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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, 2001
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(b) of the Name of Exchange
Securities Exchange Act of 1934 on Which Registered
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Common Stock, $.01 par value New York Stock Exchange
Rights to Purchase Series A Participating New York Stock Exchange
Cumulative Preferred Stock
Securities Registered Pursuant to Section 12(g) 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 $935.4 million as of March 15, 2002 based on
the New York Stock Exchange closing price of $7.60 per share.
Applicable Only to Corporate Registrants
As of March 15, 2002, there were 219,842,529 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 "2002 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, 2001.
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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.................................................... 32
Item 3. Legal Proceedings............................................. 32
Item 4. Submissions of Matters to a Vote of Security Holders.......... 32
PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters....................................................... 33
Item 6. Selected Financial Data....................................... 34
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations..................................... 36
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 54
Item 8. Financial Statements and Supplementary Data................... 56
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure...................................... 92
PART III
Item 10. Directors and Executive Officers of the Registrant............ 92
Item 11. Executive Compensation........................................ 92
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................... 92
Item 13. Certain Relationships and Related Transactions................ 92
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
Item 14. 8-K........................................................... 92
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 (including via lessee/sublessee and
management arrangements) of towers (including co-locatable rooftops) and
transmission networks for wireless communications and broadcast transmission
companies. As of December 31, 2001, we owned, leased or managed 15,116 towers
and rooftops, including 10,638 sites in the United States and Puerto Rico,
3,087 sites in the United Kingdom and 1,391 sites in Australia. Our customers
currently include many of the world's major wireless communications and
broadcast companies, including Verizon, Cingular, Nextel, VoiceStream, Sprint
PCS, AT&T Wireless, SingTel Optus, Vodafone, BT Cellnet (an mmO2 company), One
2 One, Hutchison 3G UK Limited and the British Broadcasting Corporation (the
"BBC").
Our strategy is to use our leading domestic and international position to
increase our revenue per site by increasing the utilization of our sites by
wireless and broadcast companies for antenna space, and to continue to build,
acquire and operate new towers and wireless and transmission networks and
infrastructure through opportunities 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
network capacity;
. the additional demand for towers and wireless infrastructure created by
new entrants into the wireless communications industry; and
. the introduction of wireless technologies including broadband data, or
"3G" technology.
Our main businesses are leasing (including licensing) antenna space on
wireless and broadcast towers that can accommodate multiple tenants ("co-
location") 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 project management, antenna installation and network
management and maintenance. We believe that our service capabilities and asset
portfolio are key competitive advantages in capturing a significant share of
the antenna demand by wireless communications carriers and the demand for
broadcast transmission network management.
Our primary business in the United States is the leasing of antenna space
on our sites to wireless carriers. Our tower portfolio consists primarily of
concentrations of towers in various metropolitan areas, or "tower clusters."
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 and coverage plans across particular markets or regions. As of
December 31, 2001, 52% of our towers were located in the 50 largest basic
trading areas, or "BTAs", in the U.S., and 70% of our towers were located in
the 100 largest BTAs.
Our primary businesses in the United Kingdom, which is conducted through
our wholly owned subsidiary Crown Castle UK Limited, or "CCUK", are 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. CCUK has executed agreements with certain 3G license holders in
the UK pursuant to which such license holders will lease space on certain CCUK
sites which are expected to be used in connection with such companies' 3G
network rollout. See "Business--The Company--U.K. Operations--Significant
Contracts--Hutchison 3G Agreement" and "--BT Cellnet Agreement".
1
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. CCAL is owned 77.6% by us and 22.4% by Permanent Nominees (Aust) Ltd
on behalf of a group of professional and institutional investors led by Jump
Capital Limited. We currently operate 1,391 towers in Australia, of which 716
were purchased from Cable & Wireless Optus (now SingTel Optus Pty Limited), or
"Optus", during 2000, and 643 were purchased from Vodafone Australia in April
2001. These towers provide CCAL with a strategic presence in all of
Australia's licensed regions, including Sydney, Melbourne, Brisbane, Adelaide
and Perth. CCAL is now the largest independent tower owner in Australia. See
"Business--The Company--Australia Operations".
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, 3G,
paging, and fixed microwave, as well as radio and television broadcasting. In
the United States our major customers include Verizon, Cingular, VoiceStream,
Nextel, Sprint PCS and AT&T Wireless. In the United Kingdom our major
customers include the BBC, BT Cellnet (an mmO2 company), NTL, ITVdigital
(formerly called ONdigital), One 2 One, Orange and Hutchison 3G. Our principal
customers in Australia are Optus, Vodafone Australia and Hutchison.
We are continuing our ongoing construction program to strategically expand
our tower portfolios. In 2001, we constructed 1,464 towers. In 2002, we plan
to construct approximately 900 to 1,100 towers, at an estimated aggregate cost
of approximately $185 million (excluding payments under our British Telecom
agreement), for lease to wireless carriers such as Verizon, Cingular, Nextel,
Hutchison 3G and BT Cellnet (an mmO2 company). The actual number of towers
built may vary depending on acquisition opportunities and potential build-to-
suit contracts from our wireless customers.
Growth Strategy
Our objective is to become the premier owner and operator of tower
(including co-locatable rooftop sites) 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:
. Grow Revenue Organically. We are seeking to increase the utilization of
our strategically located communications sites by increasing the number
of antenna leases on our owned and managed communications sites. Many of
our towers have capacity available for additional antenna space rental.
We believe there is demand for such co-location capacity both from
existing carriers and broadcasters and from new carriers and
broadcasters. New entrants are able to launch service quickly and
efficiently by designing the deployment of their networks based on our
existing tower portfolios. We intend to continue to use targeted sales
and marketing techniques to increase utilization of and investment
return on our constructed and acquired towers.
. Grow EBITDA. We are seeking to take advantage of the operating leverage
afforded by the relatively fixed nature of the operating costs
associated with our site rental business. The majority of the operating
costs of our site rental business consist of ground lease expense,
property taxes, repair and maintenance, utilities and salaries, which
tend to escalate at approximately the rate of inflation. Consequently,
if increased utilization of tower capacity is achieved at low
incremental cost, our site rental business should experience operating
margin expansion and growth in site-level "EBITDA", or earnings before
interest, taxes and depreciation.
