 billion escrow is tied to the AT&T and EchoStar transaction being closed. In terms of the equipment itself, and I think this is a broader context of the bankruptcy proceedings that are ongoing now, this will be determined along with a number of other issues related to the bankruptcy itself as to who owns that equipment. But as far as we've seen, they've abandoned it. And although we've requested for them to take it down, they have not acted to this point.
And what's the process—can you give us a timeline on the bankruptcy court? We've heard some stuff might be coming up on August 10. But what do you envision kind of the time frame on the PK effort?
Yes. I think a couple of things. As we've guided on earlier calls, as we lodged our lawsuit against both DISH and EchoStar, the timing was less clear. We thought that it would take some time to go through the process of filing the suit and discovery. I think the good news story from the bankruptcy perspective is that this is likely to move faster than a traditional lawsuit would have. The original lawsuit, by the way, has been suspended while they await the outcome of the bankruptcy proceeding. That said, I think DISH came in with some very aggressive attempts to speed along a prenegotiated bankruptcy filing, which we and others have vigorously contested in court and successfully been able to slow down to be able to actually get the facts on the table for us to be able to proceed down that route as an unsecured creditor. In fact, we've been appointed to the unsecured creditor committee and believe that we will be successful in prevailing with our suit ultimately.
Great. And my follow-up question is, obviously, you talked to the spectrum pipeline. We're glad to see the FCC get the auction authority back to start that flywheel going again. But as we look into beyond the upper C-band of what might come down the pike in the 2028, '29, '30, '34 kind of time frame. What frequency bands are you hearing about? And is it frequency bands that will actually get deployed on towers given where the range is as far as what gigahertz it might be at?
Yes. We'll start with upper C-band, which I think is exciting for us, 440 megahertz of combined spectrum. I think globally, it puts us in a position to lead here in the U.S. based on the decision of the FCC to focus on bringing that to market first. The additional spectrum bands are between my understanding is between 1 gigahertz and 10 gigahertz band—so obviously considerably higher than what has been put out up to this point in the low-band and mid-band 5G spectrum. As we look at this, and obviously there's a lot of work still to be done and the strategies for each of the companies as they develop their 6G strategies to come to light. In general, the higher spectrum bands are a good thing for the industry in that they will drive greater densification of the networks in order to provide a consistent user experience. This is how we're looking at it at least initially here.
Okay. But you think it will show up on towers too, that even if you get into the 5 gig, 6 gig, 8 gig stuff, you can see deployment on towers?
Yes, Ric, I mean, I don't know to be frank on this. What I can tell you, which is what we were told when we visited the White House several months ago, is that there is a strong intent by this administration, including the FCC, to put the U.S. as a global leader in 6G technology. They see this is how we win as a country. And therefore, all the might of the federal government working with industry, which would include both the mobile network operators and us as tower infrastructure providers, working in combination to bring the spectrum to market as soon as it's practical. There's still a lot of work to be done in finalizing standards and the like. But I think ultimately, they're making this 800 megahertz available to actually put to use, which obviously is a good thing for us and the industry as a whole.
Yes, Ric, the FCC had the announcement today that by bridging lower and upper C-band up to the 4.14 gigahertz level, it actually extends the life of 5G and will further promote densification, which means more sites needed for coverage, which should be positive for the current segment.
I had a few. So first of all, on the escrow account, can you give an estimate of the estimated recovery from the escrow account for CCI, obviously, a number of claimants to the escrow account. Any estimate that you have?
When we've looked at this in the past, it's not clear who will actually come forward to make claims. This is still something that's in progress. When we thought about overall the share of the pie, ourselves and American were the largest two contributors, but I think it's a little premature to say exactly what will be yielded out of this. It will be based on the number of claimants that come into it. And of course, either requires a court judgment or a negotiation with DISH ultimately to unlock those funds being dispersed. So we continue to pursue both in combination, both as a claimant on the fund and then also in court as part of the bankruptcy process.
Great. And then you mentioned not a straight line between lower service revenue and lease and I understand that. But any more color on where you're seeing lower services revenue, sort of geographies or any more color you can add there? And then you also noted more edge activity and wondering from whom or specifically more details and applications and timing for activity around edge?
