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FiberTower Corp – ‘10-K’ for 12/31/08

On:  Friday, 3/13/09, at 4:42pm ET   ·   For:  12/31/08   ·   Accession #:  1047469-9-2654   ·   File #:  0-21091

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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number 000-21091

FIBERTOWER CORPORATION
(Exact name of registrant as specified in its charter)

185 Berry Street
Suite 4800
San Francisco, CA 94107
(Address of Principal executive offices)

(415) 659-3500
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý.

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Securities Act. Yes o    No ý.

         Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o.

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934): Yes o    No ý.

         As of June 30, 2008, the aggregate market value of the voting and non-voting common stock held by non-affiliates was $68 million based on the closing price of the Company's common stock on the Nasdaq Global Market on that day. Shares held by executive officers and directors and by each person who owned 5% or more of the outstanding common stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

         The registrant had 151,577,859 shares of its common stock outstanding as of February 28, 2009.

         Portions of the Proxy Statement for the registrant's 2009 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K to the extent stated herein. The Proxy Statement will be filed with the Commission within 120 days of the registrant's fiscal year ended December 31, 2008.

FiberTower Corporation
INDEX

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PART I.

ITEM 1.    BUSINESS

FORWARD LOOKING STATEMENTS

        This report includes "forward-looking" statements, as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission, or SEC, in its rules, regulations and releases. Forward looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These include statements regarding, among other things, our financial and business prospects, the deployment of our services, capital requirements, financing prospects, planned capital expenditures, expected cost per site, anticipated customer growth, expansion plans, expected cost savings associated with our reduction in workforce in 2008 and anticipated cash balances. There are many risks, uncertainties and other factors that can prevent the achievement of goals or cause results to differ materially from those expressed or implied by these forward-looking statements including, among other things, anticipated negative cash flows and operating losses, additional liquidity requirements, potential loss of significant customers, downturns in the wireless communication industry, regulatory costs and restrictions, potential loss of FCC licenses, equipment supply disruptions and cost increases, competition from alternative backhaul service providers and technologies, along with those risk factors described in Item 1A of this report.

Company History

        On August 29, 2006, First Avenue Networks, Inc., which we refer to in this report as First Avenue, completed its merger with FiberTower Network Services Corp. FiberTower Network Services Corp. was formerly known as FiberTower Corporation, and we refer to that company in this report as Old FiberTower. This merger, which we refer to in this report as the First Avenue/FiberTower merger, was governed by an Agreement and Plan of Merger, dated May 14, 2006, among First Avenue, Marlin Acquisition Corporation and Old FiberTower.

        First Avenue, as the surviving entity of the First Avenue/FiberTower merger, changed its name to FiberTower Corporation and our common stock continues to be listed on the Nasdaq Global Market under the symbol "FTWR." (Previously the First Avenue stock traded under the symbol "FRNS"). The First Avenue/FiberTower merger brought together the Federal Communications Commission ("FCC") area-licensed spectrum of First Avenue with the existing Old FiberTower point-to-point network model and customer contracts, which we believe enables us to (1) increase customer penetration among the top wireless carriers, (2) lower operational risk associated with building networks, and (3) effectively deploy capital. The First Avenue/FiberTower merger was accounted for as a "reverse acquisition." As a result, all financial information and statements prior to the First Avenue/FiberTower merger included in this report reflect only the financial results of Old FiberTower on a historical basis after applying the First Avenue/FiberTower merger exchange ratio to historical share-related data. All financial information and financial statements subsequent to the First Avenue/FiberTower merger include the historical results of operations of Old FiberTower and the results of operations of First Avenue from the effective date of the First Avenue/FiberTower merger.

        First Avenue was incorporated in Delaware in 1993. Old FiberTower was incorporated in Delaware in 2000.

Company Overview

        We are a leading provider of facilities-based backhaul services to wireless carriers. Facilities-based providers own or lease a substantial portion of the property, plant and equipment necessary to provide backhaul services. Backhaul is the transport of voice, video and data traffic from a wireless carrier's

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mobile base station, or cell site, to its mobile switching center, or MSC, or other exchange point where the traffic is then switched onto a wireline telecommunications network. We utilize our comprehensive wireless spectrum assets and extensive fiber service provider relationships to provide backhaul services nationally through a hybrid radio/fiber network architecture. Our services allow wireless carriers to optimize their networks, enable significant improvements in their availability, reliability, scalability and reduce costs, while providing a long-term solution for the increasing demand for backhaul capacity.

        As of December 31, 2008:

•

We provide service to 6,096 billing customer locations in 13 markets;



•

We have customer agreements with six of the eight largest U.S. wireless carriers;



•

We hold a master service agreement with Verizon Business as their fixed wireless partner on the General Services Administration Networx contract. This was the first government-related contract that we have entered into;



•

We own a national spectrum portfolio of 24 GHz and 39 GHz wide-area spectrum licenses, including over 740 MHz in the top 20 U.S. metropolitan areas and, in the aggregate, approximately 1.55 billion channel pops calculated as the number of channels in a given area multiplied by the population, as measured in the 2000 census, covered by these channels. We believe our spectrum portfolio represents one of the largest and most comprehensive collections of millimeter wave spectrum in the U.S. Our licenses extend over substantially all of the continental U.S., with a population of approximately 300 million.

        We offer our customers service that consist of time division multiplexing, or TDM, transport at speeds starting with T-1s (a standardized telecommunications service offering at 1.54 megabits per second of capacity) and scaling up to higher capacities. We have designed our network architecture to accommodate other transport services that our customers may implement in the future, including, for example, Ethernet-based backhaul which launched in 2007 and other packet-based protocols. In general, we provide these services between a wireless carrier's cell site and mobile switching center, or other drop location.

        Our network is designed to be modular and is relatively inexpensive to deploy as compared to fixed wireline networks. The point to point fixed wireless networks we presently deploy use mature and proven technologies, allowing us to operate at a level of reliability, referred to as carrier-class, that is appropriate for a telecommunication carrier's network. We deploy networks to existing towers, rooftops, or other sites where wireless carriers have deployed cell sites. At each of these physical locations, or sites, there may be more than one wireless carrier's cell site—each of which we refer to as a customer location. When possible, we provide service to multiple customers at a single site, using a shared infrastructure in order to increase our capital efficiency. We generally generate revenue in proportion to the number of customers on a site, the amount of bandwidth used by each customer at that site, and the price charged for each increment of bandwidth. This revenue, after subtracting the cost of fiber service transport, is available to cover a fixed cost base consisting of items such as rent, insurance, utilities, and field technicians.

        Our business is in its early stages, and as such we have invested heavily in capital requirements to build and expand our network. As a result, we have incurred net losses and negative cash flows from operating and investing activities since our inception. At December 31, 2008, our accumulated deficit was $624.4 million, and our total indebtedness was $430.3 million. We expect that we will continue to generate significant operating and net losses and negative cash flows for the next few years. If market conditions warrant, we will be able to slow the amount of capital expenditures to a level consistent with the business needs at that time. Our long-term economic model is designed to allow replicable, scalable, individual market builds so that we can increase or decrease our market deployment schedule based on available cash. As a result, the amount and timing of our long-term capital needs will depend

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on the extent of our network deployment. We regularly evaluate our plans and strategies, and these evaluations often result in changes, some of which may be material and significantly modify our cash requirements.

Industry Overview

        Backhaul, a critical component of a wireless carrier's network, is defined as the transport components between a cell site and a carrier's mobile switching center or other exchange point. Key factors driving demand for backhaul services include the nationwide rollout of third (3G) and fourth (4G, such as WiMax or LTE) generation networks, the continued rise in voice, video and data usage, and expansion of wireless carriers' geographic coverage. The 2007 FCC 700 MHz auction and the 2006 FCC Advanced Wireless Services, or AWS, auction augmented the spectrum portfolios of the major U.S. wireless carriers, and other smaller competitors, including Leap Wireless and MetroPCS, which will enable expansion of wireless data offerings and geographic coverage. The entrance of new wireless competitors (e.g., Clearwire Corporation and SpectrumCo LLC), and the Obama Administration's emphasis on building a nationwide broadband network are also expected to increase the total number of active cell sites, and hence further increase the demand for backhaul services. Additionally, according to a report by Visant Strategies, a market research firm, 3G and 4G technologies will require greater backhaul capacity than is in use today. Visant Strategies expects the wireless carriers to connect each 3G and 4G base station with 20-50 megabits per second of capacity initially.

        The majority of backhaul traffic in the U.S. is currently transported over a wired infrastructure, typically copper-based T-1 circuits and in some places, fiber optic-based facilities. Copper-based networks are extensively deployed today, but, as backhaul traffic demands increase, the existing copper-based T-1 circuits will approach their capacity limits to transport voice and data traffic. Currently, fiber optic networks, which have a higher capacity for the transport of voice and data traffic as compared to copper networks, service only approximately 10% of existing cell sites. We believe that the cost-prohibitive nature of building fiber optic networks to a majority of cell sites will prevent their comprehensive use as a backhaul alternative.

        Fixed wireless backhaul provides an alternative to traditional wired backhaul infrastructure. Fixed wireless systems are more flexible, less expensive and quicker to deploy than wired networks, using building or tower mounted antennas placed at strategic points in a direct line of sight with one another. Wireless backhaul providers, working in conjunction with telecommunications equipment vendors, have evolved wireless backhaul technology and equipment, resulting in proven and mature alternatives to wireline backhaul services.

Business Strategy

        We are seeking to grow long-term shareholder value by capitalizing on opportunities presented by the anticipated growth of the backhaul industry. Also, due to the generally expected renewed emphasis on broadband growth throughout the United States, we expect to capitalize on complementary businesses that our unique physical assets and expertise provide. Key elements of our strategy include:

        Leverage Existing Network and Customer Relationships.    We seek to grow by leveraging our first-mover advantage which provides us a leadership position in existing network assets, customer relationships, network relationships, spectrum assets, tower and building access, information technology and expertise. We are focusing our operations and resources on opportunities which can provide better near-term financial returns by maximizing utilization of network capacity in current markets and exploiting new business opportunities when appropriate. We are seeking to increase the utilization of our sites by increasing the number of billing customer locations and Ethernet-based T-1 equivalents.

        Continue to Improve the Efficiency of Our Network and Reduce Network Expenses.    Our networks are designed to be modular and therefore allow us to build out markets based on demand. We

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engineer our networks to serve as many customers as possible while meeting our internal return on investment thresholds. We continuously seek ways to reduce our network expenses by utilizing lit and dark fiber, testing and procuring new and more efficient network equipment, and grooming our network to maximize capacity and efficiency. As we continue to grow our customer base in established markets, the fixed cost nature of our network will allow us to add incremental traffic to our sites at a marginal incremental cost.

        Expand Our Markets Based on Identified Demand.    We expand existing markets and target new markets by identifying demand from our customers with whom we have signed master service agreements. We pre-sell firm commitments up to 12 months ahead of network build-out as we launch new projects in order to decrease capital expenditure lead times and payback periods and increase our return on investment. In addition to pre-sales, we use our market knowledge (e.g., information on co-location at tower sites and expertise in estimating demand and pricing) to determine the sites in a market that we believe have the largest revenue potential, including sites not pre-sold. We believe that the combination of this market knowledge along with our ability to pre-sell lowers the risk of the build-out. In addition, our increasing ability to leverage our nation-wide spectrum, tower and building access, and equipment delivery and construction assets increases our ability to expand our network footprint and efficiently provide new services in new geographic markets.

        Continue to Develop Innovative Solutions that Meet the Needs of Our Customers.    Our goal is to provide solutions which simplify the operation of our customers' networks and reduce their operating costs. We believe that our ability to leverage our scalable network and technology will allow us to quickly meet the evolving backhaul needs of our customers in an efficient, low-cost manner. We will continue to work proactively with our existing customers to assess their service needs and requirements. In 2008, we expanded on our 2007 launch of Ethernet-based backhaul links to Sprint Nextel under our 4G backhaul contract. These links are now part of Clearwire due to the December 2008 merger of Clearwire and Sprint Nextel's WiMax business unit.

        Allocate Capital Efficiently.    We are focused on allocating our capital efficiently by balancing new site growth with increasing existing network utilization. We anticipate that we will use between $25 million and $40 million of cash for capital expenditures during 2009. However, our decisions to invest additional capital in structural enhancements or build activities are generally based upon whether such investments exhibit sufficient revenue potential to achieve acceptable risk-adjusted returns. In addition to our discretionary network investment, given current market conditions, we may opportunistically repurchase our outstanding debt. We have the ability to reduce capital spending if market conditions warrant.

Company Strengths

        We believe the following strengths will assist us in implementing our strategy:

        Scalable Facilities-Based Network Designed for Carrier-Class Applications.    Our networks are designed to be modular, and relatively inexpensive to deploy as compared to fixed wireline networks and have been specifically designed and built to provide high-capacity carrier-class backhaul transport services to wireless carriers. In contrast, most existing telephone, cable and metropolitan fiber networks are designed to provide voice and video services to a wide range of customers and are not optimized for any specific application. In addition, our networks allow the provision of additional services, such as Ethernet-based backhaul launched in the third quarter of 2007, and will allow other packet-based protocols.

