Use these links to rapidly review the documentTABLE OF CONTENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2010o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                 to


Commission File Number 000-21091

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

Delaware(State or other jurisdiction of
incorporation or organization)

52-1869023(I.R.S. Employer
Identification No.)


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:

Title of each class

Name of each exchange on which registered:Common stock, par value $0.001

Nasdaq Global Market


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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o    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. ý

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):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company o


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, 2010, the aggregate market value of the voting and non-voting common stock held by non-affiliates was
$165 million based on the closing price of the Company's common stock on the Nasdaq Global Market on that day.

The
registrant had 49,955,113 shares of its common stock outstanding as of February 28, 2011.

Portions
of the Proxy Statement for the registrant's 2011 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, 2010.



---





Table of Contents



FiberTower Corporation
INDEX



PagePART I.Item 1.

Business

3Item 1A.

Risk Factors

18Item 1B.

Unresolved Staff Comments

34Item 2.

Properties

34Item 3.

Legal Proceedings

34Item 4.

Removed and Reserved

34PART II.Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

35Item 6.

Selected Financial Data

37Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

39Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

63Item 8.

Financial Statements and Supplementary Data

64Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

104Item 9A.

Controls and Procedures

104Item 9B.

Other Information

106PART III.Item 10.

Directors, Executive Officers and Corporate Governance

106Item 11.

Executive Compensation

106Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

106Item 13.

Certain Relationships and Related Transactions, and Director Independence

106Item 14.

Principal Accountant Fees and Services

106PART IV.Item 15.

Exhibits, Financial Statement Schedules

106


2

---





Table of Contents

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 future financial performance and results of operations, 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 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. These include, among other things, negative cash flows and operating and net 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 Annual Report on Form 10-K.

FiberTower Overview

We are a leading alternative provider of facilities-based backhaul services to wireless carriers. Facilities-based providers own or
lease a substantial portion of the property and equipment necessary to provide backhaul services. 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 MSC, or other exchange point where the traffic is then switched onto a wireline telecommunications network. We provide backhaul services
nationally by utilizing our wireless spectrum assets and fiber relationships to construct and operate high-coverage, high-capacity hybrid microwave and fiber networks. Our
services provide wireless carriers a long-term solution for their increasing demand for backhaul capacity while giving them increased availability and reliability.

As
of December 31, 2010:



3

---



Table of Contents



We
offer our customers transport services based on a variety of protocols such as time division multiplexing ("TDM"), SONET and Ethernet. In general, we provide these services between a
wireless carrier's cell site and mobile switching center, but also provide wireless-only connections and fiber-based transport.

Our
network is designed to be modular and to enable us to offer our customers a high degree of coverage cost-effectively as compared to other solutions. 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.

We
have invested significant capital to build and expand our network. As a result, we have incurred net losses and negative cash flows since our inception, and we expect that we will
continue to incur operating and net losses and negative cash flows for the next few years as we continue to invest to expand our network. If market conditions or our liquidity position warrant, we
expect to 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 on the extent of our network deployment. As our business is in its early stages, we regularly
evaluate our plans and strategy, and these evaluations often result in changes, some of which may be material and significantly modify our cash requirements.

FiberTower Corporation History



On October 26, 2009, we initiated an offer to exchange, which we refer to as the "Exchange Offer," our existing 9.00%
Convertible Senior Secured Notes Due 2012 ("Notes due 2012") for 9.00% Mandatorily Redeemable Convertible Senior Secured Notes Due 2012 (the "Interim Notes"). The Interim Notes were mandatorily
redeemable by us for a combination of cash, shares of our common stock, and 9.00% Senior Secured Notes Due 2016 ("Notes due 2016"). We refer to the mandatory redemption of the Interim Notes as the
"Mandatory Redemption."

Upon
the expiration of the Exchange Offer on December 1, 2009, we had received tenders of $266.8 million principal amount of the Notes due 2012, representing approximately
90.8% of the outstanding Notes due 2012.

On
December 15, 2009, our stockholders approved the issuance of shares of common stock to be issued in the Mandatory Redemption. In order to provide a sufficient number of
authorized shares of common stock for the issuance of shares in the Mandatory Redemption, on December 18, 2009, we effected a 1-for-10 reverse stock split of our common
stock.

4

---



Table of Contents

On
December 22, 2009, we completed the Mandatory Redemption, whereby $266.8 million of the Interim Notes were exchanged in consideration for the
following:



The
purpose of the Exchange Offer and Mandatory Redemption transactions was to reduce our outstanding debt and cash interest requirements and extend the maturity of our outstanding debt.
As a result of the Exchange Offer and Mandatory Redemption, the total carrying value of our outstanding debt was reduced by $171.7 million, the maturity of a substantial portion of our debt was
extended from 2012 to 2016 and our annual cash interest payments were reduced by more than $20.0 million to approximately $1.8 million in 2010 and $6.0 million in each of 2011 and
2012.

On
June 3, 2010 at the Annual Meeting of Stockholders, our stockholders approved the reduction of the size of our Board of Directors from nine to seven members. Randall A. Hack
and Mark E. Holliday, both of whom had resigned from our Board in connection with the consummation of the Exchange Offer and redemption of debt and were reappointed by the Board to serve as directors
until the June 3, 2010 Annual Meeting of Stockholders, were re-elected to the Board by our stockholders on June 3, 2010.

See
Note 1, Organization and Business and Note 8, Long-term Debt, in the Notes to Consolidated Financial Statements (included in this
Form 10-K) for additional information on the Exchange Offer and redemption of debt.



On August 29, 2006, First Avenue Networks, Inc., which we refer to in this Form 10-K as First Avenue,
completed its merger with FiberTower Network Services Corp. (formerly known as FiberTower Corporation) which we refer to in this Form 10-K as Old FiberTower. We refer to this merger
as the First Avenue/FiberTower merger.

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 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.

Industry Overview

Backhaul, a critical component of a wireless carrier's network, is the transport component 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

5

---



Table of Contents

LTE)
generation networks, the continued rise in voice, video and data usage, and expansion of wireless carriers' geographic coverage. 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 that are based on a
time-division multiplexing network infrastructure (or "TDM") for transmitting two or more signals over a common path by using successive time intervals for different signals. Copper-based
networks are extensively deployed today, but, as backhaul traffic demands continue to increase, carriers are seeking alternatives to copper-based T-1 circuits due to their limited capacity
to transport voice and data traffic.

Wireless
carriers have attempted to solve this capacity problem by encouraging service providers to build fiber optic networks to cell sites, and by utilizing Ethernet-based circuits as
opposed to TDM-based T-1 circuits. Currently, fiber optic networks, which have a higher capacity for the transport of voice and data traffic as compared to copper networks,
service over 20% of existing cell sites based on feedback from wireless carriers customers. We expect this number to increase over time. However, we believe that the cost-prohibitive
nature of building fiber optic networks will require multiple transport mediums to be utilized to cover a high percentage of sites with high capacity solutions. Additionally, carriers are increasingly
selecting Ethernet-based circuits and are migrating traffic away from TDM-based circuits.

Hybrid
networks provide an alternative to the traditional wired backhaul infrastructure. These networks utilize both fiber and microwave connections to provide backhaul transport
services to cell sites. Fiber connections are utilized when available and economic, while fixed wireless is used to extend coverage to the remaining sites. These hybrid networks have the ability to
provide both TDM and Ethernet-based circuits to carriers while also meeting their capacity and coverage requirements.

Business Strategy

We seek to grow long-term shareholder value by positioning ourselves to provide long-term solutions for the
increasing demand for backhaul capacity. Key elements of our strategy include:

Expand Our Networks Based on Identified Demand.We seek to identify areas of demand in our existing 13 markets and new markets by
working closely
with our customers to design high-coverage, high-capacity backhaul networks using both microwave and fiber. Our 13 markets and areas adjacent to those markets provide for
regional concentrations where we continue to have incremental sites to deploy.

Leverage Existing Network and Customer Relationships.We have deployed 3,276 sites in our 13 markets serving 6,400 billing customer
locations. We
continue to focus sales and operational resources to improve efficiency by providing incremental backhaul capacity to existing customers and by selling carriers at our existing sites that we have not
previously sold. These resources utilize our existing customer relationships, assets and expertise to maximize our financial returns and usage.

Continue to Develop Additional Revenue Sources.Our goal is to use our expertise in backhaul transport to develop new solutions that
meet the needs
of our customers and expand the types of customers to whom we provide backhaul. First launched in 2007, in 2010 our Ethernet-based backhaul services were approximately 50% of our total sales bookings
compared to approximately 1% in 2009. Almost 80% of our new location sales bookings in 2010 were for Ethernet services. In 2010 we have continued to generate revenue from sales on our fiber-based
assets. Additionally, we are working with Verizon and Qwest to develop the U.S. government as a new backhaul customer and with fiber service providers as potential wholesale customers for our
transport services.

6

---



Table of Contents

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 $10 million and $15 million of cash for capital expenditures during 2011. 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. We have the
ability to reduce capital spending if market conditions or our liquidity position warrant.

FiberTower Strengths

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

Extensive Operating Experience Deploying Hybrid Networks.We have a demonstrated expertise in designing, deploying and operating hybrid
microwave/fiber networks to provide high-capacity carrier-class backhaul transport services. With the growing demand for bandwidth, we are continuing to expand and evolve our hybrid
network which includes initiatives to develop radios and more effectively utilize our spectrum assets to deliver ultrahigh capacity solutions. We deployed our first network in 2003 and have expanded
to serve 3,276 deployed sites across 13 markets throughout the U.S. with over 350 fiber points of presence.

Ability to Design Solutions to Meet Customer Requirements.Our networks are designed to be flexible in order to meet the changing
requirements of our
customers. We launched as a T1 service provider in 2003 and have continued to evolve our network to add new packet-based protocols such as Ethernet.

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 738 wide-area licenses, which include 635 licenses for 39 GHz spectrum and 103 licenses for 24 GHz spectrum, extend
over substantially all of the continental U.S., with a population of over 300 million. We also possess over 3,300 point-to-point microwave licenses.

Significant Industry Relationships.We have built our networks by forming deep relationships with key infrastructure providers such as
tower
companies and fiber service providers. We have master service agreements with tower owners representing approximately 139,000 towers across the U.S. Additionally, we have successfully integrated over
25 different fiber service providers into our network solutions. We plan to continue to develop and grow these relationships as we expand our network.

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.

7

---



Table of Contents

Product and Services

As of December 31, 2010, we offered backhaul transport services to major wireless carriers in the following 13 markets:

Atlanta

HoustonBoston

New York/New JerseyChicago

PittsburghCleveland

San Antonio/Austin/WacoDallas/Fort Worth

Washington DC/N. Virginia/S. MarylandDenver

West FloridaDetroit


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:



We
sell these backhaul services directly to wireless carriers under service contracts that typically have a term of five years, but which may vary in term from 18 months to seven
years. 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 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.

We
have entered into master services agreements with AT&T Mobility, Clearwire, Leap, Metro PCS, Sprint Nextel, T-Mobile, Revol, U.S. Cellular and Verizon Wireless.

We
hold separate service agreements with Verizon Business and Qwest Communications, as their fixed wireless partner on the General Services Administration Networx contract to provide
fixed wireless government-grade primary transport and physically diverse network transportation services. The service agreement with Verizon Business also allows us to provide government-grade
services for other Verizon Business-managed contracts. We intend to continue to develop government-related relationships and future revenue opportunities.

Our Network



The networks we deploy consist of both a wireless and wireline component. The wireless portion utilizes a
Point-to-Point radio link 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.

8

---



Table of Contents

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 dark fiber transport leases by national or regional fiber service
providers, or FSPs. In certain cases, we utilize lit fiber capacity where dark fiber is not available or economically feasible.

We
currently have equipment in place at FEP sites not currently using dark fiber which can be modified to utilize dark fiber for a relatively small incremental cost. This enables us to
reap significant 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.



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 Plano, 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.



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. Our equipment purchases include those needed to expand our development efforts around higher capacity radio frequency microwave and fiber capabilities.

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 635 licenses for channels in the 38.6-40.0 GHz (39 GHz) spectrum and 103 licenses in the 24
GHz spectrum and extends over substantially all of the continental U.S., with a population of over 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.

9

---



Table of Contents

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

Basic Economic Area

24 GHz Wide-Area
Licensed Channels(1)

39 GHz Wide-Area
Licensed Channels(2)

Total Channel
Pops(3)New York, NY


5


4


115.9Los Angeles, CA


5


4


115.8Chicago, IL


5


3


71.1Washington, DC / Baltimore, MD


5


3


62.1San Francisco, CA


5


4


55.1Detroit, MI


5


5


54.5Philadelphia, PA


4


4


49.5Dallas, TX


5


3


48.5Houston, TX


5


3


43.1Atlanta, GA


5


3


38.8Boston, MA


5


3


35.4Miami, FL


5


3


29.2Seattle, WA


5


3


26.6Minneapolis, MN


5


2


25.8Phoenix, AZ


5


2


25.3Cleveland, OH


5


4


25.1Pittsburgh, PA


4


5


24.5St. Louis, MO


5


3


23.2San Diego, CA


4


2


22.9Tampa, FL


5


2


18.9Portland, OR


4


4


18.6Indianapolis, IN


4


4


17.9Denver, CO


2


3


17.4San Antonio, TX


4


3


16.4Kansas City, MO


4


4


15.9Orlando, FL


1


4


14.6Puerto Rico


0


1


14.4Sacramento, CA


4


2


13.0Milwaukee, WI


4


3


12.8Columbus, OH


2


4


12.1Cincinnati, OH


3


3


11.9Salt Lake City, UT


1


3


11.5Raleigh, NC


1


6


11.5Nashville, TN


1


4


10.7New Orleans, LA


1


5


9.9Oklahoma City, OK


1


5


9.5Greenville, SC


1


3


9.1Charlotte, NC


1


4


9.0Rochester, NY


1


5


8.5Albany, NY


1


5


8.4Syracuse, NY


1


4


8.3Jacksonville, FL


1


4


8.1Austin, TX


1


5


7.8Las Vegas, NV


1


2


7.5Grand Rapids, MI


0


4


7.5Memphis, TN


1


3


6.8Louisville, KY


1


4


6.7Norfolk, VA


2


3


6.7Buffalo, NY


1


4


6.6Birmingham, AL


1


4


5.7Total Top 50 Markets


148


177


1,236.1Grand Total All Markets and Legacy Licenses


179


634.6


1,549.6


(1)24
GHz SMSA licenses represent those licenses granted by the FCC that encompass Statistical Metropolitan Service Areas. FiberTower holds 102 such SMSAs.
FiberTower holds one Basic Economic Area, or BEA, license in the 24 GHz band. For both SMSAs and BEAs in the 24 GHz band, each channel represents 80 MHz.


10

---



Table of Contents

(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 283 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 competitors include:

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.

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.

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.

Fiber Service Providers.Fiber services providers, including Level 3 Communications, 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 "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 Tower Cloud, Telecom Transport
Management Inc. and IDT Spectrum (a subsidiary of IDT Corporation).

Our
primary competitors are the ILECs who provide approximately 80% 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.

11

---



Table of Contents

Employees

As of December 31, 2010, we had 160 employees, of whom 112 were in Engineering, Market/Field Operations, and Network Operations,
the payroll-related costs of which are classified as Cost of Service Revenues; 14 were in Sales and Marketing; and 34 were in General and Administrative. On March 3, 2011, we implemented a
reduction in force throughout FiberTower resulting in a reduction of approximately 10% of our employee headcount. See Note 17, Subsequent Events, in the Notes to Consolidated Financial
Statements for additional 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,
legislative or judicial changes could have an adverse effect on our business.

2008 and 2010 Federal Elections.The November 2008 presidential elections brought, and will continue to bring, regulatory and
legislative change.
This includes new or refreshed broadband stimulus programs, a new emphasis on the FCC developing a national broadband policy delivered to Congress in March 2010 and different FCC oversight priorities,
along with a new FCC Chairman and two new FCC Commissioners who were all seated in 2009. The congressional elections in November 2010 brought additional changes to the emphasis placed on new and
existing policies and programs.

Federal Regulation and Programs

FCC Licensing.As an FCC licensee and FCC regulated entity, we are subject to comprehensive regulatory oversight, including regulations
constraining
foreign 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

12

---



Table of Contents

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 device
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 licensed by the FCC in other bands, including 6 GHz, 10 GHz, 11 GHz, 18 GHz and 23 GHz bands. We hold over 3,000
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
licenses 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
2010
to 2021. In October 2008, renewal applications for our 39 GHz licenses that were scheduled to expire in 2007 received either (1) ten-year renewals for licenses deemed constructed or
(2) ten-year renewals contingent upon meeting construction requirements which the FCC extended until June 1, 2012. Recent applications to renew licenses that met the FCC
"safe harbor" build standard or to extend construction deadlines for 39 GHz licenses expiring in 2009, 2010 and 2011 have been granted by the FCC. In order for our 24 GHz and 39 GHz licenses to
qualify for renewal, we filed renewal applications for each license prior to expiration and demonstrated that we have provided "substantial service" by the end of the term of each license (which was
February 1, 2011 for 102 of the 103 24 GHz licenses) or reserved the right to make such a showing by an FCC approved substantial service showing date (which is June 1, 2012 for a
substantial majority of the 39 GHz licenses and all but one of the 24 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. FCC precedent also exists in the
millimeter wave bands for meeting buildout requirements by constructing a point-to-multipoint system whose signal reaches 20% or more of the population in the license area.
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 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 license
construction or "substantial service" showings mostly by June 1, 2012. We believe that our licenses will be renewed based on (1) our significant network investment, (2) spectrum
offerings, (3) market leadership, (4) expanding geographic coverage and (5) the ability to convey to the FCC information about best practices for refreshing the license renewal
standards through the Uniform License Renewal proceeding that the FCC opened on May 25, 2010. This proceeding was opened when the FCC released aNotice of Proposed Rule
Making and Order In the Matter of Amendment of Parts 1, 22, 24, 27, 74, 80, 90, 95,

13

---



Table of Contents

and 101 To Establish Uniform License Renewal, Discontinuance of Operation, and Geographic Partitioning and Spectrum Disaggregation Rules and Policies for Certain Wireless Radio Services; Imposition of
a Freeze on the Filing of Competing Renewal Applications for Certain Wireless Radio Services and the Processing of Already-Filed Competing Renewal Applications (WT Docket
10-1112). This proceeding, which also addresses the spectrum bands that our mobile customers use to operate their networks, could prove to be a catalyst or an
obstacle to wireless network operators, depending upon whether the license renewal standards ultimately adopted are market-oriented. Non-market oriented policies, whether implemented
through theUniform License Renewalproceeding or through the FCC's discretionary powers in interpreting various existing renewal regulations, could
result in the FCC not renewing wide-area spectrum licenses belonging to us, our customers, or both.

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

14

---



Table of Contents

proposes
to manage and achieve access to the spectrum. The satellite industry and others filed in 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. Throughout 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 still pending 14 GHz proceeding.

SafeView's SafeScout Interference Issues.In September 2006, we filed with the FCC a Petition for Reconsideration of the FCC's August
2006 Order
granting a waiver to SafeView, Inc. to permit the certification, marketing, and operation of SafeView's SafeScout unlicensed 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 like FiberTower. 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. L-3 Communications later purchased SafeView
renaming it L-3 Communications SafeView, Inc. On January 14, 2010, the FCC issued a ruling granting in part and denying in part the FiberTower Petition. In particular,
unlicensed devices like the SafeView product must continue to abide by the Part 15 rules for unlicensed devices and shut down immediately if they cause interference to licensed users like
FiberTower. In addition, L-3 Communications SafeView must continue to maintain and update a list of all installed devices that follows changes in device location and/or transfer of
ownership to third parties subsequent to an initial sale. Use of the SafeView device increased substantially in 2010.

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 in October 2006 and reply comments in November 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. In May 2007, the FCC released aReport 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. We also filed comments in 2009 in the FCC National Broadband Policy proceeding highlighting that any such potential operations in or near the FiberTower
license areas should be coordinated by and conducted only through, where technically and economically feasible to FiberTower, a business relationship with FiberTower in order for FiberTower to manage
its existing and growing operations in the 24 GHz band.

Outage Reporting.FCC regulations govern the circumstances whereby certain sized outages that occur on our network, our customer
networks and our
competitors' networks, must be reported. Failure

15

---



Table of Contents

to
file reports in a complete fashion can result in enforcement actions by the FCC, including fines or result in voluntary payments.

Unbundled Network Elements (UNEs) and Special Access Transport.As of March 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 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 and Common 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 and we
traditionally do not hold ourselves out to the public for the provision of our services. As such, we operated as a private carrier not subject to the FCC's common carrier regulations. Nonetheless, as
we grow, especially in the fiber optic market, there are benefits to operating as a common carrier, including enhanced access to ducts, conduits, rights-of-way and poles.
Accordingly, we began the process for filing for common carrier status in selected markets in 2010, and expect those filings to occur throughout 2011. Operating as a common carrier will likely
increase certain compliance requirements and costs of providing service which could have an adverse impact on our business operations, revenues, and profitability, though we believe that the cost and
efficiency savings from more cleanly accessing fiber will outweigh the compliance costs.

Building Access and RF Exposure Proceedings.In October 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.

16

---





Table of Contents

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.In February 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 whether, if a wireless facility uses more than the presumptive one foot of space, the per-foot rate could simply be
doubled, tripled, or otherwise multiplied as required. Comments were filed in March 2008 and Reply Comments were filed in April 2008. FCC activity in this area in 2009 was limited to advocacy from
various parties. We expect the FCC to renew work in this proceeding in 2011 as it continues to work on the National Broadband Policy. The potential impact on FiberTower of this proposed rulemaking is
uncertain.

National Broadband Plan.The FCC issued a National Broadband Plan to Congress on March 17, 2010. The FCC identified (1) Middle
Mile
backhaul, (2) shared-use access to federal sites, (3) zoning reform, (4) access to low-band long-haul spectrum (such as the TV White Spaces),
(5) government contracting reforms to encourage local and state governments to use federal contracts and (6) a national first responder network as key elements in the National Broadband
Plan effort. FiberTower participated in several rulemakings directly or through its trade associations. The National Broadband Plan resulted in subsequent Congressional hearings and multiple FCC
rulemakings on numerous aspects of broadband policy that will likely extend well into 2011 and beyond. This includes a Broadband Acceleration Initiative launch on February 9, 2011 by the FCC
Chairman, and multiple bills in Congress designed to fund mobile broadband deployments nationwide, including a +44,000 site national first responder network based on the Long-Term
Evolution (LTE) standard. Substantial changes in the policy concerning government efforts to stimulate broadband growth may result in significant alterations to, among other items, spectrum policy,
rules enforcement, government involvement in broadband deployment and financing, and mobile network siting, zoning and deployment issues.

Advice to NTIA.The FCC may receive funds from, or provide advice to, the National Telecommunications and Information Administration, or
NTIA, for
the national first responder network and additional national broadband mapping, national broadband policy development, and other matters.

Intellectual Property.In November 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. In
October 2008, the PTO granted us a registration for MuniFrame®. We use this mark routinely, including in a February 9, 2011 presentation to the FCC.

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

17

---



Table of Contents

State Regulation

Our services are non-switched wireless transmission links that we offer on a private, rather than on a common carrier
basis. However, as FiberTower decides to become a common carrier to avail itself of benefits related to that status, or one or more states determine that FiberTower is 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 and may also then be required to make similar common carrier filings with the FCC. 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 iswww.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. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also
impair our business. If any of these risks and uncertainties actually occurs, our business, financial condition and results of operations would be harmed substantially.

Risks Related to our Business Operations

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

We have incurred net losses and negative cash flows since our inception, and we expect that we will continue to incur operating and net
losses and negative cash flows for the next few years as we continue to invest to 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:



Our
historical revenue may not be indicative of future revenue. 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.

18

---



Table of Contents

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

As of December 31, 2010, we had unrestricted cash and cash equivalents of $21.3 million. However, our business is capital
intensive, and we believe we will require additional amounts to fund capital expenditures and pay operating expenses in the near future. We will also require additional capital to finance our current
growth plans, take advantage of business opportunities or pursue potential acquisitions. To raise additional capital, we may be required to issue additional equity securities in public or private
offerings or to seek significant additional debt financing. We may be unable to secure such additional financing when needed, on acceptable terms or at all, which could harm our business. In addition,
any financing we do obtain could be subject to onerous terms. Any additional debt financing could cause us to incur significant interest expense and increase our future financial commitments, and any
additional equity financing could be dilutive to our stockholders. If we are unable to secure capital when needed, we may be required to change our business plans and curtail our operations, and our
business prospects, financial condition and results of operations would likely be adversely affected.

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:



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.

19

---



Table of Contents

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, and be unable to build and source fiber in a timely manner and within our budget. 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.

