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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number 000-24737
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0470458
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 BERING DRIVE 77057-1457
SUITE 500 (Zip Code)
HOUSTON, TEXAS
(Address of principal executive offices)
(713) 570-3000
(Registrant's telephone number, including area code)
Title of Each Class of Securities
Registered Pursuant to Section 12(g) Name of Exchange
of the Securities Exchange Act of 1934 on Which Registered
- -------------------------------------------- -----------------------------------------
Common Stock, $.01 par value The NASDAQ Stock Market's National Market
Rights to Purchase Series A Participating The NASDAQ Stock Market's National Market
Cumulative Preferred Stock
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT
OF 1934: NONE.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $4,054.4 million as of March 15, 2000 based on
the NASDAQ closing price of $40.06 per share.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of March 15, 2000, there were 148,543,682 shares of Common Stock
outstanding and 11,340,000 shares of Class A Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be furnished pursuant to Part III of this Form
10-K will be set forth in, and incorporated by reference from, the registrant's
definitive proxy statement for the annual meeting of stockholders (the "2000
Proxy Statement"), which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year ended
December 31, 1999.
CROWN CASTLE INTERNATIONAL CORP.
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 34
Item 3. Legal Proceedings...................................................................... 35
Item 4. Submissions of Matters to a Vote of Security Holders................................... 35
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 36
Item 6. Selected Historical Financial Data..................................................... 36
Item 7. Management's Discussion and Analysis of Results of Operations and Financial
Condition........................................................................... 38
Item 7A. Qualitative and Quantitative Disclosures about Market Risks............................ 54
Item 8. Financial Statements and Supplementary Data............................................ 56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 90
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 91
Item 11. Executive Compensation................................................................. 91
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 91
Item 13. Certain Relationships and Related Transactions......................................... 91
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 92
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading owner and operator of towers and transmission networks for
wireless communications and broadcast transmission companies. As of December 31,
1999, we owned, leased or managed 7,488 towers, including 5,319 towers in the
United States and Puerto Rico and 2,071 towers in the United Kingdom. We have
entered into agreements, which, when completed, will provide us with over 2,700
additional towers in the United States in 2000. In addition, we have recently
entered into an agreement which is contemplated to close in the second quarter
of 2000 and which will provide us with a tower portfolio of approximately 705
towers in Australia. Our customers currently include many of the world's major
wireless communications and broadcast companies, including Bell Atlantic Mobile,
BellSouth, AT&T Wireless, Nextel, Metricom and the British Broadcasting
Corporation.
Our strategy is to use our leading domestic and international position to
capture the growing opportunities to consolidate ownership and management of
existing towers and other wireless and transmission infrastructure and to build
and operate new towers and wireless and transmission networks and infrastructure
created by:
. the transfer to third parties, or outsourcing, of tower ownership and
management by major wireless carriers;
. the need for existing wireless carriers to expand coverage and improve
capacity;
. the additional demand for towers and wireless infrastructure created by
new entrants into the wireless communications industry;
. the privatization of state-run broadcast transmission networks; and
. the introduction of new digital broadcast transmission technology and
wireless technologies.
Our main businesses are leasing antenna space on wireless and broadcast
towers that can accommodate multiple tenants and operating analog and digital
broadcast transmission networks and wireless networks. We also provide related
services to our customers, including network design, radio frequency
engineering, site acquisition, site development and construction, antenna
installation and network management and maintenance. We believe that our full
service capabilities are a key competitive advantage in forming strategic
partnerships to acquire large concentrations of towers, or tower clusters, and
in winning contracts for tower acquisitions, management and construction along
with wireless and transmission network management.
Our primary business in the United States is the leasing of antenna space to
wireless carriers. We believe that by owning and managing large tower clusters
we are able to offer customers the ability to fulfill rapidly and efficiently
their network expansion plans across particular markets or regions. Our
acquisition strategy has been focused on adding tower clusters to our tower
portfolio. As of December 31, 1999, we had tower clusters in 34 of the 50
largest U.S. metropolitan areas, and 68 of the 100 largest U.S. metropolitan
areas.
Our primary business in the United Kingdom is the operation of television and
radio broadcast transmission networks. Following the 1997 acquisition of the
BBC's broadcast and tower infrastructure, we were awarded long-term contracts to
provide the BBC and other broadcasters analog and digital transmission services.
We also lease antenna space to wireless operators in the United Kingdom on the
towers we acquired from the BBC and from various wireless carriers along with
towers we have constructed. We have nationwide broadcast and wireless coverage
in the United Kingdom.
Upon consummation of the agreement with Cable & Wireless Optus, we anticipate
that our primary business in Australia will be the leasing of antenna space to
wireless carriers. Upon completion of the Cable & Wireless Optus transaction,
Crown Castle Australia will own and operate a nationwide tower portfolio
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of approximately 700 towers in Australia covering over 90 percent of the
population. See "--Recent and Agreed To Transactions--Cable & Wireless Optus
Transaction".
We believe our towers are attractive to a diverse range of wireless
communications industries, including personal communications services, cellular,
enhanced specialized mobile radio, specialized mobile radio, paging, and fixed
microwave, as well as radio and television broadcasting. In the United States
our major customers include AT&T Wireless, Aerial, Bell Atlantic Mobile,
BellSouth, Motorola, Nextel, PageNet, Metricom and Sprint PCS. In the United
Kingdom our major customers include the BBC, Cellnet, Dolphin, NTL, ONdigital,
One2One, Orange, Virgin Radio and Vodafone AirTouch.
We are continuing our ongoing construction program to enhance our tower
portfolios. In 1999, we constructed over 900 towers. In 2000, we plan to
construct approximately 1,170 towers, at an estimated aggregate cost of
approximately $270 million, for lease to wireless carriers such as Bell Atlantic
Mobile, BellSouth, GTE Wireless and Nextel. The actual number of towers built
may be outside that range depending on acquisition opportunities and potential
build-to-suit contracts from large wireless carriers.
GROWTH STRATEGY
Our objective is to become the premier global owner and operator of tower and
transmission networks for wireless communications and broadcast companies. We
believe our experience in expanding and marketing our tower clusters, as well as
our experience in owning and operating analog and digital transmission networks,
positions us to accomplish this objective. The key elements of our business
strategy are to:
. MAXIMIZE UTILIZATION OF OUR TOWER CAPACITY. We are seeking to take
advantage of the substantial operating leverage of our site rental
business by increasing the number of antenna leases on our owned and
managed communications sites. Many of our towers have significant
capacity available for additional antenna space rental and that
increased utilization of our tower capacity can be achieved at low
incremental cost. We believe there is substantial demand for such
capacity from existing carriers and broadcasters and new carriers and
broadcasters. We believe that the extra capacity on our tower portfolios
will be highly desirable to new entrants into the wireless
communications industry. Such carriers are able to launch service
quickly and relatively inexpensively by designing the deployment of
their networks based on our attractive existing tower portfolios.
Further, we intend to continue to selectively build and acquire
additional towers to improve the coverage of our existing tower
portfolios to further increase their attractiveness. We intend to
continue to use targeted sales and marketing techniques to increase
utilization of and investment return on our existing, newly constructed
and acquired towers.
. UTILIZE THE EXPERTISE OF OUR U.S. AND U.K. PERSONNEL TO CAPTURE GLOBAL
GROWTH OPPORTUNITIES. We are seeking to leverage the skills of our
personnel in the United States and the United Kingdom. We believe that
our ability to manage networks, including the transmission of signals,
will be an important competitive advantage in our pursuit of global
growth opportunities, as evidenced by our transactions with the BBC,
One2One, Bell Atlantic Mobile, BellSouth, GTE and Powertel and our
agreement to acquire and operate the tower network of Cable & Wireless
Optus in Australia. With our wireless communications and broadcast
transmission network design and radio frequency engineering expertise,
we are well positioned to (1) partner with major wireless carriers to
assume ownership of their existing towers; (2) provide build-to-suit
towers for wireless carriers and broadcasters; (3) acquire existing
broadcast transmission networks that are being privatized around the
world (4) manage and operate wireless networks; and (5) deploy new
wireless technologies.
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. PARTNER WITH WIRELESS CARRIERS TO ASSUME OWNERSHIP OF THEIR EXISTING
TOWERS. In addition to the joint ventures with Bell Atlantic Mobile and
GTE Wireless and the BellSouth and BellSouth DCS transactions, we are
continuing to seek to partner with other major wireless carriers to
assume ownership of their existing towers directly or through joint
ventures or control their towers through contractual arrangements. We
believe the primary criteria of such carriers in selecting a company to
own and operate their wireless communications infrastructure is the
company's perceived capability to maintain the integrity of their
networks, including their transmission signals. Therefore, we believe
that those companies with a proven track record of providing end-to-end
services will be best positioned to successfully acquire access to such
wireless communications infrastructure. We believe that similar
opportunities will arise globally as the wireless communications
industry further expands, as evidenced by our agreement to acquire and
operate the tower network of with Cable & Wireless Optus in Australia
and the turnkey deployment of One2One's wireless network in Northern
Ireland.
. BUILD NEW TOWERS FOR WIRELESS CARRIERS AND BROADCASTERS. As wireless
carriers continue to expand and fill-in their service areas and deploy
new technologies, they will require additional communications sites and
will have to build new towers where multi-tenant towers are not
available. We are pursuing these build-to-suit opportunities to build
new towers for wireless carriers, leveraging on our ability to offer a
wide range of related services.
. ACQUIRE EXISTING BROADCAST TRANSMISSION NETWORKS. In 1997, Crown Castle
UK Limited successfully acquired the privatized domestic broadcast
transmission network of the BBC. In addition, we are implementing the
roll-out of digital television transmission services throughout the
United Kingdom. As a result of this experience, we are well positioned
to acquire other state-owned analog and digital broadcast transmission
networks globally when opportunities arise. These state-owned broadcast
transmission networks typically enjoy premier sites giving an acquirer
the ability to offer unused antenna capacity to new and existing radio
and television broadcasters and wireless carriers, as well as to install
new technologies such as digital terrestrial transmission services. In
addition, our experience in broadcast transmission services allows us to
consider, when attractive opportunities arise, acquiring wireless
transmission networks as well as associated wireless communications
infrastructure. We are currently pursuing certain international
acquisition and privatization opportunities.
. CONTINUE TO DECENTRALIZE OUR MANAGEMENT FUNCTIONS. In order to better
manage our tower lease-up efforts and build-out programs, and in
anticipation of the continued growth of our tower footprint throughout
the United States, we have begun and plan to continue decentralizing
some management and operational functions. To that end, in addition to
our Pittsburgh operating headquarters and regional office, we have
opened and staffed 17 regional offices, including Boston, Washington
D.C., Philadelphia, Atlanta, Birmingham, Boca Raton, Charlotte, Houston,
Louisville, Phoenix, Albany and Puerto Rico. The principal
responsibilities of these offices are to manage the leasing of tower
space on a regional basis through a dedicated local sales force, to
maintain the towers already located in the region and to implement our
build-to-suit commitments in the area. We believe that by moving a
significant amount of our operating personnel to regional offices we
will be better able to strengthen our relationship with regional
carriers, serve our customers more effectively and identify additional
build-to-suit opportunities with local and regional carriers.