        Extensive Operating Experience Utilizing Proven Technologies.    We have a demonstrated expertise and history in designing, deploying and operating fixed wireless networks to backhaul wireless traffic. We deployed our first network in Dallas, Texas in 2003, where we provided wireless backhaul services

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to multiple customers. Since that time, we have expanded operations to a total of 13 markets. Our networks utilize proven and mature technologies, including microwave and fiber optic equipment from major telecommunications equipment manufacturers, to provide high reliability services. The technologies we utilize for wireless backhaul are deployed extensively in Latin America, Asia and Europe.

        Significant Backlog with Leading Wireless Carriers.    Our customers include several national and regional wireless carriers. As of December 31, 2008, we had entered into master services agreements with AT&T Mobility (formerly Cingular Wireless)-, Leap, Metro PCS, Sprint Nextel, T-Mobile and Verizon Wireless. Our customer agreements are generally on three or five year terms, and the T-1 orders under these agreements typically provide for termination liability. We have firm commitments on nearly 7,600 customer locations.

        Premier Portfolio of Spectrum Assets.    Our 24 GHz spectrum and 39 GHz spectrum licenses represent what we believe to be the largest collection of wide-area millimeter wave spectrum licenses in the U.S. for backhaul and similar applications, providing breadth of geographic coverage, depth in key markets and complementary technical and propagation characteristics. Our spectrum enables us to use a wide range of radio technologies. Our spectrum portfolio includes, on average, over 740 MHz in the top 20 U.S. metropolitan areas and, in the aggregate, approximately 1.55 billion channel pops. These 745 wide-area licenses, which include 641 licenses for 39 GHz spectrum and 104 licenses for 24 GHz spectrum, extend over substantially all of the continental U.S., with a population of approximately 300 million. We also possess over 3,300 point-to-point microwave licenses.

        Significant Relationship with Leading Tower Companies.    Crown Castle International Corp. is a major investor in FiberTower, and holds approximately 18% of our outstanding stock as of December 31, 2008. American Tower Corporation was also an early investor in FiberTower. We lease communications facilities from both companies. In the aggregate, Crown Castle and American Tower own approximately 35,000 tower and antenna sites across the United States.

        Experienced and Proven Senior Management Team.    Our management team includes key personnel who have previously held senior positions at major communications companies including AT&T, Verizon, Neon Communications, T-Mobile, Flarion Technologies, IDT Spectrum, Nextel, Nortel Networks, Teligent and Winstar Communications.

Product and Services

        As of December 31, 2008, we offered backhaul transport services to major wireless carriers in 13 markets divided between the following two geographic regions in the United States.

Current Markets Served

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        Backhaul transport bridges the distance between cell sites and the landline fiber optic infrastructure. Our services provide this connection through a hybrid approach that utilizes both wireless radios and wireline fiber-based networks. The main service offerings include:

•

TDM.  TDM services include selling individual T-1s to carrier customers and has also included selling larger bulk capacity services such as 8 T-1s or 12 DS-3s.



•

Ethernet.  In 2007, we began offering Ethernet-based services to the cell site. These services are offered over the same network as our other services.

        We sell these backhaul services directly to wireless carriers, generally under three or five-year service contracts. Our connections are designed to support all voice, video and data applications and all air interface technologies currently required by our customers.

Sales and Marketing

        Our national sales organization primarily focuses on two types of customers: national carriers and regional carriers. National carriers typically have presence in all or most of our deployed markets whereas regional carriers usually have presence in a subset of our markets.

        Our sales approach consists of working with customers in a consultative manner to design networks that fit their needs and meet our economic requirements. Our sales organization is assisted by staff providing sales engineering, research, proposal and customer development support, working closely with the sales teams on customer pricing, invoicing, contract management and sales programs.

        Our customers are national and regional wireless carriers. We have entered into master services agreements with AT&T Mobility, Leap, Metro PCS, Sprint Nextel, T-Mobile, Revol and Verizon Wireless.

        We hold a master service agreement with Verizon Business as their fixed wireless partner on the General Services Administration Networx contract. This was the first government-related contract that we have entered into. We intend to continue to develop government-related relationships and future revenue opportunities.

Our Network

Network Architecture

        The networks we deploy consist of both a wireless and wireline component. The wireless portion utilizes a Point-to-Point (PTP), Digital Radio Link (DRL) over the 11 GHz, 18 GHz, 23 GHz, 24 GHz and 39 GHz microwave radio spectrum. The 11 GHz, 18 GHz and 23 GHz spectrum is licensed to us on a site-by-site basis by the FCC. The 24 GHz and 39 GHz spectrum is our own licensed spectrum.

        Using the licensed radio spectrum, we transport voice, video and data traffic from wireless carrier base stations to aggregation sites, known as Fiber Exchange Points, or FEPs. At these FEPs, the customer traffic is transferred from the wireless network to a fiber-based wireline network. The aggregated traffic streams are converted at the FEP sites for delivery to carrier Mobile Switching Centers, or MSCs, or other drop-off locations over fiber optic networks.

        Multiple FEP sites, strategically positioned throughout our markets, support carrier traffic grooming, aggregation and signal handoff to fixed network fiber optic facilities for transport to carrier MSCs or other drop-off points. These fiber facilities are typically provided in the form of lit fiber transport services by national or regional fiber service providers, or FSPs.

        In certain cases, we obtain the right to lease dark fiber and use it where technically and economically attractive. FiberTower currently has equipment in place at FEP sites which can be modified to utilize dark fiber for a relatively small incremental cost. This enables us to reap significant

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cost savings, increase operating leverage and enhance control and reliability over transmissions to carrier MSCs or other drop-off locations.

        We enter into leases at cell sites and FEPs, which provide space to place our equipment on the tower or other structure as well as ground space for an equipment cabinet. We also generally obtain rights from customers to place similar equipment in their MSC or other exchange point and, in certain circumstances, to place equipment in their space at a cell site.

Network Deployment and Management

        We manage the deployment of our networks using both internal resources as well as national and regional telecommunications contractors. In mature markets, our own local team may lead market expansion projects or direct local telecommunications contractors. For new markets where we do not yet have an established presence, we typically engage a major telecommunications deployment partner to manage the network deployment.

        We manage and monitor our networks on a 24 hour per day, seven day per week basis from our Network Operating Centers (NOCs). We operate a primary NOC in San Francisco, California, with a back-up system in Dallas, Texas. Through our scalable back office systems and business processes, we enable customers to have visibility across the network and to access an integrated suite of management tools that provides insight into network status and repair activities. Our online reporting applications and processes enable increased service quality as they allow for immediate analysis of network faults and as a result, minimize repair times and outage minutes per T-1 equivalent.

Equipment

        We purchase equipment from major telecommunications equipment manufacturers and typically maintain multiple vendors for critical types of network equipment in order to ensure availability and reliability of supply. We have designed our network to use equipment that is widely available in high volume and deployed in large scale worldwide.

        Advances in technology and increased competition among manufacturers have led to the development of new network equipment, such as antennas, which are less costly, more compact and capable of supporting higher transmission capacities. This has led to several economic and operational benefits for us including lower rent expense, reduced structural analysis costs and deployment lead times, increased flexibility in equipment placement, and zoning fee reductions.

Our Spectrum

        Our spectrum portfolio includes 641 licenses for channels in the 38.6-40.0 GHz (39 GHz) spectrum and 104 licenses for 24 GHz spectrum and extends over substantially all of the continental U.S., with a population of approximately 300 million We have one of the largest and most comprehensive FCC-granted millimeter wave spectrum license portfolios in the U.S. including, on average, over 740 MHz in the top 20 metropolitan areas. In the aggregate, our licenses represent approximately 1.55 billion channel pops.

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        The following table summarizes our license holdings and total channel pops in the 50 largest U.S. markets.

License Holdings and Channel Pops in All Markets

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(1)

24 GHz SMSA licenses represent those licenses granted by the FCC that encompass Statistical Metropolitan Service Areas. FiberTower holds 102 such SMSAs. BEAs represent Basic Economic Areas. FiberTower holds one BEA license in the 24 GHz band. For both SMSAs and BEAs in the 24 GHz band, each channel represents 80 MHz.

(2)

39 GHz BEA licenses represent only those licenses granted by the FCC that encompass Basic Economic Areas. FiberTower holds 352 such BEAs. 39 GHz Rectangular Service Area (RSA) or "legacy" licenses were granted prior to the FCC awarding BEAs at auction. The RSAs were grandfathered into Basic Economic Areas and have different regulatory characteristics. FiberTower holds 290 RSAs. Two RSA's hold 2 channels. Five RSAs hold a half channel. For both 39 GHz BEAs and 39 GHz RSAs, each channel represents 100 MHz.

(3)

Total channel pops shown in millions of pops per Basic Economic Area (based on 2000 census data).

Competition

        We compete with a range of diversified telecommunications services providers. Our competition includes:

        Incumbent and Competitive Local Exchange Carriers.    The mobile wireless backhaul services market is currently dominated by Incumbent Local Exchange Carriers, or ILECs, including AT&T, Verizon, Embarq, and Qwest which provide backhaul services primarily over copper lines but increasingly over fiber. These carriers own significant network assets and often have affiliated relationships with their mobile wireless carrier customers, such as AT&T's relationship with AT&T Mobility and Verizon's relationship with Verizon Wireless

        Wireless Carriers.    The wireless carriers have constructed their own wireless and wireline backhaul networks in certain geographic regions and have the ability to build more of these networks.

        Cable Multiple System Operators.    Cable multiple system operators, or MSOs, including Cox, Time Warner Cable, Bright House and Comcast, among others, are moving to offer broadband access over their networks and offer or are considering offering backhaul services.

        Fiber Service Providers.    Fiber services providers, including Level 3, Time Warner Telecom, Zayo Broadband, DukeNet and FPL FiberNet are moving aggressively to provide direct fiber optic links to cell towers.

        Emerging Competition.    Satellite providers that use spectrum suitable for high-bandwidth transport services could emerge as competitors. Some 4G equipment manufacturers are also promoting using

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"in-band" equipment (i.e., equipment that uses the mobile carrier's own spectrum) to provide backhaul. In addition to us, a number of companies, some of which have significant spectrum assets, have launched, or are considering launching fixed wireless backhaul networks including NextLink (a subsidiary of XO Holdings), Tower Cloud, Telecom Transport Management Inc., and IDT Spectrum (a subsidiary of IDT Corporation).

        Our primary competition are the ILECs who provide over 90% of the backhaul services purchased today. FiberTower competes with the ILECs and others by providing service at a discount to the market price typically charged by the ILEC. In addition, we offer a provisioning schedule which is generally much quicker than our competitors that meets minimum service reliability requirements of our customers and oftentimes improves upon services currently provided by our competition.

        Many competitors are well-established and have larger and better developed networks and systems, longer standing relationships with customers and suppliers, greater name recognition and greater financial, technical and marketing resources than we have. These competitors can often subsidize competing services with revenues from other sources, such as customer services, content or advertising, and thus may offer their services at lower prices. These or other competitors may also reduce the prices of their services significantly or may offer backhaul connectivity with other services, which could make their services more attractive to customers. Given the intense competition, we may be unable to compete effectively with these and other technologies and service providers and, consequently, we may be unable to attract customers and grow and maintain our sales, or we may experience difficulty in developing long-term opportunities.

Employees

        As of December 31, 2008, we had 152 employees, of whom 8 were in Sales and Marketing; 108 were in Engineering, Market/Field Operations, and Network Operations which rollup to Cost of Service Revenues; and 36 were in General and Administrative. On May 8, 2008, management announced staffing reductions throughout the company as part of its cost reduction efforts. See Note 5, Restructuring Charges, in the Notes to Consolidated Financial Statements for further information.

        None of our employees are represented by a collective bargaining agreement. We believe our relations with our employees are satisfactory and that our continued success will depend, in part, on our ability to attract and retain highly qualified and motivated employees and on maintaining positive working relations with current employees

REGULATORY ENVIRONMENT

Government Regulation

        Our wireless broadband services are subject to regulation by the FCC and to a lesser extent, the Commerce Department, General Services Administration and the State Department. We may also be subject to telecommunications regulation by state and local governmental agencies. At the federal level, the FCC has jurisdiction over the use of the electromagnetic spectrum (i.e., wireless transmissions) and has exclusive jurisdiction over all interstate telecommunications services (those that originate in one state and terminate in another state). State regulatory commissions have jurisdiction over intrastate communications (those that originate and terminate in the same state). Municipalities may regulate limited aspects of our business by, for example, imposing zoning requirements and requiring installation permits. The regulations are continually evolving. On a broader level, this includes changes resulting from presidential or congressional election cycles. On a more specific level, these changes occur through rulemaking and other administrative and judicial proceedings. It is possible that regulatory or legislative changes could have an adverse effect on our business.

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        2008 Federal Elections.    The November 2008 presidential and congressional elections brought, and will continue to bring, regulatory and legislative change. This includes potentially different FCC oversight priorities, along with a new FCC Acting Chairman. Two FCC Commissioners have left since November 2008. It appears likely that new FCC Commissioners and a new permanent FCC Chairman will be nominated and seated in 2009.

Federal Regulation and Programs

        FCC Licensing.    As an FCC licensee and FCC regulated entity, we are subject to comprehensive regulatory oversight, including regulations constraining ownership of us, rules governing our licenses and radio equipment, and rules related to construction and operation of our services. In addition, we are subject to certain regulatory and other fees levied by the FCC for certain classes of licenses and services. Under certain circumstances, including certain violations of FCC rules, our licenses may be revoked, canceled, conditioned, not renewed upon expiration or we may be fined. Among other things, the Communications Act of 1934, as amended, and the FCC rules and regulations impose requirements on radio licensees and carriers that include regulations on the ownership, operation, acquisition and sale of the broadband operating radio systems that are needed to provide the services we offer.

