| NEXTEL PARTNERS INC Item 1A Risk Factors The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered |
| The risks and uncertainties described below are not the only ones we face |
| Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations |
| If any of the following risks occur, our business, operating results and financial condition could be seriously harmed |
| If Sprint Nextel experiences financial or operational difficulties, our business may be adversely affected |
| Our business plan depends, in part, on Sprint Nextel continuing to build and sustain customer support of the Nextel brand and the Motorola iDEN technology |
| If Sprint Nextel encounters financial problems or operating difficulties relating to its portion of the Nextel Digital Wireless Network or experiences a significant decline in customer acceptance of its products or the Motorola iDEN technology or otherwise ceases to support the Motorola iDEN technology, the iDEN network or the Nextel brand, our affiliation with and dependence on Sprint Nextel may adversely affect our business, including the quality of our services, the ability of our customers to roam within the entire network and our ability to attract and retain customers |
| Additional information regarding Sprint Nextel, its domestic digital mobile network business and the risks associated with that business can be found in Sprint Nextel’s Annual Report on Form 10-K for the year ended December 31, 2005, as well as their other filings made under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act (SEC file number 1-04721) |
| 28 _________________________________________________________________ [89]Table of Contents Nextel WIP is obligated to purchase all of our outstanding Class A common stock as a result of the Sprint Nextel transaction |
| On December 20, 2005, we entered into a letter agreement with Nextel WIP, Nextel and Sprint Nextel Corporation (collectively, the “Sprint Parties”) |
| The letter agreement acknowledges that pursuant to the written reports of the First Appraiser and the Second Appraiser (as such terms are defined in our charter), our Fair Market Value (as defined in our charter) for purposes of the put right described in the charter is dlra9cmam167cmam571cmam573, which results in a price per share of our Class A common stock of dlra28dtta50 |
| Each of the Sprint Parties agrees to complete the put transaction for cash |
| Each party agrees to use its reasonable best efforts to promptly consummate the put transaction and to obtain the necessary regulatory approvals to consummate the put transaction as promptly as practicable |
| We also agreed, among other things, to use commercially reasonable efforts to conduct business in the ordinary course of business and in a manner consistent with prior practice, and to restrictions with specified exceptions on changes in our capitalization and employee benefit arrangements |
| The completion of the acquisition is subject to customary regulatory approvals including the approval of the FCC If the FCC fails to approve the transfer of control of our licenses to Sprint Nextel or substantially delays its approval, our ability to successfully operate our business could be impaired |
| Our highly leveraged capital structure and other factors could limit both our ability to obtain additional financing and our growth opportunities and could adversely affect our business in several other ways |
| The total non-current portion of our outstanding debt, including capital lease obligations, was approximately dlra1dtta2 billion as of December 31, 2005 and greatly exceeds the level of our stockholders’ equity |
| As of December 31, 2005, the non-current portion of total long-term debt outstanding included dlra550dtta0 million outstanding under our credit facility, dlra188dtta3 million of outstanding 1^1/2prca convertible senior notes due 2008, dlra474dtta6 million of outstanding 8^1/2prca senior notes due 2011, and dlra13dtta7 million of capital lease obligations |
| In aggregate, this indebtedness represented approximately 60prca of our total book capitalization at that date |
| Our large amount of outstanding indebtedness, and the fact that we may need to incur additional debt in the future, could significantly impact our business for the following reasons: • it limits our ability to obtain additional financing, if needed, to implement any enhancement of our portion of the Nextel Digital Wireless Network, including any enhanced iDEN services, to expand wireless voice capacity, enhanced data services or potential “next-generation” mobile wireless services, to cover our cash flow deficit or for working capital, other capital expenditures, debt service requirements or other purposes; • it will require us to dedicate a substantial portion of our operating cash flow to fund interest expense on our credit facility and other indebtedness, reducing funds available for our operations or other purposes; • it makes us vulnerable to interest rate fluctuations because our credit facility term loan bears interest at variable rates; and • it limits our ability to compete with competitors who are not as highly leveraged, especially those who may be able to price their service packages at levels below those which we can or are willing to match |
| Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future |
| This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control |
| Based on our current level of operations and anticipated cost savings and operating improvements, we believe our cash flow from operations, available cash and available borrowings under our credit facility will be adequate for the foreseeable future to meet our estimated capital requirements to build out and maintain our portion of the Nextel Digital Wireless Network using the current 800 MHz iDEN system |
| 29 _________________________________________________________________ [90]Table of Contents We cannot be sure, however, that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us under our credit facility in an amount sufficient to enable us to pay our indebtedness and our obligations under our credit facility or our existing convertible senior notes and senior notes, or to fund our other liquidity needs |