THE COMPANY
We operate our business through our subsidiaries. Crown Communication, Crown
Castle South, Crown Castle PT and the Bell Atlantic and GTE Wireless joint
ventures are our principal U.S. operating subsidiaries and Crown Castle UK
Limited is our principal U.K. operating subsidiary. Crown Castle Australia, a
joint venture between us and an investment group lead by Fay, Richwhite
Communications
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Ltd. is anticipated to be our principal operating subsidiary in Australia. We
also use subsidiaries to hold the assets we acquire or control as a result of
various transactions we may engage in from time to time.
U.S. OPERATIONS
Overview
Our primary business focus in the United States is the leasing of antenna
space on multiple tenant towers to a variety of wireless carriers under long-
term lease contracts. Supporting our competitive position in the site rental
business, we maintain in-house expertise in, and offer our customers,
infrastructure and network support services that include network design and site
selection, site acquisition, site development and construction and antenna
installation.
We lease antenna space to our customers on our owned, leased and managed
towers. We generally receive fees for installing customers' equipment and
antennas on a tower and also receive monthly rental payments from customers
payable under site rental leases that generally range in length from three to
five years. Our U.S. customers include such companies as AT&T Wireless, Aerial
Communications, AirTouch Cellular, Arch Communications, Bell Atlantic Mobile,
BellSouth Mobility, BellSouth DCS Cellular One, Federal Express, Lucent
Technologies, Motorola, Nextel, Nokia, PageNet, Powertel, Skytel, Sprint PCS,
Metricom, GTE Wireless and TSR Wireless. We also provide tower space to private
network operators and various federal and local government agencies, such as the
FBI, the IRS and the U.S. Postal Service.
At December 31, 1999, we owned or managed 5,319 towers and 98 rooftop sites
in the United States and Puerto Rico. These towers and rooftop sites are
located predominantly in the eastern, midwestern and southwestern United States,
along with Puerto Rico. We have recently acquired and will acquire a substantial
number of towers through our recent and agreed to transactions. See "--Recent
and Agreed to Transactions."
The joint venture with Bell Atlantic controls and operates 1,531 towers as of
December 31, 1999. These towers represent substantially all the towers in Bell
Atlantic's 850 MHz wireless network in the eastern and southwestern United
States and provide coverage of 11 of the top 50 U.S. metropolitan areas
including New York, Philadelphia, Boston, Washington, D.C. and Phoenix. A
substantial majority of these towers are over 100 feet tall and can accommodate
multiple tenants.
After completion of the BellSouth transaction, we will control and operate
approximately 1,850 towers in the BellSouth tower portfolio. As of February 2,
2000, we had acquired control of 1,664 of these towers, and we expect to close
on the balance by June 30, 2000. These towers represent substantially all the
towers in BellSouth's 850 MHZ wireless network in the southeastern and
midwestern United States and provide coverage of 12 of the top 50 U.S.
metropolitan areas, including Miami, Atlanta, Tampa, Nashville and Indianapolis.
A substantial majority of these towers are over 100 feet tall and can
accommodate multiple tenants.
Through the Powertel acquisition, we now control and operate 650 towers.
These towers represent substantially all of Powertel's owned towers in its 1.9
GHz wireless network in the southeastern and midwestern United States.
Approximately 90% of these towers are clustered in seven southeastern states
providing coverage of such metropolitan areas as Atlanta, Birmingham,
Jacksonville, Memphis and Louisville, and a number of major connecting highway
corridors in the southeast. These towers are complementary to BellSouth's 850
MHZ tower portfolio in the southeast and have minimal coverage overlap.
Substantially all of these towers are over 100 feet tall, were built within the
last three years and can accommodate multiple tenants.
After completion of the BellSouth DCS transaction, we will control and
operate approximately 773 communications towers out of the BellSouth DCS
portfolio located in North Carolina, South Carolina, east Tennessee and parts of
Georgia. As of February 2, 2000, we had acquired control of 674 of these towers,
and we expect to close on the balance by June 30, 2000. These towers represent
substantially all of the towers in BellSouth DCS's 1.9
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GHz wireless network. The towers are complementary to the towers we have
acquired or are in the process of acquiring through the BellSouth transaction
and the Powertel acquisition. Substantially all of these towers are over 100
feet tall and can accommodate multiple tenants.
Upon completion of all of the anticipated closings for the GTE Wireless
transaction, the GTE joint venture will control and operate approximately 2,300
towers. As of January 31, 2000, the GTE joint venture had acquired control of
637 of these towers. We contemplate closing with respect to approximately 1,600
additional towers effective as of April 1, 2000. These towers represent a
significant majority of the wireless communications towers of GTE Wireless. See
"--Recent and Agreed to Transactions".
We are seeking to enter into arrangements with other wireless carriers and
independent tower operators to acquire additional tower portfolios. However, we
believe that acquisitions from major carriers in the United States, such as the
Bell Atlantic Mobile, BellSouth, Powertel and GTE Wireless transactions, are
substantially complete.
We also seek to capitalize on our network design expertise to construct new
towers. We plan to continue to build towers in areas where carriers' signals
fail to transmit in their coverage area. The areas, commonly known as "dead
zones," are attractive tower locations. When population density and perceived
demand are such that we believe the economics of constructing such towers are
justified, we build towers that can accommodate multiple tenants. The multiple
tenant design of these towers obviates the need for expensive and time consuming
modifications to upgrade undersized towers, saving critical capital and time for
carriers facing time-to-market constraints. The towers are also designed to
easily add additional customers, and the equipment shelters are built to
accommodate another floor for new equipment and air conditioning units when
additional capacity is needed. The tower site is zoned for multiple carriers at
the time the tower is constructed to allow new carriers to quickly utilize the
site. In addition, the towers, equipment shelters and site compounds are
engineered to protect and maintain the structural integrity of the site.
In connection with the Bell Atlantic joint venture and GTE joint venture,
each of those joint ventures entered into master build-to-suit agreements under
which the joint venture will build and own the next 500 towers to be built for
the wireless communications business of Bell Atlantic and GTE Wireless,
respectively, over a five-year period. In addition, following the building of
such 500 sites, the Bell Atlantic joint venture will have a right of first
refusal to construct the next 200 towers to be built for Bell Atlantic. The
number of towers built under the GTE build-to-suit agreement is reduced by the
number of certain towers built for Bell Atlantic and other carriers. Further, we
have entered into similar agreements with BellSouth, as part of the BellSouth
transaction, to construct at least 500 towers on behalf of BellSouth in the
region covered by that transaction over the next five years, and we have a
build-to-suit agreement with Powertel through 2000 as to a minimum of 40 towers.
Site Rental
In the United States, we rent antenna space on our owned and managed towers
and rooftops to a variety of carriers operating cellular, personal
communication services, specialized mobile radio, enhanced specialized mobile
radio, paging and other networks.
Tower Site Rental. We lease space to our customers on our owned and managed
towers. We generally receive fees for installing customers' equipment and
antennas on a tower and also receive monthly rental payments from customers
payable under site leases. In the United States, the majority of our outstanding
customer leases, and the new leases typically entered into by us, have original
terms of five years (with three or four optional renewal periods of five years
each) and provide for annual price increases based on the Consumer Price Index.
The lease agreements relating to network acquisitions generally have a base term
of 10 years, with multiple renewal options, each typically ranging from five to
ten years.
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We also provide a range of site maintenance services in order to support and
enhance our site rental business. We believe that by offering services such as
antenna, base station and tower maintenance and security monitoring, we are able
to offer quality services to retain our existing customers and attract future
customers to our communication sites. We were the first site management company
in the United States selected by a major wireless communications company to
exclusively manage its tower network and market the network to other carriers
for multi-tenant use of their towers.
We have existing master lease agreements with most major wireless carriers,
including AT&T Wireless, Aerial Communications, Bell Atlantic Mobile, Nextel,
Metricom, GTE Wireless and Sprint PCS, which provide certain terms (including
economic terms) that govern new leases entered into by such parties during the
term of their master lease agreements. We believe that our strategic clusters of
towers will cause the master lease agreements to cover numerous towers as both
incumbent and insurgent carriers expand. These master lease agreements typically
have an initial lease term of ten years, with multiple renewal options, each
typically ranging from five to ten years.
We have significant site rental opportunities in connection with our recent
transactions as a result of the fact that such transactions usually involve a
master lease agreement of some type with the transferring carrier and the
opportunity to lease additional space with other carriers. In connection with
each of the Bell Atlantic and GTE joint ventures, we entered into a global lease
under which Bell Atlantic and GTE Wireless lease antenna space on the towers
transferred to the joint ventures, as well as the towers built under the build-
to-suit agreement. In connection with the BellSouth and BellSouth DCS
transactions, we are paid a monthly site maintenance fee from BellSouth for its
use or maintenance of space on the towers we control. Further, in connection
with the Powertel acquisition, we entered into an agreement under which the
sellers rent space on the towers we acquired from them. In each of these
transactions, we are permitted to lease additional space on the towers to third
parties. See "--Recent and Agreed to Transactions".
Rooftop Site Rental. We are a leading rooftop site management company in the
United States. Through our subsidiary, Spectrum, we develop new sources of
revenue for building owners by effectively managing all technical aspects of
rooftop telecommunications, including two-way radio systems, microwave
facilities, fiber optics, wireless cable, paging, rooftop infrastructure
services and optimization of equipment location. We also handle billing and
collections and all calls and questions regarding the site, totally relieving
the building's management of this responsibility. In addition to the technical
aspects of site management, we provide operational support for both wireless
carriers looking to build out their wireless networks, and building owners
seeking to out source their site rental activities. We generally enter into
management agreements with building owners and receive a percentage of the
revenues generated from the tenant license agreements.
Network Services
We design, build and operate our own communication sites. We have developed
an in-house expertise in certain value-added services that we offer to the
wireless communications and broadcasting industries. Because we are a provider
of total systems with "end-to-end" design, construction and operating expertise,
we offer our customers the flexibility of choosing between the provision of a
full ready-to-operate network infrastructure or any of the component services
involved therein. Such services include network design and site selection, site
acquisition, site development and construction and antenna installation.
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Network Design and Site Selection. We have extensive experience in network
design and engineering and site selection. While we maintain sophisticated
network design services primarily to support the location and construction of
our multiple tenant towers, we do from time to time provide network design and
site selection services to carriers and other customers on a consulting contract
basis. Our network design and site selection services provide our customers with
relevant information, including recommendations regarding location and height of
towers, appropriate types of antennas, transmission power and frequency
selection and related fixed network considerations. In 1999, we provided network
design services primarily for our own portfolios and also for certain customers,
including Triton Communications, Nextel, Aerial Communications, Bell Atlantic
and Sprint PCS. These customers were typically charged on a time and materials
basis.