Our top four customers accounted for 87%, and one of these customers accounted for 44%, of our revenues in 2010.

AT&T Mobility accounted for 44% of our revenues in 2010, 39% of our revenues in 2009 and 40% of our revenues in 2008. In addition, 19%
of our 2010 revenues were from Sprint Nextel, 12% of our 2010 revenues were from Clearwire Corporation and 12% of our 2010 revenues were from T-Mobile. If we were to lose any of AT&T
Mobility, Sprint Nextel, Clearwire or T-Mobile as a customer, or if any of them reduced their usage of our services, our business, financial condition and operating results would be
harmed. In addition, if any of these customers were to encounter financial difficulties or become financially unable to pay our fees, our business could be adversely affected. In February 2011, we
received an early termination notice from Clearwire to terminate service at approximately 220 billing locations effective February 28, 2011 and that they are reviewing approximately 50
additional locations for possible early termination by March 31, 2011. These billing locations represent up to approximately $344 thousand in monthly service revenue. The monthly billing
revenue terminated and being reviewed for termination represent a portion of our total service contracted by Clearwire. We also consider at potential risk of termination the approximately
$426 thousand remaining monthly billing revenue from Clearwire. See Note 17, Subsequent Events, in the Notes to Consolidated Financial Statements for additional information.

20

---



Table of Contents

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 and uncertainties, including:



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 and 4G
(such as WiMax or LTE) applications, or for any other reason, our operations and financial performance will be adversely affected.

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

We derive a substantial majority of our revenues from the sale of 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:



21

---



Table of Contents



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. In addition, these slowdowns could 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, 4G and other wireless broadband services. Further, the threat of terrorist attacks and the political and economic uncertainties
resulting from these threats, uncertainties 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. Any of these events could adversely affect our business.

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

We rely on third-party contractors to deploy and, in certain markets, to maintain 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:



22

---



Table of Contents



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.

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.

23

---



Table of Contents

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:



For
example, a significant majority of our current customer contracts provide T-1 backhaul service. These contracts generally have a five-year term, and a
significant number of these contracts expire each year. As a result of increased data usage by cell phone users, we expect our customers will generally not renew this T-1 backhaul service,
but will instead seek backhaul service, such as Ethernet backhaul service that we provide, that has greater data capacity. If we are unable to obtain replacement contracts, whether for Ethernet
service or otherwise, upon expiration of our T-1 contracts, our business and results of operations will be adversely affected.

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

24

---



Table of Contents

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 same terms as from an unaffiliated provider.

We lease communications facilities from subsidiaries of one of our stockholders, Crown Castle, which owned approximately 5% of our
outstanding common stock as of December 31, 2010. While we believe our terms are at market rate, we may not have obtained the same lease terms with this stockholder as we might have obtained
from unaffiliated providers.

To be successful, we must attract, retain and motivate key employees, and the inability to do so could seriously harm us.

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 typically have a term of five years, but which may vary in term from
18 months to seven 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 160 on December 31, 2010. On March 3, 2011, we implemented a reduction in force throughout FiberTower
resulting in a reduction of approximately 10% of our employee headcount. See Note 17, Subsequent Events, in the Notes to Consolidated Financial Statements for additional information. During the
period from December 31, 2003 to December 31, 2010, we made substantial investments in network infrastructure, growing from 121 sites deployed and billing to 3,276 sites deployed and
2,944 deployed and billing sites as of December 31, 2010. 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. Our historic expansion has placed, and our expected future growth 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.

25

---





Table of Contents

We may from time to time pursue strategic transactions, which could have an adverse impact on our business.

We may evaluate potential strategic transactions, including acquisitions, in the future. 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. Acquisitions could also expose our business to unforeseen liabilities or risks associated with entering new markets or businesses.
Even if we are successful in integrating our acquisitions into our existing operations, we may not derive the benefits, such as operational or administrative synergies, that we expect from such
acquisitions, which may result in the commitment of capital resources without the anticipated returns on such capital. In addition, future acquisitions may require additional equity or debt financing,
which may not be available on favorable terms, or at all.

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.

Additional Risks Related to our FCC Licenses

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 markets in
which we operate. Obtaining additional licensed spectrum can be a long, difficult and costly process that can require a significant 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

26

---



Table of Contents

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.

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 results
of operations.

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:



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 we determined that the fair value of our FCC licenses was less than their carrying value. Consequently, the carrying value of our FCC licenses was reduced by
$54.5 million to $287.5 million at December 31, 2008. The impairment evaluation in the fourth quarter of 2010 and 2009 of the carrying value of our FCC licenses resulted in the
determination that the fair value of our FCC licenses was greater than their carrying value. Therefore, no additional reduction to their carrying value was required in 2010 or 2009. Future impairment
evaluations of our FCC licenses could lead to additional material impairment charges. Any operating losses resulting from impairment charges to FCC licenses or other long-lived assets
would have an adverse effect on our future financial results and could have an adverse effect on our stock price. See Note 6, Impairment of FCC Licenses, in the Notes to Consolidated Financial
Statements for additional information.

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

27

---



Table of Contents

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 2010 to
2021. In October 2008, renewal applications for 39 GHz licenses that were scheduled to expire in 2007 received either (1) ten-year renewals for licenses deemed constructed or
(2) ten year renewals contingent upon meeting construction requirements which the FCC extended until June 1, 2012. Recent applications to renew licenses that met the FCC "safe harbor"
build standard or extend construction deadlines for 39 GHz licenses expiring in 2009, 2010 and 2011 have been granted by 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 was
February 1, 2011 for 102 of the 103 24 GHz licenses) or reserved the right to make such a showing by an FCC approved substantial service showing date (which is June 1, 2012 for a
substantial majority of the 39 GHz licenses and all but one of the 24 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. FCC precedent also exists in the
millimeter wave bands for meeting buildout requirements by constructing a
point-to-multipoint system whose signal reaches 20% or more of the population in the license area. 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 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
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 license
construction or "substantial service" showings mostly by June 1, 2012. We believe that our licenses will be renewed based on (1) our significant network investment, (2) spectrum
offerings, (3) market leadership, (4) expanding geographic coverage and (5) the ability to convey to the FCC information about best practices for refreshing the license renewal
standards through the Uniform License Renewal proceeding described above in "Item 1. BusinessRegulatory EnvironmentFederal Regulation and Programs." We are uncertain
as to whether this proceeding, which also addresses the spectrum bands that our mobile customers use to operate their networks, will prove to be a catalyst or an obstacle to wireless network
operators, depending upon whether the license renewal standards ultimately adopted are market-oriented. Since we are required to demonstrate substantial service at the time licenses are

28

---



Table of Contents

renewed,
the FCC has little and possibly changing 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:



Common carrier regulation could increase our costs and result in a decline in our operations, revenues and profitability.

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 and we traditionally do
not hold ourselves out to the public for the provision of our services. As such, we operated as a private carrier not subject to the FCC's common carrier regulations. Nonetheless, as we grow,
especially in the fiber optic market, there are benefits to operating as a common carrier, including enhanced access to ducts, conduits, rights-of-way and poles. Accordingly,
we began the process for filing for common carrier status in selected markets in 2010, and expect those filings to occur throughout 2011. It is possible that states or the FCC could determine that
such common carrier filings were required sooner than expected, and thus impose common carrier obligations sooner. Alternatively, any of our potential future requests for common carrier status may not
be granted. In addition, operating as a common carrier will likely increase certain compliance requirements and costs of providing service, which could have an adverse impact on our business
operations, revenues, and profitability.

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

29

---



Table of Contents

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.

Additional Risks Related to our Indebtedness

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 service the interest on the Notes due 2012 and Notes
due 2016. Our annual cash interest payments on these notes are approximately $6.0 million in 2011 and 2012. When we issued the Notes due 2016, we deposited into an escrow account approximately
$11.0 million which, together with the earnings thereon, was an amount sufficient to pay the cash portion of the first six semi-annual interest payments on the Notes due 2016.
Two-thirds of the interest payable on the Notes due 2016 will be paid by issuing new Notes due 2016.

We
elected to pay the May 2009, November 2009, May 2010 and November 2010 interest payments on the Notes due 2012 entirely by the issuance of additional Notes due 2012, as permitted
under the related indenture. This resulted in the issuance of an additional $33.5 million in 2009 and $3.1 million in 2010 in principal amount of Notes due 2012. The interest rate
applicable to any such interest payments made in additional Notes due 2012 is 11%. Interest payments on the Notes due 2012 after November 2010 are payable only in cash.

Our
ability to pay our expenses and make payments due on the Notes due 2016 and the Notes due 2012 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 due 2012 or the Notes due 2016, 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 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 meet our obligations.

Our substantial level of indebtedness could materially adversely affect our financial condition and prevent us from fulfilling our obligations under the Notes due 2016 and
the Notes due 2012 and any other indebtedness.

As of December 31, 2010, we had $164.8 million of total indebtedness, excluding our obligation under a capital lease. The
indentures governing the Notes due 2016 and Notes due 2012 allow us to enter into a senior secured credit facility and incur certain other additional indebtedness, including

30

---



Table of Contents

pari passusenior secured indebtedness in certain circumstances. Our substantial indebtedness could have significant effects on our business, including the
following:



The
occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our
obligations under our indebtedness.

We are a holding company, and therefore our ability to make any required payments on our indebtedness depends upon the ability of our subsidiaries to pay dividends or to
advance funds.

We have 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 necessary to meet our financial obligations, including our required obligations
under the Notes due 2016 and the Notes due 2012. However, each of our subsidiaries is a legally distinct entity, and the ability of our subsidiaries to pay dividends and make distributions to us 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 our indebtedness would be substantially impaired and an event of default could result.

Despite our substantial level of indebtedness, we may still incur significantly more debt, which could exacerbate any or all of the risks described above.

We may be able to incur substantial additional indebtedness in the future. Although the indenture governing the Notes due 2016 limits
our ability and the ability of our subsidiaries to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt
incurred in compliance with these restrictions could be substantial. In addition, the indenture governing the Notes due 2016 does not prevent us from incurring obligations that do not constitute
indebtedness. To the extent that we incur additional indebtedness or such other obligations, the risks associated with our substantial leverage described above, including our possible inability to
service our debt, would increase.

The Notes due 2016 contain restrictive covenants that limit our operational flexibility.

The Notes due 2016 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:



31

---



Table of Contents



Our
failure to comply with these restrictions could lead to a default under the Notes due 2016.

The repurchase rights in the Notes due 2016 triggered by a fundamental change could discourage a transaction that could be beneficial to the holders of our common stock.

If a "fundamental change" (as defined in the indenture governing the Notes due 2016, and which generally includes events relating to
certain changes in control) occurs prior to maturity, holders may require us to repurchase all or part of their Notes due 2016 for cash at a repurchase price equal to 101% of the aggregate principal
amount, plus accrued and unpaid interest, up to but excluding the repurchase date. These repurchase rights in the Notes due 2016 could discourage a potential acquirer from engaging in a transaction
that may be beneficial to the holders of our common stock.

Risks Related to an Investment in FiberTower

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future.

We have never paid cash dividends on our common stock and do not anticipate that any cash dividends will be declared or paid in the
foreseeable future. In addition, the indenture governing our Notes due 2016 contains covenants that restrict our ability to pay dividends. As a result, holders of our common stock may not receive a
return, if any, on their investment unless they sell their shares of our common stock.

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 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 our common stock could decline
substantially. Fluctuations in quarterly results of operations may be due to a number of factors, including, but not limited to, the risks described in "Risks Related to Our Business
Operations" above.

We
believe that, as a result of these risks, 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.

32

---



Table of Contents

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. 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.
We cannot predict 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.

Changes in the composition of our stockholders, including those resulting from the issuance of common stock in the Mandatory Redemption, are likely to limit our ability to
use our net operating losses.

We have substantial tax loss carryforwards for U.S. federal income tax purposes. As a result of prior changes in the stock ownership of
FiberTower, our ability to use a substantial part of such carryforwards to offset future income or tax liability is limited under section 382 of the Internal Revenue Code of 1986, as amended.
As a result of the issuance of shares of common stock in the Mandatory Redemption, our ability to use these loss carryforwards will be restricted as a result of the ownership change. See
Note 12, Income Taxes, in the Notes to Consolidated Financial Statements for additional information.

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

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

33

---



Table of Contents

successfully
completing a hostile acquisition by these or other measures, stockholders could lose the opportunity to sell their shares at a favorable price.

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 15,600 square feet of space. The lease
continues through November 2014 and does not include a renewal option. We do not own any real property.

The
following table shows significant leased properties and their approximate square footage:

City/State

Approximate
Square FootageSan Francisco, California (Headquarters and Administrative)


15,600Iselin, New Jersey (Office Space)(1)


8,400Plano, Texas (South Regional Field Office)


5,400Sterling, Virginia (North Regional Field Office)


4,600


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


We
lease additional field operations office and warehouse space in Marietta, GA; Broadview Heights, OH; Centennial, CO; Plymouth, MI; Fort Worth, TX; Billerica, MA; Houston, TX;
Secaucus, NJ; Tampa, FL; San Antonio, TX; Washington, D.C.; Freedom, PA; and Woodbridge, IL.

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

As
of December 31, 2010, we also lease nominal space at over 3,500 buildings, towers or other structures for network equipment installations.

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.    REMOVED AND RESERVED

34

---





Table of Contents

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. The market price range for the common stock for the last
two fiscal years, adjusted to give effect to the 1-for-10 reverse stock split of our common stock on December 18, 2009, was as follows:

PRICE RANGEHigh

LowFiscal year ended December 31, 2010First Quarter

$
5.22

$
3.73Second Quarter

$
5.63

$
3.20Third Quarter

$
4.85

$
3.46Fourth Quarter

$
4.82

$
4.04Fiscal year ended December 31, 2009First Quarter

$
2.70

$
0.70Second Quarter

$
8.80

$
1.90Third Quarter

$
13.50

$
3.20Fourth Quarter

$
18.20

$
3.97


On
February 28, 2011, the closing price of our common stock as reported by the Nasdaq Global Market was $3.32 per share. There were 850 holders of record of our common stock on
February 28, 2011.

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. The indenture governing our Notes due 2016 contains covenants that restrict our ability to pay dividends.

Stock Performance Graph

The following graph compares total stockholder return on our common stock since August 29, 2006 (the 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 August 29, 2006 closing price of
$77.40, after giving retroactive effect to our 1-for-10 reverse stock split, and that the same amount was invested in the Nasdaq Composite Index and the Nasdaq
Telecommunications Index. Our closing price on December 31, 2010, the last trading day of our 2010 fiscal year, was $4.46. 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.

35

---



Table of Contents

Comparison of Cumulative Total Return on Investment

GRAPHIC

Period Ended8/29/2006

12/31/2007

12/31/2008

12/31/2009

3/31/2010

6/30/2010

9/30/2010

12/31/2010FiberTower Corporation


100.00


29.46


2.07


5.40


6.01


6.10


5.48


5.76Nasdaq Composite Index


100.00


122.10


72.60


104.46


110.39


97.10


109.04


122.12Nasdaq Telecommunications Index


100.00


129.77


73.99


109.68


115.02


94.75


108.62


113.98


36

---



Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA

The following selected historical consolidated statements of operations data for the years ended December 31, 2010, 2009 and
2008 and the consolidated balance sheet data at December 31, 2010 and 2009 are derived from FiberTower's audited consolidated financial statements included elsewhere in this Annual Report on
Form 10-K. The selected historical consolidated statement of operations data for the years ended December 31, 2007 and 2006 and the consolidated balance sheet data at
December 31, 2008, 2007 and 2006 are derived from FiberTower's audited consolidated financial statements not included in this Annual Report on Form 10-K.

As
described in Note 1, Organization and Business, in the Notes to Consolidated Financial Statements, on December 18, 2009, we effected a 1-for-10
reverse stock split of our common stock. Accordingly, the following selected financial data for all periods prior to the reverse stock split have been retroactively restated to reflect the effect of
the reverse stock split.

Year Ended December 31,2010

2009

2008

2007

2006(1)(in thousands, except per share data)Consolidated Statement of Operations Data:Service revenues

$
76,118

$
63,244

$
49,227

$
27,144

$
13,763Operating expenses:Cost of service revenues (excluding depreciation and amortization)


61,212


58,220


79,808


72,075


36,746Sales and marketing


4,329


3,262


5,456


7,906


6,479General and administrative


17,866


27,834


20,237


27,026


18,038Depreciation and amortization


28,501


27,840


24,897


18,459


9,077Restructuring charges


241


372


6,087





Impairment of FCC licenses








54,505





Impairment of goodwill








86,093


147,893


Total operating expenses


112,149


117,528


277,083


273,359


70,340Loss from operations


(36,031
)

(54,284
)

(227,856
)

(246,215
)

(56,577
)Other income (expense):Interest income


99


295


5,316


18,159


6,326Interest expense


(13,502
)

(47,605
)

(47,742
)

(44,560
)

(7,475
)Gain on early extinguishment of debt, net





98,248








Miscellaneous income (expense), net


295


(39
)

264


469


448Other income (expense), net


(13,108
)

50,899


(42,162
)

(25,932
)

(701
)Loss before income taxes


(49,139
)

(3,385
)

(270,018
)

(272,147
)

(57,278
)Income tax (provision) benefit


(243
)

1,247


20,189





Net loss

$
(49,382
)
$
(2,138
)
$
(249,829
)
$
(272,147
)
$
(57,278
)Basic and diluted net loss per share attributable to common stockholders

$
(1.05
)
$
(0.13
)
$
(16.65
)
$
(18.66
)
$
(10.85
)Shares used in computing basic and diluted net loss per share


45,660


15,481


14,462


14,305


5,154


37

---



Table of Contents



As of December 31,2010

2009

2008

2007

2006(1)(In thousands, except other operating data)Balance Sheet Data:Cash and cash equivalents

$
21,314

$
50,669

$
154,357

$
228,030

$
350,174Short-term investments














15,253Restricted cash and investments


9,990


11,600


477


36,979


70,522Working capital


23,549


55,461


150,022


244,386


375,425Property and equipment, net


222,214


221,417


236,585


240,799


171,612FCC licenses


287,495


287,495


287,495


342,000


342,000Goodwill











86,093


243,388Total assets


558,470


584,426


701,469


955,555


1,216,478Long-term debt


164,827


154,528


430,317


415,778


403,759Other long term obligations


18,258


17,596


14,078


8,021


4,787Stockholders' equity


287,346


332,349


169,870


412,970


673,822Other Operating and Non-GAAP Financial Data:Number of sites deployed(2)


3,276


3,117


3,120


2,813


1,996Number of billing customer locations(2)


6,400


6,317


6,096


3,851


1,804Average monthly revenue per deployed site(2)(3)

$
1,961

$
1,690

$
1,335

$
881

$
727Adjusted EBITDA(4)

$
158

$
(13,310
)
$
(33,561
)
$
(53,152
)
$
(40,509
)


(1)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 selected financial data before the First Avenue/FiberTower merger
reflects the financial results of Old FiberTower on a historical basis after applying the exchange ratio to historical share-related data, and includes the results of operations of First Avenue from
the effective date of the First Avenue/FiberTower merger.(2)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.(3)The
average monthly revenue per deployed site excludes $1.3 million in 2010, $0.5 million in 2008 and $0.6 million in 2006 recognized
from customers' early termination of certain circuits. Revenue from early termination in 2009 and 2007 was immaterial.(4)Adjusted
EBITDA is not a substitute for loss from operations, net loss, or cash flow provided by (used) for 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" in this Form 10-K for our reasons for
including Adjusted EBITDA, for material limitations with respect to the usefulness of this measurement and for a reconciliation of total Adjusted EBITDA to net loss.


38

---





Table of Contents

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS ("MD&A")

Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our
results of operations, financial condition, and cash flows. Some of the statements in this MD&A are forward-looking statements. 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. Such statements are based on our current estimates and projections
about our business and operations and could be affected by the uncertainties and risk factors described throughout this Form 10-K, including those described in the section titled
"Risk Factors" in Item 1A of this Form 10-K. Our actual results may differ materially from these estimates and projections.

References
in the MD&A to note numbers and note titles refer to those Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data of
this Form 10-K.

Overview

We are a leading alternative provider of facilities-based backhaul services to wireless carriers. Facilities-based providers own or
lease a substantial portion of the property and equipment necessary to provide backhaul services. 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 wireline telecommunications network. We provide backhaul services nationally by
utilizing our wireless spectrum assets and fiber relationships to construct and operate high-coverage, high-capacity hybrid microwave and fiber networks. Our services provide
wireless carriers a long-term solution for their increasing demand for backhaul capacity while giving them increased availability and reliability.

We
compete with a range of diversified telecommunications services providers. Our competitors include (1) Incumbent and Competitive Local Exchange Carriers, or ILECs, including
AT&T, Verizon, Embarq and Qwest; (2) Cable Multiple Systems Operators, including Cox, Time Warner Cable, Bright House and Comcast; (3) wireless carriers; (4) Fiber Service
Providers, including Level 3 Communications, Time Warner Telecom, Zayo Broadband, DukeNet and FPL FiberNet; and (5) other fixed wireless backhaul providers, including Tower Cloud and
Telecom Transport Management Inc.

As
of December 31, 2010, we had 160 employees, of whom 112 were in Engineering, Market/Field Operations, and Network Operations, the payroll-related costs of which are classified
as Cost of Service Revenues; 14 were in Sales and Marketing; and 34 were in General and Administrative. On March 3, 2011, we implemented a reduction in force throughout FiberTower resulting in
a reduction of approximately 10% of our employee headcount. See Note 17, Subsequent Events for additional information.

As
of December 31, 2010:



39

---



Table of Contents



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



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:



In
order to provide backhaul services to our customers, we have constructed networks in 13 markets throughout the U.S. 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.

During
2010, we achieved the following significant financial and operational milestones:



40

---



Table of Contents



As
of December 31, 2010, we had deployed 3,276 sites, of which 2,944 had at least one billing customer. A deployed site may not yet be billing for reasons including that we have
not yet sold any service at that site.

Our
business plan depends on our expectation that our sites will generate revenue within the useful life of the site 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. Since our inception, our
operating expenses have exceeded our revenues. We have incurred net losses and negative cash flows since our inception and we expect that we will continue to incur operating and net losses and
negative cash flows for the next few years as we continue to expand our network. See "Liquidity and Capital Resources" below for additional information.

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-deployed site basis is one of our most important objectives. Revenue per deployed site, shown later in the Performance Measures section of the MD&A, 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 per
deployed site increased to $1,961 in 2010 from $1,690 in 2009. The average monthly revenue per deployed site in 2010 excludes $1.3 million recognized from customers' early termination of
certain circuits. Revenue from early termination in 2009 was immaterial. We intend to continue our focus on site-level margins, project return on investment, and cost reductions.

41

---



Table of Contents

For
the years ended December 31, 2010, 2009 and 2008, the following customers accounted for a significant portion of our revenues:

Year Ended
December 31,2010

2009

2008AT&T Mobility


44
%

39
%

40
%Sprint Nextel


19
%

20
%

33%
(1)Clearwire


12
%

15
%


(1)T-Mobile


12
%

15
%

15
%


(1)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.


Accounts
receivable from these customers comprised the following percentages of our total accounts receivable balances at December 31, 2010 and 2009:

December 31,2010

2009AT&T Mobility


59
%

37
%Sprint Nextel


12
%

17
%Clearwire


7
%

17
%T-Mobile


7
%

16
%


In
February 2011, we received an early termination notice from Clearwire to terminate service at approximately 220 billing locations effective February 28, 2011, and that they are
reviewing approximately 50 additional locations for possible early termination by March 31, 2011. These billing locations represent up to approximately $344 thousand in monthly service
revenue. See Note 17, Subsequent Events for additional information.

Costs and Expenses

The major components of our cost of service revenues are:



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

42

---



Table of Contents

Construction
of our network is a complex process involving the interaction and assembly of multiple components that result in internal labor, third party and equipment costs. We
regularly assess the recoverability of costs accumulated in construction-in-progress as we execute our network build-out plans. We recorded impairment charges of
$3.2 million in 2010, $0.3 million in 2009 and $16.4 million in 2008 related to this process which is included in cost of service revenues. See Note 5, Impairment of
Long-Lived Assets and Other Charges for additional information on impairment charges included in cost of service revenues.

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, facilities, travel expenses, professional fees and
insurance.

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

During
2008, we recorded restructuring charges 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. See Note 4, Restructuring Charges 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
their 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. Based
on the results of the impairment evaluations of our FCC licenses in the fourth quarters of 2010 and 2009, it was determined that the fair value of our FCC licenses was greater than their carrying
value. Therefore, no additional reduction to their carrying value was required in 2010 or 2009. Future impairment evaluations of our FCC licenses could lead to additional material impairment charges.
See Note 6, Impairment of FCC Licenses and Note 12, Income Taxes for additional information.

