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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, 2000
Commission File Number 000-24737
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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) of
the Securities Exchange Act
of 1934 Name of Exchange on Which Registered
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Common Stock, $.01 par value The NASDAQ Stock Market's National Market
Rights to Purchase Series A The NASDAQ Stock Market's National Market
Participating
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 $3,263.9 million as of March 15, 2001 based
on the NASDAQ closing price of $17.00 per share.
Applicable Only to Corporate Registrants
As of March 15, 2001, there were 213,363,148 shares of Common Stock
outstanding and 0 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 "2001 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, 2000.
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CROWN CASTLE INTERNATIONAL CORP.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 30
Item 3. Legal Proceedings............................................. 31
Item 4. Submissions of Matters to a Vote of Security Holders.......... 31
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 31
Item 6. Selected Financial Data....................................... 32
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 34
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 50
Item 8. Financial Statements and Supplementary Data................... 51
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 87
PART III
Item 10. Directors and Executive Officers of the Registrant............ 87
Item 11. Executive Compensation........................................ 87
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 87
Item 13. Certain Relationships and Related Transactions................ 87
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.......................................................... 87
PRELIMINARY NOTE: This Annual Report on Form 10-K contains forward-looking
statements as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements should be read in conjunction with the cautionary
statements and other important factors included in this Form 10-K. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statement for Purposes of Forward-Looking Statements"
and "Item 1. Business--Risk Factors" for descriptions of important factors
which could cause actual results to differ materially from those contained in
the forward-looking statements.
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, 2000, we owned, leased or managed 12,918 towers and rooftops, including
9,872 sites in the United States and Puerto Rico, 2,330 sites in the United
Kingdom and 716 sites in Australia. Our customers currently include many of
the world's major wireless communications and broadcast companies, including
Verizon, Cingular, Nextel, Sprint PCS, AT&T Wireless, Cable & Wireless Optus,
Vodafone, BT Cellnet, One 2 One, Hutchison 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 wireless technologies including broadband data, or
"3G" technology.
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, 2000, 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, which is conducted through our
subsidiary Crown Castle UK Holdings Limited, or "CCUK", is the operation of
television and radio broadcast transmission networks and the leasing of
antenna space to wireless carriers. Following our 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, as well as on various towers
that we acquired from wireless carriers or that we have constructed. We have
nationwide broadcast and wireless coverage in the United Kingdom.
In November 2000, CCUK entered into an agreement with British
Telecommunications plc, or "British Telecom", to lease space on as many as
4,000 British Telecom exchange sites throughout the United Kingdom. We expect
to invest approximately $325 million over the next two years developing the
British Telecom site portfolio for the deployment of 3G wireless services. See
"Business--Recent and Agreed to Transactions--British Telecom Agreement".
1
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited, or "Hutchison", whereby Hutchison will lease space on a minimum of
4,000 CCUK sites throughout the United Kingdom. See "Business--Recent and
Agreed to Transactions--Hutchison 3G UK Limited Agreement". In addition, in
February 2001, CCUK signed an initial agreement with its existing customer BT
Cellnet pursuant to which BT Cellnet will lease additional space on CCUK sites
throughout the United Kingdom with a minimum take up of 1,500 additional sites
by the end of 2003. See "Business--Recent and Agreed to Transactions--BT
Cellnet Agreement".
Our primary business in Australia, which is conducted through Crown Castle
Australia Pty Limited, or "CCAL", is the leasing of antenna space to wireless
carriers. We currently operate 716 towers in Australia that we purchased from
Cable & Wireless Optus during 2000. Further, in December 2000, CCAL entered
into a definitive agreement to purchase approximately 670 wireless
communications towers from Vodafone Australia for approximately $130 million
(Australian $240 million). The transaction is expected to close during 2001.
Giving effect to this transaction, CCAL will operate approximately 1,380
towers in Australia with a strategic presence in all of Australia's licensed
regions including Sydney, Melbourne, Brisbane, Adelaide and Perth. CCAL is
owned 66.7% by us and 33.3% by Permanent Nominees (Aust) Ltd on behalf of a
group of professional and institutional investors lead by Jump Capital
Limited. See "Business--Recent and Agreed to Transactions--Vodafone
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 Verizon, Cingular, Powertel, Nextel,
Sprint PCS and AT&T Wireless. In the United Kingdom our major customers
include the BBC, BT Cellnet, NTL, ONdigital, One 2 One, Orange, Virgin Radio
and Hutchison. Our principal customers in Australia are Cable & Wireless
Optus, Vodafone Australia, OneTel and Hutchison Australia.
We are continuing our ongoing construction program to enhance our tower
portfolios. In 2000, we constructed 1,178 towers. In 2001, we plan to
construct approximately 1,500 towers, at an estimated aggregate cost of
approximately $330 million, for lease to wireless carriers such as Verizon,
Cingular, Nextel, Hutchison and BT Cellnet. The actual number of towers built
may vary 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 increased
utilization of that tower capacity can be achieved at low incremental
cost. We believe there is substantial demand for such capacity both
from existing carriers and broadcasters and from new carriers and
broadcasters. We also 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.
2
. Utilize the Expertise of our U.S., U.K. and Australian Personnel to
Capture Global Growth Opportunities. We are seeking to leverage the
skills of our personnel in the United States, the United Kingdom and
Australia. 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, One 2 One, Verizon Communications,
BellSouth, Powertel and Cable & Wireless Optus and our agreement to
acquire and operate the tower network of Vodafone 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.
. Partner with Wireless Carriers to Assume Ownership of their Existing
Towers. In addition to our two joint ventures with Verizon
Communications (via its indirect subsidiaries Bell Atlantic Mobile,
Inc. and GTE Wireless, Inc.) and the BellSouth and BellSouth DCS
transactions, we continue to seek partnership opportunities with other
major wireless carriers to assume ownership of their existing towers
directly or through joint ventures or to 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 exist globally as
the wireless communications industry further expands, as evidenced by
our acquisition and operation of the tower networks of Cable & Wireless
Optus and Vodafone Australia in Australia and the turnkey deployment of
One 2 One's wireless network in Northern Ireland.
. Build New Towers for Wireless Carriers. As wireless carriers continue
to expand and fill in their service areas and to 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, CCUK
successfully acquired the privatized U.K. broadcast transmission
network of the BBC. In addition, we have implemented 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 acquiror 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.
The Company
We operate our business through our subsidiaries. Crown Castle Operating
Company and its wholly owned subsidiaries, together with our two joint
ventures with Verizon Communications are our principal U.S. operating
subsidiaries. CCUK is our principal U.K. operating subsidiary, and CCAL, which
is owned 66.7% by us and 33.3% by Permanent Nominees (Aust) Ltd on behalf of a
group of professional and institutional investors lead by Jump Capital
Limited, is our principal Australian operating subsidiary. 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.