| In addition, if our indebtedness cannot be repaid at maturity or refinanced, we will not be able to meet our obligations under our debt agreements, which could result in the cessation of our business |
| If we default on our debt or if we are liquidated, the value of our assets may not be sufficient to satisfy our obligations |
| We have a significant amount of intangible assets, such as licenses granted by the FCC The value of these licenses will depend significantly upon the success of our business and the growth of the SMR and wireless communications industries in general |
| General conditions in the wireless communications industry or specific competitors’ results, including potential decreases in new subscriber additions, declining ARPU or increased customer dissatisfaction, may adversely affect the market price of our notes and Class A common stock and, as a result, could impair our ability to raise additional capital through the sale of our equity or debt securities |
| In addition, the fundraising efforts of Sprint Nextel or any of its affiliates may also adversely affect our ability to raise additional funds |
| We have a history of operating losses, may incur operating losses in the future and may not be able to generate the earnings necessary to fund our operations, sustain the continued growth of our business or repay our debt obligations |
| We did not commence commercial operations until January 29, 1999, and the portion of the Nextel Digital Wireless Network we began operating on that date only had a few months of operating history |
| Since then, we have had a history of operating losses, and, as of December 31, 2005, we had an accumulated deficit of approximately dlra545dtta5 million |
| Fiscal year 2004 was the first year that we achieved positive net income for the full year |
| We cannot assure you that we will sustain profitability in the future |
| If we fail to achieve significant and sustained growth in our revenues and earnings from operations, we will not have sufficient cash to fund our current operations, sustain the continued growth of our business or repay our debt obligations |
| Our failure to fund our operations or continued growth would have an adverse impact on our financial condition, and our failure to make any required payments would result in defaults under all of our debt agreements, which could result in the cessation of our business |
| Our existing debt agreements contain restrictive and financial covenants that limit our operating flexibility |
| The indentures governing our existing convertible senior notes, senior notes and the credit facility of OPCO, contain covenants that, among other things, restrict our ability to take specific actions even if we believe them to be in our best interest |
| These include restrictions on our ability to: • incur additional debt; • pay dividends or distributions on, or redeem or repurchase, capital stock; • create liens on assets; • make investments, loans or advances; • issue or sell capital stock of certain of our subsidiaries; • enter into transactions with affiliates; or • engage in any business other than telecommunications |
| In addition, our credit facility imposes financial covenants that require our principal subsidiary to comply with specified financial ratios and tests, including minimum interest coverage ratios, maximum 30 _________________________________________________________________ [91]Table of Contents leverage ratios and minimum fixed charge coverage ratios |
| We cannot assure you that we will be able to meet these requirements or satisfy these covenants in the future, and if we fail to do so, our debts could become immediately payable at a time when we are unable to pay them, which would adversely affect our ability to carry out our business plan and would have a negative impact on our financial condition |
| Our future performance will depend on our and Nextel’s ability to succeed in the highly competitive wireless communications industry |
| Our ability to compete effectively with established and prospective wireless communications service providers depends on many factors, including the following: • If the wireless communications technology that we and Nextel use does not continue to perform in a manner that meets customer expectations, or if Sprint Nextel abandons, sells or otherwise decreases or eliminates its support of the Nextel Digital Wireless Network and the iDEN technology, we will be unable to attract and retain customers |
| Customer acceptance of the services we offer is and will continue to be affected by technology-based differences and by the operational performance and reliability of system transmissions on the Nextel Digital Wireless Network |
| If we are unable to address and satisfactorily resolve performance or other transmission quality issues as they arise, including transmission quality issues on Sprint Nextel’s portion of the Nextel Digital Wireless Network, we may have difficulty attracting and retaining customers, which would adversely affect our revenues |
| • As personal communication services and cellular operators, such as Verizon Wireless, Cingular and Alltel, begin to offer two-way radio dispatch services, our historical competitive advantage of being uniquely able to combine that service with our mobile telephone service may be impaired |
| Further, some of our competitors have attempted to compete with Direct Connect by offering unlimited mobile-to-mobile calling plan features and reduced rate calling plan features for designated groups |
| If these calling plan modifications are perceived by our existing and potential customers as viable substitutes for our differentiated services, our business may be adversely affected |
| • Because the Nextel Digital Wireless Network does not currently provide roaming or similar coverage on a nationwide basis that is as extensive as is available through most cellular and personal communication services providers, we may not be able to compete effectively against those providers |
| • In addition, some of our competitors provide their customers with handsets with both digital and analog capability, which expands their coverage, while we have only digital capability |