To capitalize on the growing concerns over tower proliferation, we have
developed a program through which we are attempting to form strategic alliances
with local governments to create a single communications network in their
communities. To date our efforts have focused on select locations in the eastern
United States, where we have formed alliances with three municipalities. These
alliances are intended to accommodate wireless carriers and local public safety,
emergency services and municipal services groups as part of an effort to
minimize tower proliferation. By promoting towers designed for multiple tenants,
these alliances will reduce the number of towers in communities while serving
the needs of wireless carriers and wireless customers.
Site Acquisition. In the United States, we are engaged in site acquisition
services for our own purposes and for third parties. Based on data generated in
the network design and site selection process, a "search ring," generally of a
one-mile radius, is issued to the site acquisition department for verification
of possible land purchase or lease deals within the search ring. Within each
search ring, Geographic Information Systems specialists select the most suitable
sites, based on demographics, traffic patterns and signal characteristics. Once
a site is selected and the terms of an option to purchase or lease the site are
completed, a survey is prepared and the resulting site plan is created. The
plan is then submitted to the local zoning/planning board for approval. If the
site is approved, our construction department takes over the process of
constructing the site.
We have provided site acquisition services to numerous customers, including
AT&T Wireless, Aerial Communications, AirTouch Cellular, Bell Atlantic Mobile,
BellSouth, GTE, Nextel, Omnipoint, Pagemart, Sprint PCS and Teligent. These
customers engage us for such site acquisition services on either a fixed price
contract or a time and materials basis.
Site Development and Construction and Antenna Installation. We have provided
site development and construction and antenna installation services to the U.S.
communications industry for over 18 years. We have extensive experience in the
development and construction of tower sites and the installation of antenna,
microwave dishes and electrical and telecommunications lines. Our site
development and construction services include clearing sites, laying foundations
and electrical and telecommunications lines, and constructing equipment shelters
and towers. We have designed and built and presently maintain tower sites for a
number of our wireless communications customers and a substantial part of our
own tower network. We can provide cost-effective and timely completion of
construction projects in part because our site development personnel are cross-
trained in all areas of site development, construction and antenna installation.
We generally set prices for each site development or construction service
separately. Customers are billed for these services on a fixed price or time and
materials basis and we may negotiate fees on individual sites or for groups of
sites. We have the capability, expertise and contractual arrangements to install
antenna systems for our paging, cellular, personal communications services,
specialized mobile radio, enhanced specialized mobile radio, microwave and
broadcasting customers. As this service is performed, we use our technical
expertise to ensure that there is no interference with other tenants. We
typically bill for our antenna installation services on a fixed price basis.
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Our construction management capabilities reflect our extensive experience in
the construction of networks and towers. For example, Crown Communication was
instrumental in launching networks for Sprint PCS, Nextel and Aerial
Communications in the Pittsburgh major trading area. In addition, Crown
Communication supplied these carriers with all project management and
engineering services which included antenna design and interference analyses.
In 1999, we provided site development and construction and antenna
installation services to a majority of our new tower site tenants in the United
States, including AT&T Wireless, Bell Atlantic Mobile, Nextel and Sprint PCS.
Broadcast Site Rental and Services
We also provide site rental and related services to customers in the
broadcasting industry in the United States. The launch of digital terrestrial
television in the United States will require significant expansion and
modification of the existing broadcast infrastructure. Because of the
significant cost involved and expertise required in the construction or
modification of broadcast towers, and the large capital expenditures
broadcasters will incur in acquiring digital broadcast equipment, we believe
that the television broadcasting industry will seek to outsource significant
services relating to digital broadcasting and potentially tower ownership. We
believe that our experience in providing digital transmission services in the
United Kingdom will make us an attractive provider of certain digital broadcast
services to the major networks and their affiliates.
Electronic news gathering systems benefit from the towers and services we
offer. The electronic news gathering trucks, often in the form of local
television station news vans with telescoping antennas on their roofs, send live
news transmission back to the studio from the scene of an important event.
Typically, these vans cannot transmit signals beyond about 25 miles. In
addition, if they are shielded from the television transmitter site, they cannot
make the connection even at close range. We have developed a repeater system for
such news gathering that can be used on many of our towers and which is
currently in use on towers located in western Pennsylvania. This system allows
the van to send a signal to one of our local towers where the signal is
retransmitted back to the television transmitter site. The retransmission of the
signal from our tower to the various television transmitter sites is done via a
microwave link. We charge the station for the electronic news gathering receiver
system at the top of our tower and also charge them for the microwave dish they
place on our tower. Our electronic news gathering customers are affiliates of
the NBC, ABC, CBS and Fox television networks.
We also have employees with considerable direct construction experience and
market knowledge in the U.S. broadcasting industry, having worked with numerous
television networks around the United States, and a number of other local
broadcasting companies. We have installed master FM and television systems on
buildings across the country. We have supervised the construction and operation
of the largest master FM antenna facility in the United States along with the
antenna facilities on the John Hancock Building in Chicago and have engineered
and installed two 2,000 foot broadcast towers with master FM antennas.
Significant Contracts
We have many agreements with telecommunications providers in the United
States, including leases, site management contracts and independent contractor
agreements. We currently have important contracts with, among others, Bell
Atlantic Mobile, BellSouth, Mobility, BellSouth DCS, GTE Wireless, Powertel and
Nextel.
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Customers
In both our site rental and network services businesses, we work with a
number of customers in a variety of businesses including cellular, personal
communications services, enhanced specialized mobile radio, paging and
broadcasting. We work primarily with large national carriers such as Bell
Atlantic Mobile, BellSouth, Sprint PCS, Nextel and AT&T Wireless. For the year
ended December 31, 1999, no customer in the United States accounted for more
than 10.0% of our consolidated revenues.
Industry Selected Customers
------------ -------------------------
Cellular........................................... AT&T Wireless, Bell Atlantic Mobile,
BellSouth, Mobility, GTE Wireless
Personal Communications Services................... Sprint PCS, Western Wireless, Powertel,
BellSouth DCS
Broadcasting....................................... Hearst Argyle Television, Trinity Broadcasting
Specialized Mobile Radio / Enhanced Specialized
Mobile Radio...................................... Nextel, SMR Direct
Governmental Agencies.............................. FBI, INS, Puerto Rico Police
Private Industrial Users........................... IBM, Phillips Petroleum
Data............................................... Ardis, RAM Mobile Data
Paging............................................. AirTouch, PageNet, TSR Wireless
Utilities.......................................... Equitable Resources, Nevada Power
Other.............................................. WinStar, Teligent
Sales and Marketing
Our sales and marketing personnel, located in our regional offices, target
carriers expanding their networks, entering new markets, bringing new
technologies to market and requiring maintenance or add-on business. All types
of wireless carriers are targeted including broadcast, cellular, paging,
personal communications services, microwave and two-way radio. We are also
interested in attracting 9-1-1, federal, state, and local government agencies,
as well as utility and transportation companies to locate on existing sites. Our
objective is to pre-sell capacity on our towers by promoting sites prior to
construction. Rental space on existing towers is also aggressively marketed and
sold.
We utilize numerous public and proprietary databases to develop detailed
target marketing programs directed at awardees of bandwidth licenses auctioned
by the government, existing tenants and specific market groups. Mailings focus
on regional build outs, new sites and services. The use of databases, such as
those with information regarding sites, demographic data, licenses and
deployment status, coupled with actual signal strength measurements taken in the
field and specialized computer programs that accurately predict the service area
of a particular radio signal from any given transmission point, allows our sales
and marketing personnel to target specific carriers' needs for specific sites.
To foster productive relationships with our major existing tenants and potential
tenants, we have formed a team of account relationship managers. These managers
work to develop new tower construction, site leasing services and site
management opportunities, as well as ensure that customers' emerging needs are
translated into new site products and services.
The marketing department maintains our visibility within the wireless
communications industry through regular advertising and public relations efforts
including sponsorship of a third generation wireless communication showcase,
actively participating in trade shows and generating regular press releases,
newsletters and targeted mailings (including promotional flyers). Our
promotional activities range from advertisements and site listings in industry
publications to maintaining a presence at national trade shows. Potential
clients are referred to our Web site, which contains Company information as well
as site listings. In addition, our sites are listed on the Cell Site Express
Web site. This Web site enables potential tenants to locate existing structures
by latitude, longitude or address. Clients can easily contact us via e-mail
through our Web site or Cell Site Express. Our network services capabilities
are marketed in conjunction with our tower portfolios.
9
To follow up on targeted mailings and to cold-call on potential clients, we
have established a telemarketing department. Telemarketers field inbound and
outbound calls and forward leads to local sales representatives or relationship
managers for closure. Local sales representatives are stationed in each cluster
to develop and foster close business relationships with decision-makers in each
customer organization. Sales professionals work with marketing specialists to
develop sales presentations targeting specific client demands.
In addition to a dedicated, full-time sales and marketing staff, a number of
senior managers spend a significant portion of their efforts on sales and
marketing activities. These managers call on existing and prospective customers
and also seek greater visibility in the industry through speaking engagements
and articles in national publications. Furthermore, many of these managers have
been recognized as industry experts, are regularly quoted in articles and are
called on to testify at local hearings and to draft local zoning ordinances.
Public and community relations efforts include coordinating community events,
such as working with amateur radio clubs to supply emergency and disaster
recovery communications, charitable event sponsorship, and promoting charitable
donations through press releases.
Competition
In the United States, we compete with other independent tower owners, some of
which also provide site rental and network services; wireless carriers, which
own and operate their own tower networks; service companies that provide
engineering and site acquisition services; and other potential competitors, such
as utilities, outdoor advertisers and broadcasters, some of which have already
entered the tower industry. Wireless carriers that own and operate their own
tower networks generally are substantially larger and have greater financial
resources than we have. We believe that tower location, capacity, price,
quality of service and density within a geographic market historically have been
and will continue to be the most significant competitive factors affecting tower
rental companies. We also compete for acquisition and new tower construction
opportunities with wireless carriers, site developers and other independent
tower operating companies. We believe that competition for tower site
acquisitions will increase and that additional competitors will enter the tower
market, some of which may have greater financial resources than us.
The following is a list of the larger independent tower companies that we
compete with in the United States: American Tower Corp., Pinnacle Towers,
SpectraSite and SBA Communications.
The following companies are primarily competitors for our rooftop site
management activities in the United States: AAT Communications, American Tower
Corp., APEX Site Management, Commsite International, Pinnacle Towers, JJS
Leasing, Inc., Signal One, Subcarrier Communications and Tower Resources
Management.
We believe that the majority of our competitors in the site acquisition
business operate within local market areas exclusively, while a small minority
of firms appear to offer their services nationally, including SBA Communications
Corporation, Whalen & Company and Gearon & Company (a subsidiary of American
Tower Corp.). We offer our services nationwide and we believe we are currently
one of the largest providers of site development services to the U.S. and
international markets. The market includes participants from a variety of
market segments offering individual, or combinations of, competing services.