3
U.S. Operations
Overview
Our primary business 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 Verizon, Cingular,
Powertel, Nextel, Sprint PCS, AT&T Wireless, Motorola and Skytel. We also
provide tower space to private network operators and various federal and local
government agencies, such as the FBI, the IRS, the DEA and the U.S. Postal
Service.
At December 31, 2000, we owned or managed 9,872 sites, including 107
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. A substantial number of our towers were
acquired through transactions consummated within the past two years.
Through the Powertel acquisition, which closed in June 1999, we control and
operate 672 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 and can accommodate multiple tenants.
Through the BellSouth and BellSouth DCS transactions, which were
substantially completed in September 2000, we control and operate 2,703
towers. These towers represent (1) substantially all of the towers in
BellSouth's 850 MHZ wireless network in the southeastern and midwestern United
States providing coverage of 12 of the top 50 U.S. metropolitan areas,
including Miami, Atlanta, Tampa, Nashville and Indianapolis and (2)
substantially all of the towers in BellSouth DCS's 1.9 GHz wireless network in
North Carolina, South Carolina, east Tennessee and parts of Georgia. A
substantial majority of these towers are over 100 feet tall and can
accommodate multiple tenants.
Our joint venture with Bell Atlantic Mobile (an indirect subsidiary of
Verizon Communications) controlled and operated 1,921 towers as of December
31, 2000. Through our joint venture with GTE Wireless (also an indirect
subsidiary of Verizon Communications), we now control and operate 2,843
towers, including 497 towers which had been acquired by GTE Wireless from
Ameritech Corp. These towers represent substantially all the towers now used
in the 850 MHz wireless network of Verizon Communications' wireless business
in the eastern, midwestern and southwestern United States and provide coverage
of 22 of the top 50 U.S. metropolitan areas, including New York, Chicago,
Houston, Washington, D.C., Philadelphia, Boston, and Phoenix. A substantial
majority of these towers are over 100 feet tall and can accommodate multiple
tenants. We currently own 56.87% of the joint venture with Bell Atlantic
Mobile, and Bell Atlantic Mobile owns the remaining 43.13%. We currently own
81.98% of the joint venture with GTE Wireless, and GTE Wireless owns the
remaining 18.02%. GTE Wireless has the right to contribute certain additional
towers to the joint venture on terms substantially similar to the formation
agreement, including (1) currently owned towers not contributed pursuant to
the formation agreement or (2) towers subsequently acquired in cellular or PCS
markets east of the Mississippi.
Each of the joint ventures with Verizon Communications entered into master
build-to-suit agreements under which each joint venture will build and own up
to 500 additional towers to be built for the wireless
4
communications business of Verizon Communications, which does business as
Verizon Wireless, over a five-year period. In addition, following the building
of such 500 sites, the Bell Atlantic Mobile joint venture will have a right of
first refusal to construct up to the next 200 towers to be built for Verizon
Wireless. The number of towers built under the GTE Wireless build-to-suit
agreement is reduced by the number of certain towers built under the build-to-
suit agreement with the Bell Atlantic Mobile joint venture and certain other
tower builds. 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 five
year period following the initial closing of that transaction. As of March 1,
2001, we had built approximately 70, 273 and 113 towers under each of the
build-to-suit agreements with the GTE Wireless joint venture, the Bell
Atlantic Mobile joint venture and BellSouth, respectively.
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 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.
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 ten years, with multiple renewal options, each
typically ranging from five to ten years.
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, Cingular, Verizon, Nextel 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.
5
We have significant site rental opportunities in connection with our larger
tower acquisition 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. For
example, in connection with each of the joint ventures with Verizon
Communications, we entered into a master lease agreement under which its
domestic wireless businesses lease antenna space on the towers transferred to
the joint ventures, as well as the towers built under the build-to-suit
agreements. Also, 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.
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.
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
2000, we provided network design services primarily for our own portfolios and
also for certain customers, including Verizon, AT&T Wireless, Sprint PCS and
Nextel. These customers were typically charged on a time-and-materials basis.
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 purchases or leases 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
Verizon, Cingular, AT&T Wireless, Sprint PCS and Nextel. 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 19 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 also for 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
6
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.
Our construction management capabilities reflect our extensive experience
in the construction of networks and towers. For example, we were instrumental
in launching networks for Sprint PCS, Nextel and Aerial Communications in the
Pittsburgh metropolitan area. In addition, we supplied these carriers with all
of their project management and engineering services, which included antenna
design and interference analyses.
In 2000, we provided site development and construction or antenna
installation services to a majority of our new tower site tenants in the
United States, including Verizon, Cingular, AT&T Wireless, Sprint PCS and
Nextel.
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 significant contracts with, among others,
Verizon, Cingular, and Powertel.
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 Verizon,
Cingular, AT&T Wireless, Sprint PCS and Nextel. For the year ended December
31, 2000, Verizon Communications and its subsidiaries (after taking into
account the merger of GTE and Bell Atlantic Corporation) accounted for 15.3%
of our consolidated revenues. No other single customer in the United States
accounted for more than 10.0% of our consolidated revenues.
Industry Representative Customers
-------- ------------------------
Cellular/Personal AT&T Wireless, Verizon, Sprint PCS, Cingular,
Communications Services....... Powertel
Broadcasting................... Hearst Argyle Television, Trinity Broadcasting
Specialized Mobile
Radio/Enhanced Specialized
Mobile Radio.................. Nextel
Governmental Agencies.......... Puerto Rico Police, INS, Coast Guard, FBI,U.S.
Postal Service, FAA, DEA, IRS
Private Industrial Users....... Federal Express, Laidlaw Transit, BFI
Data........................... Cingular, Itron, Ardis
Paging......................... PageNet, Motorola, Arch Communications
Utilities...................... Peco Energy Corporation, Nevada Power, Entex
Other.......................... Teligent, XM Satellite Radio
Sales and Marketing
The Company's marketing department maintains our profile within the
industry through regular advertising, public relations, trade shows, press
releases, newsletters, targeted mailings, and our award-winning website at
www.crowncastle.com. We use numerous public and proprietary databases to
develop targeted marketing programs focused on regional network build-outs,
new sites and services. Information about existing sites, demographics,
licenses and deployment status, and actual signal strength measurements taken
in the field are combined to predict the service area of a particular radio
signal from any given transmission point. This allows our sales and marketing
personnel to target specific carriers with specific sites.
7
A team of national account managers maintains and enhances our close
relationships with our largest customers. These managers work to develop new
tower construction, site leasing services and site management opportunities,
as well as to ensure that customers' emerging needs are translated into new
products and services. This group also manages major sales opportunities,
including turnkey network deployments, broadcast networks, and backhaul
transmission services.