| We cannot be sure that we, either alone or together with Sprint Nextel, will be able to achieve comparable system coverage or that a sufficient number of customers or potential customers will be willing to accept system coverage limitations as a trade-off for our multi-function wireless communications package |
| • We do not have the extensive direct and indirect channels of products and services distribution that are available to some of our competitors |
| The lack of these distribution channels could adversely affect our operating results |
| Although we have expanded our distribution channels to include retail locations, we cannot assure you that these distribution channels will be successful |
| Moreover, many of our competitors have established extensive networks of retail locations, including locations dedicated solely to their products, and multiple distribution channels and, therefore, have access to more potential customers than we do |
| • Because of their greater resources and potentially greater leverage with multiple suppliers, some of our competitors may be able to offer handsets and services to customers at prices that are below the prices that we can offer for comparable handsets and services |
| If we cannot, as a result, compete effectively based on the price of our product and service offerings, our revenues and growth may be adversely affected |
| 31 _________________________________________________________________ [92]Table of Contents • The wireless telecommunications industry is experiencing significant technological change |
| Our digital technology could become obsolete or it may not be a suitable platform for the implementation of new and emerging technologies and service offerings |
| We rely on digital technology that is not compatible with, and that competes with, other forms of digital and non-digital voice communication technology |
| • Competition among these differing technologies could result in the following: segment the user markets, which could reduce demand for specific technologies, including our technology; reduce the resources devoted by third-party suppliers, including Motorola, which supplies all of our current digital technology, to developing or improving the technology for our systems; and otherwise adversely affect market acceptance of our services |
| • We offer our subscribers access to digital two-way mobile data and Internet connectivity under the brand name Nextel Online |
| We cannot be sure that these services will continue to perform satisfactorily, be utilized by a sufficient number of our subscribers or produce sufficient levels of customer satisfaction or revenues |
| Because we have less spectrum than some of our competitors, and because we have elected to defer the implementation of next-generation services, any digital two-way mobile data and Internet connectivity services that we may offer could be significantly limited compared to those services offered by other wireless communications providers with larger spectrum positions |
| The success of these new services will be jeopardized if: we are unable to offer these new services profitably; these new service offerings adversely impact the performance or reliability of the Nextel Digital Wireless Network; we, Sprint Nextel or third-party developers fail to develop new applications for our customers; or we otherwise do not achieve a satisfactory level of customer acceptance and utilization of these services |
| • We expect that as the number of wireless communications providers in our market areas increases, including providers of both digital and analog services, our competitors’ prices in these markets will decrease |
| We may encounter further market pressures to reduce our digital wireless network service offering prices; restructure our digital wireless network service offering packages to offer more value; or respond to particular short-term, market-specific situations, for example, special introductory pricing or packages that may be offered by new providers launching their services in a particular market |
| A reduction in our pricing would likely have an adverse effect on our revenues and operating results |
| • Because of the numerous features we offer and the fact that Motorola is our sole source of handsets (with the exception of our Blackberry handsets, which are available only from RIM), our mobile handsets are, and are likely to remain, significantly more expensive than mobile analog telephones and are, and are likely to remain, somewhat more expensive than digital cellular or personal communication services telephones that do not incorporate a comparable multi-function capability |
| The higher cost of our equipment may make it more difficult or less profitable to attract customers who do not place a high value on our multi-service offering |
| This may reduce our growth opportunities or profitability |
| • Consolidation has and may continue to result in additional large, well-capitalized competitors with substantial financial, technical, marketing and other resources |
| For example, the acquisition of AT&T Wireless by Cingular Wireless, which closed in October 2004, created the largest wireless phone provider in the United States, with significantly more resources and a larger customer base than we or any other competing company |
| In addition, in August 2005, Sprint acquired Nextel and Alltel Communications acquired regional wireless service provider Western Wireless |
| Late in 2005, Alltel announced the acquisition of Midwest Wireless, a cellular and PCS licensee |
| This concentration of resources in the marketplace could result in increased cost efficiency for the acquiring companies, allowing them to obtain more favorable terms from their suppliers, which could enable them to discount their handsets or services to customers |
| 32 _________________________________________________________________ [93]Table of Contents Any failure to effectively integrate our portion of the Nextel Digital Wireless Network with Sprint Nextel’s portion would have an adverse effect on our results of operations |
