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, smaller and specialty market communications services and technology companies. We have a long track record of delivering critical infrastructure-based solutions to rural and historically underserved markets. Our majority-owned operating subsidiaries provide facilities-based communications services, along with related information technology solutions inthe United States ,Bermuda , and theCaribbean . We also have non-controlling investments in a renewable energy company and several communications and technology companies and we continue to consider opportunities to make controlling and minority investments in businesses that we believe have the potential for generating substantial and relatively steady cash flows over extended periods of time or have technologies or business models that might prove valuable to our main operating subsidiaries or create significant longer term growth potential for us as a whole. At the holding company level, we oversee the allocation of capital within and among our subsidiaries, affiliates, new investments, and stockholders. We also have developed significant operational expertise and resources that we use to augment the capabilities of our individual operating subsidiaries. Over the past 10 years, we have built a platform of 33
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resources and expertise to support our operating subsidiaries and to improve their quality of service and customer acquisition, retention, and satisfaction while maintaining optimal operating efficiencies. We have a number of shared service functions, including billing, network and engineering and customer service, and also employ personnel with specialized skills that provide greater economies of scale and expertise than would typically be available at the operating subsidiary level. We were incorporated inDelaware in 1987, began trading publicly in 1991 and spun off more than half of our operations to stockholders in 1998. 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. In addition, we consider non-controlling investments in earlier stage businesses that we consider strategically relevant, and which may offer long-term growth potential for us, either individually, or as research and development businesses that can support our operating subsidiaries in new technology, product, and service development and offerings. We have used the cash generated from our established operating units, and any asset sales, to re-invest in our existing businesses, to make strategic investments in additional businesses, and to return cash to our investors. We provide management, technical, financial, regulatory, and marketing services to our subsidiaries and typically receive a management fee calculated as a percentage of their revenues, which is eliminated in consolidation. 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. ThroughJune 30, 2021 , we had identified three operating segments to manage and review our operations and to facilitate investor presentations of our results. These three operating segments are as follows:
segment offer a mix of fixed data, internet and voice services ("Fixed") as
well as retail mobility ("Mobility") services to customers in
? in
information technology services ("Managed Services") to enterprise customers in
all our markets. We also offer services to other telecom providers ("Carrier
Services"), such as international long-distance, transport and access services,
and roaming from such telecom providers' customers traveling in our network
service areas.
Services, including wholesale roaming services, the leasing of critical network
? infrastructure such as towers and transport facilities, and site maintenance.
We also provide Fixed, Mobility, and Managed Services to our retail and
enterprise customers, and private network services to enterprise customers,
municipalities and other service providers
Renewable Energy. In
? commercial and industrial customers through
Renewable Energy Operations for further details. 34 Table of Contents
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 Commnet, Choice, Choice NTUA Wireless, Deploycom Carrier Services United States Commnet, Essextel Managed Services United States Choice Renewable Energy (1) Solar India Vibrant Energy
(1) See Sale of Renewable Energy Operations 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.
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 of COVID-19 as ofJune 30, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. We assessed the impacts of COVID-19 on our consolidated financial statements as of and for the three months endedJune 30, 2021 , in particular, the impacts on revenues, operating expenses and cash flows. During the three months endedJune 30, 2021 , ourInternational Telecom segment experienced an increase in its Mobility, Fixed and Carrier Services revenue as certain pandemic-related travel and stay-at-home restrictions were lifted during the latter half of the three months endedJune 30, 2021 , which allowed for the reopening of many retail stores in all of our international markets and an increase in tourism in certain markets. Expenses within ourInternational Telecom segment increased as a result of the increased demand for our products and services and as a result of certain expenses, such as facility and utility costs, being incurred during the three months endedJune 30, 2021 that were not incurred during the three months endedJune 30, 2020 . Within ourUS Telecom segment, we experienced an increase in revenue for our rural broadband services to further support demand, which has been increased by the impact of COVID-19, for remote working and 35
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connectivity. Similar to theInternational Telecom segment, theUS Telecom segment recorded an increase in expenses associated with the increased demand for our products and services as well as the recording of certain expenses that were incurred during the three months endedJune 30, 2021 that were not incurred during the three months endedJune 30, 2020 . As a result, our assessment did not indicate that there was a material adverse impact to our consolidated financial statements as of and for the three months endedJune 30, 2021 . However, our future assessments of the impacts of COVID-19 for the remainder of 2021, which could be influenced by a number of 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, the local economies of many of ourCaribbean markets are tourism-dependent and a decline in global travel activity resulting from reinstated COVID-19 restrictions may adversely impact our revenue and cash flows for certain services in these markets. Further, we may experience difficulty in procuring network or retail equipment, such as handsets for our subscribers, if such COVID-19 restrictions are reinstated. Apart from possible government issued travel restrictions, we currently cannot assess how COVID-19 may influence our subscribers' procurement behavior for our services or how that behavior will impact our revenues in the foreseeable future.
Acquisition of
OnJuly 22, 2021 , we completed the acquisition ofAlaska Communications Systems Group, Inc. ("Alaska Communications "), a publicly listed company, for approximately$340 million on cash, (the "Alaska Transaction"). As a result of the Alaska Transaction, we now own approximately 52% of common equity ofAlaska Communications . In connection with the Alaska Transaction,Alaska Communications drew$220 million from a newAlaska credit facility and we drew$73.0 million in proceeds from our 2019 CoBank Credit Facility to pay a portion of the purchase price of the merger. For more information on the newAlaska credit facility or the 2019 CoBank Credit Facility, see Note 15 and Note 8, respectively, to the Unaudited Condensed Consolidated Financial Statements included in this Report. Beginning onJuly 22, 2021 , the results of the Alaska Transaction will be included in ourUS Telecom segment.