As
a result of a decline in our market capitalization below the carrying value of our equity during the quarter ended March 31, 2008, we believed an indicator of 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 carrying value of goodwill to its fair value of zero. See Note 7, Impairment of Goodwill for additional
information.

Interest
income and interest expense are primarily the result of interest earned on investment of cash and interest cost incurred on the outstanding balance of our indebtedness. See
Note 8, Long-term Debt for additional information.

As
a result of the gain on early extinguishment of debt realized on our repurchases of Notes due 2012 during the first six months of 2009 as described in Note 8,
Long-term Debt, we recorded a state income tax provision of $0.2 million in 2009. Also in 2009, we recorded a $1.5 million income tax benefit and a corresponding decrease to
the deferred tax liability. In 2010, we recorded a state income tax provision of $0.2 million. See Note 12, Income Taxes for additional information.

Challenges Facing Our Business

In addition to the risks and uncertainties described in "Item 1A, Risk Factors" in this report, there are various challenges
facing our business. These include acquiring and retaining customers on new and existing sites, deploying new sites in a predictable manner, expanding our network capacity to support

43

---



Table of Contents

rapidly
growing bandwidth, the concentrated nature of our customers, the transforming nature of our market and the weakened state of the U.S. economy.

Acquiring
and retaining customers on new and existing sites in a timely fashion is critical to our ability to grow revenue and generate an appropriate return on the capital that we
invest. Our business, financial condition and results of operations will be negatively affected if we do not obtain sufficient revenues by retaining existing revenue, selling incremental bandwidth to
existing customers, selling new customers at existing sites and constructing new sites for customers.

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 at reasonable rates, complying
with the various zoning and permitting laws of different cities or districts, negotiating fiber arrangements, and managing the contractors involved with construction, program and project management.
We have taken steps to reduce deployment unpredictability on larger deployments by engaging with large, well-established, turnkey vendors that are experienced in these activities.

Our
ability to expand our network capacity to support rapidly growing demand for bandwidth will be critical to our success. We expect that as demand for bandwidth grows, revenue per Mbps
will decline. It can be challenging to manage profitability if our cost structure does not decline at a level consistent with the decline in revenue per Mbps. In addition, competitors may be able to
reduce the prices of their services significantly or may offer backhaul connectivity with other services, which could make their services more attractive to customers.

We
are a relatively new entrant into a highly concentrated market with a limited number of 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 a transforming 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.

A
significant majority of our current customer contracts provide T-1 backhaul service. These contracts generally have a five-year term, and a significant number
of these contracts expire each year. As a result of increased data usage by cell phone users, we expect our customers will generally not renew this T-1 backhaul service, but will instead
seek backhaul service, such as Ethernet backhaul service that we provide, that has greater data capacity. If we are unable to obtain replacement contracts, whether for Ethernet service or otherwise,
upon expiration of our T-1 contracts, our business and results of operations will be adversely affected.

We
have built flexibility into our spending by reducing recurring general and administrative expenses and in prior periods, by reducing capital expenditures and sales and marketing
expenses. In response to recent significant customer cancellations, we have implemented cost savings measures and have reduced our expected 2011 capital expenditures. However, our ability to pay our
expenses and make payments due on our Notes due 2016 and Notes due 2012 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 on or repay indebtedness or to
fund other liquidity needs. Continued uncertainty about the overall weakness in the U.S. economy may inhibit our ability to grow at the level needed to fully service our Notes due 2016 and Notes due
2012.

44

---



Table of Contents

Results of Operations

Presented below are selected statements of operations data for the years ended December 31, 2010, 2009 and 2008 that have been
derived from our audited consolidated financial statements. 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 can be expected in future periods.

Statements of Operations Data:  (In thousands)

Year Ended December 31,2010

2009

2008Service revenues

$
76,118

$
63,244

$
49,227Cost of service revenues (excluding depreciation and amortization)


(61,212
)

(58,220
)

(79,808
)Sales and marketing


(4,329
)

(3,262
)

(5,456
)General and administrative


(17,866
)

(27,834
)

(20,237
)Depreciation and amortization


(28,501
)

(27,840
)

(24,897
)Restructuring charges


(241
)

(372
)

(6,087
)Impairment of FCC licenses








(54,505
)Impairment of goodwill








(86,093
)Interest income


99


295


5,316Interest expense


(13,502
)

(47,605
)

(47,742
)Gain on early extinguishment of debt, net





98,248


Miscellaneous income (expense), net


295


(39
)

264Income tax (provision) benefit


(243
)

1,247


20,189Net loss

$
(49,382
)
$
(2,138
)
$
(249,829
)


The
following table presents selected statements of operations data as a percentage of our service revenues for each of the periods indicated.

Year Ended December 31,2010

2009

2008Service revenues


100
%

100
%

100
%Cost of service revenues (excluding depreciation and amortization)


(80
)%

(91
)%

(162
)%Sales and marketing


(6
)%

(5
)%

(11
)%General and administrative


(24
)%

(44
)%

(41
)%Depreciation and amortization


(37
)%

(44
)%

(51
)%Restructuring charges


(0
)%

(1
)%

(12
)%Impairment of FCC licenses








(111
)%Impairment of goodwill








(175
)%Interest income


0
%

0
%

11
%Interest expense


(18
)%

(75
)%

(97
)%Gain on early extinguishment of debt, net





155
%

Miscellaneous income (expense), net


0
%

(0
)%

1
%Income tax (provision) benefit


(0
)%

2
%

41
%Net loss


(65
)%

(3
)%

(507
)%


45

---



Table of Contents



We use Adjusted EBITDA, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure, to monitor the
financial performance of our operations. This measurement, together with GAAP measures such as revenue and loss from operations, assists management in its decision-making processes relating to the
operation of our business. Adjusted EBITDA is defined as net income (loss) from operations before interest, taxes, depreciation and amortization, impairment and restructuring charges, stock-based
compensation, gain on early extinguishment of debt, debt exchange expenses and other income (expense). Adjusted EBITDA is not a substitute for loss from operations, net loss, or cash flow provided by
(used for) operating activities as determined in accordance with GAAP, as a measure of performance or liquidity. In addition, our presentation of Adjusted EBITDA may not be comparable to similarly
titled measures reported by other companies. This non-GAAP financial measure should be viewed in addition to, and not as an alternative for, our reported financial results as determined in
accordance with GAAP.

We
believe Adjusted EBITDA provides an additional way to view our operations, and when viewed with both our GAAP results and the reconciliation to net loss, we believe it provides a more
complete understanding of our business than could otherwise be obtained absent this disclosure. Adjusted EBITDA is an especially important measurement in a capital-intensive industry such as
telecommunications. We use Adjusted EBITDA internally as a metric to evaluate and compensate our personnel and management for their performance, and as a benchmark to evaluate our operating
performance in comparison to our competitors. Management also uses Adjusted EBITDA to measure, from period-to-period, its ability to fund capital expenditures, fund growth,
service debt and determine bonuses. We have provided this information to enable analysts, investors and other interested parties to perform meaningful comparisons of past and current operating
performance and as a means to evaluate the results of our ongoing operations.

Adjusted
EBITDA has significant limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some
of these limitations are:



46

---



Table of Contents



We
compensate for these limitations by using non-GAAP financial measures as only one of several comparative tools, together with GAAP measurements, to assist in the
evaluation of our profitability and operating results.

The
following table shows the calculation of our total Adjusted EBITDA reconciled to net loss (in thousands):

Year Ended December 31,2010

2009

2008Net loss

$
(49,382
)
$
(2,138
)
$
(249,829
)Adjustments:Depreciation and amortization


28,501


27,840


24,897Stock-based compensation


4,267


8,016


6,274Impairment of long-lived assets and other charges


3,180


270


16,439Restructuring charges


241


372


6,087Exchange Offer and redemption of debt expenses





4,476


Impairment of FCC licenses








54,505Impairment of goodwill








86,093Interest income


(99
)

(295
)

(5,316
)Interest expense


13,502


47,605


47,742Gain on early extinguishment of debt, net





(98,248
)

Miscellaneous (income) expense, net


(295
)

39


(264
)Income tax provision (benefit)


243


(1,247
)

(20,189
)Adjusted EBITDA

$
158

$
(13,310
)
$
(33,561
)


47

---



Table of Contents

Adjusted
EBITDA would have been negative $1.2 million in 2010 and negative $34.1 million in 2008, net of $1.3 in 2010 and $0.5 million in 2008 of revenue recognized
from customers' early termination of certain circuits. Revenue from early termination in 2009 was immaterial. We achieved positive Adjusted EBITDA during the third and fourth quarters of 2010.

Year ended December 31, 2010 compared to year ended December 31, 2009

Service revenues in 2010 increased 20% to $76.1 million compared to $63.2 million for 2009. This increase was primarily
driven by selling additional capacity and Ethernet services to customers at existing sites. In addition, we recognized $1.3 million in 2010 from customers' early termination of certain
circuits. The average monthly revenue per deployed site increased to $1,961 in 2010 compared to $1,690 for 2009. The revenue per deployed site amount for 2010 excludes the $1.3 million in
revenue from early termination of certain circuits described above. Revenue from early termination in 2009 was immaterial.

In
February 2011, we received an early termination notice from Clearwire to terminate service at approximately 220 billing locations effective February 28, 2011, and that they are
reviewing approximately 50 additional locations for possible early termination by March 31, 2011. These billing locations represent up to approximately $4.1 million in annual service
revenue. Upon termination of the services mentioned above, the customer's early termination charges would be approximately $2.2 million. See Note 17, Subsequent Events for additional
information

Cost
of service revenues (excluding depreciation and amortization) increased 5% to $61.2 million in 2010, compared to $58.2 million for 2009. Impairment charges of
$3.2 million were recorded in 2010 compared to $0.3 million in 2009. These impairments related to our assessment of the recoverability of certain costs accumulated in
construction-in-progress. Increased construction activities in 2010 resulted in higher payroll-related expenses reflecting an increase in employee headcount classified as cost
of service revenues, higher site maintenance expenses, higher fiber service provider charges and an increase in travel and training expenses. Partially offsetting this increase was a decrease in other
payroll-related expenses due to (1) an increase in capitalized labor reflecting the increased construction activities and (2) lower stock-based compensation expense during 2010
reflecting the acceleration of restricted stock and stock option vesting resulting from the change in control of FiberTower as a result of the redemption of debt in December 2009 described at
Note 1, Organization and Business.

Service
revenues tend to lag behind cost of service revenues initially for new sites, especially in new markets, because there are certain upfront costs that are generally incurred for a
period of time before a site generates revenue. These costs include site evaluation expenses, lease payments that are incurred before the site generates revenues, payments to fiber service providers
in order to ensure sufficient capacity is available to carry new traffic, as well as costs related to unsuccessful site acquisitions that are incurred during deployment.

Sales
and marketing expenses increased 33% to $4.3 million in 2010 compared to $3.3 million for 2009. The increase reflects higher payroll-related expenses, including
stock-based compensation, due to an increase in sales and marketing employee headcount and higher commissions. The increase in stock-based compensation expense in 2010 compared to 2009 reflects
(1) a $0.4 million reversal of previously recognized compensation cost related to the cancellation of unvested restricted stock during 2009 and (2) the expense associated with the
restricted stock awards granted during the quarter ended June 30, 2010. This increase was partially offset by lower stock-based compensation expense during 2010 reflecting the acceleration of
restricted stock and stock option vesting as a result of the redemption of debt in December 2009.

General
and administrative expenses decreased 36% to $17.9 million in 2010 compared to $27.8 million for 2009. Higher legal and consulting fees, including approximately
$4.5 million related to the Exchange Offer and redemption of debt were incurred during 2009. Also contributing to the

48

---



Table of Contents

decrease
in 2010 were (1) a net $2.5 million lower stock-based compensation expense reflecting the acceleration of restricted stock and stock option vesting as a result of the redemption
of debt in December 2009, and the expense associated with the restricted stock awards granted during the quarter ended June 30, 2010 and (2) $1.4 million lower bonus accruals.

Depreciation
and amortization expense increased 2% to $28.5 million in 2010 compared to $27.8 million for 2009. There were $32.1 million in capital additions during
2010 driven by upgrading capacity and overlaying Ethernet capability at existing sites and by the addition of 159 new deployed sites.

Interest
income and interest expense are primarily the result of interest earned on investment of cash and interest cost incurred on the outstanding balance of our indebtedness. See
Note 8, Long-term Debt for additional information.

Interest
income was $0.1 million in 2010 compared to $0.3 million in 2009. The reduction was due to lower investment balances and lower interest rates.

Interest
expense decreased 72% to $13.5 million in 2010 from $47.6 million in 2009. This decrease reflects (1) the effects of the Exchange Offer and redemption of
debt in December 2009 and (2) the repurchases of $142.2 million par value of our Notes due 2012 in the open market during the first six months of 2009, both described at Note 8,
Long-term Debt.

The
repurchases of the Notes due 2012 in 2009 resulted in the recognition of a gain on early extinguishment of debt of $98.2 million. See Note 8, Long-term Debt
for additional information regarding this gain. There was no such extinguishment of debt in 2010.

As
a result of the gain on early extinguishment of debt in 2009, we recorded a state income tax provision of $0.2 million in 2009. Also in 2009, we recorded a $1.5 million
income tax benefit and a corresponding decrease to the deferred tax liability resulting from our update to state apportionment percentages. In 2010, we recorded a state income tax provision of
$0.2 million. See Note 12, Income Taxes for additional information.

Year ended December 31, 2009 compared to year ended December 31, 2008

Service revenues in 2009 increased 28% to $63.2 million compared to $49.2 million for 2008. This increase was primarily
due to receiving the benefit of a full year of revenue in 2009 from new customers added in 2008, plus adding 221 billing locations and selling incremental bandwidth to customers at existing sites. The
average monthly revenue per deployed site increased to $1,690 in 2009 compared to $1,335 for 2008.

Cost
of service revenues (excluding depreciation and amortization) decreased 27% to $58.2 million in 2009, compared to $79.8 million for 2008. This decrease was primarily
due to (1) lower impairment of long-lived assets and other charges in 2009 as described below, (2) the effects of the workforce reduction in the second quarter of 2008
discussed at Note 4, Restructuring Charges, (3) lower fiber service provider expenses including a $0.6 million savings from circuit terminations and (4) lower site
maintenance expenses which included a $0.4 million insurance reimbursement relating to hurricane damage in late 2008. This decrease was partially offset by (1) lower capitalized labor
costs reflecting a reduction in site expansion and (2) approximately $0.9 million of additional stock-based compensation expense from the acceleration of restricted stock and stock
option vesting as a result of the redemption of debt in December 2009.

Cost
of service revenues also included $0.3 million related to the impairment of long-lived assets and other charges in 2009 compared to $16.4 million for 2008.
These impairments related to our assessment of the recoverability of certain costs accumulated in construction-in-progress. See Note 5, Impairment of
Long-Lived Assets and Other Charges for additional information.

49

---



Table of Contents

Sales
and marketing expenses decreased 40% to $3.3 million in 2009 compared to $5.5 million for 2008. This decrease reflects the reclassification of six employees from
sales and marketing to general and administrative at the end of the fourth quarter of 2008 as their responsibilities changed. Also contributing to this decrease was a lower commission accrual in 2009
compared to 2008 due to changes in our 2009 commission plan. Partially offsetting this decrease was approximately $0.3 million of additional stock-based compensation expense from the
acceleration of restricted stock and stock option vesting as a result of the redemption of debt in December 2009.

General
and administrative expenses increased 38% to $27.8 million in 2009 compared to $20.2 million for 2008. This increase reflects (1) additional consulting fees,
including approximately $4.5 million related to the Exchange Offer and redemption of debt, (2) approximately $2.0 million of additional stock-based compensation expense from the
acceleration of restricted stock and stock option vesting as a result of the redemption of debt in December 2009 and (3) the reclassification of six employees from sales and marketing and one
employee from cost of service revenues to general and administrative at the end of the fourth quarter of 2008 as their responsibilities changed.

Depreciation
and amortization expense increased 12% to $27.8 million in 2009 compared to $24.9 million for 2008. This increase reflects $8.6 million in capital
additions during 2009 (excluding $4.2 million acquired under a capital lease entered into at the end of 2009), $36.8 million in capital additions during 2008 and upgrades to existing
sites during 2009.

During
2008, we recorded restructuring charges 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 charges reflected (1) management's decision to cease market development activities in the Carolinas market resulting in an exit plan for our site
operating leases, (2) termination benefits under a workforce reduction of 59 employees consistent with revisions to our network deployment plan and (3) the consequent termination or
renegotiation of excess office space including the former headquarters in New Jersey. See Note 4, Restructuring Charges for additional information.

As
a result of the impairment evaluation to the carrying value of our FCC licenses in the fourth quarter of 2008, it was determined that the fair value of our FCC licenses was less than
their carrying value. Consequently, the carrying value of our FCC licenses was reduced by $54.5 million to $287.5 million at December 31, 2008. Based on the results of the
impairment evaluation of our FCC licenses in the fourth quarter of 2009, it was determined that the fair value of our FCC licenses was greater than their carrying value. Therefore, no additional
reduction to their carrying value was required in 2009. Future impairment evaluations of our FCC licenses could lead to additional material impairment charges. See Note 6, Impairment of FCC
Licenses for additional information.

As
a result of the impairment evaluation of the fair value of the carrying amount of goodwill in the first quarter of 2008, we recorded a goodwill impairment charge of
$86.1 million reducing the carrying value of goodwill to its fair value of zero. See Note 7, Impairment of Goodwill for additional information.

Interest
income decreased 94% to $0.3 million in 2009 from $5.3 million for 2008. The reduction was due to lower cash balances available for investment and lower interest
rates as we shifted our holdings of cash balances to only be in bank deposits and money market mutual funds which invest in U.S. government securities.

Interest
expense was $47.6 million in 2009 compared to $47.7 million for 2008. While there was only a small year-over-year net change, there were
several items which increased and decreased interest expense during the year. Increases to interest expense resulted from (1) an accrual for the increase from 9% to 11% interest rate on the
interest payments made in additional Notes due 2012 issued in May and November 2009, (2) an accrual for the additional accretion related to the principal premium for the additional Notes due
2012 issued in May and November 2009 and (3) a reduction in the

50

---



Table of Contents

amount
of interest expense which was capitalized. Offsetting these increases was a reduction in interest expense resulting from the repurchases of $142.2 million par value of our Notes due 2012
in the open market during the first six months of 2009. As a result of the repurchases of Notes due 2012 and the Exchange Offer and redemption of debt, our annual cash interest payments on
indebtedness were reduced to approximately $6.0 million in 2011 and 2012.

The
repurchases of the Notes due 2012 in 2009 resulted in the recognition of a gain on early extinguishment of debt of $98.2 million. See Note 8, Long-term Debt
for additional information regarding this gain. There was no such extinguishment of debt in 2008.

We
recorded a net income tax benefit of $1.3 million in 2009 and an income tax benefit of $20.2 million in 2008. As a result of the gain on early extinguishment of debt, we
recorded a state income tax provision of $0.2 million in 2009. Also in 2009, we recorded a $1.5 million income tax benefit and a corresponding decrease to the deferred tax liability
resulting from our update to state apportionment percentages. In the fourth quarter of 2008, we recorded a $20.2 million income tax benefit as the result of reducing the deferred income tax
liability associated with the FCC licenses for the tax impact of the $54.5 million impairment charge on the FCC licenses. See Note 12, Income Taxes and Note 6, Impairment of FCC
Licenses for additional information.

Performance Measures

In managing our business and assessing our financial performance, we supplement the information provided by financial statement
measures with several customer-focused performance metrics to assess the growth and evaluate the performance of our operations. In addition
to traditional financial evaluations, including performance against budget, we also consider non-financial measurements, the most important of which are revenue per deployed site, the
number of sites deployed and the number of customer locations billing. The number of sites deployed represents sites from which we could deliver our services in a particular market. Customer locations
billing are carrier locations at which we currently provide revenue-producing services. A deployed site could have multiple customer (carrier) locations.

Revenue
per deployed site is the key operating metric reflecting the capital efficiency of our network as we grow by means of new capital expenditures or by adding additional customers
to the current network. Given the fixed cost nature of our network, revenue per deployed site also indicates our ability to leverage our existing asset base to generate higher-margin incremental
revenue. The number of sites deployed reflects the utilization of new capital expenditures required to expand the network and support our sales growth while the number of customer locations billing is
an indicator of the productivity of the network.

51

---



Table of Contents

The following table shows annual key operating metric information:

Year Ended December 31,2010

2009

2008Billing Customer Locations:Change in billing customer locations


83
(1)

221


2,245Ending billing customer locations


6,400


6,317


6,096Co-location rate


2.17


2.27


2.21Sites Deployed:Change in FiberTower sites


159


(3
)

307Ending sites deployed


3,276


3,117


3,120Average monthly revenue per site(2)

$
1,961

$
1,690

$
1,335


(1)In
February 2011, we received an early termination notice from Clearwire to terminate service at approximately 220 billing locations effective
February 28, 2011, and that they are reviewing approximately 50 additional locations for possible early termination by March 31, 2011. See Note 17, Subsequent Events for
additional information.(2)The
average monthly revenue per deployed site excludes $1.3 million in 2010 and $0.5 million in 2008 recognized from customers' early
termination of certain circuits. Revenue from early termination in 2009 was immaterial.


Average Monthly Revenue per Siteis the average monthly revenue per deployed site.

Billing Customer Locationsare carrier locations at which we currently provide revenue-producing service(s). Our sites could have multiple
customer locations.

Co-location rateis the number of customer locations per billing site. Billing sites are installed sites from which we provide
revenue-producing service(s) to customer(s).

Sites Deployedrepresents installed sites, net of any decommissioned sites, which are ready for the provision of services. Our sites can
be located on cell towers, rooftops, or other points of bandwidth aggregation.

The
following table shows quarterly key operating metric information:

Three Months EndedDec. 31,
2010

Sept. 30,
2010

June 30,
2010

Mar. 31,
2010

Dec. 31,
2009

Sept. 30,
2009

June 30,
2009

Mar. 31,
2009Billing Customer Locations:Change in billing customer locations


162
(1)

(6
)

37


(110
)

(116
)

101


65


171Ending billing customer locations


6,400


6,238


6,244


6,207


6,317


6,433


6,332


6,267Co-location rate


2.17


2.21


2.24


2.24


2.27


2.30


2.27


2.25Sites Deployed:Change in FiberTower sites


106


34


17


2


(1
)




(3
)

1Ending sites deployed


3,276


3,170


3,136


3,119


3,117


3,118


3,118


3,121Average monthly revenue per site(2)

$
2,049

$
2,029

$
1,925

$
1,842

$
1,789

$
1,733

$
1,666

$
1,572


(1)In
February 2011, we received an early termination notice from Clearwire to terminate service at approximately 220 billing locations effective
February 28, 2011, and that they are reviewing


52

---



Table of Contents

approximately
50 additional locations for possible early termination by March 31, 2011. See Note 17, Subsequent Events for additional information. (2)The
average monthly revenue per deployed site excludes $0.3 million in the fourth quarter of 2010, $0.1 million in the third quarter of 2010,
$0.3 million in the second quarter of 2010 and $0.6 million in the first quarter of 2010 recognized from customers' early termination of certain circuits. Revenue from early termination
in 2009 was immaterial.


Liquidity and Capital Resources

Our business does not currently generate sufficient cash flow from operations to fund our short-term or
long-term liquidity needs. As a
result, we have relied primarily on the proceeds from equity and debt financings to fund our operating and investing activities, and we believe that we will be required to raise additional capital in
the near future. Based upon our current plans, we believe that our existing cash and cash equivalents of $21.3 million will be sufficient to cover our estimated liquidity needs for at least the
next twelve months. However, our business is capital intensive, and we believe we will require additional amounts to fund capital expenditures and pay operating expenses in the near future. We may
also require additional capital to finance our current growth plans, take advantage of business opportunities or pursue potential transactions. To raise additional capital, we may be required to issue
additional equity securities in public or private offerings or to seek additional debt financing. We may be unable to secure such additional financing when needed, on acceptable terms or at all, which
could harm our business. In addition, any financing we do obtain could be subject to onerous terms. Any additional debt financing could cause us to incur significant interest expense and increase our
future financial commitments, and any additional equity financing could be dilutive to our stockholders. If we are unable to secure capital when needed, we may be required to change our business plans
and curtail our operations, and our business prospects, financial condition and results of operations would likely be adversely affected.

Our
primary liquidity needs arise from capital requirements necessary to expand our network and fund operating losses. We anticipate that we will continue to invest significantly in
deploying our network over the next several years. The size of our capital requirements will depend on numerous factors, including our ability to grow revenues, control costs, and deploy our network
on a timely basis according to plan and customer requirements. We will require significant cash expenditures related to capital construction costs and operating losses. We anticipate that we will
incur between $10 million and $15 million in capital expenditures during 2011 to expand our network. However, if market conditions or our liquidity position warrant, we expect to 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 on the extent of our network deployment. As our business is in its early stages, we regularly
evaluate our plans and strategy, and these evaluations often result in changes, some of which may be material and significantly modify our cash requirements.