        Wide-area licensing.    We hold wide-area licenses in the 24.25-24.45 GHz and 25.05-25.25 GHz (24 GHz) and 38.6-40.0 GHz (39 GHz) bands. The FCC operational rules generally provide significant flexibility to licensees operating in both the 24 GHz and 39 GHz bands. For example, licensees are permitted to offer point-to-multipoint and point-to-point services, and, at least in the 39 GHz band, will be permitted to provide mobile services upon adoption of inter-licensee coordination policies.

        Point-to-point licensing.    In addition to our 24 GHz and 39 GHz wide-area licenses, we also provide transmission links utilizing point-to-point licensed spectrum granted by the FCC in other bands, including 6 GHz, 10 GHz, 11 GHz, 18 GHz and 23 GHz bands. We hold over 3,300 point-to-point licenses. A point-to-point licensee may only operate from the exact geographic coordinates identified on the license. Any changes that require operation at another coordinate require either a license modification or a new license. The FCC generally processes such applications for point-to-point microwave license on a routine basis.

        License Renewal.    Our spectrum licenses in the 24 GHz and 39 GHz bands are granted for ten-year terms with renewal dates ranging from 2009 to 2017. On October 1, 2008, renewal applications for our licenses that had been scheduled to expire in 2007 received either renewals for another ten years or construction extensions until June 1, 2012 from the FCC. In order for our 24 GHz and 39 GHz licenses to qualify for renewal in the future, we must file renewal applications for each license prior to expiration and demonstrate that we have provided "substantial service" by the end of the term of each license (which is February 1, 2011 for 102 of the 103 24 GHz licenses) or by an FCC approved substantial service showing date (which is June 1, 2012 for a substantial majority of the 39 GHz licenses). The FCC's substantial service renewal standard for both the 24 GHz and 39 GHz licenses is intended to provide licensees with flexibility in demonstrating usage of their licenses. The FCC's "safe harbor" test provides licensees with a degree of certainty as to how to comply with the substantial service requirement. For example, for 39 GHz licensees offering point-to-point service, the FCC has said that the construction of four links per channel per million persons in the license area will meet the substantial service test. For 24 GHz point-to-point/multipoint licensees, the FCC has said that a showing of four links per million persons within a service area or service to an area that has very limited access to either wireless or wireline telecommunications services will meet the substantial service test. While the safe harbors are intended to provide guidance, they are not the only way for licensees to demonstrate substantial service. Licensees may show that they have met the substantial service test in other ways, such as providing niche services or offering services to underserved consumers, however, there is little precedent in this area at this time. Accordingly, we believe that the level of service that will be considered "substantial" by the FCC at renewal may vary depending upon

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the type of product offering by the licensee. Further, the FCC may modify its interpretation of substantial service and, in the future, we may encounter more stringent substantial service requirements. License renewal is not guaranteed and the FCC holds significant discretion in making renewal decisions. The loss of some number of our licenses could limit the expansion of our business, cause us to take impairment charges to our FCC licenses intangible asset and harm our operating results.

        We do not currently meet the substantial service safe harbor guidance provided by the FCC for the substantial majority of our 24 GHz and 39 GHz licenses, which require renewal applications or showings mostly in the 2011-2014 time period. We believe that our licenses will be renewed based on our significant network investment and expanding geographic coverage.

        The point-to-point licenses that we possess also have a ten-year term and, as long as the point-to-point link remains operational, may be renewed by paying a minimal license renewal fee.

        Spectrum Leasing.    The FCC has also adopted regulations permitting certain classes of licensees, such as 24 GHz and 39 GHz licensees, to lease a portion, or all, of their spectrum to third parties. We refer to those regulations as the Secondary Market Ruling. The FCC's spectrum leasing rules are generally designed to promote a secondary market for spectrum and provide a number of options for leasing depending upon the degree of control that the lessee desires to be afforded. Since the ruling, we believe that the transaction costs associated with meeting FCC documentation requirements for any kind of spectrum leasing have decreased from over $20,000 per lease to a negligible amount. While generally beneficial to licensees, the FCC's leasing rules may introduce additional competition to the types of services and products that we offer. Moreover, the FCC spectrum leasing rules could be modified in a manner that is not favorable to our business.

        Band Sharing.    Licenses in the 39 GHz band are subject to an arrangement between the FCC and the Department of Industry of Canada regarding sharing between broadband wireless systems along the U.S.-Canada border. Additionally, this band is subject to satellite power flux density limits which might limit our ability to provide service in certain conditions if certain satellite systems receive the right to operate.

        Auctions.    Since 1994, the FCC has conducted auctions of licenses for spectrum. In July 2004, the FCC auctioned 80 MHz licenses for 24 GHz spectrum in 176 Basic Economic Areas (BEA, or BEAs) covering the entire United States. Licenses in seven BEAs were purchased covering 12.8 million pops, including one by us. As discussed below, the purchasers typically acquired spectrum in areas outside our 24 GHz spectrum holdings.

        Our 24 GHz licenses are for geographic areas known as SMSAs (Standard Metropolitan Statistical Area) and were originally awarded to Teligent, a company from whom we acquired the licenses in 2005, as replacement spectrum due to rebanding in the 18 GHz band. Importantly, new licensees in the 24 GHz band, who may be authorized for service areas larger than the SMSAs, must protect operations conducted under our authorizations in order to not interfere with our business.

        The availability of more spectrum in the 24 GHz or 39 GHz band could increase the number of entities with which we compete. In the future, the FCC could decide to hold another 24 GHz auction. The FCC still controls a substantial amount of 39 GHz spectrum. The FCC could auction this spectrum in the future, increasing the number of entities that hold this spectrum. Additionally, in a pending proceeding, the FCC is considering the allocation and licensing by auction of additional spectrum in the 37-38.6 GHz range. In the future, the FCC could make available additional spectrum between 10 and 40 GHz. For example, in May 2008, the Utilities Telecommunications Council (UTC), along with Winchestor Cator, L.L.C., petitioned the FCC for secondary access nationwide to the 14.0-14.5 GHz band to, among other applications, provide fixed broadband wireless access to utilities for critical infrastructure communications and management. When not utilized by utilities, Winchestor Cator proposes to manage and achieve access to the spectrum. The satellite industry and others filed in

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opposition to this proposal. FiberTower filed comments asking the FCC to determine a modern definition for those who provide broadband for critical infrastructure applications, arguing that the definition pre-dates September 11, 2001, and is therefore stale. On January 29, 2009, UTC made additional filings on this matter with the FCC and other federal agencies. It is not clear at this point if, when or how the FCC may rule in this 14 GHz proceeding.

        SafeView's SafeScout Interference Issues.    On September 5, 2006, we filed with the FCC a Petition for Reconsideration of the FCC's August 4, 2006 Order granting a waiver to SafeView, Inc. to permit the certification, marketing, and operation of SafeView's SafeScout imaging device under Part 15 of the FCC's Rules. The SafeScout is a device that uses imaging technology to detect contraband or weapons carried by individuals, and would be particularly useful in airports. The FCC noted that, by operating as a Part 15 unlicensed device, the SafeScout must accept harmful interference and not cause interference to primary licensees. In addition, the FCC imposed certain conditions on SafeView's operation of the SafeScout, including limiting installations to indoor areas and maintaining a database of installed devices. Despite these steps, however, we believe that primary licensees in the 24 GHz band deserve more precise tools for managing potential harmful interference issues, especially in and around airports, where microwave services such as those provided by us are used by airport authorities and others. We filed a petition for reconsideration on September 5, 2006. Our petition has been supported in reply comments filed by the Fixed Wireless Communications Coalition. The petition remains pending before the FCC, and in the event that the FCC does not act on our petition, we face some risk of interference when operating near the SafeScout.

        Policies and Service Rules for the Broadcasting-Satellite Service.    In June 2006, the FCC released a further Notice of Proposed Rulemaking specifically seeking to promote prompt commencement of the ¹⁷/24 GHz Broadcasting Satellite Service, or BSS, which is intended to introduce a new generation of broadband services to residential and business subscribers in the United States. The proposed BSS use includes ground-to-satellite uplinks in spectrum that overlaps with part of the 24 GHz spectrum for which we are licensed. In the proceeding, the FCC seeks comment on (1) whether the existing power limits for satellite earth stations in bands shared co-equally with terrestrial radio communications services are appropriate, and (2) whether the antenna pattern requirements applicable to BSS feeder-link stations should be modified to relieve the coordination burden on either BSS or 24 GHz or both services. We filed comments on October 16, 2006 and reply comments on November 15, 2006 concerning the technical requirements for inter-service operations and sharing in the 24 GHz band designed to assure that interference concerns are minimized or eliminated. On May 4, 2007, the FCC released a Report and Order and Further Notice of Proposed Rulemaking (R&O). In the R&O, the FCC stated that it does not intend to license 24 GHz BSS feeder links to operate in existing 24 GHz FS licensed areas. The FCC also designated an interference standard for BSS feeder link stations that may operate near the borders of 24 GHz license areas. We continue to examine that border interference standard in the context of the architecture of any future BSS feeder link stations that may become licensed and operational. At this time, no such feeder stations are known to be operating, or licensed for specific operation in the 24 GHz band or near our license areas. Prior to and during 2008, satellite companies filed applications to operate ¹⁷/24 GHz BSS systems. We are tracking these applications and expect to assess which ones may result in licensed and built systems.

        Unbundled Network Elements (UNEs) and Special Access Transport.    As of March 11, 2006, incumbent local exchange carriers, or ILECs, are no longer required to lease certain parts of their network at favorable costs to their competitors. Instead, Competitive Local Exchange Carriers, or CLECs, and others that had been using these unbundled network elements from the ILECs must obtain them from other sources or negotiate new supply arrangements with ILECs. This ruling affected mass market local switching and, in many circumstances, DS-1 (1.5 megabits per second) and DS-3 (45 megabits per second) local access and transport. Nonetheless, in the FCC's approval of the AT&T/BellSouth merger, the FCC conditioned their approval upon the merged company continuing to

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provide certain unbundled network elements at current rates for a period of time to our competitors. It also required certain ILECs to offer similar prices in their territories to competitors in order to obtain those rates from AT&T. We expect that there may be some instances when competitive carriers will seek alternative (non-ILEC) services, and we hope to serve those carriers with broadband, fixed wireless transport solutions. At this time, the FCC continues to investigate whether UNEs and special access transport are being priced reasonably to carriers who do not possess facilities in the markets in which they need such UNEs or transport.

        Private Carriage.    Although there has been a narrowing of the differences in regulatory requirements applicable to common carriers and private transmission companies in recent years, the FCC regulations applicable to common carriers remains more extensive. Generally, the Communications Act regards firms that offer transmission services directly to the public for a fee as common carriers. We currently offer our fixed wireless services to particular customers with specific needs on an individual contract basis. We do not hold ourselves out to the public for the provision of our services. As such, we believe we operate as a private carrier and are not subject to the FCC's common carrier regulations. Nonetheless, the FCC could determine that we are operating as a common carrier, and as a result, determine that we are subject to its common carrier rules and regulations which would likely increase our costs of providing service and could have an adverse impact on our business operations, revenues, and profitability.

        Building Access and RF Exposure Proceedings.    On October 22, 2007, notice was published in the Federal Register that the FCC is collecting additional information for its record in multiple building access and radio- frequency exposure proceedings, most originally adopted in October 2000. Those proceedings, designed to foster competition in local communications markets by implementing measures to ensure that competing telecommunications providers, including fixed wireless providers, are able to provide services to customers in multiple tenant environments (MTEs). Specifically, the rules: (1) prohibited carriers from entering into contracts that restrict or effectively restrict a property owner's ability to permit entry by competing carriers; (2) established procedures to facilitate moving the demarcation point to the minimum point of entry (MPOE) at the building owner's request, and requires incumbent local exchange carriers (ILECs) to timely disclose the location of existing demarcation points where they are not located at the MPOE; (3) determined that utilities, including ILECs, must afford telecommunications carriers and cable service providers reasonable and non-discriminatory access to their conduits and rights-of-way located in customer buildings and campuses; and (4) extended to fixed wireless antennas the existing prohibition of restrictions that impair the installation, maintenance or use of certain video antennas on property within the exclusive use or control of the antenna user, where the user has a direct or indirect ownership or leasehold interest in the property. The potential impact on FiberTower of these rulemakings is uncertain.

        The FCC also stated that this information collection will also help ensure that customer-end antennas used for telecommunications service comply with the FCC's limits on radio frequency exposure and it will provide the Commission with information on the state of the market. At this time, the FCC has yet to make a ruling or suggest changes to existing rules related to these matters.

