| AMERICAN TOWER CORP /MA/ ITEM 1A RISK FACTORS Decrease in demand for tower space would materially and adversely affect our operating results and we cannot control that demand |
| Many of the factors affecting the demand for wireless communications tower space, and to a lesser extent our network development services business, could adversely affect our operating results |
| Those factors include: • a decrease in consumer demand for wireless services due to general economic conditions or other factors; • the financial condition of wireless service providers; • the ability and willingness of wireless service providers to maintain or increase capital expenditures; • the growth rate of wireless communications or of a particular wireless segment; • governmental licensing of spectrum; • mergers or consolidations among wireless service providers; • increased use of network sharing, roaming or resale arrangements by wireless service providers; • delays or changes in the deployment of 3G or other technologies; • zoning, environmental, health and other government regulations; and • technological changes |
| The demand for broadcast antenna space is dependent on the needs of television and radio broadcasters |
| Among other things, technological advances, including the development of satellite-delivered radio, may reduce the need for tower-based broadcast transmission |
| We could also be affected adversely should the development of digital television be further delayed or impaired, or if demand for it were less than anticipated because of delays, disappointing technical performance or cost to the consumer |
| If our wireless service provider customers consolidate or merge with each other to a significant degree, our growth, revenue and ability to generate positive cash flows could be adversely affected |
| Significant consolidation among our wireless service provider customers may result in reduced capital expenditures in the aggregate because the existing networks of many wireless carriers overlap, as do their expansion plans |
| For example, as a result of the recently completed mergers between Cingular Wireless and AT&T Wireless and between Sprint PCS and Nextel, both Cingular Wireless and Sprint Nextel are exploring ways of rationalizing portions of their combined, yet technologically separate, wireless networks |
| Certain parts of their merged networks may be deemed to be duplicative and these customers may attempt to eliminate these duplications |
| Our future results may be negatively impacted if a significant number of these contracts are eliminated from our ongoing contractual revenues |
| Similar consequences might occur if wireless service providers engage in extensive sharing, roaming or resale arrangements as an alternative to leasing our antenna space |
| 12 ______________________________________________________________________ [67]Table of Contents In January 2003, the FCC eliminated its spectrum cap, which prohibited wireless carriers from owning more than 45 MHz of spectrum in any given geographical area |
| The FCC has also eliminated the cross-interest rule for metropolitan areas, which limited an entity’s ability to own interests in multiple cellular licenses in an overlapping geographical service area |
| Also, in May 2003, the FCC adopted new rules authorizing wireless radio services holding exclusive licenses to freely lease unused spectrum |
| These regulatory changes may encourage consolidation among wireless carriers, which, if it resulted in a loss of one or more of our major customers, could materially decrease our revenues and cash flows |
| Substantial leverage and debt service obligations may adversely affect us |
| We have a substantial amount of indebtedness |
| As of December 31, 2005, we had approximately dlra3dtta6 billion of consolidated debt |
| Our substantial level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay when due the principal of, interest on, or other amounts due with respect to our indebtedness |
| As of December 31, 2005, approximately 41prca of our outstanding indebtedness bore interest at floating rates (approximately 21prca, after giving effect to the interest rate swap agreements used to manage exposure to variable rate interest obligations on our credit facilities) |
| As a result, our interest payment obligations on such indebtedness will increase if interest rates increase |
| Subject to certain restrictions under our existing indebtedness, we may also obtain additional long-term debt and working capital lines of credit to meet future financing needs |
| Our substantial leverage could have significant negative consequences on our financial condition and results of operations, including: • impairing our ability to meet one or more of the financial ratios contained in our debt agreements or to generate cash sufficient to pay interest or principal, which events could result in an acceleration of some or all of our outstanding debt as a result of cross-default provisions; • increasing our vulnerability to general adverse economic and industry conditions; • limiting our ability to obtain additional debt or equity financing; • requiring the dedication of a substantial portion of our cash flow from operations to service our debt, thereby reducing the amount of our cash flow available for other purposes, including capital expenditures; • requiring us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms, to meet payment obligations; • limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we compete; and • placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources |
| Restrictive covenants in our credit facilities and indentures could adversely affect our business by limiting flexibility |
| Our credit facilities and the indentures governing the terms of our debt securities contain restrictive covenants |
| Our credit facilities also contain requirements that the borrowers under each facility comply with certain leverage and other financial tests |
| These covenants and requirements limit our ability to take various actions, including incurring additional debt, guaranteeing indebtedness, engaging in various types of transactions, including mergers and sales of assets, and paying dividends and making distributions or other restricted payments |
| These covenants could place us at a disadvantage compared to some of our competitors which may have fewer restrictive covenants and may not be required to operate under these restrictions |
| Further, these covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, new tower development, merger and acquisition or other opportunities |
| 13 ______________________________________________________________________ [68]Table of Contents Due to the long-term expectations of revenue from tenant leases, the tower industry is sensitive to the creditworthiness of its tenants |
| Due to the long-term nature of our tenant leases, we, like others in the tower industry, are dependent on the continued financial strength of our tenants |
| Many wireless service providers operate with substantial leverage |
| During the past few years, several of our customers have filed for bankruptcy, although to date these bankruptcies have not had a material adverse effect on our business or revenues |
| If one or more of our major customers experience financial difficulties, it could result in uncollectible accounts receivable and our loss of significant customers and anticipated lease revenues |
| Our foreign operations are subject to economic, political and other risks that could adversely affect our revenues or financial position |
| Our business operations in Mexico and Brazil, and any other possible foreign operations in the future, could result in adverse financial consequences and operational problems not experienced in the United States |
| For the year ended December 31, 2005, approximately 13prca of our consolidated revenues were generated by our international operations (assuming our merger with SpectraSite, Inc |
| We anticipate that our revenues from our international operations may grow in the future |
| Accordingly, our business is subject to risks associated with doing business internationally, including: • changes in a specific country’s or region’s political or economic conditions; • laws and regulations that restrict repatriation of earnings or other funds; • difficulty in recruiting trained personnel; and • language and cultural differences |
| In addition, we face risks associated with changes in foreign currency exchange rates |
| While most of the contracts for our international operations are denominated in the US dollar, others are denominated in the Mexican Peso or the Brazilian Real |
| We have not historically engaged in significant hedging activities relating to our non-US dollar operations, and we may suffer future losses as a result of adverse changes in currency exchange rates |
| A substantial portion of our revenue is derived from a small number of customers |
| A substantial portion of our total operating revenues is derived from a small number of customers |
| For the year ended December 31, 2005, after giving effect to our merger with SpectraSite, Inc |
| (assuming the merger occurred on January 1, 2005): • Five customers accounted for approximately 59prca of our revenues; • Cingular Wireless accounted for approximately 19prca of our revenues; • Sprint Nextel (assuming the merger of Sprint PCS and Nextel occurred on January 1, 2005) accounted for approximately 17prca of our revenues (approximately 22prca including Sprint Nextel partners and affiliates); and • Verizon Wireless accounted for approximately 10prca of our revenues |
| Our largest international customer is Iusacell Celular, which accounted for approximately 3prca of our total revenues for the year ended December 31, 2005 (assuming our merger with SpectraSite, Inc |
| Iusacell is an affiliate of TV Azteca, which owns a minority interest in Unefon, which is our second largest customer in Mexico and accounted for approximately 2prca of our total revenues for the year ended December 31, 2005 (assuming our merger with SpectraSite, Inc |
| In addition, we received dlra14dtta2 million in interest income, net, from TV Azteca for the year ended December 31, 2005 |
| 14 ______________________________________________________________________ [69]Table of Contents If any of these customers were unwilling or unable to perform their obligations under our agreements with them, our revenues, results of operations, and financial condition could be adversely affected |
| In the ordinary course of our business, we also sometimes experience disputes with our customers, generally regarding the interpretation of terms in our agreements |
| Although historically we have resolved these disputes in a manner that did not have a material adverse effect on our company or our customer relationships, in the future these disputes could lead to a termination of our agreements with customers or a material modification of the terms of those agreements, either of which could have a material adverse effect on our business, results of operations and financial condition |