We
have built flexibility into our spending by reducing recurring general and administrative expenses and in prior periods, by reducing capital expenditures and sales and marketing
expenses. In response to recent significant customer cancellations, we have implemented cost savings measures and have reduced our expected 2011 capital expenditures. However, our ability to pay our
expenses and make payments due on our Notes due 2016 and Notes due 2012 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 on or repay indebtedness or to
fund other

53

---



Table of Contents

liquidity
needs. Continued uncertainty about the overall weakness in the U.S. economy may inhibit our ability to grow at the level needed to fully service our Notes due 2016 and Notes due 2012.

We
elected to pay the May 2009, November 2009, May 2010 and November 2010 interest payments on the Notes due 2012 entirely by the issuance of additional Notes due 2012, as permitted
under the related indenture. This resulted in the issuance of an additional $33.5 million in 2009 and $3.1 million in 2010 in principal amount of Notes due 2012. The interest rate
applicable to any such interest payments made in additional Notes due 2012 is 11%. Interest payments after November 2010 are payable only in cash.

As
described at Note 8, Long-term Debt, during the fourth quarter of 2009 we offered to exchange our existing Notes due 2012 for Interim Notes, which were later
redeemed for shares of our common stock, cash and Notes due 2016. The purpose of the Exchange Offer and redemption of debt was to reduce our outstanding debt and cash interest requirements and extend
the maturity of our outstanding debt. As a result of the Exchange Offer and redemption of debt, the total carrying value of our outstanding debt was reduced by $171.7 million, the maturity of a
substantial portion of our debt was extended from 2012 to 2016 and our annual cash interest payments were reduced by more than $20.0 million to approximately $1.8 million in 2010 and
$6.0 million in each of 2011 and in 2012.

In
the first and second quarters of 2009, we repurchased a total of $142.2 million par value of our Notes due 2012 in the open market. These repurchases, at a weighted average
price of approximately $37 per $100 of par value, were for a total of $52.2 million in cash plus accrued but unpaid interest. These repurchases, together with the exchange of the Notes due 2012
as described above, reduced the carrying value of the outstanding Notes due 2012 to $30.1 million at December 31, 2009. In 2010, we issued $3.1 million aggregate principal amount
of additional Notes due 2012 in lieu of cash for the May and November 2010 interest payments as described above. The carrying value of the Notes due 2012 at December 31, 2010 was
$34.7 million. See Note 8, Long-term Debt for additional information on the Notes due 2012 including their guarantees and conversion features.

Under
the terms of our Notes due 2016, if certain specified events occur prior to maturity, holders may require us to repurchase all or part of the Notes due 2016 for cash at a
repurchase price equal to 101% of their aggregate accreted principal amount, plus accrued and unpaid interest. We may not have sufficient funds at such time to repurchase any or all of the Notes due
2016.

The
Notes due 2016 bear interest at 9% accruing from December 22, 2009, payable semi-annually. On each interest payment date, one-third of the interest is
payable in cash and two-thirds of the interest is payable in additional Notes due 2016 in a principal amount equal to such portion of the interest amount. When we issued the Notes due
2016, we placed into escrow approximately $11.0 million, which, together with the earnings thereon, was an amount sufficient to pay the cash portion of the first six interest payments. On
July 1, 2010, we paid the $1.8 million cash portion of the first interest payment and we issued $3.6 million aggregate principal amount of additional Notes due 2016 for the
payment-in-kind portion of interest as described above. The carrying value of the Notes due 2016 at December 31, 2010 was $130.1 million and at
December 31, 2009 was $124.4 million.

We
may not be able to generate cash flow from operations sufficient to meet our liquidity needs in the future, which would require us to continue to raise funds through external sources.
We plan to obtain financing through the issuance of additional equity or debt securities, or both. There can be no assurance that this additional financing will be available on terms acceptable to us
or at all. If we do not have sufficient funds to meet our liquidity needs, we may need to reduce our operations or delay our expansion. In addition, we may be required to sell assets, issue additional
equity securities or incur additional debt, or we may need to refinance or restructure all or a portion of our indebtedness at or before maturity. We may not be able to accomplish any of these
alternatives on terms acceptable to us, or at all. In addition, the terms of our debt agreements may restrict us from adopting some of these alternatives.

54

---



Table of Contents

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 operating and net losses
and negative cash flows since our inception, and we expect that we will continue to incur operating and net losses and negative cash flows for the next few years as we continue to expand our network.
We hope that by reducing our cash interest payments and extending the maturity of our debt, as described above, that we will be able to increase our financial and operational flexibility to grow our
cash flow from operating activities to a level sufficient to service our debt.

Cash Flow Analysis

Our principal liquidity requirements are for working capital purposes and the expansion of our network through our investment in
network equipment and site acquisition and construction costs.

Operating Activities

In 2010, net cash provided by operating activities was $1.1 million compared to net cash used for operating activities of
$18.5 million in 2009. After adjusting for our net loss of $49.4 million and non-cash charges of $47.8 million as shown below, our cash flows from operations in 2010
were principally from (1) an increase in accounts payable of $4.9 million at December 31, 2010 in connection with our increased purchases of property and equipment that were paid
in January 2011, partially offset by (2) an increase in accounts receivable of $3.6 million as a result of increased revenue and an increase in our days sales outstanding to
approximately 47 for the quarter ended December 31, 2010 from approximately 38 days for the same period of 2009.

In
2009, net cash used for operating activities was $18.5 million compared to $75.0 million in 2008. After adjusting for our net loss of $2.1 million and net
non-cash credits of $11.0 million as shown below, our cash flows from operations in 2009 were principally from a reduction of accrued interest payable of $4.2 million. Our
days sales outstanding were approximately 38 for the quarter ended December 31, 2009 compared to approximately 43 days for the same period of 2008.

In
2008, net cash used for operating activities was $75.0 million. After adjusting for our net loss of $249.8 million and net non-cash charges of
$191.5 million as shown below, our cash flows from operations in 2008 were principally from (1) a reduction of accounts payable of $9.8 million due to payment of vendors and
(2) an increase of $3.0 million in accounts receivable. Our days sales outstanding were approximately 43 days for the quarter ended December 31, 2008, consistent with the
same period of the prior year.

55

---



Table of Contents

The
following table shows non-cash charges (credits) included in net cash provided by (used for) operating activities (in thousands):

Year Ended December 31,2010

2009

2008Non-cash charges (credits):Depreciation and amortization

$
28,501

$
27,840

$
24,897Impairment of long-lived assets and other charges


3,180


270


16,439Restructuring charges


241


372


4,046Impairment of FCC licenses








54,505Impairment of goodwill








86,093Gain on early extinguishment of debt, net





(98,248
)

Increase in carrying value of long-term debt


10,299


49,101


14,539Amortization of debt issuance costs


148


1,365


2,256Stock-based compensation


4,267


8,016


6,274Deferred income tax benefit





(1,468
)

(19,077
)Other


1,173


1,786


1,543Total non-cash charges (credits)

$
47,809

$
(10,966
)
$
191,515


Investing Activities

Net cash used for investing activities consisted primarily of our investment in network equipment and site construction costs as well
as the back-office systems to support the network. As of December 31, 2010, we provided services to 3,276 deployed sites in 13 markets throughout the U.S.

Net
cash provided by (used for) investing activities were as follows (in thousands):

Period ended

AmountYear ended December 31:2010

$
(30,468
)2009


(20,255
)2008


5,624


There
were capital additions of $32.1 million in 2010, $12.8 million in 2009 (of which $4.2 million was acquired under a capital lease) and $36.8 million in
2008. In 2009, we made a $0.5 million deposit under the capital lease. In 2010, we added 159 new deployed sites. In 2009 our new sites deployed were flat as compared to 2008 and in 2008 we
added 307 new deployed sites. Additional capital expenditures were made in 2010 in order to upgrade capacity and overlay Ethernet capability at existing sites. In addition, we incurred capital
expenditures to support site builds beyond 2010. We anticipate that we will incur between $10 million and $15 million in capital expenditures during 2011 to expand our network. However,
if market conditions or our liquidity position warrant, we expect to be able to slow the amount of capital expenditures to a level consistent with the business needs at that time.

When
we issued the Notes due 2016 in December 2009, we placed into escrow approximately $11.0 million invested in cash and bonds issued by U.S. government agencies, which,
together with the earnings thereon, was an amount sufficient to pay the cash portion of the first six interest payments. The $1.8 million cash portion of the first interest payment was paid on
July 1, 2010.

During
2008, our restricted cash and investments were reduced by $36.5 million, reflecting our semi-annual interest payments in May and November 2008 on the Notes due
2012. Also during 2008, $1.1 million of restricted cash related to a supplier service agreement, was released. During 2008, there were $5.0 million in maturities of certificates of
deposit used in current operations.

56

---



Table of Contents

Financing Activities

In the first six months of 2009, we repurchased $142.2 million par value of our Notes due 2012 in the open market. These
repurchases, at a weighted average price of approximately $37 per $100 of par value, were for $52.2 million in cash plus accrued but unpaid interest of $2.0 million. See Note 8,
Long-term Debt for additional information regarding our indebtedness.

In
the fourth quarter of 2009, we paid approximately $12.7 million upon the redemption of the Interim Notes. See Note 1, Organization and Business for further information
on the Exchange Offer and redemption of Interim Notes.

There
was a negligible amount of cash provided by the exercise of stock options in 2010. No cash was provided by the exercise of stock options in 2009. There was $0.4 million cash
provided by the exercise of stock options in 2008.

Restricted Cash and Investments

We had total restricted cash and investments of $10.0 million at December 31, 2010 and $11.6 million at
December 31, 2009. The balance at December 31, 2010 consisted of (1) approximately $9.3 million invested in cash and bonds issued by U.S. government agencies, which,
together with the earnings thereon, is an amount sufficient to pay the cash portion of the next five interest payments for the Notes due 2016 and (2) $0.7 million of certificates of
deposit which collateralize letters of credit, the final expiration date of which is in 2015. Restricted cash and investments at December 31, 2009 consisted of (1) $11.0 million
invested in cash and bonds issued by U.S. government agencies, which, together with the earnings thereon, was an amount sufficient to pay the cash portion of the first six interest payments for the
Notes due 2016 and (2) $0.6 million of certificates of deposit which collateralized letters of credit. The $1.8 million cash portion of the first interest payment for the Notes
due 2016 was paid from restricted cash on July 1, 2010.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and other commercial commitments as of December 31, 2010 (in
thousands):

Payments Due by PeriodTotal

Fiscal 2011

Fiscal
2012 - 2013

Fiscal
2014 - 2015

Beyond
Fiscal 2015Contractual Obligations:Operating lease obligations

$
170,507

$
36,724

$
60,218

$
51,491

$
22,074Capital lease obligations


5,199


270


3,286


1,643


Asset retirement obligations


5,281











5,281Notes due 2016


184,566
(1)

3,565


7,795


8,773


164,433Notes due 2012


43,106
(2)

2,705


40,401





Other Commercial Commitments:Letters of credit


740


399





41


300Total

$
409,399

$
43,663

$
111,700

$
61,948

$
192,088


(1)These
amounts represent total anticipated cash payments, including expected interest payments that are not recorded on the consolidated balance sheets.
Interest is payable semi-annually in


57

---



Table of Contents

January
and July, one-third in cash and two-thirds by issuing additional Notes due 2016. When we issued the Notes due 2016 on December 22, 2009, we placed into escrow
approximately $11.0 million, which, together with the earnings thereon, was an amount sufficient to pay the cash portion on the first six interest payments. (2)These
amounts represent total anticipated cash payments, including expected interest payments that are not recorded on the consolidated balance sheets.


Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with Generally Accepted Accounting Principles. For additional information regarding our critical accounting policies and estimates, see Note 2, Basis of
Presentation and Accounting Policies. The application of these policies requires us to make estimates and assumptions that affect the amounts reported in the financial statements and notes. We base
our accounting estimates on historical experience and other factors which we believe to be reasonable under the circumstances. However, actual results may differ materially from those estimates.
Management has discussed the development and selection of critical accounting policies and estimates with our Audit Committee.

We
believe that the following critical accounting policies represent the more significant judgments and estimates made in the preparation of our consolidated financial statements.

Revenue and Expense RecognitionWe recognize revenues when: (1) persuasive evidence of an arrangement exists, (2) the services have been
provided to the customer, (3) the sales price is fixed or determinable and (4) the collection of the sales price is reasonably assured. Non-refundable upfront fees billed in
advance of providing services, are deferred and recognized as revenues ratably over the period that substantive services are provided, which is the length of the customer contract. Most of our
customer contracts are within their initial term so we do not have sufficient history with our customers to reasonably estimate the lives of our customer relationship beyond the initial term.

Revenue
from customers' early termination of their contract is recognized when payment is received.

Incremental
direct costs of service activation are charged to expense as incurred. We purchase electricity and lease co-location site space from certain of our customers. We
receive an identifiable benefit in exchange for the amounts paid to our customers and we can reasonably estimate the fair value of the purchased electricity and leased tower site space. Therefore, we
record the fair value of the consideration paid as a cost of service revenues as incurred and any excess of consideration paid over the fair value, such as customer incentives, as a reduction of
service revenues.

Useful Life Assignments and Impairment Evaluations Associated with Long-Lived Assets, including Intangible AssetsProperty and equipment
are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives ranging from
three to ten years. Our indefeasible right of use of fiber is depreciated over its estimated useful life of 20 years. Depreciation begins when the assets are placed in service. Leasehold
improvements are amortized over the shorter of the lease term or their estimated useful lives. The economic lives are estimated at the time assets are placed in service and are based on historical
experience and anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to
these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods.

58

---





Table of Contents

Property and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An
impairment loss is recognized whenever (1) the estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if
any, are less than the carrying value of the asset and (2) the fair value of the asset is less than its carrying value. When an impairment loss is identified, the carrying value of the asset is
reduced to its fair value. These assessments require us to make assumptions regarding future cash flows, discount rates, and other factors resulting in estimates of fair value to determine the amount
of any impairment. Such impairment losses were identified in 2010, 2009 and 2008. See Note 5, Impairment of Long-Lived Assets and Other Charges for additional information.

Assessment of FCC Licenses and Goodwill for ImpairmentAs described more fully below, we evaluate our intangible assets with indefinite lives for
impairment annually, and between annual evaluations if events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. In cases where required, an
impairment provision is recognized in an amount by which the carrying value exceeds the estimated fair value of such assets. Such impairment losses were identified in 2008 related to the carrying
value of our FCC licenses. See Note 6, Impairment of FCC Licenses for additional information. Such impairment losses were identified in 2008 related to the carrying value of our goodwill. See
Note 7, Impairment of Goodwill for additional information.

FCC licensesWe operate fixed wireless broadband networks using licenses granted by the FCC for a particular geographic area on spectrum allocated by
the FCC for fixed wireless broadband services. Our licenses are integral to our business. Recoverability of the carrying value of our FCC licenses is dependent on numerous factors, including
successful deployment of networks and radio links or sales of such assets to a third party. Although our licenses in the 24 GHz and 39 GHz bands are issued with a stated term of ten years, the renewal
of these licenses is generally a routine matter without substantial cost and we have determined that no legal, regulatory, contractual, competitive, economic, or other factors currently exist that
limit the useful life of our FCC licenses. We consider the FCC licenses to have an indefinite useful life.

Under
FCC rules, wide-area licenses in the 24 GHz and 39 GHz bands are renewed if the licensee files a renewal application at license expiration wherein the licensee
demonstrates its engagement in supplying services or related activities to satisfy the FCC's "substantial service" criteria. We will continue to lease spectrum, utilizing this non-capital
intensive method to put more of our FCC licenses to work. We may also introduce new product offerings utilizing our spectrum. Under our current business plan, we believe that we will meet the FCC's
substantial service requirements necessary for renewal at the appropriate deadlines and we will continue to engage the FCC on this subject. If at any time we determine that we will most likely not
meet these requirements, we will first test the FCC licenses for impairment and then we will modify the life of the particular FCC licenses and begin amortizing the cost over the remaining license
period. See Note 15, Guarantees and Other Contingencies for additional information on the FCC license renewal requirements and discussion of license renewals and extensions which we received.

We
test our FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value of our indefinite-lived intangible assets might
be impaired. We perform our annual impairment test as of each November 1. The impairment test consists of a comparison of the estimated fair value with the carrying value.

We
use a direct method of valuation for our indefinite-lived intangible assets. Specifically, we use an income-based approach, the Greenfield Methodology (a form of discounted cash flow
model), using a hypothetical start-up operation. This methodology is based on the cash flow generation potential of a hypothetical start-up operation and assumes that the only
assets upon formation are the underlying FCC licenses, and that the business enterprise does not have any other assets including goodwill or

59

---



Table of Contents

going
concern value at the date of inception. The start-up assumptions include the highest and best utilization of the asset and incorporate marketplace participant assumptions for key
factors such as unit prices, service type, market density and operating expenses.

Cash
flow projections and assumptions, although subject to a degree of uncertainty, are based on a combination of our historical performance and trends, our business plans and
management's estimates of future performance, giving consideration to existing and anticipated competitive and economic conditions. Our key operating assumptions include unit prices, service type,
market size, operating expenses, income taxes, capital expenditures and working capital requirements. We believe that our estimates are consistent with assumptions that marketplace participants would
use to estimate fair value. Any impairment loss would be recorded as a reduction in the carrying value of the FCC licenses and charged to results of operations. If actual results are not consistent
with our assumptions and estimates, we may be required to record an impairment charge associated with indefinite-lived intangible assets. Although we currently do not expect our estimates or
assumptions to change significantly in the future, the use of different estimates or assumptions within our discounted cash flow model when determining the fair value of our FCC licenses or using a
methodology other than a discounted cash flow model could result in different values for our FCC licenses and may affect conclusions about impairment.

The
most significant assumptions within our discounted cash flow model are the discount rate, our projected growth rate, costs to build and operate the network and management's future
business plans. During our FCC license impairment test, we considered our facts and circumstances, the marketplace in which we compete as well as activity in the broader macroeconomic environment.
These considerations led us to increase the amount of initial bandwidth sold per customer to reflect the growing trend in our industry of greater backhaul needs to support next generation wireless
networks. This had the impact of providing us lower revenue in the early years of the plan, but increased revenue in the later years to reflect carriers buying at lower marginal prices in the future
but utilizing greater capacity. Additionally, we raised our discount rate which was derived by analyzing the change in risk premiums in the wireless communications industry affecting a marketplace
participant's cost of debt and cost of equity. A one half of one percent (0.5%) increase in discount rate would result in a decrease of approximately 11% percent in the estimated fair value of the FCC
licenses which would cause an impairment.

Changes
in management's future business plans or disposition of one or more FCC licenses could result in the requirement to test the FCC licenses for impairment. If any legal,
regulatory, contractual, competitive, economic or other factors were to limit the useful lives of our indefinite-lived FCC licenses, we would be required to test these intangible assets for
impairment.

For
the FCC license impairment test performed as of November 1, 2008, we determined that the fair value of the FCC licenses was less than its carrying value. Consequently, the
carrying value of our FCC licenses was reduced by $54.5 million to $287.5 million at December 31, 2008. For the FCC license impairment tests performed as of November 1,
2010 and 2009, we determined that the fair value of our FCC licenses was greater than its carrying value. Future impairment evaluations of our FCC licenses could lead to additional material impairment
charges. See Note 6, Impairment of FCC Licenses for additional information.

GoodwillGoodwill is recorded when the price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible
assets acquired. Goodwill is not
amortized but is reviewed for impairment annually or more frequently if impairment indicators arise. In the first quarter of 2008, we identified an indicator of impairment and thereby tested the fair
value of our goodwill. This testing resulted in an impairment charge of $86.1 million in 2008 against the recorded goodwill, reducing the fair value of goodwill to zero. See Note 7,
Impairment of Goodwill for additional information.

60

---



Table of Contents

We
estimated the fair value of the reporting unit using both observed market equity values based on our publicly-traded stock price and the income approach, which requires estimates of
future operating results and cash flows discounted using an appropriate discount rate.

Asset Retirement ObligationsWe recognize liabilities for asset retirement obligations relating to the estimated costs of removing network equipment
from our leased co-location sites, as stipulated in the related lease agreements. The asset retirement obligations are recognized in the period in which they are incurred if a reasonable
estimate of the fair value of the estimated costs to retire the asset can be made. Estimated liabilities are increased over time to reflect changes in present value. The associated asset retirement
costs are capitalized as part of the carrying amount of the related long-lived assets and depreciated on a straight-line basis over their estimated useful life of ten years. We
calculate the net present value of the retirement obligation assuming a credit-adjusted, risk-free interest rate of 12%. We also assume the settlement date for removing the network
equipment from our leased co-location sites to be ten years from the date the asset is placed into service, which is the expected term of the related leases. We monitor the estimates and
assumptions used in determining our asset retirement obligations and adjust them accordingly if deemed necessary.

Income TaxesIncome taxes are accounted for under an asset and liability approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. In estimating future tax consequences, we generally take into
account all expected future events then known to us, other than changes in the tax law or rates, which are not permitted to be considered. We record a valuation allowance to reduce net deferred tax
assets to the amount that is more likely than not to be realized. The amount of valuation allowance is based on our best estimate of the recoverability of the net deferred tax assets. While future
taxable income and ongoing prudent and feasible tax planning are considered in determining the amount of the valuation allowance, the necessity for, and amount of, the allowance is subject to
adjustment in the future. Specifically, in the event we were to determine that we would not be able to realize the net deferred tax assets in the future in excess of their net recorded amounts, an
adjustment to the net deferred tax assets would decrease income in the period such determination was made. The valuation allowance does not alter
our ability to utilize the underlying tax net operating loss carryforwards in the future, the utilization of which is limited to achieving future taxable income. At December 31, 2010, we have a
full valuation allowance against our net deferred tax assets.

We
will recognize the tax benefit of a tax position that we take or expect to take in a tax return, when it is more likely than not, based on the technical merits, that the position will
be sustained upon examination. For these positions, we will recognize an amount of tax benefit that has greater than a 50 percent likelihood of being realized upon ultimate settlement with the
tax authority. Tax benefits for tax positions that more likely than not will not be sustained upon examination will be recognized generally when the tax position is resolved through examination or
upon the expiration of the statute of limitations. We record interest or penalties related to income taxes as a component of income tax expense in our financial statements.

LeasesMost of our operating lease arrangements represent agreements made with landlords for space leased at our co-location sites. The
term of these agreements is typically for five years and we have the unilateral ability and intent to extend the term of these site lease agreements such that the minimum lease periods equal or
slightly exceed the estimated ten-year useful lives of the network equipment located at such leased sites. We do not believe there are any explicit or implicit penalties for failure to
renew any site leases at the end of the respective assumed lease terms of approximately ten years that would extend the lease term past the assumed lease terms. When lease arrangements have uneven
payment schedules, we account for the lease expense on a straight-line basis over the lease term.

61

---



Table of Contents

Stock-Based CompensationWe record stock-based compensation expense only for those awards for which the requisite service period is expected to be
rendered. The cumulative effect of a change in the estimated number of awards for which the requisite service is expected to be or has been rendered is recognized in the period of the change in the
estimate. For restricted stock awards with market-related vesting conditions, to the extent that the requisite service period is rendered, stock-based compensation expense is not reversed; rather, it
is recognized regardless of whether or not the market-related vesting condition is achieved.

Following
are the valuation techniques and the related assumptions and estimates used in the calculation of stock-based compensation expense with respect to (1) restricted stock
awards with market-related vesting conditions, (2) restricted stock awards with time-based vesting and (3) stock option awards.

Valuation.We estimate the fair value of restricted stock awards with market-related vesting conditions using a Monte Carlo simulation
with a
three-year period which is equivalent to the contractual term of the award. Our determination of the fair value of restricted stock awards with market-related vesting conditions on the
date of grant is affected by our stock price as well as inputs of subjective assumptions and variables. We determine the grant date fair value of each time-based vesting restricted stock
award based on our stock price at the date of the award. We use the Black-Scholes-Merton option pricing model to determine the estimated fair value of stock options on the date of grant. The
determination of the estimated fair value is affected by our stock price as well as inputs of subjective assumptions and variables. Changes in assumptions could result in materially different
stock-based compensation expense which could materially affect our operating expenses, net income (loss) and net income (loss) per share.

Amortization method.We recognize stock-based compensation expense on a straight-line basis over the requisite service period of the
award which is generally three or four years.