        Pole Attachments.    On February 6, 2008, an FCC Notice of Proposed Rulemaking was published in the Federal Register. The FCC sought comment on whether to amend its rules governing pole attachments, which are designed to ensure the attachment of facilities of telecommunications carriers and cable television systems to utility poles, ducts, conduits, or rights-of-way (collectively, "pole attachments") at just and reasonable rates, terms and conditions. The FCC noted that the current pole attachment rules may be inadequate in scope or no longer in accord with developing technology and business models. The FCC has found no clear indication that the rules could not accommodate wireless attachers' use of poles. The FCC sought comment on whether, when they are "telecommunications carriers," wireless providers are entitled to the telecommunications rate as a matter of law, or whether the Commission should adopt a rate specifically for wireless pole attachments. The Commission asked

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whether, if a wireless facility uses more than the presumptive one foot of space, the per-foot rate could simply be doubled, trebled, or otherwise multiplied as required. Comments were filed March 7, 2008 and Reply Comments were filed on April 7, 2008. FCC activity in this area over the previous quarters was limited to advocacy from various parties. We expect the FCC to renew work in this proceeding in 2009 as it reconstitutes under its restructured leadership. The potential impact on FiberTower of this proposed rulemaking is uncertain.

        2009 Economic Stimulus Legislation.    On February 17, 2009, President Barak Obama signed into law The American Recovery and Reinvestment Act of 2009 (ARRA). The nearly $800 billion bill included $7.2 billion specifically for broadband infrastructure projects. FiberTower is eligible to bid for these funds however there is no assurance that we will be successful in obtaining any such funds. Two agencies will distribute those funds: i) The Commerce Department, through the National Telecommunications and Information Administration (NTIA) will distribute $4.7 billion in competitive grants using a new vehicle named The Broadband Technology Opportunities Program (BTOP) and ii) The Agriculture Department, through the Rural Utilities Service (RUS) will distribute $2.5 billion in grants, loans, and loan guarantees.

        BTOP.     $3.9 billion must be awarded by September 30, 2010 and made available to un-served or under-served areas anywhere in the country, including rural, suburban or urban areas. Key House-Senate report language states that: i) NTIA must select grant recipients that it judges will best meet the broadband access needs of the area to be served, whether by a wireless provider, a wireline provider, or any provider offering to construct last-mile, middle-mile, or long haul facilities;" and ii) Eligible entities includes "backhaul companies." Preferences are given to applicants that provide broadband access to community anchor institutions, and public safety agencies, and with a design that stimulates further broadband demand and spurs job creation and economic growth. BTOP grant funding is limited to 80% of a project's cost, except where NTIA issues a waiver based on financial need. The NTIA and the states will work together to define the areas and services that qualify for funding, with the NTIA holding the final decision. There is an additional $810 million in set asides which include i) developing and maintaining a national broadband inventory map; ii) grant programs to "encourage sustainable adoption of broadband service and iii) expanding public computer center capacity.

        RUS.     In addition to its regularly budgeted rural service funds, $2.5 billion is designated in ARRA for rural distance learning, telemedicine and broadband grants, loans and loan guarantees. At least 75% of the geographic areas targeted for funding must currently not possess sufficient access to high speed broadband service, and the funds must be targeted to stimulate rural economic development. Priority is given to applicants who are current or former RUS fund recipients and to projects ready for immediate implementation.

        Projects enabled with BTOP funds cannot also access RUS funding for the same project area.

        FCC.     The FCC and many other federal agencies received orders or funding for projects that include broadband elements. The FCC must issue a national broadband plan by February 17, 2010. The FCC may receive funds from, or provide advice to, NTIA for national broadband mapping, national broadband policy development, and other matters.

        Other Agencies.     Other federal agencies received funding for programs that likely require broadband support. For example, such projects include: a $4.5 billion electric grid modernization program (also known as the "smart grid"), a $20 billion program to place patient health care records in electronic format and make them easily transported from hospitals and medical centers through regional exchanges, $4.2 billion for military facilities modernization, restoration and sustainment and $8 billion for a High-Speed Rail Corridor program and intercity passenger rail service.

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        Intellectual Property.    On November 14, 2005, we applied to the U.S. Patent and Trademark Office (PTO) for a service mark for a shared infrastructure backhaul service that allows for collocating backhaul for first responder networks, municipal (school, hospital, local government, etc.) networks, commercial mobile networks and other systems. On October 28, 2008, the PTO granted us a registration for MuniFrame®. In the event we file grant applications or act as a provider to grant applicants, we expect to use this mark to further demonstrate that our services meet eligibility criteria for NTIA BTOP grants and other broadband-related programs funded in the ARRA. However, there is no assurance that even if this mark meets such eligibility criteria, that we will be able to avail ourselves of funding for such from the ARRA.

        On December 9, 2008, the PTO granted trademark registration for FiberTower® for use in describing broadband communications services.

State Regulation

        Our services are non-switched wireless transmission links that we offer on a private, rather than on a common carrier basis. However, if one or more states determine that we are providing intrastate, common carrier service, we would be subject to state regulation in those states. Regulations vary in each state, but if we are deemed to be providing intrastate service, we may be required to apply for and maintain Certificates of Public Convenience and Necessity in some or all of the states in which we have operations. We also may be required to fulfill other state requirements, such as file tariffs, reports and contribute to state universal service funds, among other things.

Available Information

        Our Internet address is www.fibertower.com. On the Investor Relations portion of this web site, we make available free of charge our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports as soon as reasonably practicable after they are filed with or furnished to the SEC.

ITEM 1A.    RISK FACTORS

While the following are the risks and uncertainties we believe are most important for you to consider, they are not the only risks or uncertainties facing us or that may adversely affect our business. If any of these risks or uncertainties actually occurs, our business, operating results or financial condition may be materially adversely affected. Additional risks and uncertainties not presently known to us or that are not currently believed to be important to you also may adversely affect our company.

We expect to incur negative cash flows and operating losses for at least the next few years.

        We have generated operating and net losses and negative cash flows since our inception, and we expect that we will continue to generate operating and net losses and negative cash flows for the next few years as we continue to invest in capital requirements to build and expand our network. As a result, we may not achieve or sustain profitability in the future. Our ability to achieve profitability will depend, in part, on our ability to:

•

attract and retain customers;



•

react to changes, including technological changes, in the markets we target;



•

deploy our services in additional markets;



•

respond to competitive pressures;



•

manage costs;



•

attract and retain experienced and talented personnel; and

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•

establish strategic and maintain existing business relationships.

        Accordingly, our historical revenue may not be indicative of future revenue based on comparable traffic volumes. If the prices for our communications services decrease, and if we are unable to offer additional services from which we can derive additional revenue or otherwise reduce our operating expenses, our operating results will decline and our business and financial results will suffer.

To service our indebtedness we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

        Our business does not currently generate sufficient cash flow from operations to make the interest payments on the $402.5 million of Convertible Senior Secured Notes ("Notes") that were sold on November 9, 2006. As a result, we deposited into an escrow account $68.5 million of the net proceeds from the Notes offering, which together with the proceeds from the investment thereof, was sufficient to make the first four semi-annual interest payments on the Notes in May and November of 2007 and 2008. We have the option to pay interest on the next four interest payment dates in additional Notes and the interest rate applicable to any such interest payments made in additional Notes will be 11%. Thereafter, we will be required to pay interest only in cash. Our Board of Directors has approved the payment of the May 2009 interest payment in additional Notes.

        Our ability to pay our expenses and make payments due on the Notes or any other indebtedness depends on our future performance, which will be affected by financial, business, economic, legislative and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow from operations in the future, which could result in our being unable to pay interest or repay indebtedness, including the Notes, or to fund other liquidity needs. If we do not have sufficient funds, we may be required to sell assets or incur additional debt, or we may need to refinance all or a portion of our indebtedness, including the Notes, at or before maturity. We cannot assure you that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all. In addition, the terms of existing or future debt agreements may restrict us from adopting any of these alternatives. The failure to generate sufficient cash flow or to achieve any of these alternatives could materially adversely affect our ability to pay interest and the amounts due under our indebtedness, which could have a material adverse effect on us.

Our substantial level of indebtedness could materially adversely affect our financial condition and prevent us from fulfilling our obligations under our indebtedness.

        As of December 31, 2008, we have total indebtedness of $430.3 million, consisting of the Notes. The indenture governing the Notes will also allow us to enter into a senior secured credit facility and incur certain other additional indebtedness, including pari passu senior secured indebtedness in certain circumstances.

        Our substantial indebtedness could have important consequences and significant effects on our business, including the following:

•

it may make it difficult for us to satisfy our obligations under the Notes and our other indebtedness and contractual and commercial commitments and, if we fail to comply with these requirements, an event of default could result;



•

we must use a substantial portion of our cash flow from operations to pay interest on the Notes and our other indebtedness, which will reduce the funds available to us for other purposes;



•

our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes will be limited;

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•

our flexibility in reacting to changes in our industry may be limited and we could be more vulnerable to adverse changes in our business or economic conditions in general; and



•

we may be at a competitive disadvantage compared to our competitors that are not as highly leveraged.

        Any of the above consequences could have a material adverse effect on our business, financial condition, results of operations and our ability to satisfy our obligations under the Notes.

        In the first quarter of 2009, we repurchased approximately $52.3 million par value of our Notes in the open market. We may from time to time repurchase or retire amounts of our outstanding Notes as was done during the first quarter of 2009. Because we will evaluate such transactions, if any, in light of the then-existing market conditions, we may be unable to repurchase additional Notes and decrease our indebtedness in the future. See Note 18, Subsequent Event, in the Notes to Consolidated Financial Statements for additional information.

We may require significant funds in the future, which may not be available to us to operate and expand our business.

        As of December 31, 2008, we had unrestricted cash and cash equivalents of $154.4 million. However, our business is capital intensive, and we may require additional funds to fund capital expenditures and pay operating expenses in the future. We may be unable to secure additional financing when needed, on acceptable terms, or at all, for these purposes. Any such financing could be subject to onerous terms and could be very dilutive to our stockholders. If we are unable to secure capital when needed, our business plans could be adversely affected and our results of operations could suffer.

If we are unable to satisfy Nasdaq Global Market ("Nasdaq") listing requirements, our common stock could be delisted from Nasdaq.

        Companies listed on Nasdaq are required, among other things, to maintain a minimum closing bid price of $1.00 per share. If the closing bid price of a security remains below the $1.00 minimum closing bid price requirement for 30 consecutive business days, companies have a period of 180 calendar days to demonstrate compliance by maintaining a closing bid price of $1.00 or more for 10 consecutive business days. On October 16, 2008, we received notification from Nasdaq that it had suspended the enforcement of the rules requiring a minimum $1.00 closing bid price and a minimum market value of publicly held shares through January 16, 2009. On December 19, 2008, Nasdaq announced that it has extended the suspension of this rule through April 17, 2009, with the rule scheduled to be reinstated on April 20, 2009.

        Since October 15, 2008, our closing price on Nasdaq has been less than $1.00 per share. If the closing bid price of our common stock remains below $1.00 per share for a period of 30 consecutive business days beginning after April 20, 2009, or we are unable to continue to meet any of Nasdaq's listing maintenance standards for any other reason, our common stock could be delisted from the Nasdaq Global Market. In the event of delisting, trading, if any, could be conducted in the over-the-counter market in the so-called "pink sheets" or on the OTC Bulletin Board. In addition, our securities could become subject to the SEC's "penny stock rules." These rules would impose additional requirements on broker-dealers who effect trades in our securities. Consequently, the delisting of our common stock and the applicability of the penny stock rules may adversely affect the ability of broker-dealers to sell our securities, which may adversely affect an investor's ability to resell our securities. If any of these events take place, an investor may not be able to sell as many securities as desired, an investor may experience delays in the execution of transactions and our securities may trade at a lower market price than they otherwise would. In addition, if our common stock is delisted from Nasdaq and we are unable to relist our common stock on Nasdaq or another national securities exchange within

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ninety days, the holders of our convertible notes may require us to repurchase all or part of their notes for cash at a repurchase price equal to 101% of their aggregate accreted principal amount, plus accrued and unpaid interest up to, but excluding, the repurchase date. We may not have sufficient funds at such time to repurchase any or all of the Notes. A delisting from the Nasdaq and future declines in our stock price as a result of any delisting could also greatly impair our ability to raise additional necessary capital through equity or debt financing.

We may be unable to successfully execute any of our currently identified business opportunities or future business opportunities that we determine to pursue.

        In order to pursue business opportunities, we will need to continue to build our infrastructure and operational capabilities. Our ability to do any of these successfully could be affected by one or more of the following factors:

•

whether our equipment, our equipment suppliers or our service providers perform as we expect;



•

our ability to achieve market acceptance of our services;



•

our ability to execute our business strategy, which could be affected by our limited experience in providing high-speed transmission services;



•

our ability to effectively manage our third party relationships;



•

our ability to negotiate acceptable agreements to secure suitable locations for our radios and antennas;



•

our ability to manage the expansion of our operations, which could result in increased costs, high employee turnover or damage to customer relationships;



•

our ability to attract and retain qualified personnel, which may be affected by the significant competition in our industry for persons experienced in network operations and engineering;



•

equipment failure or interruption of service, which could adversely affect our reputation and our relations with our customers;



•

our ability to respond to regulatory or policy changes in our industry;



•

our ability to accurately predict and respond to the rapid technological changes in our industry and the evolving demands of the markets we serve; and



•

our ability to raise substantial additional capital to fund our growth.

        Our failure to adequately address one or more of the above factors would have a significant impact on our ability to implement our business plan with respect to mobile backhaul and fiber network extensions and our ability to pursue other opportunities that arise, which might negatively affect our business.

We invested significant resources into developing sites that may not necessarily generate significant revenues in the future.