. Allocate Capital Efficiently. We seek to expand our existing tower
portfolios through the selective acquisition and build of strategically
located towers that will improve the coverage of our existing tower
portfolios and increase their attractiveness. With respect to tower
acquisitions, we may seek to acquire such sites from major wireless
carriers to assume ownership of their existing towers directly or
through
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joint ventures (such as our two joint ventures with Verizon
Communications) or to control their towers through contractual
arrangements. We may also acquire towers from other companies in the
tower industry, either through direct acquisitions, tower exchanges or
other means. With respect to tower builds, leveraging on our ability to
offer a wide range of related services, we intend to selectively build
new towers for wireless carriers as they expand and fill in their service
areas and deploy new technologies requiring additional communications
sites. Our decisions to invest additional capital in selective
acquisitions or build activities are generally based upon whether such
investments are expected to achieve our risk-adjusted return on
investment hurdle rates.
. Extend Revenue Around Our Existing Assets. 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 growth opportunities, as evidenced by our transactions
with the BBC, One 2 One, Verizon Communications, BellSouth, Powertel,
Optus and Vodafone Australia. With our wireless communications and
broadcast transmission network design and radio frequency engineering
expertise, we are well positioned to extend our services beyond the
leasing of tower space to other potentially shareable activities, such
as antenna and base station maintenance, shared microwave backhaul and
network monitoring.
The Company
We operate our business through our subsidiaries primarily in three
geographic areas--the United States, the United Kingdom and Australia. We
conduct our U.S. operations principally through certain wholly owned
subsidiaries of Crown Castle Operating Company and our two joint ventures with
Verizon Communications. CCUK is our principal U.K. operating subsidiary, and
CCAL, a joint venture between us and Permanent Nominees (Aust) Ltd, 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 have
engaged or may engage in from time to time.
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, including network design and site
selection, site acquisition, site development and project management 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 are typically five years with renewal
options. Our U.S. customers include such companies as Verizon, Cingular,
VoiceStream, Nextel, Sprint PCS and AT&T Wireless. 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, 2001, we owned 10,638 sites in the United States and Puerto
Rico. These towers 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
three years. In addition, we may consider and enter into arrangements with
other wireless carriers and independent tower operators to acquire additional
towers or tower portfolios.
Through the Powertel acquisition, which closed in June 1999, we control and
operate approximately 670 towers. These towers represented substantially all
of the towers owned by Powertel (now a part of VoiceStream)
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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
Mobility's 850 MHz tower portfolio in the southeast and have minimal coverage
overlap. Substantially all of the Powertel towers are over 100 feet tall and
can accommodate multiple tenants.
Through the BellSouth Mobility and BellSouth DCS (now part of Cingular)
transactions, which were substantially completed in September 2000, we control
and operate approximately 2,700 towers. These towers represented (1)
substantially all of the towers in BellSouth Mobility'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 Verizon Communications relating to the Bell Atlantic
Mobile towers (the "Bell Atlantic JV") controlled and operated approximately
2,010 towers as of December 31, 2001. Through our joint venture with Verizon
Communications relating to the GTE Wireless towers (the "GTE JV"), we
controlled and operated approximately 2,930 towers as of December 31, 2001.
These towers represent substantially all the towers now used in the 850 MHz
wireless network of Verizon Wireless in the eastern, midwestern, southwestern
and Pacific coast areas of the 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, Phoenix and San Francisco. A
substantial majority of these towers are over 100 feet tall and can
accommodate multiple tenants. We currently own 56.9% of the Bell Atlantic JV,
and Verizon Communications owns the remaining 43.1%. We currently own 82.2% of
the GTE JV, and Verizon Communications owns the remaining 17.8%.
The agreements relating to our joint ventures with Verizon Communications
provide that upon a dissolution of either venture and following satisfaction
(or adequate provision for satisfaction) of such venture's liabilities, we
will receive all the assets of the dissolved venture, other than any shares of
our common stock then held by the venture that were contributed by us as
capital contributions, all of which shares will be distributed to the
applicable Verizon Communications partner. In exchange for the distribution of
the venture's assets to us, we will pay to the applicable Verizon
Communications partner the then fair market value of such partner's interest
in the venture, excluding an agreed venture interest relating to the common
stock held by the venture and distributed to such partner. A dissolution of
either venture may be triggered (1) by the Verizon Communications partner at
any time following the third anniversary of the formation of the applicable
venture and (2) by us at any time following the fourth anniversary of such
venture's formation (subject to certain penalties if prior to the seventh
anniversary in the case of the Bell Atlantic JV). As of December 31, 2001,
assuming the distribution of the shares of common stock held by the ventures
to the Verizon Communications partner, the interest of the Verizon
Communications partner in the GTE JV and the Bell Atlantic JV would have been
approximately 11.0% and 24.1%, respectively. As payment to our venture
partner, the dissolution of the GTE JV would require us to deliver cash, and
the dissolution of the Bell Atlantic JV would require us to deliver cash or
common stock at our option; such payments may negatively impact our liquidity
or cause dilution of our common stock. The GTE JV was formed on January 31,
2000, and the Bell Atlantic JV was formed on March 31, 1999. Additional
information regarding the joint venture dissolution terms can be found in the
text of our prior filings with the Securities and Exchange Commission ("SEC")
and in the relevant joint venture agreements, which have been filed as
exhibits to certain of our prior SEC filings.