Sales personnel in our regional offices develop and maintain close local
relationships with carriers that are expanding their networks, entering new
markets, bringing new technologies to market or 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, 911, government agencies, and utility and transportation companies. Our
objective is to pre-sell capacity on our new towers prior to construction and
to lease space on existing towers. We seek to maintain good public and
community relations at a local level through efforts including community
events, sponsorships and charitable work.
In addition to our full-time sales and marketing staff, a number of senior
managers spend a significant portion of their time 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, are
called on to testify at local hearings and are asked to draft local zoning
ordinances.
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., SpectraSite, Pinnacle
Towers, and SBA Communications.
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, 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 a combination 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.
8
U.K. Operations
Overview
We own and operate, through CCUK, 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
multiplexes in the U.K., two BBC analog television services, six national BBC
radio services (including the first digital audio broadcast service in the
United Kingdom), 44 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 National Transcommunications Limited, or NTL, our
principal broadcast competitor in the United Kingdom. We have also secured
long-term contracts to provide digital television transmission services to the
BBC and ONdigital. See "Business--U.K. Operations--Significant Contracts". In
December 1999, we entered into a contract to develop a new wireless carrier
network service for One 2 One in Northern Ireland. In addition to providing
transmission services, we also lease antenna space on our transmission
infrastructure and on our over 1,500 communications towers in the United
Kingdom to various communications service providers, including One 2 One, BT
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. CCUK's transmission business, which was formerly owned
by the BBC, was privatized under the Broadcasting Act 1996 and sold to CCUK in
February 1997. At the time the BBC home service transmission business was
acquired, CCUK 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. For the 12 months ended December 31, 2000,
approximately 44.2% of CCUK's consolidated revenues were derived from the
provision of services to the BBC.
At December 31, 2000, we owned or managed 2,330 sites, including 51 rooftop
sites, in the United Kingdom. The 51 revenue producing rooftop sites are
occupied by CCUK-owned transmitters from which we provide services to our
broadcast network contract customers, but these sites are not otherwise
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 BT Cellnet,
Dolphin, Vodafone, Energis, Highway One, One 2 One, Orange and Scottish
Telecom, thereby securing an anchor tenant for a site before incurring capital
expenditures for the site build-out.
On March 31, 1999, CCUK completed the One 2 One transaction, under which
CCUK acquired 821 towers. These towers represent substantially all the towers
in One 2 One's nationwide 900 MHZ wireless network in the United Kingdom. In
addition, pursuant to a build to suit agreement with One 2 One, we have added
an additional 482 towers to our CCUK portfolio. These towers form part of
CCUK's nationwide network of towers to be marketed to 3G wireless carriers in
the United Kingdom. See "Business--U.K. Operations--Significant Contracts--One
2 One Northern Ireland Network".
9
In November 2000, CCUK entered into an agreement with British Telecom to
lease space on as many as 4,000 British Telecom exchange sites throughout the
United Kingdom. We expect to invest approximately $325 million over the next
two years developing the British Telecom site portfolio for the deployment of
3G wireless services. We intend to integrate the new sites into our existing
portfolio of sites in the U.K. to provide a network that will offer operators
immediate coverage of large population areas. Together with British Telecom,
we will also make available our technical expertise to help operators plan,
construct, operate and maintain their wireless networks. See "Business--Recent
and Agreed to Transactions--British Telecom Agreement".
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited whereby Hutchison will lease space on a minimum of 4,000 CCUK sites
throughout the United Kingdom. See "Business--Recent and Agreed to
Transactions--Hutchison 3G UK Limited Agreement". In addition, in February
2001, CCUK signed an initial agreement with its existing customer BT Cellnet
pursuant to which BT Cellnet will lease additional space on CCUK sites
throughout the United Kingdom, with a minimum take up of 1,500 sites by the
end of 2003. See "Business--Recent and Agreed to Transactions--BT Cellnet
Agreement".
Transmission Business
Analog. For the 12 months ended December 31, 2000, CCUK generated
approximately 36.3% 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 "Business--U.K.
Operations--Significant Contracts". For the 12 months ended December 31, 2000,
the BBC Analog Transmission Contract generated revenues of approximately
(Pounds)52.1 million ($79.0 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 expiring March 31, 2001; extension terms are currently
being negotiated with Virgin Radio. 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
U.K. radio and television programs, whether located on one of CCUK's sites or
on an NTL or other third-party site. As of December 31, 2000, CCUK had 3,787
transmitters, of which 2,507 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
Population
Number of Sites (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 227 of the sites are protected by security
alarms connected to CCUK'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.
10
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 should not
result in 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 completed the rollout of the 80 station network
required under our contracts with the holders (including the BBC) of four of
the six licenses issued in the U.K. for digital terrestrial television
services (DTT). We are required as part of our DTT contracts to provide new
transmission and distribution infrastructure networks and multiplex equipment
for our DTT customers, including site upgrades, new transmitters and
associated systems. Of these sites, 49 are owned by us, and the remainder are
on NTL towers pursuant to a site sharing arrangement. Our costs to add new
transmitters and associated systems was approximately (Pounds)100.0 million
($150 million).
We successfully began commercial operation of the digital terrestrial
television networks from an initial 22 transmission sites on November 15,
1998. We completed the 80 transmission site upgrade in January 2000. This
launch and the subsequent upgrade marked the first stage of the project to
introduce the digital broadcast system that will eventually replace
conventional analog television services in the United Kingdom. Initially, in
January 2000, these first 80 sites achieved a national U.K. population
coverage (in accordance with the revised definition of "coverage" by the
Independent Television Commission) of 56% of the U.K. population where service
from all six multiplexes overlap, with an 81% coverage of the U.K. population
for the best individual multiplex We have accepted an invitation from the U.K.
television regulator, the Independent Television Commission, to play a role in
planning further digital terrestrial television network extensions. In
addition, as of December 31, 2000, the overlapping coverage for all six
multiplexes was improved from 56% to 61% of the national population as result
of frequency equalization projects which we initiated and consummated in
consultation with our customers and U.K. government regulators; as a result of
these projects, our digital contract revenues have increased by approximately
(Pounds)700,000 ($1.047 million) per year.
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 national digital radio service, 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 providing 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, and on July 14, 2000 we
were awarded a 12 year contract with Switchdigital (London) Limited to provide
their London local digital radio network service.
Site Rental
The BBC transmission network provides a valuable initial portfolio for the
creation of wireless communications networks. As of December 31, 2000,
approximately 245 companies rented antenna space on approximately 2,090 of
CCUK's 2,330 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 ratecards 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.
These agreements generated approximately (Pounds)10.9 million ($16.5 million)
of site rental revenue for the year ended December 31, 2000.
