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 inthe 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 endedDecember 31, 2020 filed with theSEC onMarch 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, inthe United States ,Bermuda , and theCaribbean . 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.
As of
Mobility Telecommunications Services. We offer mobile telecommunications
? services and equipment ("Mobility") over our wireless networks to both our
business and consumer subscribers. In certain markets, Mobility services also
includes private network services to business customers and municipalities.
Fixed Telecommunications Services. We provide fixed data broadband, internet
? and voice telecommunications services ("Fixed") to both our business and
consumer subscribers in all of our markets. For some markets, Fixed services
also include video services and support under certain government programs.
Carrier Telecommunication Services. We deliver services to other
telecommunications providers ("Carrier Services") such as wholesale roaming,
? the leasing of critical network infrastructure such as tower and transport
facilities, site maintenance and international long-distance services.
Managed Services. We provide information technology services ("Managed
? Services") such as network, application, infrastructure and hosting services to
both our business and consumer customers. 41 Table of Contents
Through
? Mobility services, Carrier Services and Managed Services to customers in
fixed video services in
? and Managed Services to business and consumer customers in
Western US where we also provide Mobility and private network services to
consumers.
Renewable Energy. In
? commercial and industrial customers through
of International Solar Business for further details.
The following chart summarizes the operating activities of our principal
subsidiaries, the segments in which we report our revenue and the markets we
served as of
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
Wireless, Deploycom
Carrier Services United States Alaska Communications, Commnet, Essextel Managed Services United States Alaska Communications, Choice Renewable Energy (1) Solar India
Vibrant Energy
(1) See Disposition of International Solar Business for further details.
For further information about our financial segments and geographical information about our operating revenues and assets see Notes 1 and 13 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Acquisition of
OnJuly 22, 2021 , we completed the acquisition ofAlaska Communications Systems Group, Inc. ("Alaska Communications "), a publicly listed company, for approximately$339.5 million in cash, net of cash acquired, (the "Alaska Transaction").Alaska Communications provides broadband telecommunication and managed information technology services to customers in theState of Alaska and 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 3Capital, LLC as well as other institutional investors (collectively the "Freedom 3 Investors"). The 42
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Freedom 3 Investors contributed$71.5 million in conjunction with theAlaska Transaction (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 ofAlaska 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 million on a new credit facility to complete the Alaska Transaction. As a result of the Alaska Transaction, we own approximately 52% of the common equity ofAlaska Communications and control its operations and management. Beginning onJuly 22, 2021 , the results of the Alaska Transaction are included in ourUS Telecom segment.
See Liquidity and Capital Resources for a discussion regarding the credit agreement used to help finance the Alaska Transaction.
COVID-19
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 ofSeptember 30, 2021 and 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 endedSeptember 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.
Disposition of International Solar Business
InJanuary 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 inIndia (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 InJuly 2019 , we entered into a Network Build and Maintenance Agreement withAT&T Mobility, LLC ("AT&T") that we amended inAugust 2020 andMay 2021 (the "FirstNet Agreement"). In connection with the FirstNet Agreement, we are building a portion of AT&T's network for theFirst Responder Network Authority ("FirstNet") in or near our current operating area in theWestern 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 million to$85 million through 2022 that will be mainly offset 43
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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 theUniversal Service Fund ("USF"), a subsidy program managed by theFederal Communications Commission ("FCC "), and theAlaska Universal Service Fund ("AUSF"), a similar program managed by theRegulatory 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 theRural 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. UnderCAF II , ourUS Telecom segment will receive an aggregate of$27.7 million annually throughDecember 2025 and an aggregate of$8.0 million annually fromJanuary 2026 throughJuly 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 ofSeptember 30, 2021 . In 2018, theFCC initiated a proceeding to replace the High Cost Program support received by Viya in the US Virgin Islands with a newConnect USVI Fund . OnNovember 16, 2020 , theFCC announced that Viya was not the recipient of theConnect USVI Fund award and authorized funding to be issued to the new awardee inJune 2021 . Pursuant to the terms of the program and effective inJuly 2021 , Viya's annual USF support was reduced from$16.4 million to$10.9 million . InJuly 2022 , this support will be reduced again to$5.5 million for the annual period throughJune 2023 . Thereafter, Viya will not receive High Cost Program support.
RDOF ("
Pending the
Construction Grants
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 ofDecember 31, 2020 , we have been awarded approximately$16.8 million of such grants. We were awarded$6.5 million of 44
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additional grants in the nine months endedSeptember 30, 2021 . Of this$23.3 million of awards, we have completed our construction obligations on$14.0 million of these projects and$9.3 million of such construction obligations remain with completion deadlines beginning inJuly 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 ofDecember 31, 2020 , we have received$16.3 million of funding under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") to construct network infrastructure within ourUS Telecom segment. During the nine months endedSeptember 30, 2021 , we received an additional$2.4 million of funding for the same purpose. The construction was completed as ofSeptember 30, 2021 and$18.4 million of the funding was recorded as a reduction to property, plant and equipment with a subsequent reduction to depreciation expense. The remaining$0.3 million was recorded as a reduction to operating expense in the nine months endedSeptember 30, 2021 . CBRS Auction During the third quarter of 2020, we participated in theFCC '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 throughoutthe United States at 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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