        Prior to 2005, Old FiberTower constructed networks where each site had committed customer orders prior to any network design or deployment activities. Beginning in late 2005, in order to shorten the time a customer was required to wait between commitment and initial service delivery, Old FiberTower implemented a strategy to deploy networks where not all sites had committed customer orders at the start of deployment. Accordingly, we have an inventory of sites where T-1s are available for sale following completion of a deployment project, including some sites where no T-1s have yet been sold. As of December 31, 2008, we had 3,120 deployed sites, with 2,763 sites then being used to deliver services to customers and generating revenues. We incur significant costs in constructing and

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developing a site, and if we are unable to generate sufficient revenues from the site in the future, our business and financial condition would be adversely affected.

We may experience difficulties in constructing, upgrading and maintaining our network, which could adversely affect customer satisfaction, increase carrier turnover and reduce revenues.

        We may experience quality deficiencies, cost overruns and delays on construction, maintenance and upgrade projects, including the portions of those projects not within our control. The construction of networks for backhaul services also requires the receipt of permits and approvals from numerous governmental bodies, including municipalities and zoning boards. Such bodies often limit the expansion of transmission towers and other necessary construction. Failure to receive approvals in a timely fashion can delay system rollouts and raise the cost of completing construction projects. In addition, we typically must obtain rights from land, building and tower owners to install our antennas and other equipment to provide our services. We may not be able to obtain, on terms acceptable to us, or at all, the rights necessary to construct our network and expand our services.

        We also face challenges in managing and operating our network. These challenges include operating, maintaining and upgrading network and customer premises equipment to accommodate increased traffic or technological advances, and managing the sales, advertising, customer support, billing and collection functions of the business while providing reliable network service at expected speeds and levels of quality. The failure in any of these areas could adversely affect customer satisfaction, increase subscriber turnover, increase costs, decrease our revenues and otherwise have a material adverse effect on our business, prospects, financial condition and results of operations.

We are a relatively new entrant into a highly concentrated market with few potential customers.

        There are only a limited number of national mobile wireless carriers in any given regional market and typically fewer than four to seven mobile wireless carriers in any given market who are potential customers for mobile wireless carrier backhaul services. Our business strategy will depend on maintaining and growing customer relationships with a small number of national mobile wireless carriers and additional wireless carriers in each market. The competitors in this market, including large telephone companies, enjoy long-standing and established relationships with all of the mobile wireless carriers. If we are unable to secure and maintain a minimum number of ongoing and growing relationships with carrier customers in each market, our results of operations will be adversely affected.

Two customers accounted for 73% of our revenues in 2008.

        AT&T Mobility accounted for 70%, 57% and 40% of our revenues in 2006, 2007 and 2008, respectively . Together with Sprint Nextel which accounted for 33% of our revenues in 2008, AT&T Mobility and Sprint Nextel accounted for 73% of our revenues in 2008. In December 2008, Clearwire Corporation completed a transaction with Sprint Nextel and an investor group to launch a new WiMAX-based wireless services provider. As a result of this transaction, a portion of the circuits previously billed to Sprint Nextel have been transferred to Clearwire. If this transaction had occurred on January 1, 2008, approximately 14% of our 2008 revenues would have been attributed to Clearwire and approximately 19% would have been attributed to Sprint Nextel. If we were to lose AT&T Mobility, Sprint Nextel or Clearwire as a customer, or if AT&T Mobility, Sprint Nextel or Clearwire reduced their usage of our services or became financially unable to pay our fees, our business, financial condition and operating results would be harmed. In addition, if AT&T Mobility, Sprint Nextel or Clearwire were to encounter financial difficulties, our business could be adversely affected.

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The success of our business strategy relies on the continued growth of the mobile wireless services industry and high-bandwidth broadband mobile applications in the U.S.

        The demand for backhaul services, including those we offer, depends on the continued growth of the mobile wireless services industry. The provision of mobile wireless services represents an evolving sector of the telecommunications industry, and is subject to a number of risks, including:

•

the continued development and use of high-bandwidth mobile applications;



•

historical perceptions regarding the burdens and unreliability of previous mobile wireless technologies;



•

high rates of consumer adoption of mobile applications;



•

increased levels of usage by subscribers;



•

increased or burdensome government presence through policy and regulatory changes;



•

increases in the number of overall subscribers; and



•

the continued development and market acceptance of mobile devices enabled for mobile applications.

        If the mobile wireless carrier industry demand for backhaul services does not continue to grow through new subscriber additions and the adoption of high-bandwidth 3G applications, or for any other reason, our operations and financial performance will be adversely affected.

Our revenues depend on the sale of fixed-wireless backhaul circuits for mobile wireless carriers.

        We derive a substantial majority of our revenues from the sale of fixed-wireless T-1 backhaul and related services to mobile wireless carriers. We expect that we will continue to derive a substantial majority of our revenues from these services in the future. Any competitor's substitute service with similar performance and coverage characteristics and a lower cost structure could create downward price pressure and adversely affect our sales efforts. In addition, competing technologies could be developed that make our services obsolete. Accordingly, any changes in demand for our services, whether due to pricing pressure, technological changes, or otherwise, could materially and adversely affect our business and results of operations.

We operate in a highly competitive environment and may not be able to compete successfully, which could materially and adversely affect our ability to attract customers and maintain and increase our sales.

        Our competitors include or could include:

•

incumbent and competitive local exchange carriers who offer T-1, DS-3 and higher bandwidth services or Ethernet-based backhaul services;



•

mobile wireless carriers building propriety backhaul networks;



•

cable multiple system operators offering either T-1, DS-3 and higher bandwidth circuits or Ethernet-based backhaul services;



•

fiber services providers with metro area network and distribution facilities;



•

satellite providers providing high capacity backhaul services;



•

other fixed-wireless service providers using unlicensed or licensed spectrum, suitable for high-bandwidth transport services; and



•

electric utilities and other providers offering or planning to offer broadband access over power lines.

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        Moreover, we expect other existing and prospective competitors to adopt technologies or business plans similar to ours, or to seek other means to develop a product competitive with our services. Many competitors are well-established and have larger and better developed networks and systems, longer-standing relationships with customers and suppliers, greater name recognition and greater financial, technical and marketing resources than we have. These competitors can often subsidize competing services with revenues from other sources, such as consumer services, content or advertising, and thus may offer their services at lower prices. These or other competitors may also reduce the prices of their services significantly or may offer backhaul connectivity with other services, which could make their services more attractive to customers. Given the intense competition, we may be unable to compete effectively with these and other technologies and service providers and, consequently, we may be unable to attract customers and grow and maintain our sales, or we may experience difficulty in developing long-term opportunities.

An economic or wireless telecommunications industry slowdown may materially and adversely affect our business.

        Slowdowns in the U.S. economy or in the telecommunications industry may impact consumer demand for wireless services, thereby reducing demand for our backhaul services, or negatively impact the debt and equity markets, thereby reducing demand for our services by causing wireless carriers to delay or abandon implementation of new systems and technologies, including 3G and other wireless broadband services. Further, the threat of terrorist attacks and the political and economic uncertainties resulting there from and other unforeseen events may impose additional risks upon and adversely affect the wireless telecommunications industry and our business.

Competitors or customers may acquire radio spectrum for the purpose of offering similar fixed wireless services, which could impact our growth and negatively affect our operating results.

        The FCC and the U.S. Commerce Department each control a substantial amount of radio spectrum that may be procured through auction, application, or other licensing mechanisms and used for provision of fixed wireless services. Fixed wireless radio spectrum could be acquired by companies through sale or lease for the purpose of competing with us. Additionally, companies that we might serve with our wireless operations may elect to acquire spectrum or use spectrum they already control and develop their own fixed wireless networks. Moreover, certain unlicensed technologies may be used to provide services that could be used to compete with our services. All of these could adversely affect our business.

We depend on third parties to help deploy our infrastructure and equipment to deliver our services.

        We rely on third-party contractors to deploy the infrastructure and equipment needed to provide our services. None of these third parties are contractually obligated to continue providing these services to us for any specific period of time. There are inherent risks in relying on third parties to provide these services, including:

•

the third parties could determine not to continue providing these types of services in the future, which would require us to obtain the services from other third-party contractors, or require us to develop the capability to perform these services internally;



•

reduced control over delivery schedules and quality of work; or



•

defects in third-party work may not be discovered until after services have been provided, which could lead to outages, decreased performance levels and customer dissatisfaction.

        If these third-party contractors are unable to provide quality services to us at reasonable prices, or if these third-party providers cease providing these services, our business could be harmed.

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        In addition, we depend on certain single source suppliers that supply components used in our network to deliver our services. If we need alternative sources for key component parts for any reason, these component parts may not be immediately available to us. If alternative suppliers are not immediately available, we will have to identify and qualify alternative suppliers, and production or delivery of these components may be delayed. We may not be able to find an adequate alternative supplier in a reasonable time period, or on commercially acceptable terms, if at all.

Interruption or failure of information technology and communications systems could impair our ability to provide services, which could damage our reputation and harm our operating results.

        We have experienced service interruptions in some markets in the past and may experience service interruptions or system failures in the future. If we experience frequent or persistent system or network failures, our reputation and brand could be permanently harmed. We may make significant capital expenditures to increase the reliability of our systems, but these capital expenditures may not achieve the expected results. In some of our markets, some of our network facilities do not have redundant components. Accordingly, if one of these components were to fail for any reason, our network may not be able to achieve satisfactory performance levels and may even suffer outages. Any service disruptions may have an immediate and significant impact on our ability to attract, retain, and grow customer revenues, which would harm our business and operating results.

        We also depend on the continuing operation of our information technology and communications systems. Any damage to or failure of these systems could result in interruptions in service. Interruptions in service could reduce revenues and harm operating results, and our brand could be damaged if people believe the network is unreliable. These systems are also vulnerable to damage or interruption from earthquakes, terrorist attacks, riots, acts of war, floods, tornadoes, hurricanes, fires, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm our systems, and similar events. Some systems are not fully redundant, and disaster recovery planning may not be adequate. The occurrence of a natural disaster or unanticipated problems at any network center could result in lengthy interruptions in service and adversely affect operating results.

If our data security measures are breached, our reputation and business may be harmed.

        We rely on the security of our networks to deliver our services to customers. Because techniques used to obtain unauthorized access to or to sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate or implement adequate preventive measures against unauthorized access or sabotage. Consequently, unauthorized parties may overcome these security systems and obtain access to data on the network. We may incur costs associated with the unauthorized use of our networks including administrative and capital costs associated with detecting, monitoring and reducing the incidence of fraud. In addition, because we operate and control the network and the customers' network connectivity, unauthorized access or sabotage of our network could result in damage to our network and to the computers or other devices used by customers or carriers. An actual or perceived breach of network security, regardless of whether the breach is our fault, could harm public perception of the effectiveness of our security measures, adversely affect our ability to attract and retain customers, expose us to significant liability and adversely affect our business prospects.

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The industry in which we operate is continually evolving. Our services may become obsolete, and we may not be able to develop competitive products or services on a timely basis or at all.

        The mobile wireless services industry is characterized by rapid technological change, competitive pricing, frequent new service introductions and evolving industry standards and regulatory requirements. The backhaul infrastructure that supports this dynamic industry must be similarly flexible and able to adapt to these changes. Our success depends on our ability to anticipate and adapt to these challenges and to offer competitive services on a timely basis. We face a number of difficulties and uncertainties associated with this reliance on technological development, such as:

•

competition from service providers using other means to deliver similar or alternative services;



•

competition from new service providers using more efficient, less expensive technologies, including products or services not yet invented or developed;



•

customers self-provisioning their own backhaul services;



•

gaining and sustaining market acceptance of the technology underlying our services;



•

realizing economies of scale;



•

responding successfully to advances in competing technologies in a timely and cost-effective manner;



•

migration toward standards-based technology, requiring substantial capital expenditures; and



•

existing, proposed or undeveloped technologies that may render fixed wireless backhaul and other services less profitable or obsolete.

        As the services offered by us and our competitors develop, wireless carriers may not accept our services as a commercially viable alternative to other means of delivering wireless backhaul and other services. Accordingly, our inability to keep pace with technological development could materially and adversely affect our business.

We depend on the continued availability of leases or licenses for our communications facilities.

        We lease communications facilities from the owners of towers, rooftops, water towers, utility poles and other structures. We typically seek five year initial terms for our leases with three, five year renewal options. The renewal options are generally at our option with a window of 90 to 180 days before the expiration of each term in which to terminate the agreement. If these leases are terminated or if the owners of these structures are unwilling to continue to enter into leases or licenses with us in the future, we would have to seek alternative arrangements with other providers. If we are unable to continue to obtain or renew leases on satisfactory terms, our business would be harmed.

        In some cases, some of our communications facilities or some of our equipment may not have been installed with valid lease agreements and/or proper permits in place. There can be no assurance that our efforts will be successful to remediate these lease agreements and/or permits. In such a case, if a facilities owner were to challenge our ability to operate on that site, the resolution of the matter may require the termination of service to the customer, or an increase in operating costs associated with the locations, which could adversely affect operating results.

We do business with an affiliated third party and may not have obtained the most advantageous terms possible.

        We lease communications facilities from one of our significant stockholders, Crown Castle, which owned approximately 18% of our outstanding common stock as of December 31, 2008. We may not

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have obtained the same lease terms with this stockholder as we might have obtained from unaffiliated providers.

        We had a limited exclusivity agreement with Crown Castle under which they had agreed not to compete directly with us as a provider of backhaul services and not to invest in other entities in 20 designated markets. This agreement terminated in January 2009 which could adversely affect our business.