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, CCUK's largest (by revenue) site rental customers consist
mainly of wireless carriers such as BT Cellnet, One 2 One, Orange and
Vodafone. Revenues from these non-BBC sources are becoming an
11
increasing portion of CCUK's total U.K. revenue base, as the acquired BBC home
service transmission business is no longer constrained by governmental
restrictions on the 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 3G mobile communications, in the
United Kingdom, as demonstrated by our recent multi-site rental commitment
contracts with Hutchison and BT Cellnet.
We have master lease agreements with all of the major U.K.
telecommunications site users, including British Telecom, Cable & Wireless
Communications, BT Cellnet, Dolphin, Energis, Highway One, One 2 One, 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, 2000, there were approximately 866
applications in process for installations at existing sites under such
agreements.
Network Services
CCUK 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 that
business. 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, CCUK has worked with several
telecommunications operators on design and build projects as they rollout
their networks. 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.
In December 1999, CCUK and One 2 One entered into an agreement under which
CCUK will establish a turnkey mobile network for One 2 One in Northern
Ireland. The majority of the network is expected to be completed by the end of
2001. CCUK will provide all cell planning, acquisition, design, build,
operation and maintenance services related to the network. The agreement with
One 2 One is for an initial term of 11 years. We currently own and operate
approximately 130 tower sites in Northern Ireland, and we expect that One 2
One will be a tenant on substantially all of these sites as part of the
network.
In June 2000, CCUK was awarded a contract for the first phase of a three-
phase network rollout of Europe's first planned 3G network on the Isle of Man.
The network is being built by NEC and Siemens for Manx Telecom, a wholly-owned
subsidiary of British Telecom. CCUK's role is to provide turnkey project
management, installation and commissioning of the 3G radio access network,
including site planning, design and build. In March 2001, CCUK was awarded a
further contract with Manx Telecom for the second and third phases, with
additional responsibility for radio frequency planning as well as site
planning, design, build and installation. The network will contain
approximately 30 sites and service is expected to be launched in July 2001.
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,
12
ensuring an efficient and simple construction phase. Selected civil
contractors are managed by CCUK 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.
Significant Contracts
CCUK's principal analog broadcast transmission contract is the BBC analog
transmission contract. CCUK 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,
CCUK also gives NTL access to facilities to provide broadcast transmission to
non-CCUK customers. CCUK also has long-term service agreements with broadcast
customers such as Virgin Radio, Talk Radio and Switchdigital. In addition,
CCUK has several agreements with telecommunication providers, including
leases, site management contracts and independent contractor agreements. The
recently announced agreements with Hutchison and BT Cellnet contain additional
lease commitments for a minimum of 5,500 CCUK sites. CCUK has also entered
into contracts to design and build infrastructure for customers such as BT
Cellnet, One 2 One, Orange, Scottish Telecom and Vodafone AirTouch, including
the turnkey network contract for One 2 One in Northern Ireland.
BBC Analog Transmission Contract. CCUK 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 ($69.5 million) to be payable by the BBC to CCUK 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 ($448,650) 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 ($748,000) annually to the payments made by the BBC
to us. On July 16, 1999, the BBC and CCUK amended the transmission contract to
allow CCUK to provide certain liaison services to the BBC.
The BBC analog transmission contract also provides for CCUK 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
CCUK 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. CCUK is subject to periodic performance reviews and to date has 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:
. by mutual agreement between CCUK and the BBC,
. by one party upon the bankruptcy or insolvency of the other party
within the meaning of section 123 of the Insolvency Act 1986,
. 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),
. by the non-defaulting party upon a material breach by the other party,
and
. upon the occurrence of certain change of control events (as defined in
the BBC Analog Transmission Contract).
13
BBC Commitment Agreement. On February 28, 1997, in connection with the
acquisition of the BBC home service transmission business, the BBC, the
Company, TdF and its parent company entered into a commitment agreement,
whereby we and TdF agreed to maintain various minimum ownership interests in
CCUK for periods ranging from three to five years commencing February 28,
1997.
In July 1998, the BBC consented to the reduction of TdF's ownership
interest in CCUK to 20%. In addition, on July 5, 2000, with the BBC's consent,
TdF divested its remaining interest in CCUK and relinquished all of its
governance rights in CCUK, as a result of recommendations by the Department of
Trade and Industry in the United Kingdom 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
undertake to dispose of its shareholding in CCUK and the Company.
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 ($29.9 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.
Additional revenues are also being paid in relation to multiplex frequency
equalization projects initiated by CCUK in 2000.
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 ($15.7 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. Additional
revenues are also being paid in relation to multiplex frequency equalization
projects initiated by CCUK in 2000.
BT Digital Distribution Contract. Under the BBC digital transmission
contract and the ONdigital digital transmission contract, in addition to
providing digital terrestrial transmission services, CCUK has agreed to
provide for the distribution of the BBC's and ONdigital's broadcast signals
from their respective television studios to CCUK's transmission network.
Consequently, in May 1998, CCUK 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 for
television and radio services and to enable viewers to receive all analog UHF
television services using one receiving antenna, the BBC, as the predecessor
to CCUK, and NTL made arrangements to share certain broadcast 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 other's 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
14
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 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 on December 31, 2005 or on any tenth anniversary of that date. As no
notice was served in 2000, the next termination date is December 31, 2015. It
may also be terminated:
. following a material breach by either party that, if remediable, is not
remedied within 30 days of notice of such breach by the non-breaching
party,
. on the bankruptcy or insolvency of either party, and
. if either party ceases to carry on a broadcast transmission business or
function.
Similar site sharing arrangements have been entered into between NTL and us
for the build-out of digital transmission sites and equipment, including a
supplementary ratecard related to site sharing fees for new digital facilities
and revised operating and maintenance procedures related to digital equipment.
One 2 One Northern Ireland Network. On December 29, 1999, CCUK and One 2
One entered into an agreement under which CCUK will establish a turnkey mobile
network for One 2 One in Northern Ireland. The majority of the network is
expected to be completed by the end of 2001. CCUK will provide all cell
planning, acquisition, design, build, operation and maintenance services
related to the network. The agreement with One 2 One is for an initial term of
11 years. We currently own and operate approximately 130 tower sites in
Northern Ireland, and we expect that One 2 One will be a tenant on
substantially all of these sites as part of the network.
British Telecom Agreement. In November 2000, CCUK entered into an agreement
with British Telecom to lease space on as many as 4,000 British Telecom
exchange sites throughout the United Kingdom. We expect to invest
approximately $325 million over the next two years developing the British
Telecom site portfolio for the deployment of 3G wireless services. We intend
to integrate the new sites into our existing portfolio of sites in the United
Kingdom to provide a network that will offer operators immediate coverage of
large population areas. Together with British Telecom, we will also make
available our technical expertise to help operators plan, construct, operate
and maintain their wireless networks. See "Business--Recent and Agreed to
Transactions--British Telecom Agreement".