| If we are forced to resolve any of these disputes through litigation, our relationship with the applicable customer could be terminated or damaged, which could lead to decreased revenues or increased costs, resulting in a corresponding adverse effect on our business, results of operations and financial condition |
| Status of Iusacell Celular’s financial restructuring exposes us to certain risks and uncertainties |
| Iusacell Celular is our largest customer in Mexico and accounted for approximately 3prca of our total revenues for the year ended December 31, 2005 (assuming our merger with SpectraSite, Inc |
| Iusacell has been in default under certain of its debt obligations and involved in litigation with certain of its creditors |
| While Iusacell reported in January 2006 that it has reached an agreement in principle with its creditors to restructure its debt obligations, if the restructuring is not completed, Iusacell files for bankruptcy, or the creditor litigation has an adverse impact on Iusacell’s overall liquidity, it could interfere with Iusacell’s ability to meet its operating obligations, including rental payments under our leases with them |
| We may not realize the intended benefits of our merger with SpectraSite, Inc |
| if we are unable to integrate SpectraSite’s operations, wireless communications tower portfolio, customers and personnel in a timely and efficient manner, which could adversely affect our business and the value of our Class A common stock |
| Achieving the benefits of our merger with SpectraSite, Inc |
| depends in part on the integration of our operations, wireless communications tower portfolios and personnel with those of SpectraSite in a timely and efficient manner and the ability of the combined company to realize the anticipated synergies from this integration |
| Integration may be difficult and unpredictable for many reasons, including, among others, the size of SpectraSite’s wireless communications tower portfolio and because SpectraSite’s and our internal systems and processes were developed without regard to such integration |
| Our successful integration with SpectraSite requires coordination of different personnel, which may be difficult and unpredictable because of possible cultural conflicts and differences in policies, procedures and operations between the companies and the different geographical locations of the companies |
| Our successful integration also requires attention to and maintenance of our business relationships with current customers, which if compromised, would result in disruptions to our business |
| If we cannot successfully integrate SpectraSite’s operations, wireless communications tower portfolio, customers and personnel, we may not realize the expected benefits of the merger, which could adversely affect the combined company’s business and could adversely affect the value of our Class A common stock |
| In addition, the integration of our business with SpectraSite may place a significant burden on management and its internal resources |
| The diversion of management’s attention from ongoing business concerns and any difficulties encountered in the transition and integration process could harm our business and financial results of the combined company and the value of our Class A common stock |
| We expect to incur substantial expenses related to the integration of SpectraSite |
| We expect to incur substantial expenses in connection with the integration of the business, policies, procedures, operations and systems of SpectraSite |
| While we have integrated many of the companies’ systems and administrative activities to date, we do not expect to complete our integration efforts until the second quarter of 2006 |
| If we fail to meet the challenges involved in integrating the companies’ business and operations, or we are unable to do so on a timely basis, it could result in substantial additional expenses and harm to the combined company |
| These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses |
| 15 ______________________________________________________________________ [70]Table of Contents New technologies could make our tower leasing business less desirable to potential tenants and result in decreasing revenues |
| The development and implementation of new technologies designed to enhance the efficiency of wireless networks could reduce the use and need for tower-based wireless services transmission and reception and have the effect of decreasing demand for tower space |
| Examples of such technologies include technologies that enhance spectral capacity, such as lower-rate vocoders, which can increase the capacity at existing sites and reduce the number of additional sites a given carrier needs to serve any given subscriber base |
| In addition, the emergence of new technologies could reduce the need for tower-based broadcast services transmission and reception |
| For example, the growth in delivery of video services by direct broadcast satellites could adversely affect demand for our antenna space |
| The development and implementation of any of these and similar technologies to any significant degree could have an adverse effect on our operations |
| We could have liability under environmental laws |
| Our operations, like those of other companies engaged in similar businesses, are subject to the requirements of various federal, state and local and foreign environmental and occupational safety and health laws and regulations, including those relating to the management, use, storage, disposal, emission and remediation of, and exposure to, hazardous and non-hazardous substances, materials and wastes |
