GCI and Alaska Communications Form The Alaska Wireless Network, LLC
- Wireless Facilities Company Formed To Operate Alaska’s Largest Network, Covering More than 95 percent of the State’s Population
- Network Will Provide Next Generation Wireless Services To Alaska Communications and GCI Subscribers
- The Alaska Wireless Network Is A Competitive Response To National Carriers
ANCHORAGE, AK – General Communication, Inc. (“GCI”) (NASDAQ:GNCMA) and Alaska Communications Systems Group, Inc. (“Alaska Communications”) (NASDAQ:ALSK) announced today that they have signed definitive agreements to form The Alaska Wireless Network, LLC (AWN), a Delaware limited liability company that will hold and operate both companies’ wireless facilities. AWN will design and operate an Alaska statewide wireless network to provide next generation wireless service plans for GCI and Alaska Communications wireless customers. GCI and Alaska Communications will continue to market and sell these plans independently to their respective retail customers.
Under the terms of the definitive agreements, which have been approved by the boards of directors of each company, GCI and Alaska Communications each will contribute to AWN their respective wireless assets, including spectrum licenses, cell sites and backhaul facilities, switching systems, and certain other assets necessary to operate a statewide wireless network. As part of the transaction, GCI will purchase $100 million of wireless assets from Alaska Communications and contribute them to AWN.
Alaska Communications will own one-third and GCI will own two-thirds of AWN. During the first four years of AWN’s operations, Alaska Communications will be eligible to receive preferential cash distributions totaling $190 million. GCI will receive all remaining available cash distributions over the same period. Following the initial four year period, GCI and Alaska Communications will receive distributions proportional to their ownership interests in AWN.
AWN will be managed by GCI. Wilson Hughes, GCI’s current chief operating officer, has agreed to serve as AWN’s first president and chief executive officer (CEO). In the interim before the closing, Hughes will serve as GCI’s executive vice president – wireless and lead a GCI team planning the postclosing transition to AWN. The AWN transaction is subject to Hart-Scott-Rodino review, requires FCC approval for transfer of Alaska Communications, and GCI’s wireless spectrum licenses to AWN and is subject to other customary conditions. The transaction is expected to close by the second quarter of 2013.
“GCI and Alaska Communications are pleased to reach these agreements,” said Alaska Communications president and CEO Anand Vadapalli and GCI president and CEO Ron Duncan. “The wireless business is capital intensive, requires scale to compete successfully against national carriers, and demands more spectrum than either company individually owns. By combining our respective wireless assets, GCI and Alaska Communications can provide a state-of-the-art Alaska wireless network owned and operated by Alaskans for Alaskans. We believe that The Alaska Wireless Network will provide the fastest, most geographically extensive, and most reasonably priced wireless services for Alaska subscribers, allowing us each to compete more effectively in the retail market.”
From the start, AWN will have the most extensive coverage in Alaska, covering more than 95 percent of Alaska’s population. Initially, AWN will serve the more than 250,000 GCI and Alaska Communications urban and rural subscribers and lifeline subscribers. In its first year of operations, AWN is expected to have EBITDA of approximately $120 million and capital expenditures of approximately $40 million. Synergies from the transaction are expected to total $30 million a year, starting in the second year of operations. The synergies are expected to be split equally between capital and operating expenses.
GCI expects to finance the $100 million asset purchase by refinancing its senior credit facility. Exclusive of transaction fees, Alaska Communications intends to use all the upfront cash proceeds of $100 million to strengthen its balance sheet by both paying down some of its term loan facility and increasing cash reserves. Evercore Partners served as advisor for Alaska Communications in this transaction.
About Alaska Communications
Headquartered in Anchorage, Alaska Communications (NASDAQ:ALSK) is a leading provider of high-speed wireless, mobile broadband, Internet, local, long-distance and advanced broadband solutions for businesses and consumers in Alaska. The Alaska Communications network includes advanced broadband and voice networks and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. For more information, visit www.alaskacommunications.com or
A pioneer in bundled services, GCI is a top provider of voice, data, and video services to Alaska consumers with a 70 percent share of the consumer broadband arket. GCI is also the leading provider of communications services to enterprise customers, particularly large enterprise customers with complex data networking needs. More information about GCI can be found at www.gci.com.
Non-GAAP Financial Measures
This joint release includes information related to management's estimate of EBITDA for AWN. EBITDA, in this context, may not be consistent with EBITDA measures used by other companies, are not measurements under generally accepted accounting principles (GAAP) and should not be considered a substitute for other measures of financial performance recorded in accordance with GAAP. Management of GCI and Alaska Communications believe that EBITDA provides useful information to investors.