Expected volatility.We estimate the volatility of our stock at the date of grant based on the historical volatilities of similar
public companies
consisting of competitive telecommunications providers that share a common capital intensive network build plan, are free cash flow negative, highly levered and are in an earlier
life-cycle stage. For stock option awards granted in 2009 (before the Exchange Offer and Mandatory Redemption), we estimated our expected stock price volatility based on the historical
volatility of our stock price.

Expected term of stock option.We do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate
the expected
term of the option. Therefore, as permitted by the SEC, we estimate the expected term of the option as the midpoint between the vesting date and the end of the contractual term of the option.

Risk-free interest rate.We base the risk-free interest rate on the implied yield currently available on U.S. Treasury issues
with an equivalent remaining term equal to the expected life of the award.

Forfeitures.We use historical data and management judgment to estimate the pre-vesting award forfeitures to estimate the number of
shares for which the requisite service period will not be rendered.

Dividend yield.We have not and do not anticipate paying any cash dividends on our common stock in the foreseeable future; therefore a
0% dividend
yield was assumed.

If
we use different assumptions for estimated stock-based compensation expense in future periods or if actual forfeitures differ materially from our estimated forfeitures, the change in
our stock-based compensation expense could materially affect our operating expenses, net income (loss) and net income (loss) per share.

62

---



Table of Contents

See
Note 11, Stockholders' Equity and Stock-Based Compensation for additional information regarding restricted stock and stock option award disclosures.

Recent Accounting PronouncementsThere have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended
December 31, 2010 that are of significance, or potential significance, to us.

Related Party Transactions

See Note 14, Related Party Transactions for a description of transactions with a stockholder that has two of its affiliates who
serve on our Board of Directors.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

At December 31, 2010, we had unrestricted cash and cash equivalents of $21.3 million. We believe we have limited exposure
to financial market risk, including changes in interest rates because our portfolio is invested in bank deposits and money market mutual funds which invest in U.S. government securities and have a
maturity of less than three months. We believe the fair value of the portfolio or related income will not be significantly impacted by changes in interest rates due mainly to the
short-term nature of the portfolio, although future interest income would be impacted by changes in interest rates as well as the amount of funds available to be invested in such
securities.

We
are adverse to principal loss and intend to ensure the safety and preservation of our invested funds by limiting default and market risk. We intend to continue to invest our cash and
cash equivalents in high quality money market funds which invest in securities with original maturities of less than three months.

Our
Notes due 2016, with a maturity of January 2016, bear a fixed coupon rate of 9.00%. Our Notes due 2012, with a maturity of November 2012, bear a fixed coupon rate of 9.00% and a
total interest yield of 12% per annum. The fair value of the Notes due 2016 and Notes due 2012 is dependent upon a number of factors including future interest rates and the market value of our common
stock. These notes are traded in a very thinly traded resale market. We do not hedge our debt obligations or engage in any derivative investments to offset the impact of future changes in the market
value of the notes. Future increases in interest rates would decrease the fair value of the notes while decreases in rates would likely have the opposite effect. At December 31, 2010, the
estimated fair value of our Notes due 2016 was approximately $104.2 million and their carrying value was $130.1 million. At December 31, 2010, the estimated fair value of our
Notes due 2012 was approximately $34.1 million and their carrying value was $34.7 million. At December 31, 2010, the estimate of fair value for the Notes due 2016 and Notes due
2012 was determined based on bids from market makers.

We
have not held derivative financial or commodity instruments in the past and have no current plans to do so in the future. We have not conducted business in foreign currencies in the
past and have no current plans to do so in the future.

63

---





Table of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements



PageReport of Independent Registered Public Accounting Firm


65Consolidated Financial Statements as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31,
2010:Consolidated Balance Sheets


66Consolidated Statements of Operations


67Consolidated Statements of Stockholders' Equity


68Consolidated Statements of Cash Flows


69Notes to Consolidated Financial Statements


70


64

---





Table of Contents

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
FiberTower Corporation

We
have audited the accompanying consolidated balance sheets of FiberTower Corporation as of December 31, 2010 and 2009, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FiberTower Corporation at December 31,
2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted
accounting principles.

As
discussed in Note 13 to the consolidated financial statements, the Company retrospectively changed its method of calculating net loss per share.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FiberTower Corporation's internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 11, 2011 expressed an unqualified opinion thereon.



San
Francisco, California
March 11, 2011

65

---





Table of Contents

FIBERTOWER CORPORATION        Consolidated Balance Sheets        (In thousands, except par value)

December 31,
2010

December 31,
2009Assets:Current assets:Cash and cash equivalents

$
21,314

$
50,669Restricted cash and investments, current portion


5,923


3,898Accounts receivable, net of allowances of $43 and $50 at December 31, 2010 and 2009, respectively


10,446


6,824Prepaid expenses and other current assets


2,001


2,119Total current assets


39,684


63,510Restricted cash and investments, net of current portion


4,067


7,702Property and equipment, net


222,214


221,417FCC licenses


287,495


287,495Intangible and other long-term assets, net


5,010


4,302Total assets

$
558,470

$
584,426Liabilities and Stockholders' Equity:Current liabilities:Accounts payable

$
8,146

$
3,209Accrued compensation and related benefits


2,324


1,769Accrued interest payable


2,092


465Other accrued liabilities


2,118


1,138Current portion of accrued restructuring costs


1,230


1,215Current portion of obligation under capital lease


225


253Total current liabilities


16,135


8,049Other liabilities


1,138


809Deferred rent


7,613


7,206Asset retirement obligations


5,281


4,550Accrued restructuring costs, net of current portion


539


1,560Obligation under capital lease, net of current portion


3,687


3,471Long-term debt


164,827


154,528Deferred tax liability


71,904


71,904Total liabilities


271,124


252,077Commitments and contingenciesStockholders' equity:Common stock, $0.001 par value; 400,000 shares authorized, 49,985 and 45,701 shares issued and outstanding at December 31, 2010 and 2009,
respectively


50


46Additional paid-in capital


963,192


958,817Accumulated deficit


(675,896
)

(626,514
)Total stockholders' equity


287,346


332,349Total liabilities and stockholders' equity

$
558,470

$
584,426


See
accompanying notes.

66

---





Table of Contents

FIBERTOWER CORPORATION        Consolidated Statements of Operations        (In thousands, except per share data)

Year Ended December 31,2010

2009

2008Service revenues

$
76,118

$
63,244

$
49,227Operating expenses:Cost of service revenues (excluding depreciation and amortization)


61,212


58,220


79,808Sales and marketing


4,329


3,262


5,456General and administrative


17,866


27,834


20,237Depreciation and amortization


28,501


27,840


24,897Restructuring charges


241


372


6,087Impairment of FCC licenses








54,505Impairment of goodwill








86,093Total operating expenses


112,149


117,528


277,083Loss from operations


(36,031
)

(54,284
)

(227,856
)Other income (expense):Interest income


99


295


5,316Interest expense


(13,502
)

(47,605
)

(47,742
)Gain on early extinguishment of debt, net





98,248


Miscellaneous income (expense), net


295


(39
)

264Total other income (expense), net


(13,108
)

50,899


(42,162
)Loss before income taxes


(49,139
)

(3,385
)

(270,018
)Income tax (provision) benefit


(243
)

1,247


20,189Net loss

$
(49,382
)
$
(2,138
)
$
(249,829
)Basic and diluted net loss per share attributable to common stockholders

$
(1.05
)
$
(0.13
)
$
(16.65
)Shares used in computing basic and diluted net loss per share


45,660


15,481


14,462


See
accompanying notes.

67

---





Table of Contents

FIBERTOWER CORPORATION        Consolidated Statements of Stockholders' Equity        (In thousands)

Common StockAdditional
Paid-in
Capital

Accumulated
Deficit

Total
Stockholders'
EquityShares

AmountBalance at December 31, 2007


14,624

$
14

$
787,503

$
(374,547
)
$
412,970Issuance of stock upon exercise of stock options


58





360





360Awards of restricted shares of stock, net of cancellations


370


1


(1
)




Employee stock-based compensation expense








6,369





6,369Net loss











(249,829
)

(249,829
)Balance at December 31, 2008


15,052


15


794,231


(624,376
)

169,870Issuance of stock upon redemption of Interim Notes


30,579


31


156,531





156,562Awards of restricted shares of stock, net of cancellations


72











Repurchases of stock


(2
)










Employee stock-based compensation expense








8,055





8,055Net loss











(2,138
)

(2,138
)Balance at December 31, 2009


45,701


46


958,817


(626,514
)

332,349Issuance of stock upon exercise of stock options


9





12





12Awards of restricted shares of stock, net of cancellations


4,275


4


(4
)




Employee stock-based compensation expense








4,367





4,367Net loss











(49,382
)

(49,382
)Balance at December 31, 2010


49,985

$
50

$
963,192

$
(675,896
)
$
287,346


See
accompanying notes.

68

---





Table of Contents

FIBERTOWER CORPORATION        Consolidated Statements of Cash Flows        (In thousands)

Year Ended December 31,2010

2009

2008Operating activitiesNet loss

$
(49,382
)
$
(2,138
)
$
(249,829
)Adjustments to reconcile net loss to net cash used for operating activities:Depreciation and amortization


28,501


27,840


24,897Impairment of long-lived assets and other charges


3,180


270


16,439Restructuring charges


241


372


4,046Impairment of FCC licenses








54,505Impairment of goodwill








86,093Gain on early extinguishment of debt, net





(98,248
)

Increase in carrying value of long-term debt


10,299


49,101


14,539Amortization of debt issuance costs


148


1,365


2,256Stock-based compensation


4,267


8,016


6,274Deferred income tax benefit





(1,468
)

(19,077
)Other


1,173


1,786


1,543Net changes in operating assets and liabilities:Accounts receivable, net


(3,622
)

(172
)

(2,968
)Prepaid expenses and other current assets


118


383


(662
)Other long-term assets


(1,155
)

(333
)

(127
)Accounts payable


4,937


(617
)

(9,846
)Accrued compensation and related benefits


555


(283
)

(1,317
)Accrued interest payable


1,627


(4,163
)

(1
)Other accrued liabilities


214


(251
)

(1,722
)Net cash provided by (used for) operating activities


1,101


(18,540
)

(74,957
)Investing activitiesMaturities of certificates of deposit








5,000Maturities of restricted cash and investments








37,419(Increase) decrease in restricted cash and investments


1,610


(11,123
)

Deposit under capital lease obligation





(500
)

Purchase of property and equipment


(32,078
)

(8,632
)

(36,795
)Net cash provided by (used for) investing activities


(30,468
)

(20,255
)

5,624Financing activitiesCash paid for repurchases of Notes due 2012





(52,180
)

Cash paid upon redemption of Interim Notes





(12,713
)

Proceeds from exercise of stock options


12





360Cash provided by (used for) financing activities


12


(64,893
)

360Net decrease in cash and cash equivalents


(29,355
)

(103,688
)

(68,973
)Cash and cash equivalents at beginning of year


50,669


154,357


223,330Cash and cash equivalents at end of year

$
21,314

$
50,669

$
154,357Supplemental DisclosuresCash paid for interest on Notes due 2016

$
1,788

$


$
Cash paid for interest on Notes due 2012

$


$


$
36,241Cash paid for interest on Notes due 2012 repurchased

$


$
1,970

$
Non-cash financing activities:Acquisition of property and equipment by capital lease

$


$
3,724

$
Exchange Offer and redemption of debt:Common stock issued to holders of Interim Notes

$


$
156,562

$
Debt issuance costs written off

$


$
4,616

$
Accrued interest payable on Interim Notes

$


$
(2,468
)
$



See accompanying notes.

69

---





Table of Contents

FIBERTOWER CORPORATION        Notes to Consolidated Financial Statements

Note 1Organization and Business

Organization and operationsFiberTower Corporation (referred to as FiberTower in these financial statements) was incorporated in 1993 in the State of
Delaware to build and operate a shared high-coverage, high-capacity backhaul network for wireless operators and service providers in the United States.

We
are a leading alternative provider of facilities-based backhaul services to wireless carriers. Facilities-based providers own or lease a substantial portion of the property and
equipment necessary to provide backhaul services. 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 wireline telecommunications network. We provide backhaul services nationally by utilizing our wireless spectrum assets and fiber
relationships to construct and operate high-coverage, high-capacity hybrid microwave and fiber networks. Our services provide wireless carriers a long-term solution
for their increasing demand for backhaul capacity while giving them increased availability and reliability.

We
have incurred operating and net losses and negative cash flows since our inception, and we had an accumulated deficit of $675.9 million at December 31, 2010. Our
business does not currently generate sufficient cash flow from operations to fund our short-term or long-term liquidity needs. As a result, we have relied primarily on the
proceeds from equity and debt financings to fund our operating and investing activities, and we believe that we will be required to raise
additional capital in the near future. Failure to generate sufficient revenue or obtain additional capital could have a material adverse effect on our results of operations, financial condition and
cash flows.

The
recoverability of assets is highly dependent on the ability of management to execute its business plan which is subject to a number of risks including, but not limited to, dependence
on key employees, dependence on key customers and suppliers, potential competition from larger, more established companies, the ability to develop and bring new services or products to market
(including expansion of our network), the ability to attract and retain additional qualified personnel and the ability to obtain adequate financing to support our planned growth.

Based
upon our current plans, we believe that our existing cash and cash equivalents of $21.3 million will be sufficient to cover our estimated liquidity needs for at least the
next twelve months. However, our business is capital intensive, and we believe we will require additional amounts to fund capital expenditures and pay operating expenses in the near future. We
anticipate that we will incur between $10 million and $15 million in capital expenditures during 2011 to expand our network. We may also require additional capital to finance our current
growth plans, take advantage of business opportunities or pursue potential transactions. To raise additional capital, we may be required to issue additional equity securities in public or private
offerings or to seek additional debt financing. We may be unable to secure such additional financing when needed, on acceptable terms or at all, which could harm our business. In addition, any
financing we do obtain could be subject to onerous terms. Any additional debt financing could cause us to incur significant interest expense and increase our future financial commitments, and any
additional equity financing could be dilutive to our stockholders. If we are unable to secure capital when needed, we may be required to change our business plans and curtail our operations, and our
business prospects, financial condition and results of operations would likely be adversely affected.

70

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 1Organization and Business (Continued)

Exchange Offer and Redemption of DebtOn October 26, 2009, we initiated an offer to exchange, which we refer to as the "Exchange Offer," our
existing 9.00% Convertible Senior Secured Notes Due 2012 ("Notes due 2012") for 9.00% Mandatorily Redeemable Convertible Senior Secured Notes Due 2012 (the "Interim Notes"). The Interim Notes were
mandatorily redeemable by us at a redemption price per $1,000 principal amount of Interim Notes equal to:



We
refer to the mandatory redemption of the Interim Notes as the "Mandatory Redemption."

Upon
the expiration of the Exchange Offer on December 1, 2009, we had received tenders of $266.8 million principal amount of the Notes due 2012, representing approximately
90.8% of the outstanding Notes due 2012. In connection with the consummation of the Exchange Offer on December 7, 2009, we accepted such tendered Notes due 2012 and issued $266.8 million
in principal amount of the Interim Notes.

On
December 15, 2009, our stockholders approved the issuance of shares of common stock to be issued in the Mandatory Redemption. In order to provide a sufficient number of
authorized shares of common stock for the issuance of shares in the Mandatory Redemption, on December 18, 2009, we effected a 1-for-10 reverse stock split of our common
stock, the authority of which was previously granted to our Board of Directors by our stockholders.

On
December 22, 2009, we completed the Mandatory Redemption, whereby $266.8 million of the Interim Notes were exchanged in consideration for the
following:



The
purpose of the Exchange Offer and Mandatory Redemption transactions was to reduce our outstanding debt and cash interest requirements and extend the maturity of our outstanding debt.
As a result of the Exchange Offer and Mandatory Redemption, the total carrying value of our outstanding debt was reduced by $171.7 million, the maturity of a substantial portion of our debt was
extended from 2012 to 2016 and our annual cash interest payments were reduced by more than $20.0 million to approximately $1.8 million in 2010 and $6.0 million in each of 2011 and
2012.

See Note 8, Long-term Debt, for additional information on the Exchange Offer and Mandatory Redemption and the
accounting for such.

71

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 2Basis of Presentation and Accounting Policies

Principles of consolidation and basis of presentationThese consolidated financial statements include all of the assets, liabilities and results of
operations of FiberTower and our subsidiaries, all of which are wholly owned. All intercompany transactions and balances have been eliminated.

Reverse stock splitAs described inNote 1above, on December 18, 2009, we effected a
1-for-10 reverse stock split of our common stock. Accordingly, the accompanying consolidated financial statements for all periods prior to the reverse stock split have been
retroactively restated to reflect the effect of the reverse stock split.

Use of estimatesThe preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual results could differ materially from those estimates. Our critical accounting estimates include
(1) useful life assignments and impairment evaluations associated with long-lived assets, including intangible assets, (2) revenue recognition, (3) asset retirement
obligations, (4) valuation of stock-based awards, and (5) establishment of valuation allowances associated with deferred tax assets.

Cash equivalentsWe consider short-term, highly liquid investments with original maturities, as measured from our date of acquisition, of
three months or less to be cash equivalents and we classify them as available-for-sale. Cash equivalents are stated at their cost adjusted for accretion of discounts and
amortization of premiums when applicable. Such adjusted cost approximates the fair market values of our cash equivalents at December 31, 2010 and 2009. Unrealized gains and losses on
available-for-sale securities were insignificant at December 31, 2010 and 2009. Our cash equivalents consisted of money market mutual funds which invest in U.S.
government securities of $14.5 million at December 31, 2010 and $42.5 million at December 31, 2009.

Restricted cash and investmentsWe had total restricted cash and investments of $10.0 million at December 31, 2010 and
$11.6 million at December 31, 2009. The balance at December 31, 2010 consisted of (1) approximately $9.3 million invested in cash and bonds issued by U.S. government
agencies, which, together with the earnings thereon, is an amount sufficient to pay the cash portion of the next five interest payments for the Notes due 2016 and (2) $0.7 million of
certificates of deposit which collateralize letters of credit, the final expiration date of which is in 2015. Cash and restricted investments with maturity dates in 2011 of $5.9 million at
December 31, 2010 are classified as current assets and relate to interest payments to be made on our long-term debt. The bonds issued by U.S. government agencies are classified as
held-to-maturity and are reported at amortized cost. Accretion of discounts and amortization of premiums on restricted investments are included in interest income. Gross
unrealized losses on these bonds issued by U.S. government agencies, which relate to changes in market interest rates, were $0.1 million at December 31, 2010. Restricted cash and
investments at December 31, 2009 consisted of (1) $11.0 million invested in cash and bonds issued by U.S. government agencies, which, together with the earnings thereon, was an
amount sufficient to pay the cash portion of the first six interest payments for the Notes due 2016 and (2) $0.6 million of certificates of deposit which collateralized letters of
credit.

The
$1.8 million cash portion of the first interest payment for the Notes due 2016 was paid from restricted cash on July 1, 2010. SeeNote 8,
Long-term Debtfor additional information.

72

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 2Basis of Presentation and Accounting Policies (Continued)

Fair value measurements of financial assets and liabilitiesThe estimated fair values of our financial instruments, consisting of cash and cash
equivalents, restricted cash and investments, accounts receivable and accounts payable approximated their respective carrying values as of December 31, 2010 and 2009. See Note 9, Fair Value
Disclosures, for information and related disclosures regarding our fair value measurements of cash and cash equivalents, Notes
due 2016 and Notes due 2012 at December 31, 2010 and December 31, 2009.

Revenue and expense recognitionWe recognize revenues when (1) persuasive evidence of an arrangement exists, (2) the services have been
provided to the customer, (3) the sales price is fixed or determinable and (4) the collection of the sales price is reasonably assured. Non-refundable upfront fees billed in
advance of providing services, are deferred and recognized as revenues ratably over the period that substantive services are provided, which is the length of the customer contract. Most of our
customer contracts are within their initial term so we do not have sufficient history with our customers to reasonably estimate the lives of our customer relationship beyond the initial term. There
were $0.7 million of deferred revenues at December 31, 2010 and $0.1 million at December 31, 2009.

Revenue
from customers' early termination of their contract is recognized when payment is received.

Incremental
direct costs of service activation are charged to expense as incurred. We purchase electricity and lease co-location site space from certain of our customers. We
receive an identifiable benefit in exchange for the amounts paid to our customers and we can reasonably estimate the fair value of the purchased electricity and leased tower site space. Therefore, we
record the fair value of the consideration paid as cost of service revenues as incurred and any excess of consideration paid over the fair value, such as customer incentives, as a reduction of service
revenues.

Concentrations of credit risk, significant customers and key suppliersFinancial instruments
that potentially subject us to concentrations of risk consist primarily of cash and cash equivalents, restricted cash and investments and accounts receivable. Cash and cash equivalents and restricted
cash and investments consist principally of demand deposits and money market mutual funds which invest in U.S. government securities and restricted investments which consist of bonds issued by U.S.
government agencies. These are held primarily by two domestic financial institutions with a high credit standing.

For
the years ended December 31, 2010, 2009 and 2008, the following customers accounted for a significant portion of our revenues:

Year Ended
December 31,2010

2009

2008AT&T Mobility


44
%

39
%

40
%Sprint Nextel


19
%

20
%

33%
(1)Clearwire


12
%

15
%


(1)T-Mobile


12
%

15
%

15
%


(1)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


73

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 2Basis of Presentation and Accounting Policies (Continued)

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.


Accounts
receivable from these customers comprised the following percentages of our total accounts receivable balances at December 31, 2010 and 2009:

December 31,2010

2009AT&T Mobility


59
%

37
%Sprint Nextel


12
%

17
%Clearwire


7
%

17
%T-Mobile


7
%

16
%


In
February 2011, we received an early termination notice from Clearwire to terminate service at approximately 220 billing locations effective February 28, 2011, and that they are
reviewing approximately 50 additional locations for possible early termination by March 31, 2011. These billing locations represent up to approximately $344 thousand in monthly service
revenue. SeeNote 17, Subsequent Eventsfor additional information

We
are dependent on a limited number of suppliers for certain equipment used to provide our services. We have generally been able to obtain an adequate supply of such equipment. However,
an extended interruption in the supply of equipment currently obtained from our suppliers could adversely affect our business and results of operations.

Property and equipmentProperty and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are
calculated using the straight-line method. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives. Estimated useful lives are as follows:

Indefeasible right of use of
fiber


20 yearsNetwork equipment


10 yearsComputer software


5 yearsOffice equipment and other


3 - 7 years


We
capitalize costs incurred in bringing our network equipment to an operational state. Costs directly associated with the acquisition, construction and installation of network equipment
are capitalized as a cost of that equipment. Construction and installation costs that relate to several sites are capitalized and allocated to the respective network equipment to which the costs
relate. Interest is capitalized on network equipment and construction-in-progress based on the effective interest rate on our borrowings and the average amount of accumulated
expenditures for assets under construction during the period.

74

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 2Basis of Presentation and Accounting Policies (Continued)

Internal
labor costs and interest were capitalized and included in construction-in-progress as follows (in thousands):

Year Ended December 31,2010

2009

2008Internal labor costs

$
2,126

$
590

$
1,192Interest


824


3,253


5,294Total

$
2,950

$
3,843

$
6,486


We
capitalize certain costs related to software developed or obtained. Capitalized computer software costs totaled $0.6 million in 2010, $0.4 million in 2009 and
$2.0 million in 2008.

Property
and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognized
whenever (1) the estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the
carrying value of the asset and (2) the fair value of the asset is less than its carrying value. When an impairment loss is identified, the carrying value of the asset is reduced to its fair
value. Such impairment losses were identified in 2010, 2009 and 2008. SeeNote 5, Impairment of Long-Lived Assets and Other Chargesfor additional information.

LeasesMost of our operating lease arrangements represent agreements made with landlords for space leased at our co-location sites. The
term of these agreements is typically for five years and we have the unilateral ability and intent to extend the term of these site lease agreements such that the minimum lease periods equal or
slightly exceed the estimated ten-year useful lives of the network equipment located at such leased sites. We do not believe there are any explicit or implicit penalties for failure to
renew any site leases at the end of the respective assumed lease terms of approximately ten years that would extend the lease term past the assumed lease terms. When lease arrangements have uneven
payment schedules, we account for the lease expense on a straight-line basis over the lease term.

Asset retirement obligationsWe recognize liabilities for asset retirement obligations relating to the estimated costs of removing network equipment
from our leased co-location sites, as stipulated in the related lease agreements. The asset retirement obligations are recognized in the period in which they are incurred if a reasonable
estimate of the fair value of the estimated costs to retire the asset can be made. Estimated liabilities are increased over time to reflect changes in present value. The associated asset retirement
costs are capitalized as part of the carrying amount of the related long-lived assets and depreciated on a straight-line basis over their estimated useful life of ten years.