Each of our 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 communications business
of Bell Atlantic Mobile and GTE Wireless, which now does business as Verizon
Wireless, over a five-year period. In addition, following the building of such
500 sites, the Bell Atlantic JV will have a right of first refusal to
construct up to the next 200 towers to be built for Verizon Wireless. The
number
4
of towers built under the GTE JV build-to-suit agreement is reduced by the
number of towers built under the Bell Atlantic JV build-to-suit agreement in
excess of 700 and certain other leases on our towers. Further, we have entered
into similar agreements with BellSouth, as part of the BellSouth transaction,
to construct certain 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 December 31, 2001, we had built approximately 122, 170
and 318 towers under each of the build-to-suit agreements with or for the GTE
JV, the Bell Atlantic JV and BellSouth, respectively. We are currently in
discussions with Verizon Communicatioins and BellSouth Mobility regarding
amendments to various terms of each of the build-to-suit agreements with or
for the GTE JV, the Bell Atlantic JV and BellSouth Mobility. There can be no
assurances as to the outcome of any of these discussions.
We also seek to capitalize on our network design and project management
expertise to construct new towers. We plan to continue to selectively build
towers in areas where carriers' signals fail to transmit in their coverage
areas. 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 tower sites are also designed to easily
add additional customers.
Site Rental
In the United States, we rent antenna space on our towers to a variety of
carriers operating cellular, personal communication services, specialized
mobile radio, enhanced specialized mobile radio, paging and other networks.
We lease space to our customers on our 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 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 primarily on the Consumer
Price Index. The average monthly rental payment of a new tenant added to a
tower is approximately $1,500 per month. The lease agreements relating to
tower network acquisitions generally have a base term of ten years, with
multiple renewal options, each typically ranging from five to ten years. We
have existing master lease agreements with most major wireless carriers,
including AT&T Wireless, Cingular, Verizon, VoiceStream, Nextel and Sprint
PCS, which provide certain terms (including economic terms) that govern leases
on our towers entered into by such parties during the term of their master
lease agreements.
We have site rental opportunities in connection with our larger tower
acquisition transactions as a result of the fact that such transactions
typically 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 Mobility and BellSouth DCS
transactions, we are paid a monthly site maintenance fee from BellSouth for
its use or maintenance of its reserve 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 industry. Because we are basically a provider of total
systems with "end-to-end" design, project management and operating expertise,
we offer our customers the flexibility of choosing between the provision of a
ready-to-operate network infrastructure or any
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of the component services involved therein. Such services include network
design and site selection, site acquisition, site development and project
management 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
2001, we provided network design services primarily for our own portfolios and
also for certain customers, including AT&T Fixed Wireless and Cricket
Communications. 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 project
management department takes over the process of constructing the site.
We have provided site acquisition services to numerous customers, including
Verizon, Cingular, AT&T Fixed Wireless, AT&T Wireless and Cricket
Communications. These customers engage us for such site acquisition services
on either a fixed price contract or a time-and-materials basis.
Site Development and Project Management and Antenna Installation. We
provide site development and project management and antenna installation
services to the U.S. communications industry. We have extensive experience in
the development and construction of tower sites and the installation of
antenna, microwave dishes and associated equipment. Our site development and
project management services include clearing sites, laying foundations,
provision of 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 site development, project
management and antenna installation. We generally set prices for each site
development or project management service separately. Customers are billed for
these services on a fixed price or time-and-materials basis, and we may
negotiate fees on individual sites or for groups of sites. We have the
capability, expertise and contractual arrangements to install antenna systems
for our paging, cellular, personal communications services, specialized mobile
radio, enhanced specialized mobile radio and microwave customers. As this
service is performed, we use our technical expertise to substantiate that
there is no interference with other tenants. We typically bill for our antenna
installation services on a fixed price basis.
Our project management capabilities reflect our extensive experience in the
managing the construction of networks and towers. For example, during 2001, we
were instrumental in launching a multi-state network for Cricket
Communications. In addition, in 2001, we provided site development and project
management 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 most of the major
wireless carriers, among others.
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Customers
In both our site rental and network services businesses, we work with a
number of customers in a variety of businesses including cellular, personal
communications services, enhanced specialized mobile radio and paging. We work
primarily with large national carriers such as Verizon, Cingular, AT&T
Wireless, Sprint PCS, VoiceStream and Nextel. For the year ended December 31,
2001, Verizon Communications and its subsidiaries accounted for 14.3% 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
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Cellular/Personal Communications AT&T Wireless, Verizon, Sprint PCS,
Services............................. Cingular, VoiceStream, Nextel
Specialized Mobile Radio/Enhanced
Specialized Mobile Radio............. Nextel
Governmental Agencies................. INS, Coast Guard, FBI, U.S. Postal
Service, FAA, DEA, IRS, Puerto Rico
Police
Private Industrial Users.............. Federal Express, Laidlaw Transit, BFI
Data.................................. Cingular, Itron, Ardis
Paging................................ WebLink Wireless, Metrocall, SkyTel (a
division of WorldCom), Acquis, Arch
Utilities............................. Peco Energy Corporation, Nevada Power,
Reliant Energy Entex
Other................................. XM Satellite Radio
Sales and Marketing
Our marketing department maintains our profile within the industry through
regular advertising, public relations, trade shows, press releases,
newsletters, targeted mailings, and our 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.
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 sales opportunities, including
turnkey network deployments 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 personal
communications services, cellular, microwave and two-way radio, paging, 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.
For example, in 2001 we provided emergency communications services and
dispatched crank up towers, nighttime lighting and other equipment to assist
the recovery efforts in New York City and at the Pennsylvania crash site
associated with the terrorist events of September 11, 2001.
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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 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, broadcasters and building owners, 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, deployment speed 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 certain strategic acquisition and new tower construction
opportunities with wireless carriers, site developers and other independent
tower operating companies. We believe that competition for such tower site
acquisitions may increase and that additional competitors may 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 us and Wireless
Facilities, Inc., SBA Communications, Whalen & Company (a subsidiary of Tetra
Tech, Inc.) and Gearon & Company (a subsidiary of American Tower Corp.). 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 criteria such as 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.
