America Online 2015 Annual Report Download - page 51

Spectrum License Transactions
Since 2013, we have entered into several strategic spectrum transac-
tions including:
• During the first quarter of 2013, we completed license exchange
transactions with T- Mobile License LLC and Cricket License
Company, LLC, a subsidiary of Leap Wireless, to exchange certain
Advanced Wireless Services (AWS) licenses. These non-cash
exchanges included a number of intra- market swaps that we expect
will enable Verizon Wireless to make more efficient use of the AWS
band. As a result of these exchanges, we received an aggregate
$0.5billion of AWS licenses at fair value and recorded an immate-
rial gain.
• During the third quarter of 2013, after receiving the required regu-
latory approvals, Verizon Wireless sold 39 lower 700 MHz B block
spectrum licenses to AT&T Inc. (AT&T) in exchange for a payment
of $1.9billion and the transfer by AT&T to Verizon Wireless of AWS
(10 MHz) licenses in certain markets in the western United States.
Verizon Wireless also sold certain lower 700 MHz B block spectrum
licenses to an investment firm for a payment of $0.2billion. As a
result, we received $0.5billion of AWS licenses at fair value and
we recorded a pre-tax gain of approximately $0.3billion in Selling,
general and administrative expense on our consolidated statement
of income for the year ended December31, 2013.
• During the second quarter of 2014, we completed license exchange
transactions with T- Mobile USA, Inc. (T- Mobile USA) to exchange
certain AWS and Personal Communication Services (PCS) licenses.
The exchange included a number of swaps that we expect will result
in more efficient use of the AWS and PCS bands. As a result of these
exchanges, we received $0.9billion of AWS and PCS spectrum
licenses at fair value and we recorded an immaterial gain.
• During the second quarter of 2014, we completed transactions
pursuant to two additional agreements with T- Mobile USA with
respect to our remaining 700 MHz A block spectrum licenses.
Under one agreement, we sold certain of these licenses to
T- Mobile USA in exchange for cash consideration of approximately
$2.4billion, and under the second agreement we exchanged the
remainder of our 700 MHz A block spectrum licenses as well as
AWS and PCS spectrum licenses for AWS and PCS spectrum
licenses. As a result, we received $1.6billion of AWS and PCS
spectrum licenses at fair value and we recorded a pre-tax gain of
approximately $0.7billion in Selling, general and administrative
expense on our consolidated statement of income for the year
ended December31, 2014.
• During the third quarter of 2014, we entered into a license exchange
agreement with affiliates of AT&T to exchange certain AWS and
PCS spectrum licenses. This non-cash exchange was completed in
January 2015 at which time we recorded an immaterial gain.
• On January29, 2015, the FCC completed an auction of 65 MHz
of spectrum, which it identified as the AWS-3 band. Verizon par-
ticipated in that auction and was the high bidder on 181 spectrum
licenses, for which we paid cash of approximately $10.4billion.
During the fourth quarter of 2014, we made a deposit of $0.9billion
related to our participation in this auction which is classified within
Other, net investing activities on our consolidated statement of cash
flows for the year ended December31, 2014. During the first quarter
of 2015, we submitted an application to the FCC and paid $9.5billion
to the FCC to complete payment for these licenses. The cash
payment of $9.5billion is classified within Acquisitions of wireless
licenses on our consolidated statement of cash flows for the year
ended December31, 2015. On April8, 2015, the FCC granted us
these spectrum licenses.
• During the fourth quarter of 2015, we completed a license exchange
transaction with an affiliate of T- Mobile USA to exchange certain
AWS and PCS spectrum licenses. As a result we received
$0.4billion of AWS and PCS spectrum licenses at fair value and
recorded a pre-tax gain of approximately $0.3billion in Selling,
general and administrative expense on our consolidated statement
of income for the year ended December31, 2015.
• During the fourth quarter of 2015, we entered into a license
exchange agreement with affiliates of AT&T to exchange certain
AWS and PCS spectrum licenses. This non-cash exchange is
expected to be completed during the first quarter of 2016 and we
expect to record an immaterial gain.
• During the first quarter of 2016, we entered into a license exchange
agreement with affiliates of Sprint Corporation, which provides for
the exchange of certain AWS and PCS spectrum licenses. This
non-cash exchange is expected to be completed in the second
quarter of 2016 and we expect to record an immaterial gain.
Tower Monetization Transaction
During March 2015, we completed a transaction with American Tower
Corporation (American Tower) pursuant to which American Tower
acquired the exclusive rights to lease and operate approximately
11,300 of our wireless towers for an upfront payment of $5.0billion.
Under the terms of the leases, American Tower has exclusive rights to
lease and operate the towers over an average term of approximately
28 years. As the leases expire, American Tower has fixed-price
purchase options to acquire these towers based on their anticipated
fair market values at the end of the lease terms. As part of this trans-
action, we also sold 162 towers for $0.1billion. We have subleased
capacity on the towers from American Tower for a minimum of 10
years at current market rates, with options to renew. The upfront
payment, including the towers sold, which is primarily included within
Other liabilities on our consolidated balance sheet, is accounted for as
deferred rent and as a financing obligation. The $2.4billion accounted
for as deferred rent, which is presented within Other, net cash flows
provided by operating activities, relates to the portion of the towers
for which the right-of-use has passed to the tower operator. The
$2.7billion accounted for as a financing obligation, which is presented
within Other, net cash flows used in financing activities, relates to the
portion of the towers that we continue to occupy and use for network
operations.
Other
During 2015, 2014 and 2013, we acquired various other wireless
licenses and markets for cash consideration that was not significant.
Additionally, during 2013, we obtained control of previously uncon-
solidated wireless partnerships, which were previously accounted for
under the equity method and are now consolidated, which resulted in
an immaterial gain. In 2013, we recorded $0.2billion of goodwill as a
result of these transactions.
49Verizon Communications Inc. and Subsidiaries
Notes to Consolidated Financial Statements continued