| Pursuant to our operating agreements with Nextel WIP, Nextel WIP provides us with important services and assistance, including a license to use the Nextel brand name and the sharing of switches that direct calls to their destinations |
| Any interruption in the provision of these services, or any failure by Sprint Nextel to continue to provide the level of support consistent with past practices between us and Nextel prior to the merger of Nextel and Sprint, could delay or prevent the continued seamless operation of our portion of the Nextel Digital Wireless Network with Sprint Nextel’s portion, which is essential to the overall success of our business |
| Moreover, our business plan depends on our ability to implement integrated customer service, network management and billing systems with Sprint Nextel’s systems to allow our respective portions of the Nextel Digital Wireless Network to operate together and to provide our and Sprint Nextel’s customers with seamless service |
| Integration requires that numerous and diverse computer hardware and software systems work together |
| Any failure to integrate these systems effectively may have an adverse effect on our results of operations |
| Difficulties in operating our portion of the Nextel Digital Wireless Network could increase the costs of operating the network, which would adversely affect our ability to generate revenues |
| The continued operation of our portion of the Nextel Digital Wireless Network involves certain risks |
| Before we are able to build additional cell sites in our markets to expand coverage, fill in gaps in coverage or increase capacity, we will need to: • select and acquire appropriate sites for our transmission equipment, or cell sites; • purchase and install low-power transmitters, receivers and control equipment, or base radio equipment; • build out the physical infrastructure; • obtain interconnection services from local telephone service carriers on a timely basis; and • test the cell site |
| Our ability to perform these necessary steps successfully may be hindered by, among other things, any failure to: • lease or obtain rights to sites for the location of our base radio equipment; • obtain necessary zoning and other local approvals with respect to the placement, construction and modification of our facilities; • acquire additional necessary radio frequencies from third parties or exchange radio frequency licenses with Nextel WIP; • commence and complete the construction of sites for our equipment in a timely and satisfactory manner; or • obtain necessary approvals, licenses or permits from federal, state or local agencies, including land use regulatory approvals and approvals from the Federal Aviation Administration and Federal Communications Commission with respect to the transmission towers that we will be using |
| Before fully implementing our portion of the Nextel Digital Wireless Network in a new market area or expanding coverage in an existing market area, we must complete systems design work, find appropriate sites and construct necessary transmission structures, receive regulatory approvals, free up frequency channels now devoted to non-digital transmissions and begin systems optimization |
| These processes may take weeks or months to complete and may be hindered or delayed by many factors, including unavailability of antenna sites at optimal locations, land use and zoning controversies and limitations of 33 _________________________________________________________________ [94]Table of Contents available frequencies |
| In addition, we may experience cost overruns and delays not within our control caused by acts of governmental entities, design changes, material and equipment shortages, delays in delivery and catastrophic occurrences |
| Any failure to construct our portion of the Nextel Digital Wireless Network on a timely basis may adversely affect our ability to provide the quality of services in our markets consistent with our current business plan, and any significant delays could have a material adverse effect on our business |
| If we do not offer services that Nextel WIP requires us to offer or we fail to meet performance standards, we risk termination of our agreements with Nextel WIP, which would eliminate our ability to carry out our current business plan and strategy |
| Our operating agreements with Nextel WIP require us to construct and operate our portion of the Nextel Digital Wireless Network in accordance with specific standards and to offer certain services by Nextel and its domestic subsidiaries |
| Our failure to satisfy these obligations could constitute a default under the operating agreements that would give Nextel WIP the right to terminate these agreements and would terminate our right to use the Nextel brand |
| The non-renewal or termination of the Nextel WIP operating agreements would eliminate our ability to carry out our current business plan and strategy and adversely affect our financial condition |
| We may be required to implement material changes to our business operations to the extent these changes are adopted by Nextel, which may not be beneficial to our business |
| If Nextel adopts material changes to its operations, our operating agreements with Nextel WIP give it the right to require us to make similar changes to our operations |
| The failure to implement required changes could, under certain circumstances, trigger the ability of Nextel WIP to terminate the operating agreements, which could result in the adverse effects described above |
| Even if the required change is beneficial to Nextel, the effect on our business may vary due to differences in markets and customers |
| We cannot assure you that such changes would not adversely affect our business plan |
| The iDEN transmission technology used by us and Nextel is different from that used by most other wireless carriers, and, as a result, we might not be able to keep pace with industry standards if more widely used technologies advance |
| The Nextel Digital Wireless Network uses scattered, non-contiguous radio spectrum near the frequencies used by cellular carriers |
| Because of their fragmented character, these frequencies traditionally were only usable for two-way radio calls, such as those used to dispatch taxis and delivery vehicles |