U.K. Operations
Overview
We own and operate, through CCUK, one of the world's most established
television and radio transmission networks. In addition, we are expanding our
leasing of antenna space on our U.K. 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
UK-wide BBC radio services on FM, AM and DAB (the first digital audio
broadcast service in the United Kingdom), 5 BBC regional radio services for
Scotland, Wales and Northern Ireland, 39 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 sites, more than half of which we own or control and the
balance of which are either licensed to us under a site-sharing agreement with
National Transcommunications Limited, or NTL, our principal broadcast
competitor in the United Kingdom, or other third party site operators. We have
also secured long-term contracts to provide digital television transmission
services to the BBC and ITVdigital (formerly ONdigital). See "Business--The
Company--U.K. Operations--Significant Contracts". In April 2001, we launched a
new wireless carrier network service for One 2 One in Northern Ireland. In
addition to providing transmission services, we also lease antenna
8
space on our 3,087 communications sites 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 TV contract was added
in 1998 as described below. For the 12 months ended December 31, 2001,
approximately 39.4% of CCUK's consolidated revenues were derived from the
provision of transmission services to the BBC.
At December 31, 2001, we owned or managed 3,087 sites in the United
Kingdom. Our sites are located throughout England, Wales, Scotland and
Northern Ireland.
We expect to expand our existing portfolios in the United Kingdom by
building and acquiring additional sites. Many of these new sites will be
developed on British Telecom exchange sites under our agreement with British
Telecom. See "Business--The Company--U.K. Operations--Significant Contracts--
British Telecom Agreement". 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 3G) as compared to
broadcast signals, wireless communications providers require a denser
portfolio of sites to cover a given area. Using our team of engineers who have
state-of-the-art network design and radio frequency engineering expertise, we
locate sites and design locations that will be attractive to multiple tenants.
We seek to leverage such expertise by entering into new construction contracts
with various carriers, such as BT Cellnet, Vodafone, Hutchison 3G, One 2 One
and Orange, thereby securing an anchor tenant for a site before incurring
capital expenditures for the site build-out.
In March 1999, CCUK completed the One 2 One transaction. Through this
transaction, CCUK has added an aggregate of 1,676 towers (including towers
built pursuant to a build-to-suit agreement with One 2 One) to its portfolio.
These towers represent substantially all the towers in One 2 One's nationwide
900 MHZ wireless network in the United Kingdom. These towers form part of
CCUK's nationwide network of towers to be marketed to wireless carriers in the
United Kingdom. See "Business--The Company--U.K. Operations--Significant
Contracts--One 2 One Northern Ireland Network".
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. These sites are principally rooftop facilities owned by
British Telecom in urban areas. We spent approximately $99.1 million in 2001
developing the British Telecom site portfolio for the deployment of wireless
services, including second generation ("2G") and 3G services. We expect to
invest an aggregate of approximately $325 million developing the British
Telecom site portfolio. 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
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. As of December 31, 2001, we had
developed 326 sites under this agreement. We are currently in discussions with
British Telecom regarding the deferral of certain payments that would
otherwise be owed by us to them in 2002 under this agreement. There can be no
assurances as to the outcome of these discussions. See "Business--The
Company--U.K. Operations--Significant Contracts--British Telecom Agreement".
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited whereby Hutchison 3G will lease space on a minimum of 4,000 CCUK sites
throughout the United Kingdom. See "Business--The Company--U.K. Operations--
Significant Contracts--Hutchison 3G Agreement". In addition, in February 2001,
CCUK signed an initial agreement with its existing customer BT Cellnet
pursuant to which BT Cellnet will lease
9
additional space on CCUK sites throughout the United Kingdom, with a minimum
take up of 500 additional sites per year for each of the years 2001, 2002 and
2003. See "Business--The Company--U.K. Operations--Significant Contracts--BT
Cellnet Agreement".
Transmission Business
Analog. For the 12 months ended December 31, 2001, CCUK generated
approximately 32.4% 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--The
Company--U.K. Operations--Significant Contracts--BBC Analog Transmission
Contract". For the 12 months ended December 31, 2001, the BBC Analog
Transmission Contract generated revenues of approximately (Pounds)53.4 million
($76.9 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 talkSPORT (formerly Talk Radio). In July
2001, the Virgin Radio contract was renewed for a period expiring April 30,
2008. The talkSPORT 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 in the U.K., whether located on one of
CCUK's sites or on an NTL or other third-party site. As of December 31, 2001,
CCUK had 3,847 transmitters, of which 2,546 were for television broadcasting
and 1,301 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)............................................. 20.0%
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 25 bases located across the United
Kingdom. The Site-Sharing Agreement provides us with reciprocal access rights
to NTL's broadcast transmission sites on which we have equipment.
Certain of our transmitters that serve large populations or important
geographic areas have been designated as priority transmitters. These
transmitters have duplicated equipment so that a single failure 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 January 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 or controlled by us, and the
remainder are on NTL owned or controlled towers pursuant to a site sharing
arrangement. Our costs to add new transmitters and associated systems was
approximately (Pounds)105.5 million ($154 million). For the 12 months ended
December 31,
10
2001, our digital transmission contracts with the BBC and ITVdigital generated
aggregate revenues of approximately (Pounds)30.2 million ($43.4 million) for
us.
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 is expected to 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, 2001, the overlapping coverage for all six
multiplexes was improved from the initial 56% to 68% of the national
population as a result of coverage equalization projects which we initiated
and completed 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)2.17 million ($3.16 million) per year.
In 1997, the Independent Television Commission awarded ITVdigital (formerly
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 ITVdigital to build and operate its digital television
transmission network. The contract provides for approximately (Pounds)19.0
million ($27.6 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. On March 27, 2002, a U.K. court approved an
application by ITVdigital to be placed into administration (a proceeding,
similar to a Chapter 11 bankruptcy proceeding in the United States, designed
to protect the applicant from the claims of its creditors while it reorganizes
its business). There can be no assurances as to the outcome of this action or
its effect on us. Our primary concern will be any modification to our
ITVdigital transmission contract resulting from these administration
proceedings. We contemplate that ITVdigital or its successor will continue to
honor its commitments under the transmission contract in order to continue
providing programming and services to its subscribers; however, any decisions
regarding the continuation of the transmission contract or payments by
ITVdigital will involve the administrators. ITVdigital accounted for
approximately 3.4% of our revenues for the twelve-month period ended December
31, 2001. The loss of ITVdigital as a customer or the modification of the
ITVdigital transmission contract could have an adverse effect on our results
of operations. See "Business--The Company--U.K. Operations--Significant
Contracts--ITVdigital Transmission Contract".