75

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 2Basis of Presentation and Accounting Policies (Continued)

A
summary of the asset retirement obligations activity is as follows (in thousands):

Year Ended
December 31,2010

2009Asset retirement obligations at beginning of year

$
4,550

$
4,048Liabilities incurred in the current year


153


10Liabilities settled in the current year





(9
)Accretion expense


578


501Asset retirement obligations at end of year

$
5,281

$
4,550


Intangible assetsOur intangible assets with indefinite lives consist of Federal Communications Commission ("FCC") licenses, which are not amortized
but are tested annually for impairment (or more frequently if indicators of impairment arise). Our intangible assets that have finite lives, which consist of customer relationships, are amortized
using the straight-line method over their estimated useful life of 10 years.

As
described more fully below, we evaluate our intangible assets with indefinite lives for impairment annually, and between annual evaluations if events or changes in circumstances
indicate that the carrying amount of such assets may not be fully recoverable. In cases where required, an impairment provision is recognized in an amount by which the carrying value exceeds the
estimated fair value of such assets.

FCC licensesRecoverability of the carrying value of our FCC licenses is dependent on numerous factors, including successful deployment of networks
and radio links or sales of such assets to a third party. We consider the FCC licenses to have an indefinite useful life based on the following factors:



We
use a direct method of valuation for our indefinite-lived intangible assets. Specifically, we use an income-based approach, the Greenfield Methodology (a form of discounted cash flow
model), using a hypothetical start-up operation. This methodology is based on the cash flow generation potential of a hypothetical start-up operation and assumes that the only
assets upon formation are the underlying FCC licenses, and that the business enterprise does not have any other assets including goodwill or going concern value at the date of inception. The
start-up assumptions include the highest and best utilization of the asset and incorporate marketplace participant assumptions for key factors such as unit prices, service type, market
density and operating expenses.

76

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 2Basis of Presentation and Accounting Policies (Continued)

Cash flow projections and assumptions, although subject to a degree of uncertainty, are based on a combination of our historical performance and trends, our business plans and
management's estimates of future performance, giving consideration to existing and anticipated competitive and economic conditions. Our key operating assumptions include unit prices, service type,
market size, operating expenses, income taxes, capital expenditures and working capital requirements. We believe that our estimates are consistent with assumptions that marketplace participants would
use to estimate fair value. Any impairment loss would be recorded as a reduction in the carrying value of the FCC licenses and charged to results of operations. If actual results are not consistent
with our assumptions and estimates, we may be required to record an impairment charge associated with indefinite-lived
intangible assets. Although we currently do not expect our estimates or assumptions to change significantly in the future, the use of different estimates or assumptions within our discounted cash flow
model when determining the fair value of our FCC licenses or using a methodology other than a discounted cash flow model could result in different values for our FCC licenses and may affect
conclusions about impairment.

The
most significant assumptions within our discounted cash flow model are the discount rate, our projected growth rate, costs to build and operate the network and management's future
business plans. During our FCC license impairment test, we considered our facts and circumstances, the marketplace in which we compete as well as activity in the broader macroeconomic environment.
These considerations led us to increase the amount of initial bandwidth sold per customer to reflect the growing trend in our industry of greater backhaul needs to support next generation wireless
networks. This had the impact of providing us lower revenue in the early years of the plan, but increased revenue in the later years to reflect carriers buying at lower marginal prices in the future
but utilizing greater capacity. Additionally, we raised our discount rate which was derived by analyzing the change in risk premiums in the wireless communications industry affecting a marketplace
participant's cost of debt and cost of equity. A one half of one percent (0.5%) increase in discount rate would result in a decrease of approximately 11% percent in the estimated fair value of the FCC
licenses which would cause an impairment.

Changes
in management's future business plans or disposition of one or more FCC licenses could result in the requirement to test the FCC licenses for impairment. If any legal,
regulatory, contractual, competitive, economic or other factors were to limit the useful lives of our indefinite-lived FCC licenses, we would be required to test these intangible assets for
impairment.

SeeNote 6, Impairment of FCC Licensesfor additional information including discussion of the $54.5 million impairment
charge recorded in 2008.

GoodwillGoodwill is recorded when the price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible
assets acquired. We recorded goodwill impairment charges of $86.1 million in 2008 that reduced the carrying value to zero. In performing our impairment evaluations, we compared the fair value
of our single reporting unit to its carrying value. We estimated the fair value of the reporting unit using both observed market equity values based on our publicly-traded stock price and the income
approach, which requires estimates of future operating results and cash flows discounted using an appropriate discount rate. SeeNote 7, Impairment of
Goodwillfor additional information.

77

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 2Basis of Presentation and Accounting Policies (Continued)

Debt issuance costsDebt issuance costs consist of investment banking fees, legal and accounting fees and printing costs incurred in connection with
the sale of our Notes due 2012 in November 2006. They are being amortized as additional interest expense over the six-year term of the Notes due 2012 using the effective interest method.
The fees and expenses related to the Exchange Offer and Mandatory Redemption were expensed as incurred. SeeNote 8, Long-term Debtfor additional information.

Stock-based compensationWe record stock-based compensation expense only for those awards for which the requisite service period is expected to be
rendered. The cumulative effect of a change in the estimated number of awards for which the requisite service is expected to be or has been rendered is recognized in the period of the change in the
estimate. For restricted stock awards with market-related vesting conditions, to the extent that the requisite service period is rendered, stock-based compensation expense is not reversed; rather, it
is recognized regardless of whether or not the market-related vesting condition is achieved.

Following
are the valuation techniques and the related assumptions and estimates used in the calculation of stock-based compensation expense with respect to (1) restricted stock
awards with market-related vesting conditions, (2) restricted stock awards with time-based vesting and (3) stock option awards.

Valuation.We estimate the fair value of restricted stock awards with market-related vesting conditions using a Monte Carlo simulation
with a
three-year period which is equivalent to the contractual term of the award. Our determination of the fair value of restricted stock awards with market-related vesting conditions on the
date of grant is affected by our stock price as well as inputs of subjective assumptions and variables. We determine the grant date fair value of each time-based vesting restricted stock
award based on our stock price at the date of the award. We use the Black-Scholes-Merton option pricing model to determine the estimated fair value of stock options on the date of grant. The
determination of the estimated fair value is affected by our stock price as well as inputs of subjective assumptions and variables. Changes in assumptions could result in materially different
stock-based compensation expense which could materially affect our operating expenses, net income (loss) and net income (loss) per share.

Amortization method.We recognize stock-based compensation expense on a straight-line basis over the requisite service period of the
award which is generally three or four years.

Expected volatility.We estimate the volatility of our stock at the date of grant based on the historical volatilities of similar
public companies
consisting of competitive telecommunications providers that share a common capital intensive network build plan, are free cash flow negative, highly levered and are in an earlier
life-cycle stage. For stock option awards granted in 2009 (before the Exchange Offer and Mandatory Redemption), we estimated our expected stock price volatility based on the historical
volatility of our stock price.

Expected term of stock option.We do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate
the expected
term of the option. Therefore, as permitted by the SEC, we estimate the expected term of the option as the midpoint between the vesting date and the end of the contractual term of the option.

78

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 2Basis of Presentation and Accounting Policies (Continued)

Risk-free interest rate.We base the risk-free interest rate on the implied yield currently available on U.S. Treasury issues
with an equivalent remaining term equal to the expected life of the award.

Forfeitures.We use historical data and management judgment to estimate the pre-vesting award forfeitures to estimate the number of
shares for which the requisite service period will not be rendered.

Dividend yield.We have not and do not anticipate paying any cash dividends on our common stock in the foreseeable future; therefore a
0% dividend
yield was assumed.

Income taxesIncome taxes are accounted for under an asset and liability approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences
of events that have been recognized in our consolidated financial statements or tax returns. In estimating future tax consequences, we generally take into account all expected future events then known
to us, other than changes in the tax law or rates, which are not permitted to be considered. We record a valuation allowance to reduce net deferred tax assets to the amount that is more likely than
not to be realized. The amount of valuation allowance is based on our best estimate of the recoverability of the net deferred tax assets.

We
will recognize the tax benefit of a tax position that we take or expect to take in a tax return, when it is more likely than not, based on the technical merits, that the position will
be sustained upon examination. For these positions, we will recognize an amount of tax benefit that has greater than a 50 percent likelihood of being realized upon ultimate settlement with the
tax authority. Tax benefits for tax positions that more likely than not will not be sustained upon examination will be recognized generally when the tax position is resolved through examination or
upon the expiration of the statute of limitations. We record interest or penalties related to income taxes as a component of income tax expense in our financial statements.

SeeNote 12, Income Taxesfor additional information.

Segment reportingWe operate in one business segment.

Recent accounting pronouncementsThere have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended
December 31, 2010 that are of significance, or potential significance, to us.

79

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 3Property and Equipment

Property and equipment consisted of the following (in thousands):

December 31,2010

2009Network equipment

$
292,025

$
259,692Network equipment under capital lease


4,224


4,224Computer software


5,743


5,167Office equipment and other


2,938


2,791304,930


271,874Less: accumulated depreciation and amortization


(111,273
)

(83,195
)Property and equipment in-service, net


193,657


188,679Construction-in-progress


28,557


32,738Property and equipment, net

$
222,214

$
221,417


See
discussion inNote 10, Leasing Arrangementsregarding the network equipment under capital lease.

Assets
classified as construction-in-progress are not being depreciated as they have not yet been placed in service. Depreciation expense, which includes
amortization of network equipment under capital lease, was $28.2 million in 2010, $27.5 million in 2009 and $24.6 million in 2008. Amortization of network equipment under capital
lease was $0.2 million in 2010.

See
discussion inNote 5, Impairment of Long-Lived Assets and Other Chargesregarding impairment charges recorded in
2010, 2009 and 2008 related to property and equipment.

Note 4Restructuring Charges

In 2008, we recorded restructuring charges of $6.1 million. The restructuring charges were a result of our decision during the second quarter of 2008 to restructure our operations
to reflect changes in our strategic plans designed to reduce costs. The resultant restructuring charges reflected (1) our decision to cease market development activities in the Carolinas market
resulting in an exit plan for our site operating leases, (2) termination benefits under a workforce reduction of 59 employees consistent with revisions to our network deployment plan and
(3) the consequent termination or renegotiation of excess office space including the former headquarters in New Jersey. We recorded restructuring charges of $0.2 million in 2010 and
$0.4 million in 2009 representing accretion of the liability for operating leases established in 2008.

The
accounting for our exit plan for operating leases requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. The
restructuring charges

80

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 4Restructuring Charges (Continued)

are
included in operating expenses in the Consolidated Statements of Operations and are summarized as follows (in thousands):

Operating
Leases

Workforce
Reduction

TotalBalance at December 31, 2008

$
3,672

$
106

$
3,778Restructuring charges


372





372Cash payments


(1,269
)

(106
)

(1,375
)Balance at December 31, 2009


2,775





2,775Restructuring charges


241





241Cash payments


(1,247
)




(1,247
)Balance at December 31, 2010

$
1,769

$


$
1,769


The
accrued restructuring costs associated with the contract terminations of the operating leases are expected to be paid over the remaining lease term, which generally approximates two
years, or a shorter period if payoff arrangements are made.

Note 5Impairment of Long-Lived Assets and Other Charges

Construction of our network is a complex process involving the interaction and assembly of multiple components that result in internal labor, third party and equipment costs. We
regularly assess the recoverability of costs accumulated in construction-in-progress as we execute our network build-out plans. We recorded impairment charges of
$3.2 million in 2010, $0.3 million in 2009 and $16.4 million in 2008 related to this process.

The
impairment of long-lived assets and other charges are included in cost of service revenues in the Consolidated Statements of Operations.

Note 6Impairment of FCC Licenses

At December 31, 2007 and through September 30, 2008, the Company's FCC Licenses had a carrying value of $342.0 million. As discussed in Note 2, Basis of
Presentation and Accounting Policies, we consider the FCC licenses to have an indefinite useful life.Note 2also includes a discussion of our valuation methodology for our FCC licenses.

For
the FCC license impairment test performed as of November 1, 2008, we determined that the fair value of the FCC licenses was less than their 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.

As
a result of the impairment of FCC licenses, the deferred tax liability associated with the FCC licenses was reduced by $20.2 million in 2008 for the tax impact of the
impairment charge with a corresponding recognition of an income tax benefit of $20.2 million. SeeNote 12, Income Taxesfor additional
information.

For
the FCC license impairment tests performed as of November 1, 2010 and November 1, 2009, we determined that the fair value of the FCC licenses was greater than their
carrying value.

81

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 7Impairment of Goodwill

At December 31, 2007, the carrying value of our goodwill totaled $86.1 million. As a result of a decline in our market equity value during the quarter ended
March 31, 2008, we believed an indicator of impairment 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 carrying value of goodwill to its fair value of zero. The
goodwill impairment charge of $86.1 million in 2008 is included in operating expenses in the Consolidated Statements of Operations.

Note 8Long-term Debt

SeeNote 1, Organization and Businessfor a summary description of the Exchange Offer and Mandatory Redemption which occurred
during the fourth quarter of 2009.

The
carrying value of our indebtedness, excluding our obligation under capital lease, is comprised of the following (in thousands):

December 31,2010

20099.00% Senior secured notes due 2016 ("Notes due 2016")

$
130,125

$
124,4059.00% Convertible senior secured notes due 2012 ("Notes due 2012")


34,702


30,123$
164,827

$
154,528




We issued the Notes due 2016 on December 22, 2009, in connection with our exchange offer ("Exchange Offer") whereby certain of
the Notes due 2012 were exchanged for Interim Notes which were later redeemed for shares of our common stock, cash and the Notes due 2016. The redemption of the Interim Notes for the Notes due 2016
has been accounted for as a Troubled Debt Restructuring. In order for the redemption of the Interim Notes to be accounted for as a Troubled Debt Restructuring as opposed to as an exchange of debt, we
needed to determine whether FiberTower was experiencing financial difficulty and whether our creditors had granted us a concession. Both conditions must be present in order to account for the
transaction as a Troubled Debt Restructuring. We determined that there was a reasonable probability that FiberTower could be considered to be experiencing financial difficulty. Creditors are
considered to have granted a concession if the debtor's effective borrowing rate on the restructured debt is less than the effective borrowing rate on the old debt immediately before the restructuring
and does not represent an effective interest rate the debtor could otherwise obtain in the marketplace.

The
accounting for a Troubled Debt Restructuring required us to adjust the carrying value of the Interim Notes by the fair value of the cash and common stock consideration to calculate
the initial carrying value of the Notes due 2016. Since the undiscounted cash flows under the Notes due 2016 exceeded the carrying value of the Interim Notes, no gain on restructuring was recognized,
and a new effective interest rate was calculated. Gain or loss recognition on the redemption of the Interim Notes is only applicable when the remaining carrying value, after reductions for the fair
value of the cash and common stock consideration transferred to the creditors, exceeds the total future cash payments

82

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 8Long-term Debt (Continued)

specified
by the terms of the debt remaining unsettled after the restructuring. As the remaining carrying value transferred to the creditors exceeded the carrying value of the Interim Notes, no gain
or loss on the redemption of the Interim Notes was recognized. The principal amount of the Notes due 2016 at December 31, 2010 was $117.1 million and at December 31, 2009 was
$113.5 million.

The
carrying value of our Notes due 2016 at December 31, 2009 and December 31, 2010 is comprised of the following (in thousands):

Carrying value of Interim Notes at December 22, 2009

$
295,686Accrued interest payable on Interim Notes


2,468Debt issuance costs written off


(4,616
)Cash paid to holders of Interim Notes


(12,713
)Common stock issued to holders of Interim Notes


(156,562
)Carrying value of Notes due 2016 at December 22, 2009


124,263Accrual of additional notes for payment-in-kind, net of premium amortization


142Carrying value of Notes due 2016 at December 31, 2009


124,405Accrual of additional notes for payment-in-kind, net of premium amortization


5,720Carrying value of Notes due 2016 at December 31, 2010

$
130,125


The
fair value of the common stock issued to holders of Interim Notes was determined as follows:

Shares of common stock issued to holders of Interim Notes (in thousands)


30,579Average common stock price on December 22, 2009 redemption date

$
5.12Common stock issued to holders of Interim Notes (in thousands)

$
156,562


As
required by the accounting guidance for troubled debt restructurings, we are recognizing interest expense on the Notes due 2016 at the effective interest rate (7.31%) necessary to
equate future principal and interest payments to an initial carrying value of $124.3 million. The Notes due 2016 will mature in January 2016. Interest is payable at 9.00% per annum on the
principal amount accruing from December 22, 2009, payable semi-annually on January 1 and July 1of each year beginning July 1, 2010. On each interest payment
date, one-third of the interest will be payable in cash and two-thirds of the interest will be payable in additional Notes due 2016 in a principal amount equal to such portion
of the interest amount. The Notes due 2016 are carried at a premium to par. This premium is amortized over the term of the Notes due 2016. In addition, we are increasing the carrying value of the
Notes due 2016 by accruing interest expense for the future issuance of notes through interest payments-in-kind. The net impact of these adjustments was a $5.7 million
increase of the carrying value of the Notes due 2016 in the year ended December 31, 2010. When we issued the Notes due 2016, we placed into escrow approximately $11.0 million in cash,
classified as restricted cash and investments in our Consolidated Balance Sheets, which, together with the earnings thereon, was an amount sufficient to pay the cash portion of the first six interest
payments. The $1.8 million cash portion of the first interest payment was paid on July 1, 2010.

83

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 8Long-term Debt (Continued)

The
Notes due 2016 are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by each of our existing and future domestic restricted subsidiaries. All of
our current subsidiaries are restricted subsidiaries governed by the terms of our indentures. The Notes due 2016 and the related guarantees are our senior secured obligations and rank pari passuin
right of payment with all of our and the guarantors' existing and future senior indebtedness, including our Notes due 2012. Because the
liens on the collateral securing the Notes due 2016 rank ahead of the liens securing the Notes due 2012, the Notes due 2016 rank effectively senior in right of payment to the Notes due 2012 to the
extent of the value of the collateral securing the Notes due 2016. The Notes due 2016 and the related guarantees are secured, to the extent permitted by law, by a first priority pledge (subject to
permitted liens) of substantially all of our and our existing and future restricted subsidiaries' assets (it being understood that the Communications Act of 1934 currently prohibits the grant of a
security interest in an FCC license), other than certain excluded assets, and by a first priority pledge (subject to permitted liens) of the equity interests of each of our existing and future
domestic restricted subsidiaries and the equity interests of any unrestricted subsidiaries or foreign subsidiaries owned by any such domestic restricted subsidiaries, in each case subject to certain
limitations and exceptions. The maximum potential amount of future undiscounted payments the guarantors could be required to make
under the guarantees of the Notes due 2016 is $184.6 million. This amount represents total anticipated cash payments, including expected interest payments that are not recorded on the
Consolidated Balance Sheets.

The
indenture governing the Notes due 2016 contains covenants that restrict our ability to (1) incur or guarantee additional indebtedness or issue certain preferred stock,
(2) pay dividends or make other distributions, (3) issue capital stock of our restricted subsidiaries, (4) transfer or sell assets, including the capital stock of our restricted
subsidiaries, (5) make certain investments or acquisitions, (6) grant liens on our assets, (7) incur dividend or other payment restrictions affecting our restricted subsidiaries,
(8) enter into certain transactions with affiliates, and (9) merge, consolidate or transfer all or substantially all of our assets. As of December 31, 2010, we are in compliance
with all of the covenants.

We
may redeem the Notes due 2016 prior to January 2012 at 100% of the aggregate principal amount of the notes to be redeemed plus a make-whole premium and accrued and unpaid
interest to the date of redemption. We may redeem the Notes due 2016 beginning in January 2012 at 104.5% of the aggregate principal amount of the notes to be redeemed plus accrued and unpaid interest
to the date of redemption. The redemption price decreases to 102.25% in January 2014 and to 100% in January 2015. If a fundamental change, which generally includes events relating to certain changes
in control of FiberTower, occurs prior to maturity, holders may require us to repurchase all or part of the Notes due 2016 for cash at a repurchase price equal to 101% of their aggregate principal
amount, plus accrued and unpaid interest, up to the repurchase date. We evaluated these provisions and determined they do not represent derivatives that are required to be bifurcated from the Notes
due 2016.

If
an event of default on the Notes due 2016 has occurred and is continuing, the aggregate principal amount, plus any accrued and unpaid interest, may be declared immediately due and
payable.

See Note 9, Fair Value Disclosuresfor disclosure of the fair value of our Notes due 2016.

84

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 8Long-term Debt (Continued)



The carrying value of our Interim Notes was comprised of the following (in thousands):

Exchange of Notes due 2012 for Interim Notes on December 7, 2009

$
266,791Accretion of principal premium related to Notes due 2012


29,284Accretion of Derivative related to Notes due 2012


(389
)Carrying value of Interim Notes at December 22, 2009


295,686Redemption of Interim Notes on December 22, 2009


(295,686
)Carrying value of Interim Notes at December 31, 2009

$



On
December 7, 2009, under the terms of our Exchange Offer, 90.8% of our Notes due 2012, with a face amount of $266.8 million, were exchanged for the Interim Notes. The
Exchange Offer has been accounted for as an exchange of debt (as opposed to a Troubled Debt Restructuring) as the creditors did not grant us a concession on the exchange. The Interim Notes were
identical with respect to cash flow and substantially similar to the Notes due 2012, with the following differences. The Interim Notes:



We
concluded that the mandatory redemption provision was not a derivative as it did not meet the net settlement criteria.

The
Interim Notes were recorded at an initial amount of $295.7 million representing the carrying amount of the exchanged portion of the Notes due 2012.

The
conditions for the Mandatory Redemption provision were satisfied and the Interim Notes were redeemed, in whole, for a combination of cash, shares of our common stock and Notes due
2016 on December 22, 2009.

We
incurred fees and expenses of approximately $4.5 million in connection with the Exchange Offer and Mandatory Redemption that have been included in general and administrative
expenses in 2009.

85

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 8Long-term Debt (Continued)



The change in Notes due 2012 during the years ended December 31, 2009 and December 31, 2010 is summarized as follows (in
thousands):

Carrying value of Notes due 2012 at December 31, 2008

$
430,317Accretion of principal premium


12,039Accretion of Derivative


112Repurchases at par value


(142,233
)Reversal of accretion of principal premium related to repurchases


(11,611
)Reversal of accretion of Derivative related to repurchases


265Additional Notes due 2012 issued May 15, 2009


18,213Additional Notes due 2012 issued November 16, 2009


15,316Accretion of principal premium for the additional Notes due 2012 issued in May and November 2009


3,391Exchange of Notes due 2012 for Interim Notes on December 7, 2009


(266,791
)Reversal of accretion of principal premium related to redemption of Interim Notes


(29,284
)Reversal of accretion of Derivative related to redemption of Interim Notes


389Carrying value of Notes due 2012 at December 31, 2009


30,123Additional Notes due 2012 issued May 15, 2010


1,485Additional Notes due 2012 issued November 15, 2010


1,567Accretion of principal premium for the additional Notes due 2012 issued in May and November 2010


1,527Carrying value of Notes due 2012 at December 31, 2010

$
34,702


In
November 2006, we sold $402.5 million of the Notes due 2012, which mature on November 15, 2012. The notes are fully guaranteed, jointly and severally, by each of our
subsidiaries and bear interest at a rate of 9.00% per annum, payable semi-annually in arrears on May 15 and November 15 of each year.

We
elected to pay the May 15, 2009, November 15, 2009, May 15, 2010 and November 15, 2010 interest payments entirely by the issuance of additional Notes due
2012, as permitted under the related indenture. This resulted in the issuance of an additional $33.5 million in 2009 and $3.1 million in 2010 in principal amount of Notes due 2012. These
additional notes are identical to the original Notes due 2012, except that interest on such additional notes begins to accrue from the date they are issued. The interest rate applicable to such
interest payments made in additional Notes due 2012 was 11%. Interest payments after November 15, 2010 are payable only in cash.

In
the first and second quarters of 2009, we repurchased $142.2 million par value of our Notes due 2012 in the open market. These repurchases, at a weighted average price of
approximately $37 per $100 of par value, were for a total of $52.2 million in cash plus accrued but unpaid interest of $2.0 million. The repurchases resulted in the recognition of a gain
on early extinguishment of debt of $98.2 million.

86

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 8Long-term Debt (Continued)

The
gain on early extinguishment of debt was comprised of the following (in thousands):

Year Ended
December 31, 2009Repurchases at par value

$
142,233Reversal of accretion of principal premium related to repurchases


11,611Cash paid for par value


(52,180
)Reversal of unamortized debt issuance costs related to repurchases


(3,151
)Reversal of accretion of Derivative related to repurchases


(265
)$
98,248


We
will be required to repay any Notes due 2012 that are not redeemed or converted prior to maturity for 125.411% of their principal amount, or $37.7 million. We are accreting the
principal premium ratably over the six-year period from inception until the Notes due 2012 mature and are recognizing such accretion as additional interest expense. The effect of this
accretion is to increase the effective yield to the holders to 12% per annum based on the par value of the Notes due 2012. The effect of the accretion related to the interest payments made by the
issuance of additional notes, is to increase the effective yield to the holders from 12% to approximately 13% per annum.