Sale of Renewable Energy Operations
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 theSouthwestern 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 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 the first half of 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 36
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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 Sources of Cash below for a discussion regarding ourMarch 26, 2020 credit agreement providing the ability to finance the assets built under the FirstNet Agreement.Universal Service Fund
The Federal Universal Service Fund ("USF") is a subsidy program managed by theFederal Communications Commission ("FCC "). USF funds are disbursed to telecommunication providers through four programs: the High Cost Program; Low Income Program ("Lifeline Program"); Schools and Libraries Program ("E-Rate Program"); and Rural Health Care Support Program. We participate in the High Cost Program, Lifeline Program, E-Rate Program, and Rural Health Care Support Program as further described below. All of these funding programs are subject to certain operational and reporting compliance requirements. We believe we are in compliance with all applicable requirements. During the three and six month periods endedJune 30, 2021 , we recorded$4.3 million and$8.4 million , respectively, of revenue from the High Cost Program in ourInternational Telecom segment for our US Virgin Islands operations under the "Viya" name. During the three and six month periods endedJune 30, 2020 , we recorded$4.1 million and$8.2 million , respectively, from the same program. In 2018, theFCC initiated a proceeding to reform the High Cost Program in the USVirgin Islands andPuerto Rico in which it proposed to allocate USF funding of up to$18.7 million per year (inclusive of the$16.4 million per year currently allocated to Viya) for 10 years to supplant the$16.4 million that Viya currently receives per year. While Viya applied forConnect USVI Fund support allocated for the US Virgin Islands, onNovember 16, 2020 , theFCC announced that Viya was not the recipient of the award. The support was authorized inJune 2021 . Pursuant to the terms of the program, Viya's USF support will be reduced, to two-thirds of the legacy total amount, or$10.9 million , during the first year following the finalization of the award and to one-third of the legacy total amount, or$5.5 million , during the second year. Thereafter, Viya will not receive High Cost Program support. Also, during each of the three and six month periods endedJune 30, 2021 , we recorded$0.3 million and$0.6 million , respectively, of High Cost Program revenue in ourUS Telecom segment. During the three and six month periods endedJune 30, 2020 , we recorded$0.3 million and$0.6 million , respectively, from the same program. We are subject to certain operational, reporting and construction requirements as a result of this funding, and we believe that we are in compliance with all of these requirements. InAugust 2018 , we were awarded$79.9 million over 10 years under the Connect America Fund Phase II Auction. Under this program, we are required to provide fixed broadband and voice services to certain eligible areas inthe United States and are subject to operational and reporting requirements. We determined the award is a revenue grant, and as a result we will record the funding as revenue upon receipt. For the three and six month periods endedJune 30, 2021 , we recorded$1.9 million and$3.8 million , respectively, from the Connect America Fund Phase II program. For the three and six month periods endedJune 30, 2020 , we recorded$1.9 million and$3.8 million from the same program. We also receive construction grants to build network connectivity for eligible communities. The funding is used to reimburse construction costs and 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 additional grants in the six months endedJune 30, 2021 . We have completed our construction obligations on$10.2 million of these projects and$13.1 million of such construction obligations remain with completion deadlines beginning inSeptember 2021 . Once these projects are constructed, we are obligated to provide service to the participants. We receive funds upon 37
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construction completion. We received
We also receive funding to provide discounted telecommunication services to eligible customers under the E-Rate Program, Lifeline Program, andRural Health Care Support Program. During the three and six months endedJune 30, 2021 , we recorded revenue of$1.8 million and$3.9 million , respectively, in the aggregate from these programs. During the three and six months endedJune 30, 2020 , we recorded revenue of$2.2 million and$4.4 million , respectively, in the aggregate from these programs we are subject to certain operational and reporting requirements under the above mentioned programs and we believe that we are in compliance with all of these requirements. 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"). During the six months endedJune 30, 2021 , we received an additional$2.4 million of funding. In total we received$18.7 of funding under this program. The funding was utilized to construct network infrastructure in ourUS Telecom segment. The construction was completed as ofJune 30, 2021 and$18.4 million of the funding was recorded as a reduction to property, plant and equipment and a subsequent reduction to depreciation expense. The remaining$0.3 million was recorded as a reduction to operating expense in the six months endedJune 30, 2021 . Tribal Bidding Credit As part of the broadcast television spectrum incentive auction, theFCC implemented a tribal lands bidding credit to encourage deployment of wireless services utilizing 600 MHz spectrum on the lands of federally recognized tribes. We received a bidding credit of$7.4 million under this program in 2018. A portion of these funds will be used to offset network capital costs and a portion will be used to offset the costs of supporting the networks. Our current estimate is that we will use$6.1 million to offset capital costs, consequently reducing future depreciation expense, and$1.3 million to offset the cost of supporting the network which will reduce future operating expense. ThroughJune 30, 2021 , we have spent$6.1 million on capital expenditures. During the three and six months endedJune 30, 2021 we recorded$0.3 million and$0.6 million , respectively, in offsets to the cost of supporting the network. The credits are subject to certain requirements, including meeting minimum coverage metrics. If the requirements are not met the funds may be subject to claw back provisions. We believe we are in compliance with all applicable requirements related to these funds. 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. RDOF In the 2020 Rural Digital Opportunity Fund Phase I Auction ("RDOF"), pending theFCC 's conclusion of the award process, we expect to receive approximately$20.1 million over 10 years to provide broadband coverage to over 10,000 households. Once confirmed, we will be obligated to provide broadband and voice services to certain eligible areas inthe United States . 38
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