| Nextel became able to use these frequencies to provide a wireless telephone service competitive with cellular carriers only when Motorola developed a proprietary technology it calls “iDEN” We, Sprint Nextel and Southern LINC are currently the only major US wireless service providers utilizing iDEN technology on a nationwide basis, and iDEN handsets are not currently designed to roam onto other domestic wireless networks |
| Our operating agreements with Nextel WIP require us to use the iDEN technology in our system and prevent us from adopting any new communications technologies that may perform better or may be available at a lower cost without Nextel WIP’s consent |
| Future technological advancements may enable other wireless technologies to equal or exceed our current levels of service and render iDEN technology obsolete |
| If Motorola is unable to upgrade or improve iDEN technology or develop other technology to meet future advances in competing technologies on a timely basis, or at an acceptable cost, because of the restrictive provisions in our operating agreements with Nextel WIP, we will be less able to compete effectively and could lose customers to our competitors, all of which would have an adverse effect on our business and financial condition |
| Moreover, if Sprint Nextel migrates its customers and network to a CDMA platform or otherwise concentrates its capital resources on its CDMA operations and not its iDEN operations, we will be less able to compete effectively and could lose our customers to competitors |
| 34 _________________________________________________________________ [95]Table of Contents We are dependent on Motorola for telecommunications equipment necessary for the operation of our business, and any failure of Motorola to perform would adversely affect our operating results |
| Motorola is currently our sole-source supplier of transmitters used in our network and wireless handset equipment used by our customers (with the exception of our Blackberry handsets, which are available only from RIM), and we rely, and expect to continue to rely, on Motorola to manufacture a substantial portion of the equipment necessary to construct our share of the Nextel Digital Wireless Network |
| We expect that for the next few years, Motorola will be the only manufacturer of wireless handsets, other than RIM, that are compatible with the Nextel Digital Wireless Network |
| If Motorola becomes unable to deliver such equipment, or refuses to do so on reasonable terms, then we may not be able to service our existing subscribers or add new subscribers and our business would be adversely affected |
| Motorola and its affiliates engage in wireless communications businesses and may in the future engage in additional businesses that do or may compete with some or all of the services we offer |
| If these or other factors affecting our relationship with Motorola were to result in a significant adverse change in Motorola’s ability or willingness to provide handsets and related equipment and software applications, or to develop new technologies or features for us, or in Motorola’s ability or willingness to do so on a timely, cost-effective basis, we may not be able to adequately service our existing subscribers or add new subscribers and may not be able to offer competitive services |
| We cannot assure you that any potential conflict of interest between us and Motorola will not adversely affect our ability to obtain equipment in the future |
| In addition, the failure by Motorola to deliver necessary technology improvements and enhancements and system infrastructure and subscriber equipment on a timely, cost-effective basis would have an adverse effect on our growth and operations |
| For instance, we rely on Motorola to provide us with technology improvements designed to expand our wireless voice capacity and improve our services, such as the 6:1 voice coder software upgrade, and the handset-based A-GPS location technology solution necessary for us to comply with the FCC’s E911 requirements |
| The failure by Motorola to deliver these improvements and solutions, or its inability to do so within our anticipated timeframe, could impose significant additional costs on us |
| We generally have been able to obtain adequate quantities of base radios and other system infrastructure equipment from Motorola, and adequate volumes and mix of wireless telephones and related accessories from Motorola, to meet subscriber and system loading rates, but we cannot be sure that equipment quantities will be sufficient in the future |
| Additionally, in the event of shortages of that equipment, our agreements with Nextel WIP provide that available supplies of this equipment would be allocated proportionately between Sprint Nextel and us |
| Costs and other aspects of a future deployment of advanced digital technology could adversely affect our operations and growth |
| Based on our current outlook we anticipate eventually deploying advanced digital technology that will allow high capacity wireless voice and high-speed data transmission, and potentially other advanced digital services |
| The technology that we would deploy to provide these types of broadband wireless services is sometimes referred to as “next-generation technologies |
| ” We are focusing activities on maximizing our ability to offer next-generation capabilities while continuing to fully utilize our iDEN digital wireless network |
| Significant capital expenditures may be required in implementing this next-generation technology, and we cannot assure you that we will have the financial resources necessary to fund these expenditures or, if we do implement this technology, that it would provide the advantages that we would expect |
| Moreover, it may be necessary to acquire additional frequencies to implement next-generation technologies, and we cannot be sure that we will be able to obtain such spectrum on reasonable terms, if at all |
| The actual amount of the funds required to finance and implement this technology may significantly exceed our current estimate |