Hutchison Agreement. In February 2001, CCUK signed a definitive agreement
with Hutchison 3G UK Limited whereby Hutchison will lease space on a minimum
of 4,000 CCUK sites (a minimum take up of 1,000 sites per year for each of
2001 through 2004) throughout the United Kingdom. See "Business--Recent and
Agreed to Transactions--Hutchison 3G UK Limited Agreement".
BT Cellnet Agreement. In February 2001, CCUK signed an initial agreement
with its existing customer BT Cellnet pursuant to which BT Cellnet will lease
additional space on CCUK sites throughout the United Kingdom, with a minimum
take up of 1,500 additional sites by the end of 2003. See "Business--Recent
and Agreed to Transactions--BT Cellnet Agreement".
Third Generation Technology
During April 2000, the United Kingdom auctioned five licenses relating to
3G mobile communications, with the license with the largest amount of spectrum
being reserved for an insurgent carrier. Vodafone, British Telecom (via BT3G
Limited), One 2 One, Orange and Hutchison 3G UK Limited (via TIW UMTS UK Ltd.)
were the successful bidders on these license auctions.
In anticipation of the deployment of 3G services in the United Kingdom,
CCUK has prepared models for the rollout 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 the site
15
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.
In June 2000, CCUK was awarded a contract for the first phase of a three-
phase network rollout of Europe's first planned 3G network on the Isle of Man.
The network is being built by NEC and Siemens for Manx Telecom, a wholly-owned
subsidiary of British Telecom. CCUK's role is to provide turnkey project
management, installation and commissioning of the 3G radio access network,
including site planning, design and build. In March 2001, CCUK was awarded a
further contract with Manx Telecom for the second and third phases, with
additional responsibility for radio frequency planning as well as site
planning, design, build and installation. The network will contain
approximately 30 sites, and service is expected to be launched in July 2001.
In November 2000, CCUK entered into an agreement with British Telecom to
lease space on as many as 4,000 British Telecom exchange sites throughout the
United Kingdom. We expect to invest approximately $325 million over the next
two years developing the British Telecom site portfolio for the deployment of
3G wireless services. We intend to integrate the new sites into our existing
portfolio of sites in the U.K. to provide a network that will offer operators
immediate coverage of large population areas. Together with British Telecom,
we will also make available our technical expertise to help operators plan,
construct, operate and maintain their wireless networks. See "Business--Recent
and Agreed to Transactions--British Telecom Agreement".
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited whereby Hutchison will lease space on a minimum of 4,000 CCUK sites (a
minimum take up of 1,000 sites per year for each of 2001 through 2004)
throughout the United Kingdom. Hutchison has announced plans to use the space
on such sites to deploy its 3G wireless network in the United Kingdom. See
"Business--Recent and Agreed to Transactions--Hutchison 3G UK Limited
Agreement".
In addition, in February 2001, CCUK signed an initial agreement with its
existing customer BT Cellnet pursuant to which BT Cellnet will lease
additional space on CCUK sites throughout the United Kingdom, with a minimum
take up of 1,500 additional sites by the end of 2003. The sites are expected
to be used in connection with BT Cellnet's 3G rollout over the next three
years. See "Business--Recent and Agreed to Transactions--BT Cellnet
Agreement".
Customers
For the 12 months ended December 31, 2000, the BBC accounted for
approximately 44.2% of CCUK's consolidated revenues. This percentage has
decreased from 58.9% and 50.4% for the 12 months ended December 31, 1998 and
December 31, 1999, respectively, and is expected to continue to decline as
CCUK continues to expand its site rental business. CCUK provides all four U.K.
personal communications network/cellular operators (BT Cellnet, One 2 One,
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 CCUK's leading
site rental customers by industry segment.
Industry Representative Customers
-------- ------------------------
Broadcasting................. BBC, NTL, Virgin Radio, Talk Radio, XFM,
Ondigital, Switchdigital
PMR/TETRA.................... National Band 3, Dolphin
Personal Communications Orange, One 2 One
Network.....................
Data......................... RAM Mobile Data, Cognito
Paging....................... Hutchinson, Page One
Governmental Agencies........ Ministry of Defense
Cellular..................... Vodafone AirTouch, BT Cellnet, Hutchison
Public Telecommunications.... British Telecom, Cable & Wireless Communications
Utilities.................... Welsh Water, Southern Electric
16
Sales and Marketing
We have about 43 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 CCUK'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 television networks, a number of local
analog commercial radio stations and Digital One national radio. NTL has also
been awarded the transmission contract for two of the six digital terrestrial
television multiplexes. CCUK has been awarded service contracts for the other
four multiplexes. Since its creation in 1991, NTL has diversified from its
core television and radio broadcasting business to enter into the cable and
telecommunications sectors.
Although CCUK 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 CCUK, NTL offers a full
range of site-related services to its customers, including installation and
maintenance.
Four U.K. mobile operators own site infrastructure and lease space to other
users. Their openness to sharing with direct competitors varies by operator.
BT 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 BT
Cellnet.
CCUK faces competition from a large number of companies in the provision of
network services. The companies include NTL, SpectraSite, specialty
consultants and equipment manufacturers such as Nortel and Ericsson.
Australia Operations
Our primary business in Australia is the leasing of antenna space to
wireless carriers. CCAL, a joint venture which is owned 66.7% by us and 33.3%
by Permanent Nominees (Aust) Ltd, acting on behalf of a group of professional
and institutional investors lead by Jump Capital Limited, is our principal
Australian operating subsidiary.
CCAL is the largest independent tower operator in Australia with a
nationwide tower portfolio covering over 90 percent of the population in
Australia. CCAL currently operates 716 towers in Australia that we purchased
from Cable & Wireless Optus during 2000 for approximately $135 million
(Australia $220 million) in cash. Cable & Wireless Optus has agreed to lease
space on each of these towers for an initial term of 15 years. Our agreement
with Cable & Wireless Optus also provides us with an exclusive right to
develop all future tower sites for Cable & Wireless Optus in Australia through
April 2006.
In December 2000, Crown Castle Australia entered into a definitive
agreement to purchase approximately 670 wireless communications towers from
Vodafone Australia for approximately $130 million (Australian $240 million).
The transaction is expected to close during 2001 and includes an exclusive
arrangement whereby CCAL
17
will have the option to acquire from Vodafone Australia up to 600 additional
towers that Vodafone Australia constructs over the next six years. Giving
effect to this transaction, CCAL will operate 1,380 towers in Australia with a
strategic presence in all of Australia's licensed regions including Sydney,
Melbourne, Brisbane, Adelaide and Perth. We will fund 66.7% of the purchase
price of the Vodafone Australia towers and anticipate that the Jump Capital
group will fund the remaining 33.3%. Any of the remaining 33.3% not funded by
the Jump Capital group will be funded by us.