So one of the things that's pretty exciting, if you look at the industry as a whole, data centers are having some of the same challenges that maybe tower companies did in decades past, namely getting the leasing, zoning and permitting of these facilities, in addition to power delivery and some of the other challenges that they face. One estimate I read said there was something like a 15-year backlog of data center demand versus what the data center companies could currently actually deliver based on that demand. What that's opened up for us is here, we have sites where we have the space. In many cases, we have shelters that are actually available for retrofit, we have power, we have backhaul connectivity and therefore can provide these edge data center opportunities. These are early days, to be clear. I would still label this as a trial that we're doing with several companies that we're engaged with currently. But as we look at this and the ability to scale over time, combined with the demand in the data center industry as a whole, this is something that we're very interested in pursuing. We'll attempt to accelerate as a future revenue source for the company. I think we'll have more to update you as we get a little further on the process, but things look promising in the current trial.
And any more color on the lower services revenue expected?
No. Again, I think it depends. More broadly speaking for us is that at any given time, we're not the only vendor that provides services to customers. So it's a combination of the services that individual companies require and our ability to provide value in the areas where they have the need for services. We had departed at one point the construction management portion of the services that we deliver and therefore have a smaller revenue pie that we're chasing overall in the industry. So it's not just related to one part. It's a general services reduction, is the best way I can describe it for you.
I just wanted to follow up on the plan to purchase ground leases. So there's a $20 million increase in land CapEx this quarter. And I'm curious on the expected annual investment pace, maybe the typical payback period you might expect on some of these investments. And then relatedly, if the competitive environment has changed at all, the planned acquisitions?
Yes. On the payback and plan to spend CapEx, we do aim to increase this over the next few years, but in a very financially disciplined manner, making sure that the returns or paybacks translate to returns well above our cost of capital. So I think that's the key threshold. But we feel we should have the opportunity to do better than what the company has done in the past just by a focus on it and the attention, systems and resources, internal and external. So we are looking to raise that up over the next few years.
Great. And if I could just ask one more. I know you said that edge computing opportunity is in the early innings. But from your perspective, what do you think is the current biggest hurdle? Is that—are there additional power requirements when you think through inferencing and edge computing demand, these types of workloads that will be run through this opportunity? I'd be curious, just any thoughts there.
Let me frame it up. We're not having to put capital to work; this is just incremental revenue that we can unlock on sites and monetize fairly quickly. Therefore, for us, this is a new found opportunity that seems to have a great return profile. There's clearly demand for larger data centers that would have more power than what we have at a site. Where we might be able to do that easily and inexpensively, we can look to improve that over time. The reality is the hardest thing is getting the power delivered to the site to begin with. Once you have it there, there's the ability through transformer swaps and bringing additional lines in to increase the power over time. We are focusing on what we can execute on now, monetizing the assets that we have, with the power that we have, with the space that we have, but it doesn't preclude us over time if this business grows and it seems to be a good return on investment for us to look at additional investments because that demand doesn't seem to be going away anytime soon.
The only thing I'd add is we have a fairly distributed solution that we can offer at scale. We're talking about commercially available power that doesn't require, as Chris said, investment on our side. If you do the math, you can get from anywhere from 100 amps to 400 amps, 110 volts, 220 volts, you can get three-phase power. So what we offer really makes sense for applications or installs that don't need a big power footprint. So more edge requirements, more high value-added edge for specific applications where this makes a lot of sense. And we are seeing increasing interest in this area now. As Chris said, it's still early days, but we are seeing increasing momentum.
A couple of questions. The escrow payments, if you could maybe drill down a little bit around the pecking order that maybe your attorneys and consultants have told you to expect around who gets first dips. So would it be the workers, the contract crews, the tower companies? Where does Crown sit within that pecking order to the best of your estimation? And then secondly, interested in more of a medium- to longer-term question around the AT&T and T-Mobile assets that you bought many years ago under the sale-leaseback. I think you have the option to start paying for full ownership of those sites, I think, in one case in 2032. Is there any merit to the idea that you could accelerate that process given the free cash flow that you generate—it helps obviously the cash balances of your customers and maybe helps them to play in the network faster. So any notion towards kind of fast-forwarding that process?