This joint release includes certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's beliefs as well as on a number of assumptions concerning future events made using information currently available to management. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a
number of uncertainties and other factors, many of which are outside GCI or Alaska Communications control. For further information regarding risks and uncertainties associated with either company’s business, please refer to either GCI’s or Alaska Communications’ SEC filings.
The Alaska Wireless Network Transaction –
Questions and Answers
Q: What Have GCI and Alaska Communications Agreed to Do?
A: GCI and Alaska Communications have agreed to contribute their mobile assets to a new jointlyowned
limited liability company, The Alaska Wireless Network, LLC (“AWN”). The contributed assets
• All cellular, PCS, and AWS radio spectrum licenses.
• GCI’s HSPA+/GSM/EDGE, CDMA/EVDO, and Wi-Fi networks and Alaska Communications’
CDMA/EVDO and LTE (currently in deployment) networks. All wireless towers, radios/antennas,
backhaul/transport facilities, and voice/data cores are included.
• All fiber backhaul and transport facilities necessary to support expansion of the contributed
networks and to provide wholesale roaming and backhaul/transport services to other wireless
Q: After the Transaction Closes, What Will AWN Do?
A: After closing, AWN will:
• Integrate the combined GCI and Alaska Communications wireless assets.
• Design, engineer, deploy, operate, and maintain a statewide LTE/HSPA+/GSM/EDGE/Wi-Fi
Today, GCI operates both an HSPA+/GSM/EDGE network and a CDMA/EVDO network and is in
the process of deploying an extensive high-speed Wi-Fi network (called GCI TurboZone)
throughout the state. Alaska Communications operates a CDMA/EVDO network and is currently
deploying an LTE network.
AWN will integrate GCI’s HSPA+/GSM/EDGE/Wi-Fi networks and Alaska Communications’ LTE
network into a single statewide LTE/HSPA+/GSM/EDGE/Wi-Fi platform. In terms of data speed
and geographical coverage, this platform will be the best overall wireless network in Alaska,
covering more than 95% of the state’s population.
AWN will also integrate GCI and Alaska Communications’ legacy CDMA/EVDO networks. Over
time, GCI and Alaska Communications will transition their customers to AWN’s statewide
• Assume Alaska Communications’ and GCI’s existing agreements for wholesale roaming and
backhaul/transport services to other wireless carriers including AT&T, Verizon, and Sprint.
• Develop wholesale wireless service plans that it will sell to GCI and Alaska Communications at a
discount from prevailing market rates. The approximately 30% discount is intended to cover
Alaska Communications’ and GCI’s sales and marketing expenses. GCI and Alaska
Communications will independently price and package AWN plans for sale to their more than
250,000 urban and rural subscribers and lifeline subscribers, but plan development will be the
responsibility of AWN.
AWN will not sell wireless services to retail customers. GCI and Alaska Communications will
continue to compete vigorously against each other and other wireless providers in the retail
Q: How Will the AWN Transaction Benefit GCI, Alaska Communications, and Their Customers?
A: After closing, AWN will:
• Accelerate GCI’s plan to provide the best overall wireless service in urban and rural Alaska.
Adding Alaska Communications’ substantial mobile radio spectrum portfolio, LTE network, and
wireless tower footprint to GCI’s wireless assets will result in a substantially more capable
statewide 4G wireless platform.
• Enhance GCI’s and Alaska Communications’ competitiveness by reducing network operating
expenses (“op-ex”) and capital expenditures (“cap-ex”). Integrating the existing GCI and Alaska
Communications wireless networks and ultimately transitioning all GCI/Alaska Communications
customers to a single statewide 4G network will substantially reduce op-ex and cap-ex on a percustomer
basis. This efficiency will help offset the economy-of-scale advantages that AT&T and
Verizon already enjoy as national carriers.
Q: Will the Wireless Services Offered to GCI Customers Be Affected before the Transaction Closes?
A: Separate from the announced transaction, Alaska Communications and GCI have entered into multiyear
agreements, effective as of signing, under which:
• GCI will gain access to Alaska Communications’ wireless towers and have the ability to resell the
LTE services that Alaska Communications is currently deploying.
• Alaska Communications will gain access to GCI’s wireless towers and have the ability to resell
the HSPA+/GSM/EDGE services that GCI currently offers.
Q: Who Will Own AWN? How Will AWN Be Managed?