Employees
At December 31, 2000, we employed approximately 2,100 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 CCUK'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
the registration of tower facilities and the issuance of determinations of no
hazard. Wireless communications devices operating on towers are separately
regulated and independently licensed based upon the particular frequency used.
In addition, the FCC and the FAA have developed standards to consider
proposals for new or modified antenna structures based upon the height and
location, including proximity to airports, of proposed antenna structures.
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, which determination may be conditioned upon compliance
with lighting and marking requirements. The FCC will not license the operation
of communications devices on towers unless the tower complies with the FAA
rules and is registered with the FCC, if necessary. 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.
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.
Other Regulations
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
18
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.
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. CCUK has a number of such
licenses under which it runs the telecommunications distribution and
transmission systems which are necessary for the provision of its transmission
services.
Licenses under the Telecommunications Act 1984
CCUK 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 CCUK's
principal license. Its main provisions include:
. 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
CCUK 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.
. A change of control provision which requires notification of
acquisitions of interest in CCUK 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.
. A site sharing requirement requiring CCUK 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.
. A fair trading provision enabling OFTEL to act against anti-competitive
behavior by the licensee.
. A prohibition on undue preference or discrimination in the provision of
the services it is required to provide third parties under the
transmission license.
A complaint made by Classic FM and NTL in respect of certain charges,
imposed previously by the BBC under the Site Sharing Agreement for NTL's use
of BBC radio antennas for its Classic FM customer, was the subject of judicial
review proceedings to ascertain the right of OFTEL to intervene and determine
the appropriate rate under the "applicable rate" mechanism in CCUK's
transmission license. CCUK was the applicant in those proceedings. Financial
provision was made in CCUK's accounts in respect of the proceedings and the
dispute in general. On June 22, 2000 the matter was settled prior to any
judicial review taking place. Settlement was by written agreement, and the
proceedings were abandoned. The settlement was made within the financial
provision made in CCUK's accounts in respect of the settlement.
CCUK is discussing with OFTEL certain amendments to CCUK's
Telecommunications Act Transmission License to ensure that the price control
condition accommodates the provision by CCUK of additional contractually
agreed upon services to the BBC in return for additional agreed upon payments.
See "Business--Risk Factors--Extensive Regulations Which Could Change at Any
Time and Which We Could Fail to Comply With Regulate Our Business".
19
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. CCUK does not have a full U.K. 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 CCUK such a license. As a result, CCUK would
gain wider powers to provide services to non-license holding third parties
including public switched voice telephony and satellite uplink and would grant
CCUK 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 CCUK 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
CCUK 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:
. a broadcasting services license in relation to the transmission
services provided to the BBC, Virgin Radio and Talk Radio,
. a fixed point-to-point radio links license,
. two bandwidth test and development licenses, and
. 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.
Australia
Federal Regulation
Carrier licenses and nominated carrier declarations issued under the
Federal Telecommunications Act 1997 authorize the use of network units for the
supply of telecommunications services to the public. The definition of
"network units" includes line links and base stations used for wireless
telephony services but does not include tower infrastructure. Accordingly,
CCAL as a tower owner and operator does not require a carrier license.
Similarly, because CCAL does not own any transmitters or spectrum, it does not
currently require any apparatus or spectrum licenses issued under the Federal
Radiocommunications Act 1992.
Carriers have a statutory obligation to provide other carriers with access
to tower facilities and sites and, if there is a dispute (including as to
pricing), the matter may be referred to the Australian Competition and
Consumer Commission for resolution. As a non-carrier, CCAL is not currently
subject to this regime and negotiates site access on a commercial basis.
While the Telecommunications Act 1997 grants certain exemptions from
planning laws for the installation to "low impact facilities," towers are
expressly excluded from the definition of "low impact facilities."
20
Accordingly, in connection with the construction of new tower facilities, CCAL
is subject to State and local planning laws which vary on a site by site
basis. For a limited number of sites, CCAL is also required to install
aircraft warning lighting in compliance with federal aviation regulations.
Local Regulations
In Australia there are various Local, State and Territory laws and
regulations which relate to, among other things:
. town planning and zoning restrictions,
. standards applicable to the design and construction of structures and
facilities,
. approval for the construction or alteration of a structure or facility,
. the protection of the environment, and
. city and other local government ordinances.
As in the United States, these laws vary greatly, but typically require
tower owners to obtain approval from government bodies prior to tower
construction and for ongoing compliance with environmental laws.
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 we also could be subject to personal
injury or property damage claims relating to such contamination. We are
potentially subject to environmental and cleanup liabilities in the United
States, the United Kingdom and Australia.
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. In addition to general observance of
industry guidelines and health and safety legislation requirements, we have
also established detailed operating procedures designed to reduce employee
exposures to radio frequency emissions and are continually evaluating certain
of our towers and transmission equipment to determine whether radio frequency
emission reductions are economically possible and feasible.
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 a need for capital. 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 do not contain all of the terms
and conditions contained in the complete text of the relevant agreements.
21
British Telecom Agreement
In November 2000, CCUK entered into an agreement with British Telecom to
lease space on as many as 4,000 British Telecom exchange sites throughout the
United Kingdom. We expect to invest approximately $325 million over the next
two years developing the British Telecom site portfolio for the deployment of
3G wireless services. We intend to integrate the new sites into our existing
portfolio of sites in the United Kingdom to provide a network that will offer
operators immediate coverage of large population areas. Together with British
Telecom, we will also make available our technical expertise to help operators
plan, construct, operate and maintain their wireless networks.
Hutchison 3G UK Limited Agreement
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited whereby Hutchison will lease space on a minimum of 4,000 CCUK sites (a
minimum take up of 1,000 sites per year for each of 2001 through 2004)
throughout the United Kingdom. The lease term at each site will be 25 years,
with a termination option exercisable by Hutchison at the end of the 20th
year, and with provisions for annual rental rate increases and periodic open
market rent reviews. Hutchison has announced plans to use the space on such
sites to deploy its 3G wireless network in the United Kingdom.
BT Cellnet Agreement
In February 2001, CCUK signed an initial agreement with its existing
customer BT Cellnet pursuant to which BT Cellnet will lease additional space
on CCUK sites throughout the United Kingdom, with a minimum take up of 1,500
additional sites by the end of 2003. The sites are expected to be used in
connection with BT Cellnet's 3G rollout over the next three years.
