The discussion and analysis of our financial condition and results of operations that follows is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions. This discussion should be read in conjunction with our condensed consolidated financial statements herein and the accompanying notes thereto, and our Annual Report on Form 10-K for the year ended December 31, 2020filed with the SECon March 1, 2021, (the "2020 Annual Report on Form 10-K"), and in particular, the information set forth therein under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Overview
We strive to be a leading platform for the operation of, and investment in, connectivity services to remote and underserved markets. Our operating subsidiaries provide critical infrastructure-based solutions and communications services, in
the United States, Bermuda, and the Caribbean. At the holding company level, we oversee the allocation of capital within and to our subsidiaries, affiliates, new investments, and stockholders. We have also developed significant operational expertise and resources that we use to augment the capabilities of our individual operating subsidiaries. Over the past ten years, we have built a platform of resources and expertise to support our operating subsidiaries and to improve their quality of service with greater economies of scale and expertise than would typically be available at the operating subsidiary level. We actively evaluate potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, and generally look for those that we believe have the potential for generating steady excess cash flows over extended periods of time. We have used the cash generated from our operations and dispositions of our operating subsidiaries to re-invest in our existing businesses, to make strategic investments in additional businesses, and to return cash to our investors. We also provide management, technical, financial, regulatory, and marketing services to our operating subsidiaries and typically receive a management fee calculated as a percentage of their revenues, which is eliminated in consolidation. For further information about the Company's financial segments and geographical information about our operating revenues and assets, see Note 13 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Mobility telecommunications services. We offer mobile telecommunications
? services and equipment (“Mobility”) on our wireless networks to both of us
professional and private subscribers. In some markets, mobility services also have
includes private network services to commercial customers and municipalities.
Fixed telecommunications services. We provide fixed broadband data, internet
? and voice (“fixed”) telecommunications services for both our business and
consumer subscribers in all our markets. For some markets, fixed services
also include video services and support for certain government programs.
Carrier Telecommunication Services. We deliver services to other
telecommunications providers (“carrier services”) such as wholesale roaming,
? rental of critical network infrastructure such as tower and transport
installations, site maintenance and international long distance services.
Managed services. We provide information technology services (“Managed
? Services “) such as network, application, infrastructure and hosting services for
both our business and consumer customers. 41 Table of Contents
? Mobility Services, Carrier Services and Managed Services to customers of
fixed video services in
? and Managed Services for businesses and individuals in
Western United States where we also provide mobility and private network services to
Renewable energy. In
? commercial and industrial customers through
of International Solar Business for further details.
The following chart summarizes the operating activities of our main subsidiaries, the segments in which we present our revenues and the markets we serve in the
Segment Services Markets Tradenames International Telecom Mobility Bermuda, Guyana, US Virgin Islands One, GTT+, Viya Fixed Bermuda, Cayman Islands,
Carrier Services Bermuda, Guyana, US Virgin Islands One, GTT+, Viya Managed Services Bermuda, Cayman Islands, US Virgin Islands, Guyana Fireminds, One, Logic, GTT+, Viya US Telecom Mobility United States (rural markets) Choice, Choice NTUA Wireless, Geoverse Fixed United States Alaska Communications, Commnet, Choice, Choice NTUA
Carrier Services United States Alaska Communications, Commnet, Essextel Managed Services United States Alaska Communications, Choice Renewable Energy (1) Solar India
(1) See Disposition of International Solar Business for further details.
For more information on our financial segments and geographic information on our revenues and assets, see Notes 1 and 13 to the unaudited condensed consolidated financial statements included in this report.
The acquisition of
July 22, 2021, we completed the acquisition of Alaska Communications Systems Group, Inc.(" Alaska Communications"), a publicly listed company, for approximately $339.5 millionin cash, net of cash acquired, (the " AlaskaTransaction"). Alaska Communicationsprovides broadband telecommunication and managed information technology services to customers in the State of Alaskaand beyond using its statewide and interstate telecommunications network. In conjunction with the Alaska Transaction, we entered into an agreement with affiliates and investment funds managed by Freedom 3 Capital, LLCas well as other institutional investors (collectively the "Freedom 3 Investors"). The 42
Freedom 3 Investors contributed
$71.5 millionin conjunction with the AlaskaTransaction (the "Freedom 3 Investment"). The Freedom 3 Investment consists of common and preferred equity instruments in a subsidiary of the Company which holds the ownership of Alaska Communications. We accounted for the Freedom 3 Investment as redeemable noncontrolling interests in our consolidated financial statements and we also entered into a financing transaction drawing $220 millionon a new credit facility to complete the Alaska Transaction. As a result of the Alaska Transaction, we own approximately 52% of the common equity of Alaska Communicationsand control its operations and management. Beginning on July 22, 2021, the results of the Alaska Transaction are included in our US Telecomsegment.
See Liquidity and Capital Resources for a discussion of the credit agreement used to help fund the transaction in Alaska.
We are continuing to monitor and assess the effects of the ongoing COVID-19 pandemic on our commercial operations, the safety of our employees and their families, our sales force and customers and any potential impact on our revenue in 2021.
The preparation of the condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate estimates, judgments and methodologies. We assessed certain accounting matters and estimates that generally require consideration of forecasted financial information in context with the information and estimates reasonably available to us and the unknown future impacts COVID-19 as of
September 30, 2021and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for credit losses, the carrying value of goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. Our assessment did not indicate that there was a material adverse impact to our consolidated financial statements as of and for the three and nine months ended September 30, 2021. However, future assessments of the impacts of COVID-19 for the remainder of 2021, as well as other factors, including the possible reinstatement of certain COVID-19 travel-related and stay-at-home restrictions, could result in material adverse impacts to our consolidated financial statements in future reporting periods. For example, we may experience difficulty in procuring network or retail equipment, such as handsets for subscribers, as a result of COVID-19 restrictions. Apart from possible government issued travel restrictions, we currently cannot assess how COVID-19 may influence subscribers' procurement behavior for services or how that behavior will impact revenues in the foreseeable future.