| As owner, lessee or operator of many thousands of real estate sites underlying our towers, we may be liable for substantial costs of remediating soil and groundwater contaminated by hazardous materials, without regard to whether we, as the owner, lessee or operator, knew of or were responsible for the contamination |
| Many of these laws and regulations contain information reporting and record keeping requirements |
| We cannot assure you that we are at all times in complete compliance with all environmental requirements |
| We may be subject to potentially significant fines or penalties if we fail to comply with any of these requirements |
| The current cost of complying with these laws (including amounts we expect to pay the EPA pursuant to the Facilities Audit Agreement) is not material to our financial condition or results of operations |
| However, the requirements of these laws and regulations are complex, change frequently, and could become more stringent in the future |
| It is possible that these requirements will change or that liabilities will arise in the future in a manner that could have a material adverse effect on our business, financial condition and results of operations |
| Our business is subject to government regulations and changes in current or future laws or regulations could restrict our ability to operate our business as we currently do |
| We are subject to federal, state, local and foreign regulation of our business, including regulation by the FAA, the FCC, the EPA and OSHA Both the FCC and the FAA regulate towers used for wireless communications and radio and television antennas and the FCC separately regulates transmitting devices operating on towers |
| Similar regulations exist in Mexico, Brazil and other foreign countries regarding wireless communications and the operation of communications towers |
| Local zoning authorities and community organizations are often opposed to construction in their communities and these regulations can delay, prevent or increase the cost of new tower construction, modifications, additions of new antennas to a site, or site upgrades, thereby limiting our ability to respond to customer demands and requirements |
| Existing regulatory policies may adversely affect the associated timing or cost of such projects and additional regulations may be adopted which increase delays or result in additional costs to us, or that prevent such projects in certain locations |
| These factors could adversely affect our operations |
| Increasing competition in the tower industry may create pricing pressures that may adversely affect us |
| Our industry is highly competitive, and our customers have numerous alternatives for leasing antenna space |
| Some of our competitors, such as national wireless carriers that allow collocation on their towers, are larger and have greater financial resources than we do, while other competitors are in weak financial condition or may have lower return on investment criteria than we do |
| Competitive pricing pressures for tenants on towers from these competitors could adversely affect our lease rates and services income |
| 16 ______________________________________________________________________ [71]Table of Contents In addition, if we lose customers due to pricing, we may not be able to find new customers, leading to an accompanying adverse effect on our profitability |
| Increasing competition could also make the acquisition of high quality tower assets more costly |
| Our competition includes: • national and regional tower companies; • wireless carriers that own towers and lease antenna space to other carriers; • site development companies that purchase antenna space on existing towers for wireless carriers and manage new tower construction; and • alternative site structures (eg, building rooftops, billboards and utility poles) |
| If we are unable to protect our rights to the land under our towers, it could adversely affect our business and operating results |
| Our real property interests relating to our towers consist primarily of leasehold and sub-leasehold interests, fee interests, easements, licenses and rights-of-way |
| A loss of these interests may interfere with our ability to operate our towers and generate revenues |
| For various reasons, we may not always have the ability to access, analyze and verify all information regarding titles and other issues prior to completing an acquisition of communications sites |
| Further, we may not be able to renew ground leases on commercially viable terms |
| Approximately 85prca of the owned communications sites in our portfolio as of December 31, 2005 are located on leased land |
| Approximately 85prca of these sites are on land where our property interests in such land have a final expiration date of 2015 and beyond |
| Our inability to protect our rights to the land under our towers may have a material adverse affect on us |
| If we are unable or choose not to exercise our rights to purchase towers that are subject to lease and sublease agreements at the end of the applicable period, our cash flows derived from such towers would be eliminated |
| Our communications site portfolio includes towers that we operate pursuant to lease and sublease agreements that include a purchase option at the end of each lease period |
| If we are unable or choose not to exercise our rights to purchase towers under these agreements at the end of the applicable period, our cash flows derived from such towers would be eliminated |
| For example, our SpectraSite subsidiary has entered into lease or sublease agreements with affiliates of SBC Communications (SBC) with respect to approximately 2cmam500 towers pursuant to which SpectraSite has the option to purchase the sites upon the expiration of the lease or sublease beginning in 2013 |