To be successful, we must attract, retain and motivate key employees, and the inability to do so could seriously harm us. The loss of key personnel could adversely affect our business because these individuals are important to our continued growth.

        To be successful, we must attract, retain and motivate executives and other key employees and keep them focused on our strategies and goals. Competition for personnel throughout our industry is intense, and we may be unable to retain key employees or attract or retain other highly qualified employees in the future. If we are not successful in attracting new personnel or retaining and motivating our current personnel, our business and prospects could be adversely affected. Our future success depends to a significant extent on the skills, experience, performance and continued services of our senior management and other key personnel. We believe that our future success is highly dependent on our senior management to provide significant continuity in the execution of our growth plans. The loss of any members of our management team could harm our business.

We have little experience with customer renewal rates and it is difficult to predict the extent of customer renewals for our services.

        We sell our services pursuant to service agreements that are generally for three or five years. Customers have no obligation to renew after the expiration of their initial subscription period and no assurance can be given that customers will renew at the same or higher levels of service, if at all. Moreover, under some circumstances, some of these customers have the right to cancel their service agreements prior to the expiration of the terms of their agreements. We have limited historical data with respect to rates of customer renewals, and we cannot accurately predict future customer renewal rates. Renewal rates may decline or fluctuate as a result of a number of factors, including our customers' satisfaction or dissatisfaction with the services, the prices of the services, the prices of the services offered by competitors or mergers and acquisitions affecting our customer base. If customers do not renew their subscriptions for our services or if they renew on less favorable terms, revenues may decline and our business will suffer.

We have experienced growth in recent periods. If we fail to manage future growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.

        We have substantially expanded our overall business, customer base, headcount and operations in recent periods. We increased our total number of full-time employees from 29 on December 31, 2003 to 152 on December 31, 2008. However, during the second quarter of 2008, management announced staffing reductions of 59 employees throughout the Company as part of our cost reduction efforts. During the period from December 31, 2003 to December 31, 2008, we made substantial investments in network infrastructure, growing from 121 sites deployed and billing to 3,120 sites deployed and 2,763 deployed and billing sites as of December 31, 2008. We will need to continue to expand our business, including the number of billing sites. We anticipate that this expansion will require substantial management effort and significant additional investment in infrastructure. However, if market conditions warrant, we are able to slow the amount of capital expenditures to a level consistent with the business needs at that time. In addition, we will be required to continue to improve our operational, financial and management controls and our reporting procedures, as Old FiberTower was not previously a public company. Our historic expansion has placed, and our expected future growth

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will continue to place, a significant strain on managerial, administrative, operational, financial and other resources. If we are unable to manage growth successfully, our business will be harmed.

Acquisitions could result in operating difficulties, dilution and distractions from our core business.

        We may evaluate potential strategic transactions in the future, including acquisitions. The process of acquiring and integrating a company, business or technology is risky, may require a disproportionate amount of management or financial resources and may create unforeseen operating difficulties or expenditures. Future acquisitions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill or intangible assets, any of which could harm our financial condition. Future acquisitions may require additional equity or debt financing, which may not be available on favorable terms, or at all.

For U.S. federal income tax purposes, there is a significant risk that we will not be able to deduct the interest on the Notes. We will be limited in our ability to use some or all of First Avenue's and Old FiberTower's net operating losses for U.S. federal income tax purposes, which may increase our tax liability in future years.

        There is a significant risk that the interest on the Notes will not be deductible for U.S federal income tax purposes. In addition, changes in the ownership of First Avenue as a result of the First Avenue/FiberTower merger caused there to be an annual limitation on FiberTowers' use of First Avenue's net operating loss carryforwards that arose prior to the First Avenue/FiberTower merger. Such limitation is imposed in addition to any annual limitations on the use of such net operational losses that resulted from prior ownership changes. Similarly, changes in the ownership of Old FiberTower as a result of the First Avenue/FiberTower merger caused there to be an annual limitation on the use of Old FiberTowers' net operating loss carryforwards that arose prior to the First Avenue/FiberTower merger. Such limitations also are imposed in addition to any annual limitations that arose from prior ownership changes of Old FiberTower. Since we do not currently generate taxable income and therefore cannot currently make use of any of our net operating losses, we have not yet performed the analysis to determine whether such changes of control have occurred, but we believe it is likely that they have. Furthermore, we may experience future ownership changes that may limit our use of net operating losses. Limitations on the use of First Avenue's and Old FiberTower's net operating losses may increase our U.S. federal income tax liability in future years and will cause some of these net operating losses to expire unused. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Income Taxes" and Note 13, Income Taxes, in the Notes to Consolidated Financial Statements for additional information.

We are subject to comprehensive and continually evolving regulation that could increase our costs and adversely affect our ability to successfully implement our business plan.

        We and some of our communications services and installations are regulated by the FCC, state agencies, local zoning authorities, and other governmental entities. Our failure to comply with these requirements may have an adverse effect on our licenses or operations and could result in sanctions, fines or other penalties. These regulators regularly conduct new rulemaking proceedings and also issue interpretations of existing rules. For example, the FCC has a number of proceedings still pending to interpret or implement the Telecommunications Act of 1996, and these regulatory proceedings could impose additional obligations on us, give rights to competitors, increase our costs, and otherwise adversely affect our ability to implement our business plan. Congress could also enact new legislation that could restrict the manner in which we conduct our business, impose additional obligations on us, assist our competitors in competing against us or otherwise harm our business.

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We may not realize the anticipated benefits from First Avenue's FCC area-wide licenses acquired in the First Avenue/FiberTower merger.

        The anticipated benefits of the First Avenue/FiberTower merger were based on our assumptions and expectations at the time of the merger, not actual experience. While the FCC licenses allow us to access lower cost technologies that allow us to more effectively serve our customer base, there are various risks associated with these licenses. Our inability to realize any of the anticipated benefits of the FCC licenses acquired in the First Avenue/FiberTower merger could cause us to take impairment charges to our FCC licenses and seriously harm our results of operations.

The value of our FCC licenses could decline, which could materially affect our ability to raise capital, and could have a material adverse effect on our business and the value of our stock and the collateral for the notes.

        The carrying value of our wide-area fixed wireless FCC spectrum licenses comprises a significant portion of our assets. A decline in the value of our FCC licenses could negatively impact our ability to raise capital both privately and in the public markets and could significantly reduce the value and the attractiveness of our stock to investors. The value of any or all of our FCC licenses could decrease as a result of many factors, including:

•

increases in the supply of licensed or leased spectrum that provides similar functionality;



•

new radio technology in unlicensed bands that provides the same capability as our network;



•

a decrease in the demand for services offered with any of our FCC licenses;



•

lower values placed on similar licenses in future FCC auctions;



•

regulatory limitations on the use, transfer or assignment of any of our FCC licenses; or



•

bankruptcy or liquidation of any comparable companies.

        Many of these factors depend on circumstances beyond our control. The occurrence of any of these events could have a material adverse effect on our ability to generate revenues and on our business, prospects, results of operations and financial condition.

        Also, if the value declines, impairment charges might be necessary which would negatively impact operating results and might lead to a conclusion that the FCC spectrum assets are no longer indefinite lived intangible assets in which case they would then have to be amortized over their remaining useful lives which would negatively impact results of operations.

        As a result of the impairment evaluation in the fourth quarter of 2008 of the carrying value of our FCC licenses, which was conducted in connection with the preparation of our 2008 consolidated financial statements included in this report, it was determined that the fair value of our FCC licenses was less than its carrying value. Consequently, the carrying value of our FCC licenses was reduced by $54.5 million in the fourth quarter of 2008 to $287.5 million at December 31, 2008. Further impairment evaluations of our FCC licenses could lead to additional material impairment charges. Our stock price could decline as a result of such a charge to earnings. See Note 7, Impairment of FCC Licenses, in the Notes to Consolidated Financial Statements for additional information.

If we do not retain, obtain or maintain rights to use licensed spectrum in one or more markets, we may be unable to operate in these markets, which could harm our business and our ability to execute our business strategy.

        Since we plan to provide services using licensed spectrum, we will be dependent on our ability to retain, acquire and maintain sufficient rights to use licensed spectrum by retaining our own licenses and acquiring additional microwave radio spectrum licenses, or long-term spectrum leases, in each of the

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markets in which we operate. Obtaining additional licensed spectrum can be a long and difficult process that can be costly and require a disproportionate amount of management resources. We may not be able to acquire, lease or maintain the spectrum necessary to execute our business strategy.

The FCC may cancel or revoke our licenses for past or future violations of the FCC's rules, which could limit our operations and growth.

        As an FCC licensee, we are subject to extensive regulatory oversight. For example, the FCC imposes requirements on the construction and technical aspects of the operation of our licenses and wireless communication systems and on the nature of the services that we can provide within a particular frequency band. The FCC's regulations also require various regulatory filings and fees. The FCC may find that our filings made and fees paid are insufficient. The FCC also may find that the operation of our licenses or wireless communication systems violates the FCC's rules or policies. Findings of violations by the FCC may result in fines and/or sanctions. Moreover, under some circumstances, our licenses may be canceled or conditioned, and in extreme cases, our licenses may be revoked. In addition, the FCC could change its regulations of our operations and licenses, which could impact our business. The FCC also could change its regulation of our wireless customers that are using our backhaul services, thereby impacting our operations and growth.

We may be required to make certain FCC filings in the future and may be subject to fines and or sanctions for failure to file in the past.

        Prior to the merger with Old FiberTower, First Avenue had taken the position that it was not obligated to submit certain revenue reporting forms required by the FCC's rules to be filed by certain providers of telecommunications services. These forms are the basis of payments assessed by the FCC in support of universal service, numbering administration, telecommunications relay services for the deaf, and local number portability. The FCC could determine that such revenue reporting filings should have been made and that FiberTower should be assessed a fine and/or be required to make any and all payments such filings might necessitate. While Old FiberTower filed such revenue reporting forms prior to the First Avenue/FiberTower merger, those revenues did not meet the FCC's threshold for Old FiberTower to make payments to the FCC's programs described above. There can be no assurance that the FCC would accept a decision by FiberTower to suspend such filings in the future.

Our FCC licenses may not be renewed upon expiration in the future, which could limit the expansion of our business and our ability to serve our customers and could harm our operating results.

        Our spectrum licenses in the 24 GHz and 39 GHz bands are granted for ten-year terms with renewal dates ranging from 2009 to 2017. On October 1, 2008, renewal applications for our licenses that were scheduled to expire in 2007 received either renewals for another ten years or construction extensions until June 1, 2012 from the FCC. In order for our 24 GHz and 39 GHz licenses to qualify for renewal in the future, we must file renewal applications for each license prior to expiration and demonstrate that we have provided "substantial service" by the end of the term of each license (which is February 1, 2011 for 102 of the 103 24 GHz licenses) or by an FCC approved substantial service showing date (which is June 1, 2012 for a substantial majority of the 39 GHz licenses). The FCC's substantial service renewal standard for both the 24 GHz and 39 GHz licenses is intended to provide licensees with flexibility in demonstrating usage of their licenses. The FCC's "safe harbor" test provides licensees with a degree of certainty as to how to comply with the substantial service requirement. For example, for 39 GHz licensees offering point-to-point service, the FCC has said that the construction of four links per channel per million persons in the license area will meet the substantial service test. For 24 GHz point-to-point/multipoint licensees, the FCC has said that a showing of four links per million persons within a service area or service to an area that has very limited access to either wireless or wireline telecommunications services will meet the substantial service test. While the safe harbors are

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intended to provide guidance, they are not the only way for licensees to demonstrate substantial service. Licensees may show that they have met the substantial service test in other ways, such as providing niche services or offering services to underserved consumers, however, there is little precedent in this area at this time. Accordingly, we believe that the level of service that will be considered "substantial" by the FCC at renewal may vary depending upon the type of product offering by the licensee. Further, the FCC may modify its perception of substantial service and, in the future, we may encounter more stringent substantial service requirements. License renewal is not guaranteed and the FCC holds significant discretion in making renewal decisions. The loss of some number of our licenses could limit the expansion of our business, cause us to take impairment charges to our FCC licenses intangible asset and harm our operating results.

        We are required, or expected to be required, to demonstrate substantial service by June 1, 2012 for the majority of our 39 GHz licenses, and by 2017 for the others. We are required to demonstrate substantial service for all of our 24 GHz licenses by February 1, 2011, except for one, which requires such a showing in 2014. We do not currently meet the substantial service safe harbor guidance provided by the FCC for the substantial majority of our 24 GHz and 39 GHz licenses, which require renewal applications or showings mostly in the 2011-2014 time period. We believe that our licenses will be renewed based on our significant network investment and expanding geographic coverage. However, since we are required to demonstrate substantial service at the time licenses are renewed, the FCC has little precedent in the 24 GHz and 39 GHz bands, and determination of substantial service is subject to FCC discretion, the FCC could choose to not renew licenses that do not meet the substantial service safe harbor.

Our reliance upon spectrum licensed by the FCC includes additional risks.