Sale of the international solar business
January 2021, we completed the sale of 67% of the outstanding equity in our business that owns and operates distributed generation solar power projects operated under the Vibrant name in India(the "Vibrant Transaction"). The post-sale results of our ownership interest in Vibrant, representing 33% of Vibrant's profits and losses, will be recorded through the equity method of accounting within the Corporate and Other operating segment. We will continue to present the historical results of our Renewable Energy segment for comparative purposes. The operations of Vibrant did not qualify as discontinued operations because the disposition did not represent a strategic shift that had a major effect on our operations and financial results. FirstNet Agreement In July 2019, we entered into a Network Build and Maintenance Agreement with AT&T Mobility, LLC("AT&T") that we amended in August 2020and May 2021(the "FirstNet Agreement"). In connection with the FirstNet Agreement, we are building a portion of AT&T's network for the First Responder Network Authority("FirstNet") in or near our current operating area in the Western United States. Pursuant to the FirstNet Agreement and subject to certain limitations contained therein, all cell sites must be completed and accepted within a specified period of time. We expect to recognize construction revenue of approximately $80 millionto $85 millionthrough 2022 that will be mainly offset 43
by construction costs as sites are completed. Revenues from construction are expected to have minimal impact on operating income. The network build portion of the FirstNet Agreement has continued during the COVID-19 pandemic but the overall timing of the build schedule has been delayed. Subject to ongoing delays caused by COVID-19 related restrictions, we currently expect construction revenues to continue into 2022. Following acceptance of a cell site, AT&T will own the cell site and we will assign to AT&T any third-party tower lease applicable to such cell site. If the cell site is located on a communications tower we own, AT&T will pay us pursuant to a separate lease agreement for an initial term of eight years. In addition to building the network, we will provide ongoing equipment and site maintenance and high capacity transport to and from these cell sites for an initial term ending in 2029. AT&T will continue to use our wholesale domestic mobility network for roaming services at a fixed rate per site during the construction period until such time as the cell site is transferred to AT&T. Thereafter, revenue from the maintenance, leasing and transport services provided to AT&T is expected to generally offset revenue from wholesale mobility roaming services. We are currently receiving revenue from the FirstNet Transaction and expect overall operating income contributions from the FirstNet Transaction to have a relatively steady impact going forward.
See Liquidity and Capital Resources below for a discussion regarding our
We recognize revenue from several government funded programs including the
Universal Service Fund("USF"), a subsidy program managed by the Federal Communications Commission(" FCC"), and the Alaska Universal Service Fund("AUSF"), a similar program managed by the Regulatory Commission of Alaska(the "RCA"). USF funds are disbursed to telecommunication providers through four programs: the High Cost Program; the Low Income Program ("Lifeline Program"); the Schools and Libraries Program ("E-Rate Program"); and the Rural Health
Care Support Program. We also recognize revenue from the Connect America Fund Phase II program ("CAF II") which offers subsidies to carriers to expand broadband coverage in designated areas. Under
CAF II, our US Telecomsegment will receive an aggregate of $27.7 millionannually through December 2025and an aggregate of $8.0 millionannually from January 2026through July 2028. Both the USF and CAFII programs are subject to certain operational and reporting compliance requirements. We believe we are in compliance with these requirements as of September 30, 2021. In 2018, the FCCinitiated a proceeding to replace the High Cost Program support received by Viya in the US Virgin Islands with a new Connect USVI Fund. On November 16, 2020, the FCCannounced that Viya was not the recipient of the Connect USVI Fundaward and authorized funding to be issued to the new awardee in June 2021. Pursuant to the terms of the program and effective in July 2021, Viya's annual USF support was reduced from $16.4 millionto $10.9 million. In July 2022, this support will be reduced again to $5.5 millionfor the annual period through June 2023. Thereafter, Viya will not receive High Cost Program support.
While waiting for the
We have also been awarded construction grants to build network connectivity for eligible communities. The funding of these grants, used to reimburse us for our construction costs, is distributed upon completion of a project. As of
December 31, 2020, we have been awarded approximately $16.8 millionof such grants. We were awarded $6.5 millionof 44
additional grants in the nine months ended
September 30, 2021. Of this $23.3 millionof awards, we have completed our construction obligations on $14.0 millionof these projects and $9.3 millionof such construction obligations remain with completion deadlines beginning in July 2022. Once these projects are constructed, we are obligated to provide service to the participants. We expect to meet all requirements associated with these grants. CARES Act As of December 31, 2020, we have received $16.3 millionof funding under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") to construct network infrastructure within our US Telecomsegment. During the nine months ended September 30, 2021, we received an additional $2.4 millionof funding for the same purpose. The construction was completed as of September 30, 2021and $18.4 millionof the funding was recorded as a reduction to property, plant and equipment with a subsequent reduction to depreciation expense. The remaining $0.3 millionwas recorded as a reduction to operating expense in the nine months ended September 30, 2021. CBRS Auction During the third quarter of 2020, we participated in the FCC's Citizens Broadband Radio Service (CBRS) auction for Priority Access Licenses (PALs) in the 3.5 GHz spectrum band. These PALs are licensed on a county-by-county basis and are awarded for a 10-year renewable term. We were a winning bidder for PALs located strategically throughout the United Statesat a total cost of approximately $20.4 million. In connection with the awarded licenses, we will have to achieve certain CBRS spectrum build out obligations. We currently expect to comply with all applicable requirements related to these licenses. 45
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