Starting with the $2.4 billion escrow, while there is a hierarchy, until the total number of claimants are known and until people actually start either getting negotiated settlements or court findings that would allow them to start to draw on that, it's very difficult for us to really speculate and know what will go to whom. There were certain classes of claimants in terms of how they were paying. I think they looked at smaller claimants, more of the mom-and-pops that would have contributed maybe in the first tranche and then ultimately leading up to tower companies like ourselves. Again, it's just early for us to comment on that. On your second question, we have options like that out there a number of years away in size. Our view is we always look for opportunities where we can create win-win outcomes with our clients, and we'll continue to look at that. But as you pointed out, it's still a number of years out. We're always looking at win-win outcomes between our clients and us.
Yes. On your second question, we have options there a number of years away. We will always look for win-win outcomes with our clients and continue to evaluate those opportunities when they make financial sense.
I wanted to follow up on the new leasing guidance. I mean you're trending towards the $60 million, but you did say that 90% of the business is kind of booked for the year. So should we expect an acceleration? And can you reach that midpoint to high end? And then a clarification on maybe the edge opportunities. If you do get leasing this year in that, would that go into other billing? Or would that be a part of new leasing?
If you do that, it'd be part of new leasing activity. And on the guidance in general, obviously, we'll have more to talk about it when we report the third quarter. We feel comfortable with the guidance we have, and we made a fair bit of progress from the beginning of the year to where we closed out the second quarter.
First, Chris, circling back to the edge discussion, and I appreciate the details there. How can you come up with 0.2 megawatts as the relevant breakpoint? Is that just like what former deployments at sites with empty shelters would have previously drawn? Do you think that's something you get across all your sites? Just trying to understand how you got to that number.
Sure. If you assume three-phase power with typical commercially available service up to 400 amps, multiply the power by the current by the square root of three and you'd be over 300 kilowatts. We were not trying to be precise but to give a sense that anywhere in the tens of kilowatts to low hundreds of kilowatts, we could be a good avenue for people that need distributed infrastructure at scale. That's the context behind the 0.2 megawatt figure.
Okay. So maybe to put a finer point on it, you think that at your average site, you could get that as opposed to just at sites where you have empty shelters and there may have been a customer previously drawing more power than is currently being consumed?
It depends on the site and availability. For the most part, many mobile operator meters at sites don't draw that much power. Applications in the tens of kilowatts are not a problem, but three-phase power installations might take a little longer. It doesn't necessarily mean capital investment on our part; it's more a supply chain interaction with power companies.
Okay. Makes sense. And then Chris, given your background, I thought you might be able to share some thoughts on some of the tensions we're seeing between towercos and carriers in Italy and Spain. In particular, any aspects of those disputes that may or may not be relevant as you think about the U.S. tower business?
It's a distant past for me. The European markets are highly fragmented. The number of operators and tower companies is sometimes out of balance—Spain is a good example of that. Italy, less so. There's a dynamic tension between lease rates that have escalated over years with operators that have a much less healthy ecosystem from the MNO perspective. ARPUs in Europe are a fraction of what they are here. The U.S. has a very healthy ecosystem which allows operators to invest in their networks, which is why, in my view, this is the best wireless market globally. There's always some level of tension between MNOs and tower companies in terms of cost. But when operators monetized their assets and reinvested billions to roll out 4G and 5G technologies, that decision drove an efficient use of capital for the industry. So it's largely apples and oranges compared to the U.S., and I wouldn't expect to see anything even remotely similar here in the U.S.
Quick clarification: we do not have chargers at all our sites to be clear, but we don't think that is a major capital cost in the scheme of things.
Great. Chris, maybe just a higher-level question. There's been a lot of debate and speculation in the industry about SpaceX potentially launching a Starlink mobile service and questions on how they get there, whether it's a terrestrial build, an MVNO, an acquisition. I'm curious if you've had any discussions with them at this point? And do you think it could create opportunity on your sites, particularly given that they're more urban in nature versus some of your peers?
It's probably way too early to tell and to speculate on what various satellite operators might do in terms of creating a fourth competitive network. At the end of the day, we have space, power and backhaul at our sites and ultimately we welcome all of our customers. If for some reason they decide that they need terrestrial presence to complement satellite services for coverage, we stand ready. But there's nothing I can share at this time about specific plans.
Great. And just one follow-up for me. How should we think about capital allocation from here, given you exhausted the $1 billion buyback after closing on the fiber sale? Obviously, the stock has been under some pressure, so the buyback math seems to make sense, but rates are also up. So how do you think about prioritizing between buybacks, deleveraging and then some of the CapEx, such as ground lease purchases that you talked about as well?