We currently provide transmission services for digital radio broadcasts in
the United Kingdom. In 1995, the BBC launched, over our transmission network,
its initial national digital radio service, and this service is now broadcast
to approximately 65% 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 towers and antennas
at 30 transmission sites for Digital One services. In addition, local digital
radio licenses have been awarded since 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. Since that time, CCUK has
been awarded two additional 12 year contracts by other Switchdigital
consortia, covering two areas of Scotland. Site sharing for other Digital
Radio multiplexes provides additional revenues at 20 transmission sites.
Site Rental
The BBC transmission network provides a valuable initial portfolio for the
creation of wireless communications networks. As of December 31, 2001,
approximately 209 companies rented antenna space on CCUK's 3,087 towers. These
site rental agreements have normally been for three to twelve 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)12.5 million ($18.2 million) of site rental revenue for
the year ended December 31, 2001.
11
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 an enhanced 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 (an mmO2 company), One 2 One,
Orange and Vodafone. Revenues from these non-BBC sources continue to become an
increasing portion of CCUK's total U.K. revenue base. 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, in the United Kingdom, as
demonstrated by our multi-site rental commitment contracts with Hutchison 3G
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, One 2 One, Orange and Vodafone. 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.
Network Services
CCUK provides broadcast and telecommunications engineering services to
various customers in the United Kingdom. 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 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 would establish a turnkey mobile network for One 2 One in Northern
Ireland. In April 2001, CCUK launched the network, covering 94.7% of the
population of Northern Ireland. CCUK provides 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 200 tower sites in Northern Ireland, and One 2 One
is 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.
In March 2001, CCUK was awarded a further contract with Manx Telecom for the
second and third phases. The network, comprised of approximately 28 sites, was
built by NEC and Siemens for Manx Telecom, a wholly owned subsidiary of mmO2
plc, and was completed in September 2001. CCUK provided turnkey project
management, installation and commissioning of the 3G radio access network,
including site planning, design, build and radio frequency planning. Service
on the network was launched in December 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 utilize 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 project management, ensuring
12
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 project managed by our own 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
ITVdigital (formerly 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, talkSPORT and
Switchdigital. In addition, CCUK has several agreements with telecommunication
providers, including leases, site management contracts and independent
contractor agreements. The agreements with Hutchison 3G and BT Cellnet
announced in February 2001 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 and
Vodafone, 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 ($67.6 million) to be payable by the BBC to CCUK each year 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 (approximately $436,000) 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 (approximately $727,000) 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 incurred
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).
It is contemplated that the BBC Analog Transmission Contract will be
amended and extended in some manner. However, there can be no assurances that
any such modifications or extensions will come to pass.
13
BBC Commitment Agreement. On February 28, 1997, in connection with the
acquisition of the BBC home service transmission business, the BBC, the
Company, TeleDiffusion de France International S.A. ("TdF") and France Telecom
(TdF's 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 the ownership interest of TdF 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 France Telecom to the
Competition Commission, TdF should undertake to dispose of its shareholding in
CCUK and the Company. Concurrently with the disposition by TdF of its
remaining interest in CCUK, CCUK became a wholly owned subsidiary of ours.
ITVdigital Digital Transmission Contract. In 1997, the Independent
Television Commission awarded ITVdigital (formerly 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 ITVdigital to
build and operate its digital television transmission network. The contract
provides for approximately (Pounds)19.0 million ($27.6 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. On March 27, 2002,
a U.K. court approved an application by ITVdigital to be placed into
administration (a proceeding, similar to a Chapter 11 bankruptcy proceeding in
the United States, designed to protect the applicant from the claims of its
creditors while it reorganizes its business). There can be no assurances as to
the outcome of this action or its effect on us. Our primary concern will be
any modification to our ITVdigital transmission contract resulting from these
administration proceedings. We contemplate that ITVdigital or its successor
will continue to honor its commitments under the transmission contract in
order to continue providing programming and services to its subscribers;
however, any decisions regarding the continuation of the transmission contract
or payments by ITVdigital will involve the administrators. ITVdigital
accounted for approximately 3.4% of our revenues for the twelve-month period
ended December 31, 2001. The loss of ITVdigital as a customer or the
modification of the ITVdigital transmission contract could have an adverse
effect on our results of operations. See "Business--Risk Factors--A
Substantial Portion Of Our Revenues Is Derived From a Small Number of
Customers, Including the BBC, NTL, ITVdigital And Verizon".
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 ($15.3 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 ITVdigital digital transmission contract, in addition to
providing digital terrestrial transmission services, CCUK has agreed to
provide for the distribution of the BBC's and ITVdigital'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.
14
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 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. In December 1999, CCUK and One 2 One
entered into an agreement under which CCUK would establish a turnkey mobile
network for One 2 One in Northern Ireland. In April 2001, CCUK launched the
network, covering 94.7% of the population of Northern Ireland. CCUK provides
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 200 tower sites in
Northern Ireland, and One 2 One is 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 spent approximately $99.1
million in 2001 developing the British Telecom site portfolio for the
deployment of wireless services, including 2G and 3G services. We expect to
invest an aggregate of approximately $325 million developing the British
Telecom site portfolio. 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 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. As of December 31,
2001, we had developed 326 sites under this agreement. We are currently in
discussions with British Telecom regarding certain amendments to the agreement,
including the deferral of certain payments that would otherwise be owed by us
to them in 2002. There can be no assurances as to the outcome of these
discussions. In June 2001, CCUK signed a management services agreement to
manage the pre-existing British Telecom site sharing customers on the sites
subject to this agreement.
Hutchison 3G Agreement. In February 2001, CCUK signed a definitive agreement
with Hutchison 3G UK Limited whereby Hutchison 3G 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. We are currently in discussions
with Hutchison 3G regarding several potential amendments to this agreement,
including one such amendment which may result in the deferral of Hutchison 3G's
take or pay commitment for a period of up to six months. CCUK is also currently
reviewing its standard terms of business and site share process, including
establishing a definitive staged payment program as work on sites reaches
certain milestones. This exercise is
15
also under discussion with Hutchison 3G and is expected to result in a further
contract amendment to update the Hutchison 3G agreement in-line with the CCUK
standard process.