The field of competitors includes site acquisition consultants, zoning
consultants, real estate firms, right-of-way consulting firms, construction
companies, tower owners/managers, radio frequency engineering consultants,
telecommunications equipment vendors (which provide turnkey site development
services through multiple subcontractors) and carriers' internal staff. We
believe that carriers base their decisions on site development services on
certain criteria, including a company's experience, track record, local
reputation, price and time for completion of a project. We believe that we
compete favorably in these areas.
10
U.K. OPERATIONS
Overview
We own and operate, through our 80% interest in Crown Castle UK Limited
(formerly known as "Castle Transmission International Ltd."), one
of the world's most established television and radio transmission networks and
are expanding our leasing of antenna space on our towers to a variety of
wireless carriers. We provide transmission services for four of the six digital
terrestrial television services in the U.K., two BBC analogue television
services, six national BBC radio services (including the first digital audio
broadcast service in the United Kingdom), 37 local BBC radio stations and two
national commercial radio services through our network of transmitters, which
reach 99.4% of the U.K. population. These transmitters are located on
approximately 1,300 towers, more than half of which we own and the balance of
which are licensed to us under a site-sharing agreement with NTL, our principal
competitor in the United Kingdom. We have also secured long-term contracts to
provide digital television transmission services to the BBC and ONdigital. See
"--Significant Contracts." In addition to providing transmission services, we
also lease antenna space on our transmission infrastructure and over 770
communications towers in the United Kingdom to various communications service
providers, including One2One, Cellnet, Orange and Vodafone, and provide
telecommunications network installation and maintenance services and engineering
consulting services.
Our core revenue generating activity in the United Kingdom is the analog and
digital terrestrial transmission of radio and television programs broadcast by
the BBC. Crown Castle UK Limited's business, which was formerly owned by the
BBC, was privatized under the Broadcasting Act 1996 and sold to Crown Castle UK
Limited in February 1997. At the time the BBC home service transmission business
was acquired, Crown Castle UK Limited entered into a 10-year transmission
contract with the BBC for the provision of terrestrial analog television and
analog and digital radio transmission services in the United Kingdom. The
digital contract was added in 1998 as described below. In the 12 months ended
December 31, 1999, approximately 50% of Crown Castle UK Limited's consolidated
revenues were derived from the provision of services to the BBC.
At December 31, 1999, we owned, leased or licensed 1,942 transmission sites
(excluding rooftops) on which we operated 2,020 towers (excluding rooftops). In
addition, as of December 31, 1999, we were constructing two new towers on
existing sites and had approximately 12 site acquisition projects in process for
new tower sites. We have 51 revenue producing rooftop sites that are occupied by
our transmitters but are not available for leasing to our customers. Our sites
are located throughout England, Wales, Scotland and Northern Ireland.
We expect to significantly expand our existing tower portfolios in the United
Kingdom by building and acquiring additional towers. We believe our existing
tower network encompasses many of the most desirable tower locations in the
United Kingdom for wireless communications. However, due to the shorter range
over which communications signals carry (especially newer technologies such as
personal communications networks) as compared to broadcast signals, wireless
communications providers require a denser portfolio of towers to cover a given
area. Therefore, in order to increase the attractiveness of our tower
portfolios to wireless communications providers, we will seek to build or
acquire new communications towers. Using our team of over 300 engineers with
state-of-the-art network design and radio frequency engineering expertise, we
locate sites and design towers that will be attractive to multiple tenants. We
seek to leverage such expertise by entering into new tower construction
contracts with various carriers, such as British Telecom, Cable & Wireless
Communications, Cellnet, Dolphin, Energis, Highway One, One2One, Orange and
Scottish Telecom, thereby securing an anchor tenant for a site before incurring
capital expenditures for the site build-out. As of December 31, 1999, we were
building 14 towers that we will own. In addition, we expect to make some
strategic acquisitions of existing communications sites.
On March 31, 1999, Crown Castle UK Limited completed the One2One transaction,
under which Crown Castle UK Limited will manage, develop and, at its option,
acquire 821 towers. These towers represent substantially all the towers in
One2One's nationwide 900 MHz wireless network in the United Kingdom. These
towers will allow Crown Castle UK Limited to market a nationwide network of
towers to third generation
11
wireless carriers in the United Kingdom following the completion of the pending
auction of such licenses by the U.K. government.
We believe that we generally have significant capacity on our towers in the
United Kingdom. Although approximately 206 of our towers are poles with
limited capacity, we typically will be able to build new towers that will
support multiple tenants on these sites (subject to the applicable planning
process). We intend to upgrade these limited capacity sites where we believe we
can achieve appropriate returns to merit the necessary capital expenditure.
Approximately 60 of our sites are used for medium frequency broadcast
transmissions. At this frequency, the entire tower is used as the transmitting
antenna and is therefore electrically "live." Such towers are therefore
unsuitable for supporting other tenant's communications equipment. However,
medium frequency sites generally have substantial ground area available for the
construction of new multiple tenant towers.
Transmission Business
Analog. For the 12 months ended December 31, 1999, Crown Castle UK Limited
generated approximately 42% of its revenues from the provision of analog
broadcast transmission services to the BBC. Under the BBC analog transmission
contract, we provide terrestrial transmission services for the BBC's analog
television and radio programs and certain other related services (including BBC
digital radio) for an initial 10-year term through March 31, 2007. See
"--Significant Contracts." For the 12 months ended December 31, 1999, the BBC
Analog Transmission Contract generated revenues of approximately (Pounds)50.8
million ($82.1 million) for us.
In addition to the BBC analog transmission contract, we have separate
contracts to provide maintenance and transmission services for two national
radio stations, Virgin Radio and Talk Radio. The Virgin Radio contract is for a
period of eight years commencing on March 31, 1993. The Talk Radio Contract
commenced on February 4, 1995 and expires on December 31, 2008.
We own all of the transmission equipment used for broadcasting the BBC's
domestic radio and television programs, whether located on one of Crown Castle
UK Limited's sites or on an NTL or other third-party site. As of December 31,
1999, Crown Castle UK Limited had 3,777 transmitters, of which 2,497 were for
television broadcasting and 1,280 were for radio.
A few of our most powerful television transmitters together cover the
majority of the U.K. population. The coverage achieved by the less powerful
transmitters is relatively low, but is important to the BBC's ambition of
attaining universal coverage in the United Kingdom. This is illustrated by the
following analysis of the population coverage of our analog television
transmitters:
Combined
Number of Sites Population
(ranked by coverage) Coverage
----------------------- -----------
1 (Crystal Palace)........... 21.0%
top 16....................... 79.0
top 26....................... 86.0
top 51....................... 92.0
all.......................... 99.4
All of our U.K. transmitters are capable of unmanned operation and are
maintained by mobile maintenance teams from 27 bases located across the United
Kingdom. Access to the sites is strictly controlled for operational and
security reasons, and buildings at 140 of the sites are protected by security
alarms connected to Crown Castle UK Limited's Technical Operations Centre at
Warwick. The Site-Sharing Agreement provides us with reciprocal access rights
to NTL's broadcast transmission sites on which we have equipment.
Certain of our transmitters that serve large populations or important
geographic areas have been designated as priority transmitters. These
transmitters have duplicated equipment so that a single failure will not result
in
12
total loss of service but will merely result in an output-power reduction
that does not significantly degrade the service to most viewers and listeners.
Digital. In 2000, we have completed contracts with the holders (including the
BBC) of four of the six DTT multiplexes allocated by the U.K. government to
design, build and operate their digital transmission networks. In connection
with the implementation of digital terrestrial television, new transmission
infrastructure was required. The multiplexes required 81 transmission sites to
be upgraded with new transmitters and associated systems to support digital
terrestrial television and provide digital coverage to approximately 93% of the
U.K. population. Of these new transmitters and associated systems, 49 are owned
by us and the remainder are on NTL towers pursuant to a site sharing
arrangement. Our costs to add the new transmitters and associated systems was
approximately (Pounds) 100.0 million ($170.0 million).
We successfully began commercial operation of the digital terrestrial
television networks from an initial 22 transmission sites on November 15, 1998.
This launch marks the first stage of the project to introduce the digital
broadcast system that will eventually replace conventional analog television
services in the United Kingdom. We have accepted an invitation from the U.K.
television regulator, the Independent Television Commission, to play a major
role in planning further digital terrestrial television network extensions to be
built in the year 2000 and beyond.
We currently provide transmission services for digital radio broadcasts in
the United Kingdom. In September 1995, the BBC launched, over our transmission
network, its initial bandwidth scheme for transmission equipment with the
ability to compensate for varying data rates by automatically adjusting the
amount of frequency band used, and this service is now broadcast to
approximately 60% of the U.K. population. A license for an independent national
digital radio network was awarded to the Digital One consortium during 1998. We
are in negotiations to provide accommodation and access to masts (towers) and
antennas at 24 transmission sites to Digital One. In addition, local digital
radio licenses were awarded during 1999. We believe we are well positioned to
become the transmission service provider to the winners of such licenses.
Site Rental
The BBC transmission network provides a valuable initial portfolio for the
creation of wireless communications networks. As of December 31, 1999,
approximately 200 companies rented antenna space on approximately 1,665 of Crown
Castle UK Limited's 2,071 towers and rooftops. These site rental agreements have
normally been for three to 12 years and are generally subject to rent reviews
every three years. Site sharing customers are generally charged annually in
advance, according to rate cards that are based on the antenna size and position
on the tower. Our largest site rental customer in the United Kingdom is NTL
under the Site-Sharing Agreement and the digital broadcasting site sharing
agreement. This agreement generated approximately (Pounds) 9.1 million ($14.7
million) of site rental revenue for the year ended December 31, 1999.
As in the United States, we provide a range of site maintenance services in
the United Kingdom in order to support and enhance our site rental business. We
complement our U.K. transmission experience with our site management experience
in the United States to provide customers with a top-of-the-line package of
service and technical support.
Other than NTL, Crown Castle UK Limited's largest (by revenue) site rental
customers consist mainly of wireless carriers such as Cellnet, One2One, Orange
and Vodafone. Revenues from these non-BBC sources are expected to become an
increasing portion of Crown Castle UK Limited's total U.K. revenue base, as the
acquired BBC home service transmission business is no longer constrained by
governmental restrictions on the
13
BBC's commercial activities. We believe that the demand for site rental from
communication service providers will increase in line with the expected growth
of these communication services along with the deployment of new technologies
such as third generation mobile communications, or 3G, in the United Kingdom.
We have master lease agreements with all of the major U.K. telecommunications
site users including British Telecom, Cable & Wireless Communications, Cellnet,
Dolphin, Energis, Highway One, One2One, Orange, Scottish Telecom and Vodafone
AirTouch. These agreements typically specify the terms and conditions
(including pricing and volume discount plans) under which these customers have
access to all sites within our U.K. portfolio. Customers make orders for
specific sites using the standard terms included in the master lease agreements.
As of December 31, 1999, there were approximately 911 applications in process
for installations at existing sites under such agreements.