A: GCI will own two-thirds (66 2/3%) and Alaska Communications will own one-third (33 1/3%) of
AWN’s equity. AWN will be managed by a president and CEO appointed by GCI. The AWN board will
have three members – the president and CEO of GCI, Ron Duncan; the president and CEO of Alaska
Communications, Anand Vadapalli; and the president and CEO of AWN.
Wilson Hughes, GCI’s current executive vice president and chief operating officer, has agreed to serve as
AWN’s president and CEO. In the interim before the transaction is closed, Hughes will serve as GCI’s
executive vice president – wireless and will lead a GCI team planning the post-closing transition to AWN.
Hughes will be succeeded at GCI by Greg Chapados, currently a GCI senior vice president.
AWN will rely on GCI senior executive officers to provide consulting services to the CEO and other senior
officers of AWN with respect to high-level strategy decisions regarding legal, regulatory and finance
matters. In exchange for such services, AWN will pay GCI an annual consulting fee based on a
percentage of free cash flow (FCF) (defined as EBITDA minus capital expenditures) starting at 4% for the
first two years, increasing to 6% for the third and fourth years, and thereafter increasing to 8%.
Q: How Will AWN Be Staffed?
A: To maximize overall efficiency, Wilson Hughes will build only a small organization at AWN. That
organization will focus on the integration of GCI/Alaska Communications wireless assets, expansion of
the statewide 4G wireless network, sale of wholesale roaming/backhaul/transport services to wireless
carriers, and development of wireless plans/products for resale by GCI and Alaska Communications.
AWN will rely substantially on GCI and Alaska Communications for wireless network deployment and
operations and maintenance. GCI will focus on the expansion of the LTE/HSPA+/GSM/EDGE/Wi-Fi
statewide network, and Alaska Communications will focus on integration of the two legacy CDMA/EVDO
Q: How Do the Alaska Communications Labor Agreements Affect the AWN Transaction?
A: The Alaska Communications labor agreements are not expected to affect AWN’s operations. It is
anticipated that represented employees will continue to work for Alaska Communications.
Q: Will AWN Have Any Debt?
A: Other than a $50 million working capital line of credit provided initially by GCI, AWN will have no
Q: What Are the Financial Implications for GCI of the AWN Transaction?
A: GCI will consolidate AWN as a GCI subsidiary and will separately reflect Alaska Communications’ noncontrolling
interest on GCI’s financial statements. AWN’s cap-ex will be funded out of its EBITDA.
GCI and Alaska Communications will receive cash distributions based on the amount of FCF generated by
AWN, net of the consulting fee paid to GCI. For the first four years after closing, Alaska Communications
will receive a preference under which its total cash distribution will average $47.5 million annually ($190
million in aggregate) with GCI’s receiving all remaining distributable cash. Under the preference
arrangement, Alaska Communications is expected to receive a total of $60 million more in cash than it
would in the absence of the preference. After the preference period ends, GCI and Alaska
Communications will receive cash distributions based on their ownership interests.
As part of the transaction, GCI will purchase $100 million worth of Alaska Communications’ wireless
assets, which will be contributed to AWN. GCI expects to finance the $100 million asset purchase and
the $50 million working capital line of credit for AWN by refinancing its senior credit facility.
In its first year of operation, AWN is expected to have EBITDA of approximately $120 million and capital
expenditures of approximately $40 million.
Q: What Synergies Will AWN Generate?
A: AWN synergies are estimated to be $30 million a year, starting in the second year of operations. The
synergies are expected to be split equally between cap-ex and op-ex.
Q: When Will the AWN Transaction Be Closed?
A: The transaction is subject to Hart-Scott-Rodino review and regulatory approval from the Federal
Communications Commission, which has to approve the transfer of radio spectrum licenses to AWN.
The transaction will be closed after the review process is completed. Closing is expected to take place
by the second quarter of 2013.
Q: What Are the Breakup Fees?
A: Failure by Alaska Communications to secure lender and union approval within 120 days will result in
automatic termination of the transaction at no cost to either party. If a party fails to maintain any nonregulatory
material consent on or after the 121st day which results in termination, it will be required to
pay the other party $5 million. If Alaska Communications accepts a topping offer, it will be required to
pay GCI $20 million. If GCI accepts a topping offer, it will be required to pay Alaska Communications $40
The foregoing contains forward-looking statements regarding expected results that are based on GCI’s expectations as well as on a number of assumptions concerning future events. Actual results might differ materially from those projected in the forward looking statements due to uncertainties and other
factors, many of which are outside GCI’s control. Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements are contained in GCI’s cautionary statement sections of Form 10-K and 10-Q filed with the Securities and Exchange Commission.
Posted: June 5, 2012