Nothing has changed with our capital allocation framework that we've talked about. After funding our dividend, which is sacrosanct, and the CapEx needs that we have with a good return profile, any excess cash goes to target investment-grade leverage range of 6 to 6.5x net debt to EBITDA and anything left over could potentially be used to purchase shares. We continue to be judicious in the use of capital, ensuring great risk-adjusted returns.
Just a little bit on the guidance including some incremental cost savings benefit. I was hoping maybe you can talk a bit about the broader cost savings potential you're targeting across the business? And is that opportunity larger than you previously thought? Or are you just realizing those savings maybe a little bit more quickly than previously anticipated?
We've said we think we can expand our EBITDA margins by a couple hundred basis points over the next year. The benefits come from two buckets. One is structural costs like the ground lease buyouts and the second comes from a broad transformation effort—investment in systems and processes to continue to improve productivity and efficiency, and also service levels and cycle times. This program is being executed over the next couple of years and should continue to drive margin expansion.
This is part of our DNA. We can't always control what customers do and when, but we can have a laser-like focus on driving efficiency and serving our customers. We'll continue to look for opportunities wherever we can. We have a well-laid-out strategy: investing in tools and processes, automating manual tasks through AI and systems, and making cultural changes so Crown Castle is a great place to work. Through these changes, we expect improvements in employee engagement, productivity and customer satisfaction. We won't rest until we reach the best-in-class outcomes we're targeting.
And then, Chris, last quarter you talked a little bit about new tower builds. Just wondering if you had any update on that front in terms of what you're seeing out there?
Up to now, it's been fairly limited because we're not going to overpay for an asset, whether it's an existing tower or work in progress. Where we have been successful is identifying coverage needs or potential capacity needs by multiple customers so that we can build towers for multiple clients. That's what makes sense to us versus doing more speculative builds. It's a work in progress and a trial. We'd like to build more, but only where it makes absolute financial sense in a disciplined approach.
Just a quick one. On the AT&T book, you've got roughly $774 million of annualized rent concentrated in that 2028 renewal. Clearly, those are from the leases struck in 2013 with the sale-leasebacks and the escalators are pretty modest. Knowing that you're looking for win-wins to hear you say that, and obviously, please don't avoid the negotiation tactics, are you thinking about that conversation? Is that a mark-to-market opportunity? Is it a term extension? Are you sort of thinking about wrapping that into purchase option buyout discussion? How should we think about that looking forward?
Without getting into specifics of any clients, generally we have long-term arrangements. With AT&T, and given FCC language and their plans to deploy the 600 megahertz spectrum, we think that should be a positive for us as tower operators because those radios and antennas will require favorable space. We work closely with AT&T and all our clients as they think about their plans and how we can support that, and we see opportunities for win-win outcomes.
Just one for me. I want to go back to the satellite topic. Have you seen any change to the way carriers are approaching coverage-related builds or even renewals of sites that are in more rural and remote footprints by virtue of incremental satellite coverage in some of the recently announced partnerships with satellite operators?
No. Nothing.
Okay. That was great. If I can just squeeze in one more. Just on transformation. I know it's only a few months since the fiber sale formally closed. But where are you in terms of organizational transformation? I know you talked about some of the different cost opportunities. Are there incremental milestones, bigger milestones that we can anticipate over the second half of the year?
This effort started right after Chris joined us last October. At this point, we have a fairly well-mapped series of transformation initiatives across each of our functions and across major work streams combined with IT systems and platforms deployments, in some cases taking advantage of AI orchestration software and other tools. So it's well mapped out; you'll see us executing on it over the next 24 months. It's tangible and not theoretical. We waited until the close of the transaction to accelerate some of the operational changes, but planning started last year.
We're not just focusing on org structure but also investing in teammates, automating manual tasks through AI and systems, and making cultural changes so employees can better serve customers. This will take time and effort to get right, but it's central to our goal to be best-in-class.
Chris, maybe to follow up on that. Just in terms of cycle times and improving customer experience, how should we assess the progress you guys are making on these initiatives and the best way that we can monitor it going forward?