Network Services
Crown Castle UK Limited provides broadcast and telecommunications engineering
services to various customers in the United Kingdom. We retained substantially
all of the BBC home service transmission business employees when we acquired
Crown Castle UK Limited. Accordingly, we have engineering and technical staff of
the caliber and experience necessary not only to meet the requirements of our
current customer base, but also to meet the challenges of developing digital
technology. Within the United Kingdom, Crown Castle UK Limited has worked with
several telecommunications operations on design and build projects as they roll-
out their networks. Crown Castle UK Limited has had success in bidding for
broadcast consulting contracts, including, over the last four years, in
Thailand, Taiwan, Poland and Sri Lanka. With the expertise of our engineers and
technical staff, we are a provider of complete systems to the wireless
communications and broadcast industries.
Network Design and Site Selection. We have extensive experience in network
design and engineering and site selection. Our U.K. customers, therefore, also
receive the benefit of our sophisticated network design and site selection
services.
Site Acquisition. As in the United States, in the United Kingdom we are
involved in site acquisition services for our own purposes and for third
parties. We recognize that the site acquisition phase often carries the highest
risk for a project. To ensure the greatest possible likelihood of success and
timely acquisition, we combine a desktop survey of potential barriers to
development with a physical site search with relevant analyses, assessments and,
where necessary, surveys. We seek to take advantage of our experience in site
acquisition and co-location when meeting with local planning authorities.
Site Development and Antenna Installation. We use a combination of external
and internal resources for site construction. Our engineers are experienced in
both construction techniques and construction management, ensuring an efficient
and simple construction phase. Selected civil contractors are managed by Crown
Castle UK Limited staff for the ground works phase. Specialist erection
companies, with whom we have a long association, are used for tower
installation. Final antenna installation is undertaken by our own experienced
teams.
Site Management and Other Services. We provide complete site management,
preventive maintenance, fault repair and system management services to the
Scottish Ambulance Service. We also maintain a mobile radio system for the
Greater Manchester Police and provide maintenance and repair services for
transmission equipment and site infrastructure.
Significant Contracts
Crown Castle UK Limited's principal analog broadcast transmission contract is
the BBC analog transmission contract. Crown Castle UK Limited also has entered
into two digital television transmission contracts, the BBC digital transmission
contract and the ONdigital digital transmission contract. Under the site-
sharing agreement, Crown Castle UK Limited also gives NTL access to facilities
to provide broadcast transmission to non-Crown Castle UK Limited customers.
Crown Castle UK Limited also has long-term service agreements with broadcast
customers such as Virgin Radio and Talk Radio. In addition, Crown Castle UK
14
Limited has several agreements with telecommunication providers, including
leases, site management contracts and independent contractor agreements. Crown
Castle UK Limited has entered into contracts to design and build infrastructure
for customers such as Cellnet, One2One, Orange, Scottish Telecom and Vodafone
AirTouch, including the turnkey network contract for One2One in Northern
Ireland.
BBC Analog Transmission Contract. Crown Castle UK Limited entered into a
10-year transmission contract with the BBC for the provision of terrestrial
analog television and analog and digital radio transmission services in the
United Kingdom at the time the BBC home service transmission business was
acquired. The BBC analog transmission contract provides for charges of
approximately (Pounds)46.5 million ($77.3 million) to be payable by the BBC to
Crown Castle UK Limited for the year ended March 31, 1998 and each year
thereafter through the termination date, adjusted annually at the inflation rate
less 1%. In addition, for the duration of the contract an annual payment of
(Pounds)300,000 ($498,840) is payable by the BBC for additional broadcast-
related services. At the BBC's request, since October 1997, the number of
television broadcast hours has been increased to 24 hours per day for the BBC's
two national television services, which has added over (Pounds)500,000
($831,400) annually to the payments made by the BBC to us. On July 16, 1999, the
BBC and Crown Castle UK Limited amended the transmission contract to allow Crown
Castle UK Limited to provide certain liaison services to the BBC.
The BBC analog transmission contract also provides for Crown Castle UK
Limited to be liable to the BBC for "service credits" (i.e., rebates of its
charges) in the event that certain standards of service are not attained as a
result of what the contract characterizes as "accountable faults" or the failure
to meet certain "response times" in relation to making repairs at certain key
sites. We believe that Crown Castle UK Limited is well-equipped to meet the
BBC's service requirements by reason of the collective experience its existing
management gained while working with the BBC. Following completion of formal
six-month performance reviews, Crown Castle UK Limited achieved a 100% "clean
sheet" performance, incurring no service credit penalties.
The initial term of the BBC Analog Transmission Contract ends on March 31,
2007. Thereafter, the BBC Analog Transmission Contract may be terminated with
12 months' prior notice by either of the parties, expiring on March 31 in any
contract year, from and including March 31, 2007. It may also be terminated
earlier:
(1) by mutual agreement between Crown Castle UK Limited and the BBC,
(2) by one party upon the bankruptcy or insolvency of the other party within
the meaning of section 123 of the Insolvency Act 1986,
(3) upon certain force majeure events with respect to the contract as a whole
or with respect to any site (in which case the termination will relate to
that site only),
(4) by the non-defaulting party upon a material breach by the other party;
and
(5) upon the occurrence of certain change of control events (as defined in
the BBC Analog Transmission Contract).
BBC Commitment Agreement. On February 28, 1997, in connection with the
acquisition of the BBC home service transmission business, the Company, TdF,
TeleDiffusion de France S.A., which is the parent company of TdF and DFI, and
the BBC entered into the BBC commitment agreement, whereby we and TdF agreed
(1) not to dispose of any shares in Crown Castle UK Holdings Limited (formerly
known as "Castle Transmission Services (Holdings) Limited") or any interest in
such shares, or enter into any agreement to do so, until February 28, 2000; and
(2) to maintain various minimum indirect ownership interests in Crown Castle UK
Limited and Crown Castle UK Holdings Limited for periods ranging from three to
five years commencing February 28, 1997. These provisions restrict our ability
and the ability of TdF to sell, transfer or otherwise dispose of their
respective Crown Castle UK Holdings Limited shares, and, indirectly, their Crown
Castle UK Limited shares. The restrictions do not apply to disposals of which
the BBC has been notified in advance and to which the BBC has given its prior
written consent, which, subject to certain exceptions, consent shall not be
unreasonably withheld or delayed. On July 17, 1999, in return
15
for the provision of liaison services by Crown Castle UK Limited to the BBC
described above, the BBC consented to the recent amendment to the TdF
agreements.
The BBC commitment agreement also required TdF's parent and us to enter into
a services agreements with Crown Castle UK Limited. The original services
agreement entered into by TdF's parent and Crown Castle UK Limited on February
28, 1997, under which TdF makes available certain technical consultants,
executives and engineers to Crown Castle UK Limited, was amended on August 21,
1998 to extend the original minimum term of services provided from three years
to seven years, commencing February 28, 1997, thereafter terminable on 12-
months' prior notice given by Crown Castle UK Limited to TdF after February 28,
2003.
Further, the Department of Trade and Industry in the United Kingdom, or DTI,
in December 1999 recommended to the Office of Fair Trading that as a condition
to not referring a proposed 25% equity investment in NTL by TdF's parent (France
Telecom) to the Competition Commission, TdF should be required to undertake to
dispose of its investment in Crown Castle UK Holdings Limited and us. The
publicly-announced purpose of the investment by France Telecom in NTL is to
finance NTL's acquisition of Cable and Wireless Communications, which
acquisition was recently approved by the Competition Commission. A draft of the
recommended undertakings was published on March 29, 2000 and essentially
requires TdF to (1) sell all of its interest in us (including Crown Castle UK
Holdings Limited) within four months following the date on which the UK
Secretary of State announced the UK Competition Commission's approval of NTL's
acquisition of the cable business of Cable and Wireless Communications (March
23, 2000, unless a later date is approved by the UK Director General), and (2)
relinquish certain significant governance rights with respect to us. The comment
period deadline for the published, recommended undertakings is April 12, 2000.
We cannot predict what undertakings, if any, will ultimately be executed by TdF,
when TdF might undertake such undertakings or what effect such undertakings
might have on us. See "--Risk Factors--Our Agreements with TdF Give TdF
Substantial Governance and Economic Rights."
ONdigital Digital Transmission Contract. In 1997, the Independent Television
Commission awarded ONdigital three of the five available commercial digital
terrestrial television "multiplexes" for new program services. We bid for and
won the 12 year contract from ONdigital to build and operate its digital
television transmission network. The contract provides for approximately
(Pounds)20.0 million ($34.0 million) of revenue per year from 2001 to 2008, with
lesser amounts payable before and after these years and with service credits
repayable for performance below agreed thresholds.
BBC Digital Transmission Contract. In 1998, we bid for and won the 12-year
contract from the BBC to build and operate its digital terrestrial television
transmission network. The BBC has committed to the full digital terrestrial
television roll-out contemplated by the contract providing for approximately
(Pounds)10.5 million ($17.8 million) of revenue per year during the 12 year
period, with service credits repayable for performance below agreed thresholds.
There is a termination provision during the three-month period following the
fifth anniversary of our commencement of digital terrestrial transmission
services for the BBC exercisable by the BBC but only if the BBC's Board of
Governors determines, in its sole discretion, that digital television in the
United Kingdom does not have sufficient viewership to justify continued digital
television broadcasts. Under this provision, the BBC will pay us a termination
fee in cash that substantially recovers our capital investment in the network,
and any residual ongoing operating costs and liabilities. Like the BBC analog
transmission contract, the contract is terminable upon the occurrence of certain
change of control events.
BT Digital Distribution Contract. Under the BBC digital transmission
contract and the ONdigital digital transmission contract, in addition to
providing digital terrestrial transmission services, Crown Castle UK Limited has
agreed to provide for the distribution of the BBC's and ONdigital's broadcast
signals from their respective television studios to Crown Castle UK Limited's
transmission network. Consequently, in May 1998, Crown Castle UK Limited
entered into a 12 year distribution contract with British Telecommunications plc
(with provisions for extending the term), in which British Telecom has agreed to
provide fully duplicated, fiber-based, digital distribution services, with
penalties for late delivery and service credits for failure to deliver 99.99%
availability.
Site-Sharing Agreement. In order to optimize service coverage and enable
viewers to receive all analog UHF television services using one receiving
antenna, the BBC, as the predecessor to Crown Castle UK Limited, and NTL made
arrangements to share all UHF television sites. This arrangement was introduced
in the 1960s when UHF television broadcasting began in the United Kingdom. In
addition to service coverage advantages, the arrangement also minimizes costs
and avoids the difficulties of obtaining additional sites.
On September 10, 1991, the BBC and NTL entered into the site sharing
agreement which set out the commercial site sharing terms under which the
parties were entitled to share each others' sites for any television and radio
services.
Under the Site-Sharing Agreement, the party that is the owner, lessee or
licensee of each site is defined as the "Station Owner." The other party, the
"Sharer", is entitled to request a license to use certain facilities at that
site. The Site-Sharing Agreement and each site license provide for the Station
Owner to be paid a commercial license fee in accordance with the Site-Sharing
Agreement ratecard and for the Sharer to be responsible, in
16
normal circumstances, for the costs of accommodation and equipment used
exclusively by it. The Site-Sharing Agreement may be terminated with five years'
prior notice by either of the parties and expires on December 31, 2005 or on any
tenth anniversary of that date. It may also be terminated:
(1) following a material breach by either party which, if remediable, is not
remedied within 30 days of notice of such breach by the non-breaching
party,
(2) on the bankruptcy or insolvency of either party, and
(3) if either party ceases to carry on a broadcast transmission business or
function.