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 through 2003 (a minimum take up of 500 sites per
year for each of 2001, 2002 and 2003). BT Cellnet did not satisfy the minimum
take up requirements in 2001. We are currently in discussions with BT Cellnet
and mmO2 regarding certain terms of the agreement which may result in the
deferral of BT Cellnet's take or pay commitments. There can be no assurances
as to the outcome of these discussions.
Third Generation Technology
During April 2000, the United Kingdom auctioned five licenses relating to
3G mobile communications, 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.) acquired 3G
licenses through these 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 3G license holders in order to
provide the outsourcing of network operations and management and the site
sharing of network towers, equipment and other communications infrastructure
as a solution to many of the commercial and technical challenges and costs
which the 3G license holders will face.
In first quarter 2001, CCUK executed agreements with certain of the 3G
license holders in the U.K. (Hutchison 3G UK Limited and BT Cellnet) pursuant
to which such license holders will lease space on certain CCUK sites which are
expected to be used in connection with such companies' 3G network rollout. See
"Business--The Company--U.K. Operations--Significant Contracts--Hutchison 3G
Agreement" and "--BT Cellnet Agreement".
During 2000 and 2001, CCUK provided turnkey project management,
installation and commissioning of the 3G radio access network (including site
planning, design, build and radio frequency planning) with respect to the
network rollout of Europe's first 3G network on the Isle of Man. The network,
comprised of approximately 28 sites, was built by NEC and Siemens for Manx
Telecom, a wholly owned subsidiary of mmO2 plc, and was launched in December
2001. See "Business--The Company--U.K. Operations--Network Services--Network
Design and Site Selection".
There can be no assurances that 3G or other new wireless technologies will
be introduced or deployed as rapidly or in the manner previously or presently
projected by the wireless industry. The deployment of 3G has already been
delayed as to prior projections. In addition, demand and customer adoption
rates of 3G and other technologies may be lower or slower than anticipated for
numerous reasons. As a result, growth opportunities and demand for site rental
as a result of such technologies may not be realized at the times or to the
extent previously or presently anticipated.
Customers
For the 12 months ended December 31, 2001, the BBC accounted for
approximately 39.4% of CCUK's consolidated revenues. This percentage has
decreased from 50.4% and 44.2% for the 12 months ended December 31, 1999 and
December 31, 2000, 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) with infrastructure services and also provides fixed
telecommunications operators, such as British Telecom, Cable & Wireless
Communications and
16
Energis, 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, ITVdigital, Switchdigital
PMR/TETRA............................. mmO2 Airwave
Personal Communications Network....... Orange, One 2 One
Data.................................. RAM Mobile Data, Cognito
Paging................................ Hutchinson, Page One
Governmental Agencies................. Ministry of Defense
Cellular.............................. Vodafone, BT Cellnet
Third Generation...................... Hutchison 3G, BT Cellnet, Orange
Public Telecommunications............. British Telecom, Cable & Wireless
Communications
Utilities............................. Welsh Water, Southern Electric
Sales and Marketing
We have a staff of 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.
Competition
NTL is CCUK's primary competitor 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, the national digital radio
license holder. NTL retains partial ownership of both the S4C digital
television multiplex and Digital One, the national independent digital radio
licensee. NTL has also been awarded the transmission contract for two of the
six digital terrestrial television multiplexes. CCUK has been awarded
transmission contracts for the other four multiplexes.
Although CCUK and NTL are broadcast 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. See "Business--The Company--U.K.
Operations--Significant Contracts--Site-Sharing Agreement."
NTL also offers site rental on approximately 1,500 of its sites, some of
which are managed on behalf of third parties. Like CCUK, NTL offers a broad
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.
CCUK faces competition from a large number of companies in the provision of
network services. The companies include NTL, specialty consultants and
equipment manufacturers such as Nortel and Ericsson.
Australia Operations
Our primary business in Australia is the leasing of antenna space to
wireless carriers. CCAL, a joint venture which is owned 77.6% by us and 22.4%
by Permanent Nominees (Aust) Ltd, acting on behalf of a group of professional
and institutional investors led by Jump Capital Limited, is our principal
Australian operating
17
subsidiary. Our interest in CCAL increased from 66.7% to 77.6% in connection
with the funding and closing of the Vodafone Australia tower portfolio
acquisition in April 2001.
CCAL is the largest independent tower operator in Australia with a
nationwide tower portfolio providing sites for cellular coverage for over 92%
of the population in Australia. CCAL currently operates 1,391 towers, with a
strategic presence in all of Australia's licensed regions including Sydney,
Melbourne, Brisbane, Adelaide and Perth. 716 of CCAL's towers were purchased
from Optus during 2000 for approximately $135 million (Australian $220
million) in cash. As part of this transaction, Optus agreed to lease space on
these towers for an initial term of 15 years. The agreement also provides CCAL
with an exclusive right to develop all future tower sites for Optus through
April 2006. We are currently in discussions with Optus as to various
amendments to certain terms of the build-to-suit provisions of the agreement.
An additional 643 towers were acquired from Vodafone Australia in April
2001 for approximately $121 million (Australia $240 million). As part of this
transaction, Vodafone Australia has agreed to lease space on these towers for
an initial period of 10 years, and we have the exclusive right to acquire up
to 600 additional tower sites that Vodafone may construct through April 2007.
The Vodafone Australia acquisition was funded 85.1% by us and 14.9% by the
Jump Capital group, which resulted in our interest in CCAL being increased
from 66.7% to 77.6%.
As of December 31, 2001, CCAL also provided maintenance services on 1,150
customer sites and 1,799 customer shelters and provided property management
services on 721 customer sites.