The
Notes due 2012 and related guarantees are secured, to the extent permitted by law, by a second priority pledge of substantially all of our assets (other than certain excluded assets)
and by a second priority pledge of the stock of all of our subsidiaries. The Notes due 2012 rankpari passuin right of payment to all of our existing
and future senior indebtedness and senior to all of our existing and future subordinated indebtedness. Because the liens on the collateral securing the Notes due 2016 rank ahead of the liens securing
the Notes due 2012, the Notes due 2016 rank effectively senior in right of payment to the Notes due 2012 to the extent of the value of the collateral securing the Notes due 2016. The maximum potential
amount of future undiscounted payments the guarantors could be required to make under the guarantees of the Notes due 2012 is $43.1 million. This amount represents total anticipated cash
payments, including expected interest payments that are not recorded on the Consolidated Balance Sheets.

If
our common stock has traded at or above 150% of the $62.20 per share conversion price discussed below for 20 of any 30 consecutive trading days and the daily trading volume for each
such trading day, when multiplied by the closing sale price for such trading day, equals at least $8.0 million, we may redeem any of the Notes due 2012, in whole or in part, at 100% of the
aggregate accreted principal amount, together with accrued and unpaid interest.

The
Notes due 2012 may be converted into shares of our common stock. The conversion price was originally $82.90 per share subject to adjustment under certain circumstances. The
conversion price was reduced to $62.20 per share on November 9, 2008. The Notes due 2012 contain certain anti-dilution provisions that caused the conversion price to be reduced
because we had not issued or sold common stock for aggregate proceeds of at least $50.0 million by November 9, 2008. The number of common shares that could be issued upon conversion of
the Notes due 2012 was increased as a result of the anti-dilution provisions being triggered on November 9, 2008, which increase was capped at a 33% increase in the total number of
shares. Therefore, the triggering of the anti-dilution provisions resulted in a reduction to the conversion price to $62.20 per share. This resulted in 2.0 million additional shares

87

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 8Long-term Debt (Continued)

which
could be potentially issuable upon conversion of all Notes due 2012 outstanding at December 31, 2008 and any additional notes that could be issued as payment for interest on the Notes due
2012. In 2009, the amount of shares which could be potentially issuable if all outstanding Notes due 2012 at December 31, 2009 (and any additional notes that could be issued as payment for
interest on the notes) were converted was reduced by (1) 2.8 million resulting from the repurchases of Notes due 2012 and (2) 4.8 million resulting from the Exchange Offer.

In
connection with the Exchange Offer, the indenture governing the Notes due 2012 was amended to eliminate or amend substantially all of the restrictive covenants contained in such
indenture. In addition, the holder put option upon the occurrence of certain designated events was eliminated.

We
concluded that the embedded feature of the Notes due 2012 related to the make-whole premium, designated event make-whole premium and holder
put option, qualified as derivatives and should be bundled as a compound embedded derivative ("Derivative"). The carrying value of the Derivative at December 31, 2010 and December 31,
2009 was zero.

SeeNote 9, Fair Value Disclosuresfor disclosure of the fair value of our Notes due 2012 and the Derivative.

Debt
issuance costs incurred in connection with the sale of the Notes due 2012 totaled $14.3 million. Accumulated amortization totaled $14.0 million at December 31,
2010. This included a reduction of $3.2 million in unamortized debt issuance costs associated with the repurchases of Notes due 2012 in 2009 and $4.6 million in debt issuance costs
written off in connection with the Exchange Offer. Accumulated amortization totaled $13.8 million at December 31, 2009.

Aggregate
future maturities of long-term debt (excluding obligation under capital lease) were as follows at December 31, 2010 (in thousands):

Year ending December 31,2011

$
2012


37,6952013


2014


2015


Thereafter


162,072$
199,767


During
the third quarter of 2010, we received a letter from a law firm, (1) alleging that the firm represented holders of more than 25% of the aggregate outstanding principal
amount of the Notes due 2012, (2) purporting to give notice, in accordance with Section 7.01(5) of the indenture governing the Notes due 2012, that we had failed to comply with
Section 10.02 of the indenture, and (3) purporting to inform us that the 60-day cure period referenced in Section 7.01(5) of the indenture had commenced.
Section 10.02 of the indenture governing the Notes due 2012 prohibits any amendment, supplement or waiver to the indenture from releasing any collateral from the liens of the pledge and
security agreements securing the Notes due 2012, except as contemplated by the pledge and security agreements, without the consent of each noteholder affected. The letter alleges that our Exchange
Offer in December 2009 and the transactions effected pursuant thereto violated this covenant. Under

88

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 8Long-term Debt (Continued)

Section 7.01(5),
failure to comply with any of the covenants in the indenture for 60 days after notice is given to us by the holders of at least 25% in aggregate principal amount of the
Notes due 2012 then outstanding would constitute an "Event of Default" under the indenture (which could, if properly declared, result in an acceleration of principal and interest payable with respect
to the Notes due 2012).

We
believe the alleged claims set forth in the letter are without merit. We did not release any collateral from the liens securing the Notes due 2012 in connection with the Exchange
Offer and the transactions effected pursuant thereto. We intend to defend ourselves vigorously against any such claims in the event they are pursued.

Note 9Fair Value Disclosures

The following table presents information about our assets measured at fair value on a recurring basis as of December 31, 2010 and December 31, 2009, and indicates the fair
value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

Quoted Prices in
Active Markets for
Identical Assets or
Liabilities

Significant Other
Observable Inputs

Significant
Unobservable InputsLevel 1

Level 2

Level 3

TotalCash and cash equivalents at December 31, 2010

$
21,314
(1)
$


$


$
21,314Cash and cash equivalents at December 31, 2009

$
50,669
(2)
$


$


$
50,669


(1)Includes
$14.5 million of money market mutual funds which invest in U.S. government securities.(2)Includes
$42.5 million of money market mutual funds which invest in U.S. government securities.


The
bonds issued by U.S. government agencies included in restricted cash and investments in our Consolidated Balance Sheets are classified as held-to-maturity and
are reported at amortized cost which approximates fair value at December 31, 2010.

The
estimated fair value of our Notes due 2016 and Notes due 2012 as compared to their carrying value were as follows (in thousands):

December 31, 2010

December 31, 2009Estimated
Fair Value

Carrying Value

Estimated
Fair Value

Carrying ValueNotes due 2016

$
104,206

$
130,125

$
94,212

$
124,405Notes due 2012

$
34,077

$
34,702

$
23,817

$
30,123


At
December 31, 2010, the estimate of fair value for the Notes due 2016 and Notes due 2012 was determined based on bids from market makers. At December 31, 2009, there was
not sufficient liquidity to establish an active market in the Notes due 2016 and Notes due 2012. Therefore, the

89

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 9Fair Value Disclosures (Continued)

estimate
of fair value at December 31, 2009 was determined using a discounted cash flow approach as well as based on bids from market makers.

The
fair value of the Derivative at December 31, 2010 and December 31, 2009 was zero based on our internal models. We monitor the fair value of the Derivative each
reporting period and record changes in fair value through charges or credits to miscellaneous income, net with an offsetting adjustment to the carrying value of the Notes due 2012 on the balance
sheet. The value of the Derivative can fluctuate based on changes in several factors including the trading price of our common stock, passage of time and other events affecting the Notes due 2012.

Note 10Leasing Arrangements

Future minimum lease payments under our operating leases with non-cancelable terms in excess of one year and under our capital lease were as follows at December 31,
2010 (in thousands):

Operating
leases

Capital
leaseYears ending December 31,2011

$
36,724

$
2702012


31,919


1,6432013


28,299


1,6432014


27,248


1,6432015


24,243


Thereafter


22,074


Total minimum lease payments

$
170,507


5,199Less: amount representing interest





1,287Present value of minimum lease payments





3,912Less: current portion of obligation under capital lease





225Obligation under capital lease, net of current portion




$
3,687


In
the fourth quarter of 2009, we acquired an indefeasible right of use of dark fiber under a 5-year lease which has been accounted for as a capital lease. The carrying
amount of the asset is the present value of the minimum lease payments determined using our incremental borrowing rate. The carrying value of the network equipment under capital lease at
December 31, 2010 was $4.2 million as shown inNote 3, Property and Equipment.

Rent
expense under all operating leases, including one-time setup charges from fiber service providers, was $37.2 million in 2010, $36.5 million in 2009 and
$37.5 million in 2008. Payments under our operating leases that escalate over the term of the lease are recognized as rent expense on a straight-line basis.

90

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 11Stockholders' Equity and Stock-Based Compensation

As described inNote 1, Organization and Business, on December 18, 2009, we effected a 1-for-10
reverse split of our common stock. Accordingly, all share, option, warrant and per share information for all periods prior to the reverse stock split have been retroactively restated to reflect the
effect of the reverse stock split.



FiberTower Corporation 2010 Stock Incentive PlanOn June 3, 2010 our stockholders approved the adoption of the FiberTower Corporation 2010
Stock Incentive Plan (the "2010 Stock Incentive Plan"). The 2010 Stock Incentive Plan provides for the grant of incentive stock options and non-qualified stock options, restricted stock,
restricted stock units, stock appreciation rights, phantom stock, and other stock or performance-based awards to all employees, non-employee directors and service providers of FiberTower.
The selection of eligible individuals to whom awards will be granted is within the discretion of the Compensation Committee of the Board of Directors. The maximum number of shares of common stock that
may be issued under the 2010 Stock Incentive Plan is 6,500,000 shares. The 2010 Stock Incentive Plan terminates June 3, 2020.

FiberTower Corporation 2001 Stock Incentive Plan (the "2001 Stock Incentive Plan")The 2001 Stock Incentive Plan had 2.3 million shares
reserved for issuance and (1) provides for the issuance of restricted shares as well as incentive stock options and non-qualified stock options; (2) provided for annual
awards of restricted shares with an aggregate value of $85,000 to each non-employee director and (3) allowed for an annual increase in the aggregate authorized shares to 1.5% of the
then outstanding common shares. Options granted under the 2001 Stock Incentive Plan have a maximum term of up to five years. The 2001 Stock Incentive Plan terminates December 20, 2011.

Pursuant
to the terms of the 2001 Stock Incentive Plan, additional shares of approximately 0.2 million on each of August 29, 2009, August 29, 2008 and
August 29, 2007 became available for issuance, for a total number of shares reserved for issuance under the Stock Incentive Plan of 3.0 million shares. In November 2008, the Stock
Incentive Plan was amended to limit the number of restricted shares granted to non-employee directors pursuant to the automatic annual awards described above to no more than 0.7% of the
number of fully diluted outstanding shares of our common stock as of the date of such grant. On June 3, 2010, our stockholders amended the 2001 Stock Incentive Plan to eliminate further
increases in the number of shares available for issuance under this Plan.

Following
is a description of the restricted stock and stock option awards and the activity under the 2010 Stock Incentive Plan and the 2001 Stock Incentive Plan during the years ended
December 31, 2010 and 2009.



Under the 2010 Stock Incentive Plan and the 2001 Stock Incentive Plan, holders of restricted stock awards have voting rights. Because
holders of restricted stock have voting rights, such shares are considered outstanding for financial reporting purposes, but are included in net income (loss) per share computations only to the extent
vested. In addition, certain of our restricted stock awards convey dividend rights to the holder prior to vesting. These are considered participating securities for purposes of computing net income
(loss) per share. SeeNote 13, Net Loss Per Sharefor additional information.

91

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 11Stockholders' Equity and Stock-Based Compensation (Continued)

A
summary of restricted stock award activity in 2010 and 2009 is as follows:

Number of
Shares (000s)

Weighted Average
Grant Date Per
Share Fair ValueBalance at December 31, 2008


460

$
24.70Granted:To non-employee directors


105

$
1.70Service-based awards to employees


6

$
1.45Total granted:


111

$
1.66Vested


(413
)
$
19.96Cancelled


(39
)
$
36.71Balance at December 31, 2009


119

$
15.57Granted:To non-employee directors


116

$
4.24Service-based awards to employees


2,118
(1)
$
3.58Service and market-based awards to employees:Market condition price target$7.00


1,037
(2)
$
2.50Market condition price target$10.00


1,037
(2)
$
1.99Total granted:


4,308

$
2.95Vested


(156
)
$
4.17Cancelled


(33
)
$
3.45Balance at December 31, 2010


4,238

$
3.13


(1)The
service-based restricted stock awards granted during 2010 vest annually over a three-year period from the grant date and were granted out of
the 2010 Stock Incentive Plan (1.4 million shares) and the 2001 Stock Incentive Plan (0.7 million shares).(2)The
service and market-based awards become eligible for end-of-performance-period cliff vesting 50% upon the price of our common
stock remaining at or above $7.00 per share for 20 continuous trading days at any time during the performance period and 50% upon the price of our common stock remaining at or above $10.00 per share
for 20 continuous trading days at any time during the performance period. While the service and market-based awards will become eligible for vesting upon attaining the applicable threshold, no
eligible portion of the award will vest until the end of the three-year vesting period. The service and market-based awards were granted out of the 2010 Stock Incentive Plan.


In
2010, we granted 116,000 restricted shares to certain non-employee directors which vested on the day following the date of grant. In 2009, we granted 105,000 of such
restricted share awards.

At
December 31, 2010, 3,408,000 restricted shares were outstanding under the 2010 Stock Incentive Plan and 830,000 were outstanding under the 2001 Stock Incentive Plan.

SeeNote 2, Basis of Presentation and Accounting Policiesfor a description of the valuation techniques and related assumptions and
estimates used in the calculation of stock-based compensation

92

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 11Stockholders' Equity and Stock-Based Compensation (Continued)

expense
with respect to restricted stock awards with market-related vesting conditions. The fair value estimate for the 2010 performance awards used the following assumptions: (1) expected
stock price volatility of 75%; (2) risk-free interest rate of 1.31% and (3) expected dividend yield of 0%. Stock-based compensation expense for the 2010 performance awards is
recognized over the three-year service period.

We
determine the grant date fair value of each time-based vesting restricted stock award based on our stock price at the date of the award.

At
December 31, 2010, there was approximately $9.5 million of unrecognized compensation cost related to restricted stock awards. This compensation cost is expected to be
recognized over a weighted-average period of approximately 2.4 years. The aggregate intrinsic value of the restricted stock outstanding at December 31, 2010 was $18.9 million.



A summary of stock option activity in 2010 and 2009 is as follows:

Number of
Options
(000s)

Weighted Average
Exercise Price
Per Share

Weighted Average
Remaining
Contractual Term
(years)

Aggregate
Intrinsic
Value
($000s)Balance at December 31, 2008


388

$
44.60


4.0

$
Granted to employees


365

$
1.59Cancelled


(94
)
$
47.03Exercised





Balance at December 31, 2009


659

$
20.45


3.7

$
891Granted





Cancelled


(29
)
$
75.66Exercised


(9
)
$
1.40




$
25Balance at December 31, 2010


621

$
18.10


2.8

$
954Exercisable at December 31, 2010


546

$
19.44


2.8

$
858


Options
outstanding at December 31, 2010 that are vested or are expected to vest are as follows:

Number of
Options
(000s)

Weighted Average
Exercise Price
Per Share

Weighted Average
Remaining
Contractual Term
(Years)

Aggregate
Intrinsic
Value
($000s)Vested


546

$
19.44


2.8

$
858Options expected to vest


73

$
8.42


2.8


91Total


619

$
18.15


2.8

$
949


The
aggregate intrinsic values above include only in-the-money options based on our closing stock price of $4.46 per share at December 31, 2010.

93

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 11Stockholders' Equity and Stock-Based Compensation (Continued)

The
fair value of the options granted was determined using the Black-Scholes- Merton option pricing model and the assumptions set forth below:

Year Ended December 31,2010

2009Expected life of options

No grants

3.58 yearsVolatility



141% - 149%Risk-free interest rate



1.55% - 2.13%Expected dividend yield



0.00%


The
weighted-average grant-date fair value per share of stock options granted was $1.36 during 2009.

At
December 31, 2010, there was approximately $0.3 million of unrecognized compensation cost related to stock options. This compensation cost is expected to be recognized
over a weighted-average period of approximately 1.3 years.

The
aggregate fair value of options that vested was $0.1 million in 2010, $2.4 million in 2009 and $1.6 million in 2008.

Under
the terms of awards granted under the 2001 Stock Incentive Plan, certain of our key employees' stock option and restricted stock agreements provided that, upon a change in control
of FiberTower, 100% of the stock options and restricted shares granted to such employees will become fully vested. The other employees' stock option and restricted stock agreements provided that, upon
a change in control of FiberTower, the vesting of stock options and restricted shares granted to such employees will accelerate by one year.

The
Exchange Offer and redemption of debt in December 2009, described inNote 1, Organization and Business, resulted in a change in
control of FiberTower which triggered acceleration of vesting of stock
options and restricted stock. Following are the shares and related stock-based compensation expense resulting from the acceleration of vesting recorded in the fourth quarter of 2009 (in thousands):

Stock Options

Restricted Stock

TotalShares

$

Shares

$

Shares

$Cost of service revenues


52

$
129


47

$
792


99

$
921Sales and marketing


51


96


12


170


63


266General and administrative


180


336


129


1,716


309


2,052283
(1)
$
561


188
(1)
$
2,678


471
(1)
$
3,239


(1)Three
of our officers, the compensation-related costs for whom are classified as general and administrative, waived the acceleration of vesting of a portion
of their stock option and restricted stock awards. Absent these waivers, an additional 77,000 stock options would have accelerated for a related stock-based compensation expense of $0.8 million
and 73,000 restricted shares would have accelerated for a related stock-based compensation expense of $1.1 million.


94

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 11Stockholders' Equity and Stock-Based Compensation (Continued)

Employee and non-employee stock-based compensation expense for restricted stock and stock option awards was recorded in the Consolidated Statements of Operations as follows
(in thousands):

Year Ended December 31,2010

2009

2008Cost of service revenues

$
939

$
2,234

$
2,090Sales and marketing


506


425


1,045General and administrative


2,822


5,357


3,139Total

$
4,267

$
8,016

$
6,274


In
2008, we reversed $0.9 million of previously recognized compensation cost related to the cancellation of unvested restricted stock and stock options for employees who were part
of the workforce reduction discussed inNote 4, Restructuring Charges.

We
capitalized negligible amounts of stock-based compensation expense in connection with co-location site acquisition and network construction activities during each of the
three years in the period ended December 31, 2010.

WarrantsDuring 2009, 31,000 warrants with an exercise price of $18.40 per share expired unexercised. The following table summarizes information about
outstanding warrants at December 31, 2010:

Warrants Outstanding

Warrants ExercisableExercise
Price Per
Share

Warrants
Outstanding
(000s)

Expiration
Date

Weighted
Average
Remaining
Contractual
Life (Years)

Number
Exercisable
(000s)

Weighted
Average
Exercise
Price Per
Share$
72.50


257

December 2014


4.0


257

$
72.50




Shares of common stock reserved for future issuance at December 31, 2010 were as follows (in thousands):

Convertible Senior Secured Notes Due 2012 ("Notes due 2012")


483
(1)Warrants


257Stock options and restricted shares


4,344Total shares reserved


5,084


(1)Shares
of common stock reserved for future issuance pursuant to the Notes due 2012 were reduced by (1) 2.8 million during 2009 as a result of
the repurchases of Notes due 2012 described inNote 8, Long-term Debtand (2) 4.8 million as a result of the Exchange
Offer and redemption of debt in December 2009.


95

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)




Note 12Income Taxes

A reconciliation of FiberTower's effective income tax rate as a percentage of loss before income taxes and the federal statutory tax rate is as follows:

Year ended December 31,2010

2009

2008Federal statutory income tax rate (benefit)


(35.0
)%

(35.0
)%

(35.0
)%State income taxes, net of federal benefit


(2.4
)%

183.2
%

(6.2
)%Nondeductible interest expense


0.5
%

386.6
%

0.8
%Stock-based compensation


0.5
%

91.0
%

(0.1
)%Impairment of FCC licenses








(7.1
)%Nondeductible items and other


0.0
%

26.3
%

12.4
%Impact of valuation allowance


36.9
%

(688.9
)%

27.7
%Effective tax rate (benefit)


0.5
%

(36.8
)%

(7.5
)%


As
a result of the gain on early extinguishment of debt realized on the repurchases of our Notes due 2012 during 2009 as described inNote 8,
Long-term Debt, combined with the suspension of the use of net operating losses in certain states, we recorded a state income tax provision of $0.2 million
in 2009. For federal tax purposes, the American Recovery and Reinvestment Tax Act of 2009, Section 108(i), allows a taxpayer to elect to defer the recognition of cancellation of indebtedness
income ("CODI") from debt re-acquisitions in 2009 and 2010 until 2014, and include the deferred CODI in income ratably over five years beginning in 2014. We intend to utilize this deferral
and accordingly we did not record a tax provision for the federal taxes associated with CODI realized for the year ended December 31, 2009. We established a deferred tax liability for this
election, which resulted in a corresponding and equal reduction in the valuation allowance recorded against our net deferred tax assets.

Deferred
taxes must be calculated for the cumulative temporary difference between the book and tax basis of assets and liabilities using the effective income tax rates that are expected
to be in effect when the temporary difference is expected to reverse. We have a net deferred tax liability on the balance sheet attributable to the basis differential recorded for the FCC licenses.

In
2008, we recorded an income tax benefit of $20.2 million, with a corresponding decrease to the deferred tax liability as a result of the impairment of FCC licenses. See Note 6, Impairment of FCC
Licensesfor additional information. The deferred tax liability for FCC licenses effects tax expense for increases or
decreases as the FCC licenses are indefinite-lived assets for book purposes. Accordingly, the associated deferred tax liability cannot be utilized in the determination of the valuation allowance
required for deferred tax assets due to uncertainty regarding realization.

In
2009, we updated our overall blended state tax rate computation. The impact of such update was a reduction in the overall state blended tax rate and, in turn, the carrying value of
our deferred tax
liability. Accordingly, we recorded a discrete, non-cash state income tax benefit of $1.5 million in 2009, with a corresponding decrease to the deferred tax liability.

96

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 12Income Taxes (Continued)

The
provision (benefit) for income taxes consists of the following (in thousands):

Year ended December 31,2010

2009

2008Federal:Current

$


$


$
Deferred








(19,077
)





(19,077
)State:Current


243


221


Deferred





(1,468
)

(1,112
)243


(1,247
)

(1,112
)Total

$
243

$
(1,247
)
$
(20,189
)


The
income tax provision in 2010 is attributable to uncertain tax positions recorded on state income tax returns filed in 2010. Other than the provisions and benefits for income taxes
reflected above, no other provision or benefit for income taxes has been recorded due to (1) our net losses since inception and (2) our present inability to recognize the potential
benefits of our net operating loss carryforwards, as described below.

Deferred
tax assets and liabilities are as follows (in thousands):

December 31,2010

2009Deferred tax assets:Net operating loss carryforwards

$
38,331

$
231,622Interest accretion on notes


14,963


8,993Property and equipment


8,009


4,983Other


5,699


9,915Total deferred tax assets


67,002


255,513Deferred tax liabilities:Deferred gain on extinguishment of debt


(11,450
)

(14,571
)Federal impactstate taxes


(2,693
)

(11,270
)Deferred tax assets


52,859


229,672Valuation allowance


(52,859
)

(229,672
)Net deferred tax assets

$


$
Deferred tax liabilityintangible assets

$
(71,904
)
$
(71,904
)


Due
to uncertainty in our ability to realize the net deferred tax assets, we have recorded a full valuation allowance against the net deferred tax assets at December 31, 2010 and
2009.

At
December 31, 2010, we had net operating loss carryforwards of approximately $1,717 million for federal income tax purposes. These net operating loss carryforwards begin
to expire in 2016 and fully

97

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 12Income Taxes (Continued)

expire
in 2030. During 2010, we updated our Section 382 analysis through December 31, 2009 and determined that a change in ownership occurred as a result of the Exchange Offer and
redemption of debt described inNote 1, Organization and Business. Based on this analysis, there will be approximately $1,620 million of
net operating losses that will expire unused due to the Section 382 limitation. Utilization of the net operating loss carryforwards may be subject to a further substantial annual limitation due
to historical or future ownership change rules provided by Section 382. During the year ended December 31, 2010, we decreased the valuation allowance by $176.8 million primarily
due to the reduction in deferred taxes for our net operating loss carryforwards resulting from the aforementioned Section 382 analysis offset partially by our net loss in 2010. During the year
ended December 31, 2009, we decreased the valuation allowance by $23.3 million primarily due to a reduction in the state tax rate used to compute state deferred tax assets and the
establishment of additional deferred tax liabilities.