Similar site sharing agreements have been entered into between NTL and us for
the build-out of digital transmission sites and equipment, including a new rate
card related to site sharing fees for new digital facilities and revised
operating and maintenance procedures related to digital equipment.
Vodafone AirTouch. On April 16, 1998, under Vodafone AirTouch's master lease
agreement with us, Vodafone AirTouch agreed to locate antennas on 122 of our
existing communication sites in the United Kingdom. The first 96 sites had been
completed by the end of December 1999. This included 39 sites at which a new
tower had been constructed to replace an existing structure of limited capacity.
The remaining sites are expected to be completed by the end of July 2000 and
will include the construction of a further 29 replacement towers. After their
upgrade, these sites will be able to accommodate additional tenants.
One2One Northern Ireland Network. On December 29, 1999, Crown Castle UK
Limited and One2One entered into an agreement under which Crown Castle UK
Limited will establish a turnkey mobile network for One2One in Northern Ireland.
The majority of the network is expected to be completed by mid 2000. Crown
Castle UK Limited will provide all cell planning, acquisition, design, build,
operation and maintenance services related to the network. The agreement with
One2One is for an initial term of eleven years. We currently own and operate
approximately 100 tower sites in Northern Ireland, and we expect that One2One
will be a tenant on substantially all of these sites as part of the network.
Third Generation Technology
The United Kingdom is currently auctioning four licenses relating to third
generation ("3G") mobile communications, the license with the largest amount of
spectrum reserved for an insurgent carrier.
In anticipation of the deployment of the 3G auctions in the United Kingdom,
Crown Castle UK Limited has prepared models for the deployment and operation of
3G networks in the United Kingdom. We contemplate working with the successful
bidders for 3G licenses in order to provide the outsourcing of network operation
and management and site sharing of network towers, equipment and other
communications infrastructure, such as base stations, as a solution to many of
the commercial and technical challenges and costs which such 3G license holders
will face. There can be no assurances that we will be successful in marketing
our asset and services to winners of the 3G auctions in the United Kingdom.
Customers
For the 12 months ended December 31, 1999, the BBC accounted for
approximately 50% of Crown Castle UK Limited's consolidated revenues. This
percentage has decreased from 58.9% for the 12 months ended December 31, 1998
and is expected to continue to decline as Crown Castle UK Limited continues to
expand its site rental business. Crown Castle UK Limited provides all four U.K.
personal communications network/cellular operators (Cellnet, One2One, Orange and
Vodafone AirTouch) with infrastructure services and also provides fixed
telecommunications operators, such as British Telecom, Cable & Wireless
Communications, Energis and Scottish Telecom, with microwave links and backhaul
infrastructure. The following is a list of some of Crown Castle UK Limited's
leading site rental customers by industry segment.
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Industry Selected Customers
---------------- -------------------------
Broadcasting........................ BBC, NTL, Virgin Radio, Talk Radio,
XFM, ONdigital
PMR/TETRA........................... National Band 3, Dolphin
Personal Communications Network..... Orange, One2One
Data................................ RAM Mobile Data, Cognito
Paging.............................. Hutchinson, Page One
Governmental Agencies............... Ministry of Defense
Cellular............................ Vodafone AirTouch, Cellnet
Public Telecommunications........... British Telecom, Cable & Wireless
Communications
Other............................... Aerial Sites, Health Authorities
Utilities........................... Welsh Water, Southern Electric
Sales and Marketing
We have about 20 sales and marketing personnel in the United Kingdom who
identify new revenue-generating opportunities, develop and maintain key account
relationships, and tailor service offerings to meet the needs of specific
customers. An excellent relationship has been maintained with the BBC, and
successful new relationships have been developed with many of the major
broadcast and wireless communications carriers in the United Kingdom. We have
begun to actively cross-sell our products and services so that, for example,
site rental customers are also offered build-to-suit services.
Competition
NTL is Crown Castle UK Limited's primary competition in the terrestrial
broadcast transmission market in the United Kingdom. NTL provides analog
transmission services to ITV, Channels 4 and 5, and S4C Digital Networks. It
also has been awarded the transmission contract for the new digital terrestrial
television multiplex service from Digital 3 & 4 Limited, and a similar contract
for the digital terrestrial television service for S4C.
Although Crown Castle UK Limited and NTL are direct competitors, they have
reciprocal rights to the use of each others' sites for broadcast transmission
usage in order to enable each of them to achieve the necessary country-wide
coverage. This relationship is formalized by the Site-Sharing Agreement entered
into in 1991, the time at which NTL was privatized.
NTL also offers site rental on approximately 1,000 of its sites, some of
which are managed on behalf of third parties. Like Crown Castle UK Limited, NTL
offers a full range of site-related services to its customers, including
installation and maintenance. Crown Castle UK Limited believes its towers to be
at least as well situated as NTL's and that it will be able to expand its own
third-party site-sharing penetration.
All four U.K. mobile operators own site infrastructure and lease space to
other users. Their openness to sharing with direct competitors varies by
operator. Cellnet and Vodafone have agreed to cut site costs by jointly
developing and acquiring sites in the Scottish Highlands. British Telecom and
Cable & Wireless Communications are both major site sharing customers but also
compete by leasing their own sites to third parties. British Telecom's position
in the market is even larger when considered in combination with its interest in
Cellnet.
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Several other companies compete in the market for site rental. These include
British Gas, Racal Network Systems, Aerial Sites Plc, Relcom Aerial Services and
the Royal Automobile Club. Some companies own sites initially developed for
their own networks, while others are developing sites specifically to exploit
this market.
Crown Castle UK Limited faces competition from a large number of companies in
the provision of network services. The companies include NTL, specialty
consultants and equipment manufacturers such as Nortel and Ericsson.
AUSTRALIA OPERATIONS
In March 2000, we entered into an agreement with Cable & Wireless Optus
pursuant to which Cable & Wireless Optus will sell to Crown Castle Australia
approximately 705 wireless communications towers located in Australia for
approximately $135 million in cash. In addition, Cable & Wireless Optus has
agreed to lease space on each of such towers for an initial term of 15 years.
The agreement also provides us with an exclusive right to develop all future
tower sites for Cable & Wireless Optus in Australia over the next six years.
Crown Castle Australia is two-thirds owned by us and one-third owned by an
investor group lead by Fay, Richwhite Communications Ltd., a New Zealand-based
investment firm.
The Cable & Wireless Optus transaction is expected to close in the second
quarter of 2000. Following the completion of the transaction, Crown Castle
Australia will be the largest independent tower operator in Australia. Upon
completion of the transaction, Crown Castle Australia will own and operate a
nationwide tower portfolio covering over 90 percent of the population in
Australia. See "--Recent and Agreed to Transactions--Cable & Wireless Optus
Transaction." There can be no assurances that the transaction with Cable &
Wireless Optus will be completed or that we will be successful in transacting
operations in Australia.
EMPLOYEES
At March 1, 2000, we employed approximately 1,250 people worldwide. Other
than in the United Kingdom, we are not a party to any collective bargaining
agreements. In the United Kingdom, we are party to a collective bargaining
agreement with the Broadcast, Entertainment, Cinematographic and Technicians
Union. This agreement establishes bargaining procedures relating to the terms
and conditions of employment for all of Crown Castle UK Limited's non-management
staff. We have not experienced any strikes or work stoppages, and management
believes that our employee relations are satisfactory.
REGULATORY MATTERS
UNITED STATES
Federal Regulations
Both the FCC and FAA regulate towers used for wireless communications
transmitters and receivers. Such regulations control the siting and marking of
towers and may, depending on the characteristics of particular towers, require
registration of tower facilities. Wireless communications devices operating on
towers are separately regulated and independently licensed based upon the
particular frequency used.
The FCC, in conjunction with the FAA, has developed standards to consider
proposals for new or modified antenna structures. These standards mandate that
the FCC and the FAA consider the height of proposed antenna structures, the
relationship of the structure to existing natural or man-made obstructions and
the proximity of the antenna structures to runways and airports. Proposals to
construct or to modify existing antenna structures above certain heights are
reviewed by the FAA to ensure the structure will not present a hazard to
aviation. The FAA may condition its issuance of a determination that the
structure will not present a hazard to aviation upon compliance with specified
lighting and/or marking requirements. The FCC will not license the operation of
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wireless telecommunications devices on towers unless the tower is in compliance
with the FAA's rules and is registered with the FCC, if necessary. The FCC will
not register a tower unless it has been cleared by the FAA. The FCC may also
enforce special lighting and painting requirements. Owners of wireless
transmissions towers may have an obligation to maintain painting and lighting to
conform to FAA and FCC standards. Tower owners may also bear the responsibility
of notifying the FAA of any tower lighting outage. The Company generally
indemnifies its customers against any failure to comply with applicable
regulatory standards. Failure to comply with the applicable requirements may
lead to civil penalties.
The 1996 Telecom Act limits certain state and local zoning authorities'
jurisdiction over the construction, modification and placement of towers. The
law prohibits any action that would (1) discriminate between different providers
of personal wireless services or (2) prohibit or have the effect of prohibiting
the provision of personal wireless service. Finally, the 1996 Telecom Act
requires the federal government to help licensees for wireless communications
services gain access to preferred sites for their facilities. This may require
that federal agencies and departments work directly with licensees to make
federal property available for tower facilities.
Local Regulations
Local regulations include:
. city and other local ordinances;
. zoning restrictions; and
. restrictive covenants imposed by community developers.
These regulations vary greatly, but typically require tower owners to obtain
approval from local officials or community standards organizations prior to
tower construction. Local zoning authorities generally have been hostile to
construction of new transmission towers in their communities because of the
height and visibility of the towers.
Licenses Under the Communications Act of 1934
We hold, through certain of our subsidiaries, licenses for radio transmission
facilities granted by the FCC, including licenses for common carrier microwave
and commercial mobile radio services, including specialized mobile radio and
paging facilities, as well as private mobile radio services including
industrial/business radio facilities, which are subject to additional regulation
by the FCC. We are required to obtain the FCC's approval prior to the transfer
of control of any of our FCC licenses.
We, as the parent company of the licensees of common carrier and commercial
mobile radio services facilities, are also subject to Section 310(b)(4) of the
Communications Act of 1934, as amended, which would limit us to a maximum of 25%
foreign ownership absent a ruling from the FCC that foreign ownership in excess
of 25% is in the public interest. In light of the World Trade Organization
Agreement on Basic Telecommunications Services, which took effect on February 5,
1998, the FCC has determined that such investments are generally in the public
interest if made by individuals and entities from WTO-member nations. We are
over 25% foreign owned by companies headquartered in France, the United Kingdom
and New Zealand. Each of these nations is a signatory to the WTO agreement. The
FCC has granted approval of up to 49.9% foreign ownership of us, at least 25% of
which will be from WTO-member nations.