Employees
At December 31, 2001, we employed approximately 1,966 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
Theatrical 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 tower and antenna structures based upon the
height and location, including proximity to airports, of proposed tower and
antenna structures. Proposals to construct or to modify existing tower and
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
requires its licensees to operate communications devices only on towers that
comply with FAA rules and are registered with the FCC, if required by its
regulations. Where tower lighting is required by FAA regulation, tower owners
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,
18
. zoning restrictions, and
. restrictive covenants imposed by community developers.
These regulations vary greatly, but typically require us 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, certain licenses for radio
transmission facilities granted by the FCC, including licenses for common
carrier microwave and commercial mobile radio services, including specialized
mobile radio and paging facilities, as well as private mobile radio services
including industrial/business radio facilities, which are subject to
additional regulation by the FCC. We are required to obtain the FCC's approval
prior to the transfer of control of any of our FCC licenses.
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.
During 2001, OFTEL agreed to certain amendments to CCUK's
Telecommunications Act Transmission License to ensure that the price controls
in such license accommodate the provision by CCUK of additional
19
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 With Which We Could Fail to Comply Regulate Our
Business".
The U.K. 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. ITVdigital is obligated under the ITVdigital 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.
20
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 Federal Telecommunications Act 1997 grants certain exemptions
from planning laws for the installation of "low impact facilities," towers are
expressly excluded from the definition of "low impact facilities."
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 could also 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.
As licensees, we are also subject to regulations and guidelines that impose
a variety of operational requirements relating to radio frequency emissions.
As employers, we are subject to OSHA and similar guidelines regarding employee
protection from RF exposure. 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.
We have compliance programs and monitoring projects to help assure that we
are in substantial compliance with 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.
2001 Events
Set forth below is a description of certain other significant events which
took place during 2001 and involved or affected our business or operations.
The description of the terms of transactions and agreements set forth below
are summaries and do not describe significant terms and conditions contained
in the complete text of the relevant agreements.
21
January 2001 Offering
In January 2001, we sold 13,445,200 shares of our common stock in an
underwritten public offering. The shares were sold to the public at a price of
$26.25 per share, and we received proceeds of $342.9 million (after
underwriting discounts of $10.1 million).
Listing on New York Stock Exchange
Our Common Stock was listed and began trading on the New York Stock
Exchange on April 25, 2001 under the symbol "CCI". Prior to that date and
since our initial public offering on August 18, 1998, the Common Stock was
listed and traded on the Nasdaq under the symbol "TWRS". Concurrent with the
New York Stock Exchange listing, the listing of our Common Stock on the Nasdaq
was withdrawn.
Announcement and Rescission of RaiWay Transaction
In April 2001, we entered into a Share Purchase Agreement for the
acquisition of 49% of the outstanding capital stock of RaiWay S.p.A.
("RaiWay"). RaiWay is a subsidiary of RAI Radio Televisione Italiana S.p.A.
("RAI"), the Italian state-owned television and radio broadcaster. RaiWay
manages over 2,300 broadcast transmission sites across Italy. The cost of our
investment in RaiWay amounted to approximately $383.8 million in cash, and
such amount was deposited into a Euro-denominated escrow account upon
execution of the Share Purchase Agreement. The transaction was subject to
approval by certain Italian regulatory authorities and, in October 2001, we
were notified that the Italian Minister of Communication had declined to
approve the transaction. Pursuant to the terms of the agreement, the escrow
deposit was returned to us in November 2001.
May 2001 Debt Offering
On May 10, 2001, we issued $450.0 million aggregate principal amount of our
9 3/8% senior notes for proceeds of $441.0 million (after underwriting
discounts of $9.0 million).
Restructuring
In July 2001, we announced a restructuring of our business in order to
increase operational efficiency and better align costs with anticipated
revenues. As part of the restructuring, we reduced our global staff by
approximately 312 full-time employees. In addition, we have closed several
offices in the United States, and we have closed our development offices in
Brazil and Europe. The actions taken for the restructuring were substantially
completed as of the end of 2001. In connection with the restructuring, we
recorded non-recurring cash charges of approximately $19.4 million during 2001
related to employee severance payments and costs of office closures.
In addition, on March 1, 2002, we announced plans to record a non-recurring
restructuring charge estimated to be between approximately $7.0 million and
$13.0 million with respect to staff redundancies and the disposition of
certain service lines in connection with our United Kingdom operations. The
charge is expected to be reflected in our results of operations for the first
quarter 2002.
Senior Management and Board of Directors Changes
Our Board of Directors appointed John P. Kelly as President and Chief
Executive Officer effective August 20, 2001. Ted B. Miller, Jr., our former
Chief Executive Officer and co-founder, remains a director and non-executive
Chairman of our Board. In addition, Lee W. Hogan, age 56, and Dale N.
Hatfield, age 63, were appointed to our Board of Directors in March 2001 and
July 2001, respectively, to fill vacancies on the Board. Carl Ferenbach
resigned from our Board of Directors effective as of May 2, 2001.
22
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.
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,
2001 (dollars in thousands).
Total indebtedness............................................ $3,423,097
Redeemable preferred stock.................................... 878,861
Stockholders' equity.......................................... 2,364,648
Debt and redeemable preferred stock to equity ratio 1.82x
In addition, our earnings for the twelve months ended December 31, 2001
were insufficient to cover fixed charges by $351.0 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 in
our industry with less debt.
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.
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, our 10 3/4% senior notes and our 9 3/8% senior notes
require annual cash interest payments of approximately $16.2 million, $11.9
million, $53.8 million and $42.2 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
23
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 ($16.4 million). In
addition, our various credit facilities will require periodic interest
payments on amounts borrowed thereunder.
Our Business Depends on the Demand for Wireless Communications and Towers--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 relating to owning or leasing communication
sites;
. the availability of equipment to wireless carriers;
. changes in telecommunications regulations; and
. general economic conditions.
A slowdown in the growth of, or reduction in, demand in a particular
wireless segment could adversely affect the demand for communication sites.