        Our use of FCC-licensed spectrum imposes additional risks on our business, including:

•

increases in spectrum acquisition costs;



•

adverse changes to regulations governing spectrum/licensee rights;



•

the risk that spectrum will not be commercially usable or free of harmful interference from licensed or unlicensed operators in our or adjacent bands;



•

the risk that the government or other license holders introduce an oversupply of substantially similar spectrum into the market;



•

with respect to spectrum in the U.S., contractual disputes with or the bankruptcy or other reorganization of the license holders, which could adversely affect control over the spectrum subject to such license;



•

the risk that competitors, customers or other users may over utilize point-to-point licensed spectrum and thus alter the FCC availability or allocation of such microwave radio spectrum in markets or geographic areas where we require it;



•

change in the FCC rules regarding the licensing of microwave radio spectrum; and



•

invalidation of any authorization to use all or a significant portion of the spectrum, resulting in, among other things, impairment charges related to assets recorded for such spectrum.

The FCC or state regulatory bodies may determine that we are subject to common carrier regulation, which could increase our costs and result in a decline in our operations, revenues and profitability.

        We currently offer our services as a private carrier and do not consider our services to be telecommunications services subject to common carrier or telecommunications carrier obligations. The FCC has broad powers to require providers of communications facilities and services to operate as

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common carriers, and there is significant FCC and Federal court case law in regard to this issue. Should the FCC conclude that we are a common carrier, or should we decide to offer common carrier services, we would become subject to a number of additional regulatory obligations. The precise nature of those obligations will vary depending upon the particular services offered, but we could be required by the FCC to offer services according to published rates, terms and conditions deemed to be just, reasonable, and non-discriminatory. We could also be required to make certain additional reports to the FCC, pay additional regulatory fees, and adhere to other requirements imposed on common carriers. Adherence to these obligations could materially affect our costs of providing services and therefore have an adverse impact on our business operations, revenues, and profitability.

        In addition, if one or more states determine that we are providing intrastate, common carrier service, we may be required to obtain regulatory authorizations in those states and/or be subject to fines or sanctions for failure to obtain regulatory authorizations in those states. As a result, we may be required to apply for and maintain Certificates of Public Convenience and Necessity in those states. We also may be required to fulfill other state requirements, such as filing tariffs and reports and contributing to state universal service funds, among other things. Such additional regulation would increase our costs.

FCC Regulation of radio frequency emissions and radio frequency environments may increase our costs and/or limit our operations.

        The FCC regulates the health and safety effects of radio frequency emissions for us and other wireless communications providers. Any FCC licensee whose emissions in an area exceed five percent (5%) of the total permissible emissions limit is responsible for ensuring that the site meets applicable health and safety requirements. The fixed wireless equipment we use is designed to operate at RF emission levels well below the FCC's standard. However, if we operate in an area where other higher RF emitters are operating, we could nonetheless be required to cooperate with, and contribute financially to, efforts intended to bring the site within applicable health and safety limits.

FCC, Congressional or State action that requires Incumbent Local Exchange Carriers (ILECs) to artificially lower and cap their special access transport pricing could result in pricing pressure on FiberTower.

        The FCC, Congress and the States possess the ability to require ILECs to artificially lower and cap their special access transport pricing. If the ILECs were required to significantly drop their backhaul pricing in our markets, our customers might then find our pricing unattractive.

FCC approval for conversion of the Notes, if required, may not be forthcoming or may result in adverse conditions to our business or to the holders of the Notes.

        If the conversion of the Notes into shares of our common stock would cause a change in control of FiberTower under the Communications Act of 1934, as amended and the FCC's rules, regulations or policies promulgated thereunder, the prior approval of the FCC would be required prior to any such conversion. There can be no assurance that, at the time the conversion is contemplated, the FCC would grant such an approval, or that the FCC would grant such an approval without adverse conditions.

Our quarterly results of operations have fluctuated in the past and may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of securities analysts or investors, which could cause the trading price of the Notes and our common stock to decline.

        Our quarterly results of operations have fluctuated in the past and may fluctuate in the future as a result of a variety of factors, many of which are outside of our control. If quarterly results of operations fall below the expectations of securities analysts or investors, the trading price of the Notes and our

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common stock could decline substantially. Fluctuations in quarterly results of operations may be due to a number of factors, including, but not limited to, those listed below:

•

our ability to increase sales to existing customers and attract new customers;



•

the addition or loss of significant customers;



•

the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our business, operations and infrastructure;



•

failure of our key suppliers, including equipment and fiber service providers;



•

the timing and success of new product and service introductions by us or competitors;



•

changes in our pricing policies or those of competitors;



•

changes in consumer demand for mobile services;



•

service outages or security breaches;



•

the extent to which any of our significant customers do not renew their service agreements;



•

limitations of the capacity of our network and systems;



•

the timing of costs related to the development or acquisition of technologies, services or businesses;



•

general economic, industry and market conditions and those conditions specific to the telecommunications industry; and



•

geopolitical events such as war, threat of war or terrorist actions.

        We believe that, as a result of the above listed factors, our quarterly revenues and results of operations may vary significantly in the future and that period-to-period comparisons of operating results may not be meaningful. You should not rely on historical results as an indication of future performance.

Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, operating results and stock price.

        Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include in our Annual Reports on Form 10-K, a report by our management on our internal control over financial reporting containing an assessment by management as to the effectiveness of our internal control over financial reporting, as well as an opinion by our Independent Registered Public Accounting Firm on the effectiveness of our internal controls over financial reporting. Our efforts to comply with Section 404 have resulted in, and are likely to continue to result in, significant costs and take up a significant amount of management's time and operational resources. If we are unable to assert in future years that our internal control over financial reporting is effective, that could cause our stock price to decline and could have an adverse effect on our business and operating results.

Future sales of our common stock in the public market or the issuance of securities senior to our common stock could adversely affect the trading price of our common stock and our ability to raise funds in the future.

        Future sales of substantial amounts of our common stock or equity-related securities in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. No prediction can be made as to the effect, if any, that future sales of shares of common stock or the availability of shares of common stock for future sale will have on the trading price of our common stock or the value of the Notes. The price of our common stock could be affected

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by possible sales of our common stock by investors who view the Notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity that we expect to develop involving our common stock. The hedging or arbitrage could, in turn, affect the trading price of the Notes.

Provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.

        Our certificate of incorporation and bylaws contain provisions that could make it harder for a third party to acquire us without the consent of our Board of Directors. For example, our certificate of incorporation provides that the Board of Directors can issue preferred stock at our discretion with respect to voting, conversion, distribution, and other rights given to stockholders, which may be used in a way to significantly dilute the ownership of a hostile acquirer. In addition, if a potential acquirer were to make a hostile bid for us, the acquirer would not be able to cumulate votes at a meeting, which would require the acquirer to hold more shares to gain representation on the Board of Directors than if cumulative voting were permitted. In addition, the members of our Board of Directors are elected on a staggered or classified basis, which could prevent or deter takeovers or changes in control by increasing the time it takes for a hostile acquirer to replace board members.

        Section 203 of the Delaware General Corporation Law limits mergers and other business combination transactions involving 15% or greater stockholders of Delaware corporations unless certain board or stockholder approval requirements are satisfied. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation. These provisions may apply even if the offer may be considered beneficial by some stockholders.

        Our Board of Directors could choose not to negotiate with an acquirer that it did not believe was in our strategic interests. If an acquirer is discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by these or other measures, stockholders could lose the opportunity to sell their shares at a favorable price.

Rights of holders of Notes in the collateral may be adversely affected by the failure to have, obtain and/or perfect liens on certain assets.

        Subject to certain exceptions, the liens securing the Notes cover substantially all of our assets other than our FCC licenses and authorizations, whether now owned or acquired or arising in the future. Applicable law requires that certain property and rights acquired after the grant of a general security interest or lien can only be perfected at the time such property and rights are acquired and identified. There can be no assurance that the trustee or the collateral agent will monitor, or that we will inform the trustee or the collateral agent of, the future acquisition of property and rights that constitute collateral, and that the necessary action will be taken to properly perfect the lien on such after acquired collateral. The collateral agent for the Notes has no obligation to monitor the acquisition of additional property or rights that constitute collateral or the perfection of any security interests therein. Such failure may result in the loss of the lien thereon or of the priority of the lien securing the Notes. Any foreclosure on the collateral that would result in a change of control would require various prior regulatory approvals from the FCC, as well as foreclosures on the assets, which may not be obtained in a timely fashion, if at all.

FiberTower Corporation, the issuer of the Notes, is a holding company, and therefore our ability to make any required payment on the Notes depends upon the ability of our subsidiaries to pay dividends or to advance funds.

        FiberTower Corporation, the issuer of the Notes, has no direct operations and no significant assets other than the stock of our subsidiaries. Because we conduct our operations through our operating subsidiaries, we depend on those entities for dividends and other payments to generate the funds

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necessary to meet our financial obligations, including our required obligations under the Notes. However, each of our subsidiaries is a legally distinct entity, and while our subsidiaries guarantee the Notes, such guarantees are subject to risks. The ability of our subsidiaries to pay dividends and make distributions will be subject to, among other things, the terms of any debt instruments of our subsidiaries then in effect and applicable law. If distributions from our subsidiaries to us were eliminated, delayed, reduced or otherwise impaired, our ability to make payments on the Notes would be substantially impaired.

The Notes contain restrictive covenants that limit our operational flexibility.

        The Notes 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 covenants include restrictions on our ability to:

•

incur or guarantee additional indebtedness or issue certain preferred stock;



•

pay dividends or make other distributions;



•

issue capital stock of our restricted subsidiaries;



•

transfer or sell assets, including capital stock of our restricted subsidiaries;



•

make certain investments or acquisitions;



•

grant liens on our assets;



•

incur dividend or other payment restrictions affecting our restricted subsidiaries;



•

enter into certain transactions with affiliates; and



•

merge, consolidate or transfer all or substantially all of our assets.

        These restrictions could prevent us from taking such actions, which could harm our business and our financial condition.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        There were no unresolved written comments received from the staff of the Securities and Exchange Commission relating to our periodic reports filed under the Securities Exchange Act of 1934, as amended.

ITEM 2.    PROPERTIES

        Our executive offices are located in San Francisco, California, where we lease approximately 24,500 square feet of space. The lease continues through July 31, 2009 and does not include a renewal option. We are currently evaluating our options for our headquarters and administrative leased property following the termination of this lease. We do not own any real property.

        The following outlines significant leased properties and the square footage of these properties:

(1)

Approximately 8,800 square feet of space has been subleased to a third party.

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(2)

Former sales and administrative office of First Avenue Networks, Inc., a company which merged with FiberTower, which has been subleased to third party.

        FiberTower leases additional field operations office and warehouse space in Atlanta, Georgia; Broadview Heights, Ohio; Centennial, Colorado; Detroit, Michigan; Fort Worth, Texas; Foxboro, Massachusetts; Billerica, Massachusetts; Houston, Texas; Pine Brook, New Jersey; Tampa, Florida; San Antonio, Texas; Washington, District of Columbia; Charlotte, North Carolina; Freedom, Pennsylvania; and Woodbridge, Illinois.

        Our facilities are considered adequate for our current level of operations but may need to be expanded as the Company expands.

        FiberTower also leases nominal space at over 3,200 buildings, towers or other structures for network equipment installations as of December 31, 2008.

ITEM 3.    LEGAL PROCEEDINGS

        We are not currently a party to any material legal proceedings. From time to time, we could become involved in various legal proceedings arising from the normal course of business activities. Depending on the amount and timing, an unfavorable resolution of a matter could materially affect our future results of operations, cash flows or financial position in a particular period.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the fourth quarter of 2008.

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is traded on the Nasdaq Global Market under the symbol FTWR. Prior to the First Avenue/FiberTower merger on August 29, 2006, First Avenue, was traded on the Nasdaq Global Market under the symbol FRNS.

        The market price range for the common stock for the last two fiscal years as reported on the Nasdaq Global Market is as follows:

        On February 27, 2009, the closing price of our common stock as reported by the Nasdaq Global Market was $0.10 per share. There were 1,016 holders of record of our common stock on February 27, 2009.

        We have not paid any cash dividends in the past and do not anticipate paying any cash dividends in the foreseeable future. We intend to retain earnings, if any, to finance the expansion of our business and fund ongoing operations for the foreseeable future. Our Convertible Senior Secured Notes issued November 9, 2006 restrict the payment of any dividends.

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Stock Performance Graph

        The following graph compares total stockholder return on our common stock since August 29, 2006 (date of the First Avenue/FiberTower merger), with the Nasdaq Composite Index and the Nasdaq Telecommunications Index. The graph assumes that $100 was invested in our stock at the closing price of $7.74 on August 29, 2006, and that the same amount was invested in the Nasdaq Composite Index and the Nasdaq Telecommunications Index. Our closing price on December 31, 2008, the last trading day of our 2008 fiscal year, was $0.16. The following graph is not deemed to be "filed" with the SEC or deemed to be incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into such a filing.

Comparison of Cumulative Total Return on Investment

ITEM 6.    SELECTED FINANCIAL DATA

        The following selected historical financial data for the years ended December 31, 2008, 2007 and 2006 are derived from FiberTower's audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected historical financial data for Old FiberTower for the years

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ended December 31, 2005 and 2004 is derived from Old FiberTower's audited financial statements not included in this Annual Report on Form 10-K.