Vodafone Transaction
In December 2000, CCAL entered into a definitive agreement to purchase
approximately 670 wireless communications towers from Vodafone Australia for
approximately $130 million (Australian $240 million). The transaction is
expected to close in the second quarter of 2001 and includes an exclusive
arrangement whereby CCAL will have the option to acquire from Vodafone
Australia up to 600 additional towers that Vodafone Australia constructs over
the next six years. In addition, Vodafone entered into a tower access
agreement, under which Vodafone has agreed to lease space on the towers
acquired pursuant to the transaction for an initial term of ten years. Giving
effect to this transaction, CCAL will operate 1,380 towers in Australia with a
strategic presence in all of Australia's licensed regions including Sydney,
Melbourne, Brisbane, Adelaide and Perth. We will fund 66.7% of the purchase
price of the Vodafone Australia towers and anticipate that the Jump Capital
group, our CCAL joint venture partner, will fund the remaining 33.3%. Any of
the remaining 33.3% not funded by the Jump Capital group will be funded by us.
France Telecom Separation Agreement
On May 10, 2000, France Telecom reached an agreement with the Office of
Fair Trading in the United Kingdom to sell all of its interest in us and
relinquish its governance rights in us. On May 17, 2000, we entered into a
disposition agreement with France Telecom providing for a plan of disposition
of France Telecom's interest in us. Under this plan, France Telecom agreed to
sell shares of our common stock that would reduce its interests in us below
10% on a fully-diluted basis. On June 8, 2000, France Telecom completed the
sale of 24,942,360 shares of our common stock, following which their interest
in us was reduced to approximately 8.4% on a fully diluted basis. In
connection with the offering of these shares by France Telecom, France Telecom
relinquished all governance rights with respect to our businesses. In
addition, France Telecom's representatives resigned as directors from our
board of directors and from the boards of directors of our subsidiaries,
including CCUK.
In addition, on July 5, 2000, pursuant to the disposition agreement, France
Telecom sold its remaining interest in us (17,713,536 shares of common stock
after conversion of all shares of Class A common stock and
22
capital stock of CCUK) to Salomon Brothers International Limited, or "SBIL",
which must hold these shares for at least one year, provided, however, that
SBIL may sell the shares (1) to certain permitted transferees or (2) at any
time beginning 91 days after the June 8, 2000 offering in the event of certain
bankruptcy or liquidation events involving France Telecom. France Telecom also
entered into a swap agreement with SBIL, pursuant to which France Telecom will
continue to bear the economic risks and benefits associated with any
disposition of the shares by SBIL. SBIL is required to vote the shares
acquired from France Telecom on any matter submitted to our stockholders in
the same proportion as the votes cast with respect to all other outstanding
shares of our common stock. After one year, SBIL will be entitled to sell
these shares, and after two years, we will have the right to require SBIL to
sell any such remaining shares. We have agreed to provide shelf registration
rights in respect of the shares acquired by SBIL from France Telecom.
Consolidation of U.K. Subsidiary
Substantially concurrently with the closing of the France Telecom offering
and the transfer by France Telecom of its remaining interest in our company to
certain financial institutions, the portion of France Telecom's ownership
interest that comprised equity securities of CCUK were converted into shares
of our common stock. Accordingly, at that time, CCUK became a wholly-owned
subsidiary of ours.
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 of borrowing availability (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 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 $316.6 million in borrowings were used in April 2000
to fund a portion of the purchase price of the GTE Wireless transaction and
for general corporate purposes.
Cable & Wireless Optus Transaction
On March 9, 2000, CCAL entered into an agreement with Cable & Wireless
Optus pursuant to which Cable & Wireless Optus sold to CCAL 716 wireless
communications towers located in Australia for approximately $135 million
(Australia $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 through April 2006. In addition, Cable & Wireless Optus
entered into a tower access agreement, under which Cable & Wireless Optus has
agreed to lease space on the 716 towers for an initial term of 15 years. As a
result of the transaction, CCAL is the largest independent tower operator in
Australia.
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 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 growth plans without
delay. If we fail to do so it could have a material adverse effect
23
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
10,000 towers to our operations over the past two years has and will continue
to increase our current business considerably and adds significant operational
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. For the
twelve months ended December 31, 2000, our net loss increased from $96.8
million to $204.8 million, an increase of 111.6%, as a result of our expanded
business operations and the financing thereof, including an 83.5% increase in
depreciation and amortization and a 117.6% increase in interest expense as
compared to the twelve months ended December 31, 1999. We expect that such net
losses, at least in the near term, will continue to exceed those of comparable
prior-year periods as a result of our growth and the financing thereof.
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.
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 December 31,
2000, both on an actual basis as well as on a pro forma basis giving effect to
our common stock offering on January 17, 2001 of 13,445,200 shares.
Actual Pro Forma
----------- ------------
(Dollars in thousands)
Total indebtedness................................. $ 2,602,687 $ 2,602,687
Redeemable preferred stock......................... 842,718 842,718
Stockholders' equity............................... 2,420,862 2,763,715
Debt and redeemable preferred stock to equity
ratio............................................. 1.42x 1.25x
In addition, our earnings for the twelve months ended December 31, 2000
were insufficient to cover fixed charges by $202.3 million.
As a result of our substantial indebtedness:
. we could be more vulnerable to general adverse economic and industry
conditions;
. we may find it more difficult to obtain additional financing to fund
future working capital, capital expenditures and other general
corporate requirements;
. we will be required to dedicate a substantial portion of our cash flow
from operations to the payment of principal and interest on our debt,
reducing the available cash flow to fund other projects;
. we may have limited flexibility in planning for, or reacting to,
changes in our business and in the industry; and
. we will have a competitive disadvantage relative to other companies
with less debt in our industry.
We cannot guarantee that we will be able to generate enough cash flow from
operations or that we will be able to obtain enough capital to service our
debt, pay our obligations under our convertible preferred stock or fund our
planned capital expenditures. In addition, we may need to refinance some or
all of our indebtedness on or before maturity. We cannot guarantee, however,
that we will be able to refinance our indebtedness on commercially reasonable
terms or at all.
24
As a Holding Company, We Require Dividends from Subsidiaries to Meet Cash
Requirements or Pay Dividends--If our subsidiaries are unable to dividend cash
to us when we need it, we may be unable to pay dividends or satisfy our
obligations, including interest and principal payments, under our debt
instruments.