UNITED KINGDOM
Telecommunications systems and equipment used for the transmission of signals
over radio frequencies have to be licensed in the United Kingdom. These
licenses are issued on behalf of the British Government by the Secretary of
State for Trade and Industry under the Telecommunications Act 1984 and the
Wireless Telegraphy Acts 1949, 1968 and 1998. Crown Castle UK Limited has a
number of such licenses under which it runs the telecommunications distribution
and transmission systems which are necessary for the provision of
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its transmission services. Crown Castle UK Limited's operations are subject to
comprehensive regulation under the laws of the United Kingdom.
Licenses under the Telecommunications Act 1984
Crown Castle UK Limited has the following three licenses under the
Telecommunications Act 1984:
Transmission License. The Transmission License is a renewable license to run
telecommunications systems for the transmission via wireless telegraphy, a type
of data transmissions technique, of broadcasting services. This license is for
a period of at least 25 years from January 23, 1997, and is Crown Castle UK
Limited's principal license. Its main provisions include:
(1) a price control condition covering the provision of all analog radio and
television transmission services to the BBC under the BBC analog
transmission agreement, establishing an initial price at approximately
(Pounds)44 million for regulated elements of the services provided by
Crown Castle UK Limited under the BBC analog transmission agreement in
the year ended March 31, 1997, with an increase cap which is 1% below the
rate of increase in the Retail Price Index over the previous calendar
year. The current price control condition applies until March 31, 2006,
(2) a change of control provision which requires notification of acquisitions
of interest in Crown Castle UK Limited of more than 20% by a public
telecommunications operator or any Channel 3 or Channel 5 licensee, which
acquisitions entitle the Secretary of State to revoke the license,
(3) a site sharing requirement requiring Crown Castle UK Limited to provide
space on its towers to analog and digital broadcast transmission
operators and including a power for the Director General of
Telecommunications ("OFTEL"), as the regulator, to determine prices if
there is failure between the site owner and the prospective site sharer
to agree to a price,
(4) a fair trading provision enabling OFTEL to act against anti-competitive
behavior by the licensee, and
(5) a prohibition on undue preference or discrimination in the provision of
the services it is required to provide third parties under the
transmission license.
On August 11, 1998, OFTEL determined that it had jurisdiction to make a
determination with respect to a complaint made by Classic FM and NTL in respect
of certain charges, imposed previously by the BBC under the Site-Sharing
Agreement with NTL for the use by Classic FM of BBC radio antennas and passed on
to Classic FM by NTL. OFTEL's position as of March 1999 is that the Site-Sharing
Agreement did not cover charges for new services to customers such as Classic
FM, thereby enabling OFTEL to intervene and determine the appropriate rate under
the "applicable rate" mechanism in Crown Castle UK Limited's transmission
license. This procedure could result in the fees NTL pays to Crown Castle UK
Limited for site sharing facilities for Classic FM, currently calculated under
the site-sharing agreement, being determined at a reduced rate and otherwise not
being covered by the terms of any existing contract which could lead to a
diminution of Crown Castle UK Limited's income of approximately (Pounds)300,000
per annum, or approximately 0.4% of revenues and 1.0% of EBITDA for the fiscal
year ended March 31, 1997. Crown Castle UK Limited has challenged OFTEL's right
to make a determination and on April 28, 1999, Crown Castle UK Limited was given
leave by the High Court to apply for a judicial review of that determination.
Meanwhile, Crown Castle UK Limited is also seeking to negotiate a settlement
with Classic FM and NTL and has made a provision of approximately (Pounds)2.9
million relating to any rate adjustment imposed by OFTEL with respect to
previous charges for Classic FM under the Site-Sharing Agreement.
Crown Castle UK Limited is discussing with OFTEL certain amendments to Crown
Castle UK Limited's Telecommunications Act Transmission License to ensure that
the price control condition accommodates the provision by Crown Castle UK
Limited of additional contractually agreed upon services to the BBC in return
for additional agreed upon payments. See "--Risk Factors--Extensive Regulations
Which Could Change at Any Time and Which We Could Fail to Comply With Regulate
Our Business."
The Secretary of State has designated the transmission license a public
telecommunications operator license in order to reserve to himself certain
emergency powers for the protection of national security. This designation is,
however, limited to this objective. Crown Castle UK Limited does not have a
full domestic
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public telecommunications license and does not require one for its current
activities. The Department of Trade and Industry has, nevertheless, indicated
that it would be willing to issue Crown Castle UK Limited such a license. As a
result, Crown Castle UK Limited would gain wider powers to provide services to
non-license holding third parties including public switched voice telephony and
satellite uplink and would grant Crown Castle UK Limited powers to build out its
network over public property (so-called "code powers").
General Telecom License. The general telecom license is a general license to
run telecommunications systems and authorizes Crown Castle UK Limited to run all
the necessary telecommunications systems to convey messages to its transmitter
sites (e.g., via leased circuits or using its own microwave links). The license
does not cover the provision of public switched telephony networks (which would
require a public telecommunications license as described above).
Satellite License. The satellite license is a license to run
telecommunications systems for the provision of satellite telecommunication
services and allows the conveyance via satellite of messages, including data and
radio broadcasting. The license excludes television broadcasting direct to the
home via satellite although distribution via satellite of television
broadcasting services which are to be transmitted terrestrially is permitted.
Licenses under the Wireless Telegraphy Acts 1949, 1968 and 1998
Crown Castle UK Limited has a number of licenses under the Wireless
Telegraphy Acts 1949, 1968 and 1998, authorizing the use of radio equipment for
the provision of certain services over allocated radio frequencies including:
(1) a broadcasting services license in relation to the transmission services
provided to the BBC, Virgin Radio and Talk Radio,
(2) a fixed point-to-point radio links license;
(3) two bandwidth test and development licenses, and
(4) digital terrestrial television test and development licenses.
All the existing licenses under the Wireless Telegraphy Acts 1949, 1968 and
1998 have to be renewed annually with the payment of a significant fee. The
BBC, Virgin Radio and Talk Radio have each contracted to pay their portion of
these fees. ONdigital is obligated under the ONdigital digital transmission
contract to pay most of their portion of these fees.
ENVIRONMENTAL MATTERS
Our operations are subject to foreign, federal, state and local laws and
regulations relating to the management, use, storage, disposal, emission, and
remediation of, and exposure to, hazardous and nonhazardous substances,
materials and wastes. As an owner and operator of real property, we are subject
to certain environmental laws that impose strict, joint and several liability
for the cleanup of on-site or off-site contamination relating to existing or
historical operations, and also could be subject to personal injury or property
damage claims relating to such contamination. We are potentially subject to
cleanup liabilities in both the United States and the United Kingdom and
environmental exposure will extend to Australia once we commence operations
there.
We are also subject to regulations and guidelines that impose a variety of
operational requirements relating to radio frequency emissions. The potential
connection between radio frequency emissions and certain negative health
effects, including some forms of cancer, has been the subject of substantial
study by the scientific community in recent years. To date, the results of
these studies have been inconclusive. Although we have not been subject to any
claims relating to radio frequency emissions, we have established operating
procedures designed to reduce employee exposures to radio frequency emissions
and are continually evaluating certain of our towers and transmission equipment
in the United States and the United Kingdom to determine whether radio frequency
emission reductions are economically possible and feasible.
22
In addition, we are subject to licensing, registration and related
requirements concerning tower siting, construction and operation. In the United
States, the FCC's decision to license a proposed tower may be subject to
environmental review pursuant to the National Environmental Policy Act of 1969,
which requires federal agencies to evaluate the environmental impacts of their
decisions under certain circumstances. The FCC regulations implementing the Act
place responsibility on each applicant to investigate any potential
environmental effects of a proposed operation and to disclose any significant
effects on the environment in an environmental assessment prior to commencing
construction. In the event the FCC determines that a proposed tower would have
a significant environmental impact, the FCC would be required to prepare an
environmental impact statement. This process could significantly delay or
prevent the registration or construction of a particular tower, or make tower
construction more costly. In certain jurisdictions, local laws or regulations
may impose similar requirements.
We believe that we are in substantial compliance with all applicable
environmental laws. Nevertheless, there can be no assurance that the costs of
compliance with existing or future environmental laws will not have a material
adverse effect on our business, results of operations, or financial condition.
RECENT AND AGREED TO TRANSACTIONS
We have recently completed or entered into agreements for the transactions
described below. Completion of these transactions has and will continue to
result in a significant increase in the size of our operations and the number of
towers that we own and manage plus our need for capital. The agreements
governing the transactions that have not yet been closed or that are closing
over a series of closings include a number of important conditions agreed to.
Therefore, we cannot guarantee that we will consummate any of the agreed to
transactions on the terms currently contemplated or at all. The descriptions of
the terms of these transactions set forth below are summaries and are qualified
in their entirety by reference to the complete text of the relevant agreements.
Bell Atlantic Joint Venture
On March 31, 1999, we completed the formation of a joint venture with Bell
Atlantic Mobile to own and operate approximately 1,458 towers. These towers
represent substantially all the towers in Bell Atlantic's wireless network in
the eastern and southwestern United States, including markets such as New York,
Philadelphia, Boston, Washington, D.C. and Phoenix. The joint venture will also
build and own the next 500 towers to be built for Bell Atlantic's wireless
communications business. In addition, upon completion of such 500 towers, the
Bell Atlantic joint venture will have a right of first refusal to construct the
next 200 towers for Bell Atlantic. Bell Atlantic leases antenna space on the
1,458 towers transferred to the joint venture and will lease antenna space on
the towers that the joint venture builds for Bell Atlantic.
BellSouth Transaction
On June 1, 1999, we entered into an agreement with BellSouth to control and
operate, through a sublease, approximately 1,850 towers. These towers represent
substantially all the towers in BellSouth's wireless network in the southeastern
and midwestern United States, including markets such as Miami, Atlanta, Tampa,
Nashville and Indianapolis. We will be responsible for managing and leasing the
available space on BellSouth's towers. We will have the right to build, control
and operate the next 500 towers to be built for BellSouth's wireless
communications business. BellSouth will pay a management fee for its retained
antenna space on the towers effectively equivalent to lease payments, as well
as on the towers we build for BellSouth. The BellSouth transaction will close in
a series of closings which commenced on June 1, 1999 and is expected to be
substantially completed by June 30, 2000. As of February 2, 2000, we had
subleased and acquired control of 1,664 of these towers.
Powertel Acquisition
In 1999, we completed the purchase of 620 towers from Powertel.
These towers represent substantially all of Powertel's owned towers in its
wireless network in the southeastern and midwestern United States, including
such markets as Atlanta, Birmingham, Jacksonville, Memphis and Louisville, and a
number of major connecting highway corridors in the southeast. These towers are
complementary to BellSouth's towers
23
in the southeast and have minimal coverage overlap. We subsequently acquired in
2000, 30 additional towers from Powertel which were incomplete at the time of
the initial closing. Powertel leases antenna space on the 650 towers we acquired
from them. We also have a build-to-suit agreement through 2000 as to a minimum
of 40 towers.