| The aggregate purchase option price for the SBC towers was approximately dlra282dtta4 million as of December 31, 2005, and will accrete at a rate of 10prca per year to the applicable expiration of the lease or sublease of a site |
| In addition, we have entered into a similar agreement with ALLTEL with respect to approximately 1cmam776 towers, for which we have an option to purchase the sites upon the expiration of the lease or sublease beginning in 2016 |
| The aggregate purchase option price for the ALLTEL towers was approximately dlra56dtta2 million as of December 31, 2005, and will accrete at a rate of 3prca per annum |
| We may not have the required available capital to exercise our right to purchase these or other lease or subleased towers at the end of the applicable period |
| Even if we do have available capital, we may choose not to exercise our right to purchase such towers for business or other reasons |
| In the event that we decide to exercise these purchase rights, the benefits of the acquisitions of such towers may not exceed the associated acquisition, compliance and integration costs, and our financial results could be adversely affected |
| Our towers may be affected by natural disasters and other unforeseen damage for which our insurance may not provide adequate coverage |
| Our towers are subject to risks associated with natural disasters, such as ice and wind storms, tornadoes, floods, hurricanes and earthquakes, as well as other unforeseen damage |
| Any damage or destruction to our towers 17 ______________________________________________________________________ [72]Table of Contents as a result of these or other risks would impact our ability to provide services to our customers and could impact our results of operation and financial condition |
| For example, as a result of the severe hurricane activity in 2005, approximately 25 of our broadcast and wireless communications sites in the southeastern United States and Mexico suffered material damage and many more suffered lesser damage |
| While we maintain insurance, including business interruption insurance, for our towers against these risks, we may not have adequate insurance to cover the associated costs of repair or reconstruction |
| Further, such business interruption insurance may not adequately cover all of our lost revenues, including potential revenues from new tenants that could have been added to our towers but for the damage |
| If we are unable to provide services to our customers as a result of damages to our towers, it could lead to customer loss, resulting in a corresponding adverse effect on our business, results of operations and financial condition |
| Our costs could increase and our revenues could decrease due to perceived health risks from radio emissions, especially if these perceived risks are substantiated |
| Public perception of possible health risks associated with cellular and other wireless communications media could slow the growth of wireless companies, which could in turn slow our growth |
| In particular, negative public perception of, and regulations regarding, these perceived health risks could slow the market acceptance of wireless communications services and increase opposition to the development and expansion of tower sites |
| The potential connection between radio frequency emissions and certain negative health effects has been the subject of substantial study by the scientific community in recent years, and numerous health-related lawsuits have been filed against wireless carriers and wireless device manufacturers |
| If a scientific study or court decision resulted in a finding that radio frequency emissions posed health risks to consumers, it could negatively impact the market for wireless services, as well as our wireless carrier customers, which would adversely effect our operations, costs and revenues |
| We do not maintain any significant insurance with respect to these matters |
| The bankruptcy proceeding of our Verestar subsidiary exposes us to risks and uncertainties |
| Our wholly owned subsidiary, Verestar, Inc, filed for protection under Chapter 11 of the federal bankruptcy laws in December 2003 |
| If Verestar fails to honor certain of its contractual obligations because of its bankruptcy filing or otherwise, claims may be made against us for breaches by Verestar of those contracts as to which we are primarily or secondarily liable as a guarantor (which we do not expect to exceed dlra3dtta2 million) |
| In addition, in July 2005, the Official Committee of Unsecured Creditors appointed in the bankruptcy proceeding (the Committee) filed a complaint in the US District Court for the Southern District of New York against us and certain of our and Verestar’s current and former officers, directors and advisors, and also filed a complaint in the Bankruptcy Court against us |
| (The case initially filed in the District Court has since been transferred to the Bankruptcy Court, and both cases are now pending as a single, consolidated case before the same Bankruptcy judge |
| ) Pursuant to the complaints, the Committee is seeking unspecified compensatory damages of not less than dlra150dtta0 million, punitive damages and various costs and fees |
| The outcome of this complex litigation cannot be predicted by us with certainty, is dependent upon many factors beyond our control, and could take several years to resolve |
| If any such claims are successful, however, they could have a material adverse impact on our financial position and results of operations |
| For more information regarding the Verestar bankruptcy and |