Crown Castle International Corp., or "CCIC", is a holding company with no
business operations of its own. CCIC's only significant asset is the
outstanding capital stock of its subsidiaries. CCIC conducts all of its
business operations through its subsidiaries. Accordingly, CCIC's only source
of cash to pay dividends or make other distributions on its capital stock or
to pay interest and principal on its outstanding indebtedness is distributions
relating to its ownership interest in its subsidiaries from the net earnings
and cash flow generated by such subsidiaries. We currently expect that the
earnings and cash flow of CCIC's subsidiaries will be retained and used by
such subsidiaries in their operations, including the service of their
respective debt obligations. Even if we did determine to make a distribution
in respect of the capital stock of CCIC's subsidiaries, there can be no
assurance that CCIC's subsidiaries will generate sufficient cash flow to pay
or distribute such a dividend or funds, or that applicable state law and
contractual restrictions, including negative covenants contained in the debt
instruments of such subsidiaries, would permit such dividends, distributions
or payments. Furthermore, the terms of our credit facilities place
restrictions on our principal subsidiaries' ability to pay dividends or to
make distributions, and in any event, such dividends or distributions may only
be paid if no default has occurred under the applicable instrument. Moreover,
CCIC's subsidiaries are permitted under the terms of their existing debt
instruments to incur additional indebtedness that may restrict or prohibit the
making of distributions, the payment of dividends or the making of loans by
such subsidiaries to CCIC. See "Business--Risk Factors--Substantial Level of
Indebtedness" and "Business--Risk Factors--Ability to Service Debt".
Ability to Service Debt--To service our indebtedness, we will require a
significant amount of cash from our subsidiaries. An inability to access our
subsidiaries' cash flow may lead to an acceleration of our indebtedness,
including our notes. Currently, the instruments governing our subsidiaries'
indebtedness do not allow sufficient funds to be distributed to CCIC to
service its indebtedness.
If CCIC is unable to refinance its subsidiary debt or renegotiate the terms
of such debt, CCIC may not be able to meet its debt service requirements,
including interest payments on our notes, in the future. Our 9% senior notes,
our 9 1/2% senior notes and our 10 3/4% senior notes require annual cash
interest payments of approximately $16.2 million, $11.9 million and $53.8
million, respectively. Prior to November 15, 2002, May 15, 2004 and August 1,
2004, the interest expense on our 10 5/8% discount notes, our 10 3/8% discount
notes and our 11 1/4% discount notes, respectively, will be comprised solely
of the amortization of original issue discount. Thereafter, the 10 5/8%
discount notes, the 10 3/8% discount notes and the 11 1/4% discount notes will
require annual cash interest payments of approximately $26.7 million, $51.9
million and $29.3 million, respectively. Prior to December 15, 2003, we do not
expect to pay cash dividends on our exchangeable preferred stock or, if
issued, cash interest on the exchange debentures. Thereafter, assuming all
dividends or interest have been paid-in-kind, our exchangeable preferred stock
or, if issued, the exchange debentures will require annual cash dividend or
interest payments of approximately $47.8 million. Annual cash interest
payments on the CCUK bonds are (Pounds)11.25 million ($16.8 million). In
addition, our various credit facilities will require periodic interest
payments on amounts borrowed thereunder.
Restrictive Debt Covenants--The terms of our debt instruments limit our
ability to take a number of actions that our management might otherwise
believe to be in our best interests. In addition, if we fail to comply with
our covenants, our debt could be accelerated.
Currently we have debt instruments in place that restrict our ability to
incur more indebtedness, pay dividends, create liens, sell assets and engage
in certain mergers and acquisitions. Our subsidiaries, under their debt
instruments, are also required to maintain specific financial ratios. Our
ability to comply with the restrictions of these instruments and to satisfy
our debt obligations will depend on our future operating performance. If we
fail to comply with the debt restrictions, we will be in default under those
instruments, which in some cases would cause the maturity of substantially all
of our long-term indebtedness to be accelerated.
25
We Require Significant Capital to Fund Our Operations and Make Acquisitions--
If we are unable to raise capital in the future, we will be unable to achieve
our currently contemplated business strategy and may not be able to fund our
operations.
We will require substantial capital as we increase the number of towers we
own and manage by partnering with wireless carriers, by pursuing opportunities
to build new towers, or build-to-suit opportunities, for wireless carriers and
by pursuing other tower acquisition opportunities. We will also require
substantial capital to acquire existing transmission networks globally as
opportunities arise. If we are unable to raise capital when our needs arise,
we will be unable to pursue our current business strategy and may not be able
to fund our operations.
To fund the execution of our business strategy, including the construction
of new towers that we have agreed to build, we expect to use the remaining net
proceeds of our recent offerings and borrowings available under our credit
facilities. We will have additional cash needs to fund our operations and
acquisitions in the future. We may also have additional cash needs in the near
term if additional tower acquisitions or build-to-suit opportunities arise.
Some of the opportunities that we are currently pursuing could require
significant additional capital. If we do not otherwise have cash available, or
borrowings under our credit facilities have otherwise been utilized, when our
cash need arises, we would be forced to seek additional debt or equity
financing or to forego the opportunity. In the event we determine to seek
additional debt or equity financing, there can be no assurance that any such
financing will be available, on commercially acceptable terms or at all, or
permitted by the terms of our existing indebtedness.
We May Not Be Able To Construct Or Acquire New Towers At The Pace And In The
Locations That We Desire--If we are unable to do so, we may not be able to
satisfy our current agreements to build new towers and we may have difficulty
finding tenants to lease space on our new towers.
Our growth strategy depends in part on our ability to construct and operate
towers in conjunction with expansion by wireless carriers. If we are unable to
build new towers when wireless carriers require them, or we are unable to
build new towers where we believe the best opportunity to add tenants exists,
we could fail to meet our contractual obligations under build-to-suit
agreements, and we could lose opportunities to lease space on our towers.
During 2000, we completed construction of 1,178 towers. We currently have
plans to commence construction on approximately 1,500 additional towers during
2001. Our ability to construct these new towers could be affected by a number
of factors beyond our control, including:
. zoning and local permitting requirements and national regulatory
approvals;
. availability of construction equipment and skilled construction
personnel; and
. bad weather conditions.
In addition, as the concern over tower proliferation has grown in recent
years, certain communities have placed restrictions on new tower construction
or have delayed granting permits required for construction. You should
consider that:
. the barriers to new construction may prevent us from building towers
where we want;
. we may not be able to complete the number of towers planned for
construction in accordance with the requirements of our customers; and
. we cannot guarantee that there will be a significant need for the
construction of new towers once the wireless carriers complete their
tower networks.
All of the above factors could affect both our domestic and international
operations. In addition, competition laws could prevent us from acquiring or
constructing towers or tower networks in certain geographical areas.
26
Our Business Depends on the Demand for Wireless Communications--We will be
adversely affected by any slowdown in the growth of, or reduction in demand
for, wireless communications.
Demand for our site rentals depends on demand for communication sites from
wireless carriers, which, in turn, depends on the demand for wireless
services. The demand for our sites depends on many factors which we cannot
control, including:
. the level of demand for wireless services generally;
. the financial condition and access to capital of wireless carriers;
. the strategy of carriers relatin