One2One Transaction
On March 31, 1999, Crown Castle UK Limited acquired the rights to manage,
develop and, at its option, acquire up to 821 towers. These towers represent
substantially all the towers in One2One's nationwide wireless network in the
United Kingdom. We are responsible for managing and leasing available space on
the towers and receive all the income from any such third party leases.
BellSouth DCS Transaction
On July 23, 1999, we entered into an agreement with BellSouth DCS to control
and operate, through a sublease, approximately 773 personal communications
towers from BellSouth DCS. The towers are located in North Carolina, South
Carolina, east Tennessee and parts of Georgia. The terms of the BellSouth DCS
transaction are substantially the same as the BellSouth transaction described
above. The towers are complementary to the towers we have acquired or are in the
process of acquiring through the BellSouth transaction, the Powertel acquisition
and the GTE Wireless joint venture. BellSouth DCS will effectively lease space
from us on the towers we acquire from them through a management arrangement and
fee. As of February 2, 2000, we had closed on 674 of these towers.
GE Capital Transaction
On November 19, 1999, GE Capital Structured Finance Group, or SFG, made a
$200,000,000 strategic investment in us in exchange for 200,000 shares of our 8
1/4% manditorily redeemable, convertible preferred stock and warrants to
purchase 1,000,000 shares of our common stock. The warrants have an exercise
price of $26.875 per share and are exercisable, in whole or in part, at any time
for a period of five years following the issue date. The net proceeds of this
investment will be used to pay a portion of the purchase price for the GTE
transaction described below.
One2One Northern Ireland Network
On December 29, 1999, Crown Castle UK Limited and One2One entered into an
agreement pursuant to which Crown Castle UK Limited will establish a turnkey
mobile network for One2One in Northern Ireland. The majority of the network is
expected to be completed by mid 2000. We will provide all cell planning,
acquisition, design, build, operation and maintenance services related to the
network. The agreement with One2One is for an initial term of eleven years. We
currently own and operate approximately 100 tower sites in Northern Ireland, and
we expect that One2One will be a tenant on substantially all of these sites as
part of the network.
GTE Transaction
On November 7, 1999 we entered into a formation agreement with GTE Wireless
Incorporated and certain affiliates of GTE Wireless to form a joint venture to
own and operate a significant majority of the wireless communications
towers of GTE Wireless. We will own up to an 88.65% equity interest in
the joint venture, and the day-to-day operations of the joint venture will be
managed by us.
The transaction will be completed in multiple closings, each of which is
subject to a number of conditions which could prevent it from occurring. At each
closing, in exchange for interests in the joint venture, GTE Wireless will
contribute to the joint venture towers and liabilities relating thereto, and we
will contribute consideration proportionate to the number of towers being
transferred. It is currently contemplated that up to 2,322 towers will be
transferred. If all such towers are transferred, we will be required to
contribute up to approximately $825.0 million (of which up to $100.0 million can
be in shares of our common stock valued at $18.655 per share) to the joint
venture. Of this amount, $25 million will be retained by the joint venture for
working capital, and the balance will be distributed to GTE Wireless. In
addition, the joint venture may borrow up to $200 million of indebtedness,
subject to certain limitations, which borrowing will reduce our contribution
requirement. The proceeds of any such borrowing will be distributed to GTE
Wireless. The initial closing took
24
place on January 31, 2000 at which time we contributed $223.9 million in cash to
the joint venture, and GTE Wireless contributed 637 towers in exchange for a
cash distribution of $198.9 million from the joint venture. We anticipate
closing with respect to approximately 1,600 additional towers effective as of
April 1, 2000. In connection with the transaction, we deposited $50 million into
an escrow account; such funds would be forfeited to GTE Wireless in the event
that any closing does not occur as a result of our inability to obtain adequate
financing. We contemplate that the April 1, 2000 closing will involve all cash
(including the $50 million in escrow) being contributed to the joint venture.
In connection with the formation of the joint venture, GTE Wireless and the
joint venture entered into a master build-to-suit agreement, pursuant to which,
subject to certain conditions, the next 500 towers to be built for GTE Wireless
will be constructed and owned by the joint venture. The 500 tower amount will
be reduced for certain towers built for third parties, including towers built
for Bell Atlantic in excess of 500 towers. In addition, the parties
entered into a global lease, under which GTE Wireless will lease space on
all of the towers acquired by the joint venture from GTE Wireless and all towers
constructed under the build-to-suit agreement. The average monthly rent
on the 2,322 towers contributed to the joint venture by GTE Wireless will be
approximately $1,400, subject to certain adjustments, including a 4% per year
increase for the initial 10-year period. For all sites, the initial lease term
is 10 years, with an option for four additional five-year terms at the election
of GTE Wireless.
Upon a dissolution of the joint venture we will receive all the assets and
liabilities of the joint venture, other than any shares of our common stock held
by the joint venture, which would be distributed to GTE Wireless. GTE Wireless
will transfer its equity interests in the joint venture to us, and we will pay
to GTE Wireless the fair market value of such interests. A dissolution may be
triggered (1) by GTE Wireless at any time following the third anniversary of the
formation of the joint venture and (2) by us at any time following the fourth
anniversary of its formation.
We also entered into a letter agreement dated November 7, 1999 with GTE
Wireless, whereby GTE Wireless has the right to contribute additional towers on
terms substantially similar to the formation agreement. These additional towers
may be (1) currently owned towers not contributed pursuant to the formation
agreement, (2) towers subsequently acquired in cellular or personal
communications services markets east of the Mississippi, or (3) towers acquired
by GTE Wireless recently from Ameritech Corp. Conversely, the joint venture
also has the right to require the Ameritech towers to be contributed by GTE
Wireless to the joint venture in a manner that is substantively identical to GTE
Wireless' right to contribute the Ameritech towers described above.
Consideration paid for these additional towers will be in the form of cash and
additional ownership interests for GTE Wireless in the joint venture. The
Ameritech towers are limited to 600 towers, and the towers which GTE Wireless
currently owns or subsequently acquires are limited to 100 towers in any twelve
month period. The rights with respect to the Ameritech towers must be exercised
no later than May 1. The letter agreement terminates, with respect to the
towers which GTE Wireless currently owns or subsequently acquires, 18 months
after the final closing under the formation agreement. All of these towers are
subject to the global lease.
Cable & Wireless Optus Transaction
On March 9, 2000, Crown Castle Australia entered into an agreement with Cable
& Wireless Optus. Pursuant to the agreement, Cable & Wireless Optus will sell to
Crown Castle Australia approximately 705 wireless communications towers located
in Australia for approximately $135 million (A$220 million) in cash. The
agreement also provides Crown Castle Australia with an exclusive right to
develop all future tower sites for Cable & Wireless Optus over the next six
years. In addition, Cable & Wireless Optus has entered into a tower access
agreement, under which Cable & Wireless Optus has agreed to lease space on the
705 towers for an initial term of 15 years. Crown Castle Australia is two-thirds
owned by us and one-third owned by an investment group lead by Fay, Richwhite
Communications Ltd., a New Zealand-based investment firm. The transaction is
expected to close in the second quarter of 2000. Following the completion of the
transaction, Crown Castle Australia will be the largest independent tower
operator in Australia.
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2000 Credit Facility
In March 2000, a subsidiary of ours entered into a credit agreement with a
syndicate of banks which consists of two term loan facilities and a revolving
line of credit aggregating $1.2 billion (the "2000 Credit Facility"). Available
borrowings under the 2000 Credit Facility are generally to be used for the
construction and purchase of towers and for the general corporate purposes of
certain of our subsidiaries along with the discharge of the then existing credit
facility of such subsidiaries. The amount of available borrowings will generally
be determined based upon the then current financial performance of the assets of
those subsidiaries. Up to $25 million of borrowing availability under the 2000
Credit Facility can be used for letters of credit. On March 15, 2000, we used
$83.4 million in borrowings under the 2000 Credit Facility to repay outstanding
borrowings and accrued interest under our senior credit facility to such
subsidiaries. Additional proceeds of approximately $317 million in borrowings
will be promptly used to fund a portion of the purchase price of the GTE
Wireless transaction and for general corporate purposes.
RISK FACTORS
You should carefully consider the risks described below, as well as the other
information contained in this document, when evaluating your investment in our
securities.
FAILURE TO PROPERLY MANAGE OUR GROWTH
If we are unable to successfully integrate acquired operations or to manage
our existing operations as we grow, our business will be adversely affected and
we may not be able to continue our current business strategy.
We cannot guarantee that we will be able to successfully integrate acquired
businesses and assets into our business or implement our plans without delay. If
we fail to do so it could have a material adverse effect on our financial
condition and results of operations. We have grown significantly over the past
two years through acquisitions, and such growth continues to be an important
part of our business plan. The addition of over 8,500 towers to our operations
through our recent and agreed to transactions has increased and will continue to
increase our current business considerably and adds operating complexities.
Successful integration of these transactions will depend primarily on our
ability to manage these combined operations and to integrate new management and
employees with and into our existing operations.
Implementation of our acquisition strategy may impose significant strains on
our management, operating systems and financial resources. We regularly
evaluate potential acquisition and joint venture opportunities and are currently
evaluating potential transactions that could involve substantial expenditures,
possibly in the near term. If we fail to manage our growth or encounter
unexpected difficulties during expansion, it could have a material adverse
effect on our financial condition and results of operations. The pursuit and
integration of acquisitions and joint venture opportunities will require
substantial attention from our senior management, which will limit the amount of
time they are able to devote to our existing operations.
WE MAY NOT COMPLETE THE AGREED TO TRANSACTIONS
If we fail to complete any or all of the agreed to transactions described in
this document, we may incur liquidated damages and will not recognize all of
the benefits of such transactions.
If one or more of the agreed to transactions we describe in this document is
not completed or is completed on significantly different terms than those
currently contemplated, it could substantially affect the implementation of our
business strategy. If we fail to close these transactions, our ability to offer
tower clusters in major U.S. markets will be impaired. As a result, our future
site rental revenue would be adversely affected. We cannot guarantee that we
will complete any or all of these agreed to transactions. The agreements
relating to these agreed to transactions contain many conditions that must be
satisfied before we can close such agreed to transactions.
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In addition, we cannot assure you that the transactions, if and when
completed, will be done so on the terms currently contemplated. For example,
each of the agreements relating to these agreed to transactions includes
provisions that could result in our purchasing fewer towers at closing.
Our initial transaction with GTE Wireless is closing in a series of closings.
If any closing does not occur as a result of our inability to obtain adequate
financing, GTE wireless may retain a $50.0 million liquidated damages payment
which we have deposited into escrow.
SUBSTANTIAL LEVEL OF INDEBTEDNESS
Our substantial level of indebtedness could adversely affect our ability to
react to changes in our business. We may also be limited in our ability to use
debt to fund future capital needs.
We have a substantial amount of indebtedness. The following chart sets forth
certain important credit information and is presented as of Dec