        On August 29, 2006, First Avenue completed the First Avenue/FiberTower merger with Old FiberTower. The First Avenue/FiberTower merger was accounted for as a reverse acquisition under the purchase method of accounting. Under this accounting treatment, Old FiberTower was considered the acquiring entity and First Avenue was considered the acquired entity. First Avenue, as the surviving entity of the First Avenue/FiberTower merger, changed its name to FiberTower Corporation. The consolidated financial statements after the First Avenue/FiberTower merger reflect the financial results of Old FiberTower on a historical basis after applying the exchange ratio to historical share-related data, and include the results of operations of First Avenue from the effective date of the First Avenue/FiberTower merger. Accordingly, First Avenue's financial statements included in our reports filed with the SEC prior to the First Avenue/FiberTower merger are not comparable to the historical financial statements included in the following selected financial data.

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(1)

As a result of the First Avenue/FiberTower merger, First Avenue's network of 79 deployed sites (all sold and billing) and 497 billing T-1s were added during 2006.

(2)

Adjusted EBITDA is not a substitute for operating income, net income (loss), or cash flow used in operating activities as determined in accordance with Generally Accepted Accounting Principles, or GAAP, as a measure of performance or liquidity. See "Non-GAAP Financial Measures" for our reasons for including adjusted EBITDA in this report, for material limitations with respect to the usefulness of this measurement and for a reconciliation of total adjusted EBITDA to net loss.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

        The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the statements in the following discussion are forward-looking statements that are based on our current expectations, estimates and projections about our business and operations. For a variety of reasons, including those described in "Forward-Looking Statements" and "Risk Factors," our actual results may differ materially from these estimates and projections.

        Since the First Avenue/FiberTower merger was accounted for as a reverse acquisition, our historical financial statements for periods prior to the First Avenue/FiberTower merger are the historical financial statements of Old FiberTower and include the results of First Avenue from and after the First Avenue/FiberTower merger. As a result, our historical financial statements may not be indicative of our future results of operations.

Company Overview

        We provide backhaul services to wireless carriers and began generating service revenues in 2003 by deploying our first network in Dallas, Texas. Backhaul is the transport of voice, video and data traffic from a wireless carrier's mobile base station, or cell site, to its mobile switching center or other exchange point where the traffic is then switched onto a fixed wireline telecommunications network. We

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compete with a range of diversified telecommunications services providers, primarily Incumbent Local Exchange Carriers, or ILECs, including AT&T, Verizon, Embarq, and Qwest.

        As of December 31, 2008, we had 152 employees. On May 8, 2008, management announced staffing reductions throughout the Company as part of its cost reduction efforts. See Note 5, Restructuring Charges, in the Notes to Consolidated Financial Statements for further information.

        We have master service agreements with six of the eight largest U.S. wireless carriers and market our services in 13 markets solely in the U.S. through our direct sales force.

        As an important part of our business strategy, we seek to:

(1)

leverage our existing network and customer relationships by increasing utilization of existing assets;



(2)

continue to improve the efficiencies of our network and reduce network expenses;



(3)

sell additional bandwidth to our customers;



(4)

expand our markets based on identified demand;



(5)

continue to develop innovative solutions that meet the needs of our customers, and



(6)

allocate capital efficiently by balancing new site and market growth.

        The growth of our business depends substantially on the condition of the wireless communications industry. The willingness of customers to purchase our services is affected by numerous factors, including:

(1)

market demand for wireless services;



(2)

availability of alternative services at better prices;



(3)

predictability of our deployment schedules, and



(4)

quality of our services.

        In order to provide backhaul services to our customers, we have constructed networks in 13 markets. As we continue to expand our markets, we incur significant upfront costs for pre-development site evaluation, site leases, cost of new capital equipment and construction costs. These expenses are incurred well in advance of receiving revenues from customers. Beginning in late 2005, in order to shorten the time a customer had to wait between commitment and initial service delivery, we implemented a strategy to deploy networks where not all sites had committed customer orders at the start of deployment. We altered this strategy in early 2007 to only construct networks where the substantial majority of sites had a committed customer. However, as a consequence of our previous strategy, we have an inventory of sites where T-1 equivalents are available following completion of a deployment project, including some sites where no T-1 equivalents are being used to deliver services or generate revenues.

        During 2008, we achieved the following significant financial and operational milestones:

•

Average monthly revenue per billing site grew 28% to $1,614 in 2008 from $1,259 in 2007;



•

Billing customer locations grew 58% to 6,096 at December 31, 2008 from 3,851 at December 31, 2007;



•

Billing sites grew 29% to 2,763 at December 31, 2008 from 2,148 at December 31, 2007;



•

Adjusted EBITDA improved to a loss of $33.6 million in 2008 from $53.2 million in 2007.

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        As of December 31, 2008, we had deployed 3,120 sites, of which 2,763 had billing customers. A deployed site may not yet be billing for various reasons including:

•

We have sold service at that site, but have not yet commenced providing service to the customer; or



•

We have not yet sold any service at that site, but the site is located in a market in which wireless carriers who are our customers operate but with whom we may not have yet secured a commitment for this specific market.

        Sites where we have sold service but not yet commenced providing service may be subject to factors including:

•

The customer is not yet able to take delivery of the T-1 equivalent;



•

Other elements of the network between the site and the drop-off location are not yet constructed, so service cannot yet be delivered; or



•

During certain periods in certain markets, we may complete construction of sites at a faster rate than the services associated with those sites can be provided to the customer, resulting in a temporary increase in the number of sites not yet billing.

        Our business plan depends on our expectation that most, if not all, sites will generate revenue at some future date sufficient to fully recover our investment in property and equipment. If we are unable to generate sufficient revenues from these sites in the future, our business, financial condition and results of operations would be adversely affected. We have recognized relatively limited amounts of revenues to date, have generated operating and net losses and negative cash flows and expect to generate operating and net losses and negative cash flows for the foreseeable future. (See "Liquidity and Capital Resources" below).

Service Revenues

        We generate revenue by charging a monthly recurring charge based on the amount of bandwidth traffic carried across our network. Increasing revenues on a per-billing site basis is one of our most important objectives. Revenue per billing site, shown in the Performance Measures table below, is a key operating metric reflecting our ability to scale and leverage our existing network. The duration of our customer contracts are generally for three or five years.

        Traffic grows as we construct new sites for customers, sell to new customers at existing sites, or sell incremental bandwidth to existing customers. The average monthly revenue generated per billing site increased from $1,259 in 2007 to $1,614 in 2008. We intend to continue to focus on site-level margins and project return on investment calculations and maintain our focus on cost reductions.

        For the years ended December 31, 2008, 2007 and 2006, the following customers accounted for a significant portion of our revenues, as follows:

        In December 2008, Clearwire Corporation completed a transaction with Sprint Nextel and an investor group to launch a new WiMAX-based wireless services provider. As a result of this transaction, a portion of the circuits previously billed to Sprint Nextel have been transferred to Clearwire. If this transaction had occurred on January 1, 2008, approximately 14% of our 2008 revenues would have been attributed to Clearwire and approximately 19% would have been attributed to Sprint Nextel.

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        Accounts receivable from these customers comprised the following percentages of our total accounts receivable balances at December 31, 2008 and 2007:

Costs and Expenses

        The major components of our cost of service revenues are:

•

Leasing.  We incur charges for site lease expense for space leased at our sites. For lease arrangements that have rent escalation provisions, we account for lease expense on a straight-line basis over the lease term.



•

Fiber Service Providers.  We pay charges to our fiber service providers for the purchase and lease of fiber.



•

Field Technicians.  These are charges primarily of engineering and maintenance personnel expenses including stock-based compensation.



•

Other.  This includes costs for site evaluation and design, site maintenance, power, program and project management, costs related to unsuccessful site acquisitions that are incurred during deployment and personnel costs to monitor the network.

        We expect cost of service revenues to increase in future periods as we execute our business plan to grow our network operations.

        Construction of our network operations is a complex process involving the interaction and assembly of multiple components including internal labor, third party costs and equipment costs. We regularly assess the realizability of costs accumulated in construction-in-progress as we execute our network build plans. In 2008, we recorded an impairment charge of $16.3 million related to this process which is included in cost of services revenues for the year ended December 31, 2008.

        In 2007, we conducted a re-design and implementation of enhanced internal controls associated with property and equipment that we completed in the fourth quarter of 2007. As a result of this effort and our normal realizability assessment process, we recorded an impairment charge of $12.4 million in 2007 to reduce network equipment and construction-in-progress to net realizable value. During the third quarter of 2007, we suspended development activities in the Carolina's market and recorded impairment and other charges of $4.6 million. See Note 6, Impairment of Long-Lived Assets and Other Charges, in the Notes to Consolidated Financial Statements for additional information on both charges included in cost of service revenues for the year ended December 31, 2007.

        Sales and marketing expenses are comprised primarily of compensation and related benefits, including stock-based compensation and travel expenses.

        General and administrative expenses primarily consist of compensation and related benefits including stock-based compensation, recruiting fees, travel expenses, professional fees and insurance. We do not expect general and administrative expenses to grow during 2009.

        Depreciation and amortization expenses primarily consist of depreciation related to the deployment of network sites and the amortization of certain intangible assets. We expect depreciation expense to increase in future periods as a result of deploying and commencing depreciation on additional sites.

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        During 2008, we recorded a restructuring charge of $6.1 million as a result of management's decision to restructure our operations to reflect changes in our strategic plan designed to reduce costs. The resultant restructuring charge reflects i) management's decision to cease market development activities in the Carolina's market resulting in an exit plan for our site operating leases, ii) termination benefits under a workforce reduction of 59 employees consistent with our current network deployment plan and iii) the consequent termination or renegotiation of excess office space including the former headquarters in New Jersey. See Note 5, Restructuring Charges, in the Notes to Consolidated Financial Statements for additional information.

        As a result of the impairment evaluation in the fourth quarter of 2008 of the carrying value of our FCC licenses, it was determined that the fair value of our FCC licenses was less than its carrying value. Consequently, the carrying value of our FCC licenses was reduced by $54.5 million in the fourth quarter of 2008 to $287.5 million at December 31, 2008. Further impairment evaluations of our FCC licenses could lead to additional material impairment charges. See Note 7, Impairment of FCC Licenses and Note 13, Income Taxes, in the Notes to Consolidated Financial Statements for additional information.

        As a result of a further decline in our market equity value during the quarter ended March 31, 2008, we believed an indicator of further impairment of goodwill existed and, accordingly, performed an interim review of the value of our goodwill. In the quarter ended March 31, 2008, we concluded that the carrying value of goodwill was fully impaired and recorded an impairment charge of $86.1 million, reducing the fair value of goodwill to zero at March 31, 2008. The carrying value of goodwill was reduced by $61.4 million and $86.5 million in impairment charges recorded in the third and fourth quarters of 2007, respectively. See Note 8, Impairment of Goodwill, in the Notes to Consolidated Financial Statements for further information.

        Interest income and interest expense is primarily the result of interest earned on investment of cash proceeds and interest cost incurred as a result of the $402.5 million of gross proceeds from the Notes. See Note 9, Convertible Senior Secured Notes, in the Notes to Consolidated Financial Statements for further information.

Challenges Facing Our Business

        In addition to the risks described in the section entitled "Risk Factors," in Item 1A of this report, there are various challenges facing our business. These include acquiring new customers on new and existing sites, deploying new sites in a predictable manner, scaling our business and managing growth, the concentrated nature of our customers, the emerging nature of our market, the weakened state of the U.S. economy and the decline in our stock price.

        Acquiring customers on new and existing sites in a timely fashion is critical to the generation of an appropriate return on the capital that we invest, particularly since we incur significant costs in preparing sites to become operational. In many cases, these costs are incurred well in advance of having committed revenue from a customer. Our business, financial condition and results of operations will be negatively affected if we do not obtain sufficient revenues from constructed sites.

        Deploying new sites in a predictable manner can be challenging given the difficulties in dealing with numerous landlords in order to lease space on sites, complying with the various zoning and permitting laws of different cities or districts, and managing the contractors involved with construction, program and project management. We have taken steps to reduce deployment unpredictability by engaging with large, well-established, turnkey vendors that are experienced in this area. Additionally, we concentrate on selecting sites owned by major tower operators with whom we already have agreements, which we believe will help minimize the risk of failing to negotiate a definitive lease for a site.

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        We are a rapidly growing company, and hiring qualified personnel and developing processes and systems rapidly are necessary in order to grow successfully. If we cannot hire qualified employees, manage our growth and develop these systems and processes successfully, our business would be adversely affected.

        We are a relatively new entrant into a highly concentrated market with few potential customers in any particular market. Maintaining and growing our existing relationships with the leading wireless carriers and developing new relationships with other carriers are critical to our success.

        We operate in an emerging market. Our future success depends on an increased demand for wireless services for voice and other mobile broadband services such as transmissions of photos or videos and internet communication.

        We have built flexibility into our spending, reducing capital expenditures, general and administrative and sales and marketing expenses. However, our ability to pay our expenses and make full payments due on our Notes depends on our future performance, which will be affected by financial, business, economic, legislative and other factors, many of which are beyond our control. The overall weakness in the U.S. economy may inhibit our ability to grow at the level needed to fully service our Notes as scheduled. In addition, the sharp decline in our stock price may create a negative perception with current and prospective customers which could adversely affect our business.

Results of Operations

        Presented below are selected statements of operations data for the years ended December 31, 2008, 2007 and 2006 that have been derived from our audited consolidated financial statements which are presented elsewhere in this report. You should read this information together with the consolidated financial statements and related notes that are included elsewhere in this report. Our historical results are not necessarily indicative of the results that are expected in future periods.

Statements of Operations Data:
(In thousands)