The
following table indicates the changes in our unrecognized tax benefits for 2010, 2009 and 2008 (in thousands):

Year Ended
December 31,Unrecognized Tax Benefits

2010

2009

2008Balance at beginning of year

$
188

$


$
Additions based on tax positions taken in a prior year


243


188


Balance at end of year

$
431

$
188

$



The
entire $0.4 million would impact the effective tax rate if recognized. The statute of limitations for federal tax purposes is generally three years and for state tax purposes,
generally four years. However, we continue to carryover tax attributes prior to these periods for federal and state purposes, which would still be open for examination by the respective tax
authorities. Accordingly, all years since our inception are open to tax examinations.

Note 13Net Loss Per Share

As described inNote 1, Organization and Business, on December 18, 2009, we effected a 1-for-10
reverse split of our common stock. Accordingly, all share, option, warrant and per share information for all periods prior to the reverse stock split have been retroactively restated to reflect the
effect of the reverse stock split. Also, in 2009, we adopted guidance which resulted in the retrospective adjustment to prior period net loss per share. The guidance states that unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and shall be included in the computation of net loss per
share pursuant to the two-class method described in ASC 260-10,Earnings Per Share. The effect of the adoption of this guidance
was not material to our net loss per share.

Basic
net loss per share is computed by dividing net loss, excluding net loss allocated to participating securities, by the weighted average number of shares outstanding less the
weighted average unvested restricted shares outstanding. Diluted net loss per share is computed by dividing net loss, excluding net loss allocated to participating securities, by the denominator for
basic net loss per share and any dilutive effects of stock options, restricted stock, convertible notes and warrants. Diluted net loss per share was the same as basic net loss per share in the years
ended December 31, 2010, 2009

98

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 13Net Loss Per Share (Continued)

and
2008 because we had a net loss in those periods and inclusion of potentially issuable shares would be anti-dilutive.

The
following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):

Year ended December 31,2010

2009

2008Numerator for basic and diluted net loss per share:Net loss

$
(49,382
)
$
(2,138
)
$
(249,829
)Less: Net loss allocated to participating securities


(1,381
)

(55
)

(9,011
)Net loss attributable to common stockholders

$
(48,001
)
$
(2,083
)
$
(240,818
)Denominator for basic and diluted net loss per share:Weighted average shares outstanding


48,173


15,888


15,003Weighted average unvested restricted shares outstanding


(2,513
)

(407
)

(541
)Denominator for basic and diluted net loss per share


45,660


15,481


14,462Basic and diluted net loss per share attributable to common stockholders

$
(1.05
)
$
(0.13
)
$
(16.65
)


For
2010, 0.6 million stock options were excluded from the calculation of diluted net loss per share because their inclusion would have been anti-dilutive. Such
amounts were 0.6 million in 2009 and 0.5 million in 2008.

In
addition, during each of the three years in the period ended December 31, 2010, the calculation of diluted net loss per share excluded (1) 0.5 million shares
potentially issuable if all currently outstanding Notes due 2012 were converted (seeNote 8, Long-term Debtfor additional
information) and (2) warrants outstanding to acquire 0.3 million shares.

Note 14Related Party Transactions

During the years ended December 31, 2010 and 2009, we leased co-location space from a stockholder that (1) owns approximately 5% of our outstanding common stock
at December 31, 2010 and (2) has two of its affiliates who serve on our Board of Directors. The aggregate operating expenses included in the Consolidated Statements of Operations
pertaining to these lease arrangements, were approximately $3.9 million in 2010, $3.6 million in 2009 and $3.0 million in 2008.

99

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 15Guarantees and Other Contingencies

Regulatory MattersWe are subject to significant Federal Communications Commission, or FCC, regulation, some of which is in a state of flux due to
challenges to existing rules and proposals to create new rules, including the nation's first National Broadband Plan (NBP), which the FCC released on March 16, 2010. The NBP contains 198
specific recommendations for the FCC, Congress, or other federal, state or local entities to consider implementing in the next
2-to-24 months, including some directly or indirectly related to backhaul. However, it is not clear whether or not any or all of the recommendations will be implemented.
Such FCC regulations are subject to different interpretations and inconsistent application and have historically given rise to disputes with other carriers and municipalities regarding the
classification of traffic, rates, rights-of-way, wireless siting rights and zoning matters. Management believes that resolution of any such disputes will not have a material
adverse impact on our consolidated financial position.

License RenewalLike most other FCC licenses, the 24 GHz and 38.6-40.0 GHz (39 GHz) wide-area licenses which we hold were
granted for an initial ten-year term. All those licenses now possess renewal dates ranging from 2010 to 2021. Due to extensions granted by the FCC, the substantial majority of those 24 GHz
and 39 GHz licenses also now possess a June 1, 2012 date to meet construction requirements, also known as "substantial service" requirements.

We
hold two types of 39 GHz licenses which cover either rectangular service areas ("RSAs"), or economic areas ("EAs"). On October 1, 2008, the FCC released an Order governing
FiberTower-held 39 GHz licenses. Our RSA 39 GHz licenses with 2007 expiration dates received either (1) ten-year renewals for licenses deemed constructed or
(2) ten-year renewals contingent upon meeting construction requirements which the FCC extended until June 1, 2012. All of our RSA licenses previously scheduled to expire in
2007 that are located in our top 50 markets met the FCC's construction standard and, consequently, were renewed for ten years along with some licenses in smaller markets that were protected due to
spectrum lease or other construction activity. Our remaining 183 RSA licenses, which were scheduled to expire at various times through 2009 - 2010 and all of our 352 EA licenses which expired
October 18, 2010, are subject to this precedent and subject to both renewal application filing requirements and substantial service showings. On October 8, 2008, the FCC also extended
the substantial service deadline for the 352 EA licenses to June 1, 2012. Renewal applications filed on October 15, 2010 for these 352 EA licenses remain pending before the FCC. Recent
applications to renew or extend construction deadlines for 39 GHz licenses expiring in 2009, 2010 and 2011 have been granted by the FCC. The licenses subject to the renewals or extensions or both,
represent over 1.15 billion spectrum Points of Presence, or PoPs, in total.

To
obtain renewal of a license, the licensee must demonstrate that, at the time of renewal, it either met a "safe harbor" build-out requirement or that it has provided
substantial service as determined by the FCC. What level of service is considered "substantial" will vary depending upon the type of product offering by the licensee. The FCC has provided specific
safe harbor guidance only for point-to-point offerings, where it has indicated the licensee should have constructed four links per channel per million persons in the license
area. Licensees may show that they have met the substantial service test in other ways, such as providing niche services or offering service to underserved consumers. On May 25, 2010, the FCC
released aNotice of Proposed Rulemaking and Order In the Matter of Amendment of Parts 1, 22, 24, 27, 74, 80, 90, 95, and 101 To Establish Uniform License Renewal,
Discontinuance of Operation, and Geographic Partitioning and Spectrum Disaggregation Rules and Policies for Certain Wireless Radio Services; Imposition of a Freeze on the Filing of Competing

100

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 15Guarantees and Other Contingencies (Continued)

Renewal Applications for Certain Wireless Radio Services and the Processing of Already-Filed Competing Renewal Applications (WT Docket 10-1112)seeking to establish
new uniform license renewal ("Uniform License Renewal" proceeding) rules for many mobile and fixed wireless spectrum bands, including at 24 GHz and 39
GHz. The proposed rules include refinements or changes to the rules governing 24 GHz and 39 GHz spectrum renewal to largely mirror the renewal rules that govern the 700 MHz Commercial Services Band
(located at 698-746, 747-762 and 777-792 MHz). These 700 MHz rules requirements include a suggested requirement for geographic-area licensees to
file a "renewal showing" in which they demonstrate that they have and are continuing to provide service. The existing 24 GHz and 39 GHz renewal and substantial service requirements will govern
until theUniform License Renewalproceeding produces a final Order. We filed comments in theUniform License
Renewalproceeding on August 6, 2010 and are actively monitoring this proceeding, which remains pending. It is not clear if theUniform License
Renewalproceeding will take months, 1-to-2 years, or longer to fully conclude.

Currently,
licensees are required, prior to the expiration date of their licenses, to file renewal applications with an exhibit demonstrating compliance with the substantial service
criteria. If an entity is deemed not to have provided substantial service through meeting the safe harbor build-out requirement or through other means with respect to a license for which
renewal is sought, the renewal will not be granted and the license will expire.

In
October 2010, the FCC extended the buildout requirement deadline for 102 of our 103, 24 GHz licenses, in response to our August 26, 2010 extension request. We are required, or
expect to be required, to demonstrate substantial service by June 1, 2012 for the majority of our 39 GHz licenses, and for the 102 licenses in the 24 GHz band. We filed renewal applications for
those 102 licenses in the 24 GHz band prior to their February 1, 2011 expiration date, yet expect their renewal to be conditioned upon meeting the June 1, 2012 buildout requirement. 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 by June 1, 2012. We believe that our licenses will be renewed based on (1) our significant network investment, (2) spectrum offerings, (3) market leadership,
(4) expanding geographic coverage and (5) the ability to convey to the FCC information about best practices for refreshing the license renewal standards through the Uniform License Renewalproceeding. This proceeding, which also addresses the spectrum bands that our mobile
customers use to operate their networks, could prove to be a catalyst or an obstacle to wireless network operators, depending upon whether the license renewal standards ultimately adopted are
market-oriented. However, since we are required to demonstrate substantial service at the time licenses are renewed, the FCC has little and possibly changing 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.

We
continue to meet regularly with the FCC and are committed to present data on our significant market leadership, network investment and expanding geographic coverage to make the
spectrum bands viable and able to provide substantial service at renewal and in the long term. We continue to believe that we will meet the substantial service requirements necessary for renewal at
the appropriate deadlines and will continue to engage the FCC on this subject.

Other guaranteesFrom time to time, we enter into certain types of contracts that contingently require us to indemnify various parties against claims
from third parties. These contracts primarily relate to: (1) certain real estate leases, under which we may be required to indemnify property owners

101

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)

Note 15Guarantees and Other Contingencies (Continued)

for
environmental and other liabilities and for other claims arising from our use of the applicable premises; (2) certain agreements with our officers, directors and employees, under which we
may be required to indemnify such persons for liabilities arising out of the performance of their duties; (3) contracts under which we may be required to indemnify customers against third-party
claims that a FiberTower product or service infringes a patent, copyright or other intellectual property right; and (4) procurement or license agreements under which we may be required to
indemnify licensors or vendors for certain claims that may be brought against them arising from our acts or omissions with respect to the supplied products or technology.

Generally,
a maximum obligation under these contracts is not explicitly stated. Because the obligated amounts associated with these types of agreements are not explicitly stated, the
overall maximum amount of the obligation cannot be reasonably estimated. Historically, we have not been required to make payments under these obligations, and no liabilities have been recorded for
these obligations in our Consolidated Balance Sheets.

Legal proceedingsWe are subject to certain legal proceedings and claims in the ordinary course of business. In the opinion of management, the
ultimate outcome of these matters will not have a material impact on our financial position or results of operations.

Note 16Selected Quarterly Financial Information (Unaudited)

FiberTower's 2010 and 2009 unaudited selected consolidated quarterly financial information is as follows (in thousands except per share amounts):

Quarters EndedMarch 31

June 30

September 30

December 312010Service revenues

$
17,823

$
18,388

$
19,443

$
20,464Cost of service revenues

$
13,997

$
15,205

$
15,022

$
16,988Loss from operations

$
(8,661
)
$
(9,595
)
$
(8,180
)
$
(9,595
)Net loss

$
(11,808
)
$
(13,051
)
$
(11,766
)
$
(12,757
)Basic and diluted net loss per share attributable to common stockholders

$
(0.26
)
$
(0.28
)
$
(0.25
)
$
(0.27
)2009Service revenues

$
14,719

$
15,579

$
16,213

$
16,733Cost of service revenues

$
14,141

$
14,158

$
14,672

$
15,249Loss from operations

$
(13,581
)
$
(11,255
)
$
(11,810
)
$
(17,638
)Net income (loss)

$
26,712

$
20,791

$
(21,843
)
$
(27,798
)Basic net income (loss) per share attributable to common stockholders

$
1.76

$
1.37

$
(1.44
)
$
(1.53
)Diluted net income (loss) per share attributable to common stockholders

$
1.76

$
1.36

$
(1.44
)
$
(1.53
)


(1)Net
income (loss) for the quarter ended March 31, 2009 included a $53.7 million gain on early extinguishment of debt which was $3.66 per basic
and diluted share. Net income (loss) for the quarter ended June 30, 2009 included a $44.6 million gain on early extinguishment of debt which was $3.03 per basic share and $3.00 per
diluted share. SeeNote 8, Long-term Debtfor discussion of the repurchases of debt resulting in these gains.


102

---



Table of Contents

FIBERTOWER CORPORATION

Notes to Consolidated Financial Statements (Continued)




Note 17Subsequent Events (Unaudited)



In February 2011, we received an early termination notice from Clearwire Corporation to terminate service at approximately 220 billing
locations effective February 28, 2011, and that they are reviewing approximately 50 additional locations for possible early termination by March 31, 2011. The monthly billing revenue
generated by the service terminated February 28, 2011 is approximately $256 thousand while the monthly billing revenue generated by locations being evaluated for March termination is
approximately $88 thousand.

We
recognize that it is normal course of business for customers to make decisions to take down service based on their own particular circumstances or requirements. For this reason, we
include early termination liability in all of our contracts. Upon termination of the services mentioned above, the customer's early termination charges would be approximately $2.2 million
payable immediately.

The
monthly billing revenue terminated and being reviewed for termination represent a portion of our total service contracted by Clearwire. We also consider at potential risk of
termination the approximately $426 thousand remaining monthly billing revenue from Clearwire, which would also be subject to additional early termination charges.

We
do not believe that these early terminations will have a material impact on our cash position in 2011.



On March 3, 2011, we implemented a reduction in force throughout FiberTower resulting in a reduction of approximately 10% of our
employee headcount. These actions are designed to reduce our cost structure and are expected to help improve our operating results in 2011. We believe this reduction in force will not impact our
ability to continue to meet any of our deployment, operational, sales or customer service commitments.

103

---





Table of Contents

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

We do not have any disagreements with our accountants on accounting and financial disclosure matters.

ITEM 9A.    CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

As of December 31, 2010, our management carried out an evaluation under the supervision and with the participation of our Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective
at the reasonable assurance level to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-K, (1) is recorded,
processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to FiberTower's management, including its principal
executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are
designed to provide reasonable assurance that such information is accumulated and communicated to our management.

(b) Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal ControlIntegrated
Framework.Our management has concluded that, as of December 31, 2010, our internal control over
financial reporting is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Our independent registered public accounting firm, Ernst & Young, LLP, has issued an audit report on our internal control over financial
reporting, which is included at Item 9A(d) below.

Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial
reporting will necessarily prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within FiberTower have been
detected.

(c) Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2010, there were no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

104

---



Table of Contents

(d) Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
FiberTower Corporation

We
have audited FiberTower Corporation's internal control over financial reporting as of December 31, 2010, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). FiberTower Corporation's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, FiberTower Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO
criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FiberTower Corporation as of
December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010
of FiberTower Corporation and our report dated March 11, 2011 expressed an unqualified opinion thereon.



San
Francisco, California
March 11, 2011

105

---



Table of Contents

ITEM 9B.    OTHER INFORMATION

None

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding Directors, Executive Officers and Corporate Governance required by Item 10 is incorporated by
reference to our proxy statement for our 2011 Annual Meeting of Stockholders, which we refer to as our 2011 Proxy Statement.

ITEM 11.    EXECUTIVE COMPENSATION

The information regarding Executive Compensation required by Item 11 is incorporated by reference to our 2011 Proxy Statement.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters required by
Item 12 is incorporated by reference to our 2011 Proxy Statement.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information regarding Certain Relationships and Related Transactions and Director Independence required by Item 13 is
incorporated by reference to our 2011 Proxy Statement.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information regarding Principal Accountant Fees and Services required by Item 14 is incorporated by reference to our 2011
Proxy Statement.

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

106

---





Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIBERTOWER CORPORATIONDate: March 11, 2011

By:

/s/ THOMAS A. SCOTT Thomas A. Scott Chief Financial Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

/s/ KURT J. VAN WAGENEN Kurt J. Van Wagenen

President, Chief Executive Officer and Director (Principal Executive Officer)

March 11, 2011/s/ THOMAS A. SCOTT Thomas A. Scott

Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

March 11, 2011/s/ JOHN P. KELLY John P. Kelly

Chairman and Director

March 11, 2011/s/ JOHN K. BRANIFF John K. Braniff

Director

March 11, 2011/s/ RANDALL A. HACK Randall A. Hack

Director

March 11, 2011/s/ MARK E. HOLLIDAY Mark E. Holliday

Director

March 11, 2011/s/ PHILIP M. KELLEY Philip M. Kelley

Director

March 11, 2011/s/ STEVEN D. SCHEIWE Steven D. Scheiwe

Director

March 11, 2011


107

---





Table of Contents

EXHIBIT INDEX

Exhibit No.

Exhibit2.1

Agreement and Plan of Merger, dated May 14, 2006, among First Avenue Networks, Inc., FiberTower Corporation and Marlin Acquisition Corporation (incorporated by reference to Registrant's current report on
Form 8-K filed on May 18, 2006).3.1

Amended and Restated Certificate of Incorporation of the Registrant, as amended as of July 23, 2010 (incorporated by reference to Exhibit 3.1 to the Registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 2010).3.2

Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K filed on August 3, 2007).3.3

Amendment to Bylaws (incorporated by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K filed on January 22, 2008).4.1

Specimen of Common Stock Certificate (incorporated by reference to the Registrant's registration statement on Form S-8 (Reg. No. 333-137040) filed on August 31, 2006).4.2

Indenture, dated as of November 9, 2006, among FiberTower Corporation, as issuer, the guarantors named therein, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Registrant's current report on Form 8-K filed on November 15, 2006).4.3

First Supplemental Indenture, dated as of December 7, 2009, to Indenture, dated as of November 9, 2006, among FiberTower Corporation, as issuer, the guarantors named therein, and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.4 to the Registrant's current report on Form 8-K filed on December 11, 2009).4.4

Second Supplemental Indenture, dated as of December 16, 2009, to Indenture, dated as of November 9, 2006, among FiberTower Corporation, as issuer, the guarantors named therein, and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.4 to the Registrant's annual report on Form 10-K for the year ended December 31, 2009).4.5

Form of 9.00% Convertible Senior Secured Notes due 2012, including the form of Guarantee (incorporated by reference to Exhibits A and E to Exhibit 4.1 to the Registrant's current report on Form 8-K
filed on November 15, 2006).4.6

Pledge and Security Agreement, dated as of November 9, 2006, among FiberTower Corporation, the subsidiary grantors named therein, and Wells Fargo Bank, National Association, as collateral agent (incorporated by
reference Exhibit 10.4 to the Registrant's current report on Form 8-K filed on November 15, 2006).4.7

First Amendment to Pledge and Security Agreement, dated as of December 7, 2009, among FiberTower Corporation, the subsidiary grantors named therein, and Wells Fargo Bank, National Association (as collateral
agent) (incorporated by reference to Exhibit 4.7 to the Registrant's annual report on Form 10-K for the year ended December 31, 2009).4.8

Omnibus Intercreditor Agreement, dated as of December 7, 2009, among Wells Fargo Bank, National Association, in the capacities described therein, FiberTower Corporation, and the subsidiaries of FiberTower
Corporation party thereto (incorporated by reference to Exhibit 4.12 to the Registrant's annual report on Form 10-K for the year ended December 31, 2009).4.9

Indenture, dated as of December 22, 2009, among FiberTower Corporation, as issuer, the guarantors named therein, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Registrant's current report on Form 8-K filed on December 29, 2009).


108

---



Table of Contents

Exhibit No.

Exhibit4.10

Form of 9.00% Senior Secured Note due 2016, including the form of Guarantee (incorporated by reference to Exhibits A and D to Exhibit 4.1 to the Registrant's current report on Form 8-K filed on
December 29, 2009).4.11

Collateral Agreement, dated as of December 22, 2009, among FiberTower Corporation, the subsidiaries of FiberTower Corporation from time to time party thereto, and Wells Fargo Bank, National Association, as
collateral agent (incorporated by reference to Exhibit 4.16 to the Registrant's annual report on Form 10-K for the year ended December 31, 2009).4.12

Amended and Restated Intercreditor Agreement, dated as of December 22, 2009, among Wells Fargo Bank, National Association, in the capacities described therein, FiberTower Corporation, and the subsidiaries of
FiberTower Corporation party thereto (incorporated by reference to Exhibit 4.17 to the Registrant's annual report on Form 10-K for the year ended December 31, 2009).4.13

Registration Rights Agreement, dated as of December 22, 2009, among FiberTower Corporation, the subsidiaries of FiberTower Corporation party thereto, and the noteholders party thereto (incorporated by reference
to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on December 29, 2009).10.1

Form of Common Stock Purchase Warrant issued to Tejas Securities Group, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant's annual report on Form 10-K for the year ended December 31,
 2004).*10.2

Form of Stock Option Agreement under First Avenue Networks, Inc. Stock Incentive Plan (incorporated by reference to Exhibit 4.11 to the Registrant's registration statement on Form S-8 (Reg.
No. 333-137040) filed on August 31, 2006).*10.3

Form of Restricted Stock Agreement under First Avenue Networks, Inc. Stock Incentive Plan (incorporated by reference to Exhibit 10.11 to the Registrant's annual report on Form 10-K for the year ended
December 31, 2006).*10.4

FiberTower Corporation Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 4.9 to the Registrant's registration statement on Form S-8 (Reg. No. 333-137040) filed on
August 31, 2006).*10.5

Form of Stock Option Agreement under FiberTower Corporation Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 4.10 to the Registrant's registration statement on Form S-8 (Reg.
No. 333-137040) filed on August 31, 2006).*10.6

Amended and Restated FiberTower Corporation Stock Incentive Plan as amended as of November 12, 2008 (incorporated by reference to Exhibit 10.13 to the Registrant's annual report on Form 10-K for the
year ended December 31, 2008).*10.7

Amendment to the FiberTower Corporation Amended and Restated Stock Incentive Plan (incorporated by reference to Appendix C to the Registrant's definitive proxy statement on Schedule 14A filed on
April 26, 2010).*10.8

Letter Agreement, dated February 11, 2008, by and between the Company and Thomas A. Scott (incorporated by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed on
February 13, 2008).*10.9

Waiver of Acceleration of Benefits Upon Change of Control, dated December 16, 2009, by and between FiberTower Corporation and Thomas A. Scott (incorporated by reference to Exhibit 10.2 to the Registrant's
current report on Form 8-K filed on December 21, 2009).*10.10

Letter Agreement, dated February 11, 2008, by and between the Company and Ravi Potharlanka (incorporated by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed on
February 13, 2008).


109

---



Table of Contents

Exhibit No.

Exhibit*10.11

Waiver of Acceleration of Benefits Upon Change of Control, dated December 16, 2009, by and between FiberTower Corporation and Ravi Potharlanka (incorporated by reference to Exhibit 10.3 to the Registrant's
current report on Form 8-K filed on December 21, 2009).*10.12

Executive Employment Agreement, dated April 9, 2008, between Kurt J. Van Wagenen and FiberTower Corporation (incorporated by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K
filed on April 14, 2008).*10.13

Letter Agreement, dated April 9, 2008, between Kurt J. Van Wagenen and FiberTower Corporation (incorporated by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed on
April 14, 2008).*10.14

Waiver of Acceleration of Benefits Upon Change of Control, dated December 16, 2009, by and between FiberTower Corporation and Kurt J. Van Wagenen (incorporated by reference to Exhibit 10.1 to the
Registrant's current report on Form 8-K filed on December 21, 2009).10.15

Form of Indemnification Agreement with Directors (incorporated by reference to Exhibit 10.19 to the Registrant's annual report on Form 10-K for the year ended December 31, 2008).*10.16

FiberTower Corporation 2010 Stock Incentive Plan (incorporated by reference to Appendix B to the Company's definitive proxy statement on Schedule 14A filed on April 26, 2010).*10.17

Form of Restricted Stock Agreement under the FiberTower Corporation 2010 Stock Incentive Plan (Time-Vesting) (incorporated by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed on
June 3, 2010).*10.18

Form of Restricted Stock Agreement under the FiberTower Corporation 2010 Stock Incentive Plan (Performance-Vesting) (incorporated by reference to Exhibit 10.3 to the Registrant's current report on Form 8-K
filed on June 3, 2010).21.1

List of subsidiaries23.1

Consent of Independent Registered Public Accounting Firm31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended32.1

Certification of the Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

Certification of the Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Filed
herewith*Management
contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.


110

---