One of the things we need to do better is develop and share measures. We've been focusing on developing internal measures and scorecards that show progress on things like cycle times from application to NTP and generating revenue. We have initiatives underway: best-in-class measures for organic growth, lowering unitary cost of products and services, lowering land cost via ground lease buyouts—we have roughly an 11% delta between ourselves and American and SBA, and we aim to close that gap over the next couple of years. We are doing those internal measures now and will consider providing longer-term benchmarks that demonstrate progress toward best-in-class on the things that matter most to customers.
Yes, that would be great. We look forward to that. And maybe also on the service offering, you mentioned that you're going after a more narrow set of opportunities. Do you have any interest in expanding the services offering again in the future to capture more opportunities?
Our customers are asking us to do more for them, particularly on the services side. We had pulled back from some construction services previously and are looking at that again if it makes sense. We know customer demand is there; they like convenience of a one-stop shop. We're evaluating whether expanding services is scalable and provides a good return. It's a little early to fully define what that looks like, but these are ongoing discussions with customers.
A couple of follow-ups. First, on AFFO, the quarter came in better than expected. You started to lower the cost earlier. But there was only a small raise for the year, I think mostly on the lower interest. Can you provide more color on why that performance is not flowing through the year? Or should we just expect a higher end of that range is more reasonable? And one more follow-up on network services: The softness versus the guidance that you gave earlier in the year—is that change due to a pause in decision-making given some management changes at the carriers? Or are you seeing some cancellation of prior projects?
On the network services softness, I've mentioned there have been a number of leadership changes and strategy changes at our customers and large-scale waves of layoffs, which has led to slower decision-making. That has contributed to the environment. It's not a perfect bridge between services and leasing activity. Finding ways to win services we should win is a top priority. Services have been a good margin area and we've improved margins sequentially year-over-year. We're not looking to exit this space, but the slowdown is a factor of the environment and leadership changes.
I'll break down the AFFO change at the EBITDA level and then between EBITDA and AFFO. At the EBITDA level, we've been seeing the benefits from cost improvements—$15 million in the cost of sales line, much of that in ground rent reduction, some in repair and maintenance, and the SG&A improvements are durable. The service weakness offsets some of those improvements and is related to the current environment. At the interest expense level, when we closed the transaction we closed it two months ahead of the June 30 assumption and updated AFFO guidance, increasing it at the time. The additional $5 million relates to timing of how we deployed proceeds; we did a better job on debt paydown and the share repurchase helps because you save on dividend obligations. So timing of debt payments and share repurchases drove the reduction in interest expense of $5 million, which increases AFFO by that amount.
Thank you for squeezing me in, I appreciate it. I have two questions. One, Chris, you kind of gave us three growth drivers for the business as we look ahead. Could you step us through the spectrum part of this? We have the EchoStar spectrum transaction now closed and EchoStar committed to the escrow; EchoStar has committed to sell or auction certain spectrum. Brendan Carr with upper C-band has come out and said we might be able to deploy some of that spectrum by the end of the decade and the balance by 2031. How do you think these things make the growth trajectory for Crown Castle work? Second, with the DISH bankruptcy they are asserting because they have a lease agreement with you that they can take an 85% haircut from the net present value of the lease payments they owe you where I think your counterclaim is that it's a contract that has a superior claim. Could you step us through that so we can understand how you think this is supposed to work from your perspective?
On the bankruptcy legal point, they're attempting to apply the 15% cap under bankruptcy law. We canceled the contract early based on nonpayment and accelerated those payments forward. Our position is that the 15% cap does not apply because of the nature of our agreements and the claims we have. Classification and size of our claim will ultimately be determined by the bankruptcy proceeding. On the spectrum question, I tried earlier to frame it as short, medium and long term. There are examples where spectrum like 3.45 or other bands can be deployed fairly quickly if operators already have radios and antennas capable of taking advantage of it, which is a smaller incremental impact. New bands like 600 megahertz may require new radios and antennas and are more of a midterm driver. The broader pool including upper C-band and beyond requires clearing activities for incumbent users, FAA and other considerations, but the FCC has been setting processes to bring spectrum to market.
The lower and mid-band auctions can be deployed relatively quickly; higher bands between 1 and 10 gigahertz are more speculative but generally would drive greater densification because higher frequencies don't propagate as far. So short-term drivers include 600 MHz deployments, mid-term more bands, and long-term the larger pool that will encourage densification. That's how we see spectrum contributing to growth over time. Thanks, David.
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