| Further, any future implementation could require additional unforeseen capital expenditures in the event of unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, engineering design changes, equipment unavailability and technological or other complications |
| In addition, there are several types of next-generation technologies that may not be fully compatible with each other or with other currently deployed digital technologies |
| If the type of technology that we either choose to 35 _________________________________________________________________ [96]Table of Contents deploy or are required to deploy to maintain compatibility with the technology chosen by Sprint Nextel does not gain widespread acceptance or perform as expected, or if our competitors develop next-generation technology that is more effective or economical than ours, our business would be adversely affected |
| We may not be able to obtain additional spectrum, which may adversely impact our ability to implement our business plan |
| We may seek to acquire additional spectrum, including through participation as a bidder, or member of a bidding group, in government-sponsored auctions of spectrum |
| We may not be able to accomplish any spectrum acquisition or the necessary additional capital for that purpose may not be available on acceptable terms, or at all |
| If sufficient additional capital is not available, to the extent we are able to complete any spectrum acquisition, the amount of funding available to us for our existing businesses would be reduced |
| Even if we are able to acquire additional spectrum, we may still require additional capital to finance the pursuit of any new business opportunities associated with our acquisition of additional spectrum, including those associated with the potential provision of any new next-generation wireless services |
| This additional capital may not be available on reasonable terms, or at all |
| Our network may not have sufficient capacity to support our anticipated subscriber growth |
| Our business plan depends on assuring that our portion of the Nextel Digital Wireless Network has adequate capacity to accommodate anticipated new subscribers and the related increase in usage of our network |
| This plan relies on: • our ability to economically expand the capacity and coverage of our network; • the ability to obtain additional spectrum when and where required; • the availability of wireless handsets of the appropriate model and type to meet the demands and preferences of our customers; and • the ability to obtain and construct additional cell sites and obtain other infrastructure equipment |
| We cannot assure you that we will not experience unanticipated difficulties in obtaining these items, which could adversely affect our ability to build our portion of the network |
| Potential systems limitations on adding subscribers may adversely affect our growth and performance |
| Our success in generating revenues by attracting and retaining large numbers of subscribers to our portion of the Nextel Digital Wireless Network is critical to our business plan |
| In order to do so, we must maintain effective procedures for customer activation, customer service, billing and other support services |
| Even if our system is technically functional, we may encounter other factors that could adversely affect our ability to successfully add customers to our portion of the Nextel Digital Wireless Network, including: • inadequate or inefficient systems or business processes and related support functions, especially related to customer service and accounts receivable collection; and • an inappropriately long length of time between a customer’s order and activation of service for that customer, especially because the current activation time for our new customers is longer than that of some of our competitors |
| Customer reliance on our customer service functions may increase as we add new customers |
| Our inability to timely and efficiently meet the demands for these services could decrease or postpone subscriber growth, or delay or otherwise impede billing and collection of amounts owed, which would adversely affect our revenues |
| 36 _________________________________________________________________ [97]Table of Contents If an event constituting a change of control or fundamental change occurs under our indentures, we may be required to redeem or repurchase all of our outstanding notes even if our credit facility prohibits such redemption or repurchase or we lack the resources to make such redemption or repurchase |
| Upon the occurrence of a defined change of control or fundamental change under the indentures governing our existing convertible senior notes and senior notes, other than a change of control involving certain of our existing stockholders, we could be required to redeem or repurchase our existing convertible senior notes and senior notes |
| However, our credit facility prohibits us, except under certain circumstances, from redeeming or repurchasing any of our outstanding notes before their stated maturity |
| In the event we become subject to a change of control at a time when we are prohibited from redeeming or repurchasing our outstanding notes our failure to redeem or repurchase such notes would constitute an event of default under the respective indentures, which would in turn result in a default under our credit facility |
| Any default under our indentures or credit facility would result in an acceleration of such indebtedness, which would harm our financial condition and adversely impact our ability to implement our business plan and could result in the cessation of our business |
| Moreover, even if we obtained consent under our credit facility, we cannot be sure that we would have sufficient resources to redeem or repurchase our outstanding notes and still have sufficient funds available to successfully pursue our business plan |
| We are dependent on our current key personnel, and our success depends upon our continued ability to attract, train and retain additional qualified personnel |
| The loss of one or more key employees could impair our ability to successfully operate our portion of the Nextel Digital Wireless Network |