Moreover, wireless carriers often operate with substantial indebtedness, and
financial problems for our customers could result in accounts receivable going
uncollected, the loss of a customer (and associated lease revenue) or a
reduced ability of these customers to finance expansion activities. A slowdown
in the deployment of equipment for new wireless technology, the consolidation
of wireless carriers or the sharing of networks by wireless carriers could
also adversely affect the demand for our sites. Finally, advances in
technology, such as the development of new satellite and antenna systems,
could reduce the need for land-based, or terrestrial, transmission networks.
In recent years, all of the above factors have occurred to some extent with an
adverse effect on our business, and such factors are likely to persist in the
future. The occurrence of any of these factors could have a material adverse
effect on our financial condition and results of operations.
Continuation of the Current Economic and Telecommunications Industry
Slowdown--This slowdown could materially and adversely affect our business
(including reducing demand for our towers and services) and the business of
our customers.
The significant general slowdown in the U.S. and certain international
economies, particularly in the wireless and telecommunications industries, has
negatively affected the factors described in the immediately preceding risk
factor, influencing demand for tower space and tower related services. This
slowdown could reduce consumer demand for wireless services, or negatively
impact the debt and equity markets, thereby causing carriers to delay or
abandon implementation of new systems and technologies, including 3G and other
wireless broadband services.
We believe that the current economic slowdown, particularly in the wireless
and telecommunications industries, has already harmed, and may continue to
harm, the financial condition of some wireless service providers, certain of
which, including customers of ours, have filed or may file for bankruptcy.
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
24
on our financial condition and results of operations. We have grown
significantly over the past three years, and such growth continues to be an
important part of our business plan. The addition of over 13,000 towers and
approximately 30,000 tenants to our operations over the past three years has
and will continue to increase our current business considerably and adds
significant operational complexities. Further, we will be integrating the
additional sites relating to the British Telecom Agreement into our
portfolios. See "Business--The Company--U.K. Operations--Significant
Contracts--British Telecom Agreement". Successful integration of these
transactions and assets will depend primarily on our ability to manage these
combined operations. Our net loss increased to $366.2 million for the twelve
months ended December 31, 2001 from $204.8 million for the twelve months ended
December 31, 2000, an increase of 78.8%, as a result of our expanded business
operations and the financing thereof, including a 37.6% increase in
depreciation and amortization and a 23.3% increase in interest expense as
compared to the twelve months ended December 31, 2000. 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 any future acquisitions may impose significant strains on
our management, operating systems and financial resources. 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 certain acquisitions and joint
venture opportunities may require substantial attention from our senior
management, which will limit the amount of time they would otherwise be able
to devote to our existing operations.
A Substantial Portion Of Our Revenues Is Derived From a Small Number of
Customers, Including the BBC, NTL, ITVdigital And Verizon--The loss or
consolidation of any of our limited number of customers could materially
decrease revenues.
Approximately 61.6% or our revenues are derived from 10 customers. The loss
of any one of our large customers as a result of bankruptcy, merger,
consolidation with others customers of ours or otherwise could materially
decrease our revenues and have other adverse effects on our business.
In addition, a substantial portion of our revenues are received from a few
major wireless carriers, particularly carriers that have transferred their
tower assets to us. We cannot guarantee that the lease or management service
agreements with such carriers will not be terminated or that these carriers
will renew such agreements.
If we were to lose our contracts with the BBC or ITVdigital or our site
sharing agreement with NTL, we would likely lose a substantial portion of our
revenues. The BBC accounted for approximately 10.4% of our revenues for the
twelve-month period ended December 31, 2001. Further, ITVdigital and NTL have
recently been experiencing some financial difficulties, and there can be no
assurances that we will not experience adverse effects relating to the
financial difficulties of either such company. On March 27, 2002, a U.K. court
approved an application by ITVdigital to be placed into administration (a
proceeding, similar to a Chapter 11 bankruptcy proceeding in the United
States, designed to protect the applicant from the claims of its creditors
while it reorganizes its business). There can be no assurances as to the
outcome of this action or its effect on us. Our primary concern will be any
modification to our ITVdigital transmission contract resulting from these
administration proceedings. ITVdigital accounted for approximately $30.7
million, or 3.4%, of our revenues for the twelve-month period ended December
31, 2001. The loss of ITVdigital as a customer or the modification of the
ITVdigital transmission contract could have an adverse effect on our results
of operations.
Our broadcast business is substantially dependent on our contracts with the
BBC. We cannot guarantee that the BBC will renew our contracts or that they
will not attempt to negotiate terms that are not as favorable to us as those
in place now. If we were to lose these BBC contracts, our business, results of
operations and financial condition would be materially adversely affected. The
initial term of our analog transmission contract with the BBC will expire on
March 31, 2007, and our digital transmission contract with the BBC expires on
October 31,
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2010. In addition, the BBC can terminate our digital transmission contract
with them after October 31, 2003 if the BBC's board of governors does not
believe that digital television in the United Kingdom has enough viewers.
A substantial portion of our U.K. broadcast transmission operations is
conducted using sites owned by NTL, our principal broadcast competitor in the
United Kingdom. NTL also utilizes our sites for their broadcast operations.
This site sharing arrangement with NTL may be terminated on December 31, 2015,
or any 10-year anniversary of that date, with five years' prior notice by
either us or NTL, and may be terminated sooner if there is a continuing breach
of the agreement. We cannot guarantee that this agreement will not be
terminated, which could have a material adverse effect on our business,
results of operations and financial condition.
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 or from proceeds of debt or
equity offerings. 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".
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.
We Operate Our Business In an Increasingly Competitive Industry and Some Of
Our Competitors Have Significantly More Resources--As a result of this
competition, we may find it more difficult to achieve favorable lease rates on
our towers.
We face competition for site rental customers from various sources,
including:
. other large independent tower owners;
. wireless carriers that own and operate their own towers and lease
antenna space to other carriers;
. site development companies that acquire antenna space on existing towers
for wireless carriers and manage new tower construction;
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. traditional local independent tower operators; and
. alternative facilities such as billboards, weather balloons, utility
poles and rooftops.
Wireless carriers that own and operate their own tower portfolios generally
are substantially larger and have greater financial resources than we have.
Further, the weak financial status of certain of our competitors could lead to
increased competition in certain areas