| We believe that our future success will also depend on our continued ability to attract and retain highly qualified technical, sales and management personnel |
| Concerns that the use of wireless telephones may pose health and safety risks may discourage the use of our wireless telephones |
| Studies and reports have suggested that, and additional studies are currently being undertaken to determine whether, radio frequency emissions from ESMR, cellular and PCS wireless telephones may be linked with health risks, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers |
| The actual or perceived risk of wireless telephones could adversely affect us through a reduced subscriber growth rate, a reduction in subscribers, reduced network usage per subscriber or reduced financing available to the mobile communications industry generally |
| Litigation by individuals alleging injury from health effects associated with radio frequency emissions from wireless telephones has been brought against us and other mobile wireless carriers and manufacturers |
| In addition, purported class action litigation has been filed seeking to require all wireless telephones to include an earpiece that would enable use of the telephones without holding them against the user’s head |
| While it is not possible to predict the outcome of this litigation, circumstances surrounding it could increase the cost of our wireless telephones as well as increase other costs of doing business |
| Due to safety concerns, some state and local legislatures have passed or are considering legislation restricting the use of wireless telephones while driving automobiles |
| Federal legislation has been proposed that would affect funding available to states that do not adopt similar legislation |
| The passage of this type of legislation could decrease demand for our services, which could have a material adverse effect on our results of operations |
| Regulatory authorities exercise considerable power over our operations, which could be exercised against our interests and impose additional unanticipated costs |
| The FCC and state telecommunications authorities regulate our business to a substantial degree |
| The regulation of the wireless telecommunications industry is subject to constant change by legislation and by new rules and regulations of the FCC We cannot predict the effect that any legislation or FCC rulemaking may have on our future operations |
| We must comply with all applicable regulations to conduct our business |
| Modifications of our business plans or operations to comply with changing regulations or 37 _________________________________________________________________ [98]Table of Contents actions taken by regulatory authorities might increase our costs of providing service and adversely affect our financial condition |
| In addition, we anticipate FCC regulation or Congressional legislation that creates additional spectrum allocations that may also have the effect of adding new entrants into the mobile telecommunications market |
| If we fail to comply with the terms of our licenses or applicable regulations, we could lose one or more licenses or face penalties and fines |
| For example, we could lose a license if we fail to construct or operate facilities as required by the license |
| If we lose licenses, that loss could have a material adverse effect on our business and financial condition |
| We were not able to meet a December 31, 2005 FCC deadline with respect to A-GPS handset subscriber penetration |
| On October 17, 2005, we filed a Petition for Limited Waiver with the FCC seeking an additional limited period of 24 months, until December 31, 2007, to achieve 95prca penetration of A-GPS handsets capable of completing Phase II calls to requesting PSAPs |
| The Petition remains pending before the FCC The FCC could impose fines or take other regulatory action that could have an adverse effect on our business for failing to meet this requirement that could have an adverse effect on our business |
| A-GPS capable handsets are used to locate customers placing emergency 911-telephone calls |
| The FCC required that by December 31, 2005, 95prca of our subscriber base must use A-GPS capable handsets |
| On October 17, 2005, we filed a Petition for Limited Waiver with the FCC seeking an additional limited period of 24 months, until December 31, 2007, to achieve 95prca penetration of A-GPS handsets capable of completing Phase II calls to requesting PSAPs |
| The Petition remains pending before the FCC In our last quarterly Phase I and II E911 Quarterly Report to the FCC filed February 1, 2006, we notified the FCC that, as of January 31, 2006, we had attainted an estimated 75dtta4prca functional A-GPS handset penetration rate |
| The FCC could impose fines or take other regulatory action for failing to meet this requirement that could have an adverse effect on our business |
| In addition, we may incur significant additional costs in order to satisfy the Phase II E911 requirement because our compliance requires that the non-A-GPS capable handsets in our subscriber base be replaced with A-GPS capable handsets |
| The amount of the costs we would incur is highly dependent on both the number of new subscribers added to our network who purchase an A-GPS capable handset, and the number of existing subscribers who upgrade from non-A-GPS capable handsets to A-GPS capable handsets |
| If our rate of churn remains low, unless substantial numbers of subscribers upgrade their handsets, we may have to incur significant costs to get a sufficient number of A-GPS capable handsets into our network |
| Nextel WIP has contractual approval rights that allow it to exert significant influence over our operations, and it can acquire additional shares of our stock |
| Pursuant to our amended and restated shareholders’ agreement and Sprint Nextel operating agreements, the approval of the director designated by Nextel WIP, and/or of Nextel WIP itself, is required in order for us to: • make a material change in our technology; • modify our business objectives in any way that is inconsistent with our objectives under our material agreements, including our operating agreements with Nextel WIP; • dispose of all or substantially all of our assets; • make a material change in or broaden the scope of our business beyond our current business objectives; or • enter into any agreement the terms of which would be materially altered in the event that Nextel WIP either exercises or declines to exercise its rights to acquire additional shares of our stock 38 _________________________________________________________________ [99]Table of Contents under the terms of the amended and restated shareholders’ agreement or our restated certificate of incorporation |
| These approval rights relate to significant transactions, and decisions by the Nextel WIP-designated director could conflict with those of our other directors, including our independent directors |
| In addition, the amended and restated shareholders’ agreement does not prohibit Nextel WIP or any of our other stockholders or any of their respective affiliates from purchasing shares of our Class A common stock in the open market or in private transactions |
| In September 2004, Nextel purchased approximately 5dtta6 million shares of our Class A common stock from another stockholder |
| Such purchases increase the voting power and influence of the purchasing stockholder and could ultimately result in a change of control of us |
| Shares of Class A common stock are immediately and automatically convertible into an equal number of shares of Class B common stock upon the acquisition of such shares of Class A common stock by Sprint Nextel, by any of its majority-owned subsidiaries, or by any person or group that controls Nextel |
| Additionally, if we experience a change of control, Nextel WIP could purchase all of our licenses for dlra1dtta00, provided that it enters into a royalty-free agreement with us to allow us to use the licenses in our territory for as long as our operating agreements with Nextel WIP remain in effect |
| Such an agreement would be subject to approval by the FCC Significant stockholders represented on our board of directors can exert significant influence over us and may have interests that conflict with those of our other stockholders |
| As of December 31, 2005, our officers, directors and greater than 5prca stockholders together controlled approximately 45prca of our outstanding common stock |
| As a result, these stockholders, if they act together, will be able to greatly affect the management and affairs of our company and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions |
| This concentration of ownership may have the effect of delaying or preventing a change in control of our company |
| In addition, under our amended and restated shareholders’ agreement, Nextel WIP and Madison Dearborn Capital Partners II, LP each have the right to designate a member to our board of directors |
| We cannot be certain that any conflicts that arise between our interests and those of these stockholders will always be resolved in our favor |
| Moreover, as described above, Nextel WIP has certain approval rights that allow it to exert significant influence over our operations |
| Madison Dearborn Partners and Eagle River Investments, LLC each own significant amounts of our capital stock, and Madison Dearborn Partners currently has a representative on our board of directors |
| Each of these entities or their affiliates has significant investments in other telecommunications businesses, some of which may compete with us currently or in the future |
| We do not have a non-competition agreement with any of our stockholders, and thus their or their affiliates’ current and future investments could create conflicts of interest with us |
| Anti-takeover provisions could prevent or delay a change of control that stockholders may favor |
| Provisions of our charter documents, amended and restated shareholders’ agreement, operating agreements and Delaware law may discourage, delay or prevent a merger or other change of control of our company that stockholders may consider favorable |
| We have authorized the issuance of “blank check” preferred stock and have imposed certain restrictions on the calling of special meetings of stockholders |
| If we experience a change of control, Nextel WIP could purchase all of our licenses for dlra1dtta00, provided that it enters into a royalty-free agreement with us to allow us to use the frequencies in our territory for as long as our operating agreements remain in effect |
| Such an agreement would be subject to approval by the FCC Moreover, a change of control could trigger an event of default under our credit facility and the indentures governing our senior discount notes, convertible senior notes and senior notes |
| These provisions could have the effect of delaying, deferring or preventing a change of control in our company, discourage bids for our Class A common stock at a premium over the market price, lower the market price of our 39 _________________________________________________________________ [100]Table of Contents Class A common stock, or impede the ability of the holders of our Class A common stock to change our management |
| Regulations to which we are subject may affect the ability of some of our investors to have an equity interest in us |
| Additionally, our restated certificate of incorporation contains provisions that allow us to redeem shares of our securities in order to maintain compliance with applicable federal and state telecommunications laws and regulations |
| Our business is subject to regulation by the FCC and state regulatory commissions or similar state regulatory agencies in the states in which we operate |
| This regulation may prevent some investors from owning our securities, even if that ownership may be favorable to us |
| The FCC and some states have statutes or regulations that would require an investor who acquires a specified percentage of our securities or the securities of one of our subsidiaries to obtain approval from the FCC or the applicable state commission to own those securities |
| Moreover, our restated certificate of incorporation allows us to redeem shares of our stock from any stockholder in order to maintain compliance with applicable federal and state telecommunications laws and regulations |