Cricket Wireless 2012 Annual Report Download - page 90

On February 11, 2011, we entered into an agreement with Global Tower, LLC or GTP, to sell certain of our
telecommunications tower assets in one or more closings. During the second and third quarters of 2011, we sold
those telecommunications towers and related assets for approximately $25.8 million. The transaction was
structured as a sale lease-back financing, in which we entered into a 10-year lease agreement with GTP to
continue our commercial use of the towers. Accordingly, we recorded a capital lease obligation of $25.8 million,
which was equal to the proceeds received from GTP.
iPhone Purchase Commitment
In May 2012, we entered into a three-year iPhone purchase commitment with Apple. The commitment
began upon our launch of sales of the iPhone in June 2012. Based on our current handset purchase and sales mix
and current iPhone device pricing, we estimate that the commitment would require us to purchase approximately
$800 million of iPhones, with annual commitments during the three-year period that increase moderately in the
second and third years. We project that the minimum number of iPhones that we are required to purchase from
Apple over the term of the commitment would represent 10% or less of the total number of handsets we expect to
sell to new and upgrading customers over the period of the commitment and for approximately one year
thereafter. However, the actual amount that we spend and the number of devices that we purchase over the term
of the commitment will depend on many factors, including customer acceptance and availability of current and
future versions of the device, future costs for the device, the success of our marketing and advertising efforts,
customer demand for devices offered by other manufacturers and other factors.
At our current purchase rate, we project that we will purchase approximately one-half of our first-year
minimum purchase commitment through June 2013, although the actual amount of our purchases will depend on
the factors described above. If Apple were to require us to meet the annual minimum commitment in each of the
three years of the contract term, we estimate that we would be required to purchase approximately $100 million
of additional iPhones in mid-2013 above our current purchase rate, approximately $150 million of additional
iPhones in mid-2014 above our current purchase rate and approximately $200 million of additional iPhones in
mid-2015 above our current purchase rate. We believe, however, that we will be able to increase our current
iPhone sales rate and purchase and sell the required minimum number of devices over the period of the
commitment and for a subsequent inventory sell-through period not to exceed one year. We are pursuing a
number of programs to expand sales volume, including exploring expanded device leasing and financing
programs and working with Apple to increase our advertising and promotional programs to increase awareness of
our iPhone offering. In addition, if Apple introduces an AWS-compatible version of the iPhone in the future, we
will be able to sell the device in additional markets covering approximately 40% of our covered POPs. We also
have the flexibility to modify the price at which we offer the iPhone to drive increased volume. In addition, it is
possible that we and Apple could agree to revise the requirements under, or extend the term of, our purchase
commitment, although our current capital and liquidity projections do not assume that such a modification will
occur.
Wholesale Agreement
In August 2010, we entered into a wholesale agreement with an affiliate of Sprint Nextel which we use to
offer Cricket services in nationwide retailers outside of our current network footprint. The initial term of the
wholesale agreement runs until December 31, 2015, and automatically renews for successive one-year periods
unless either party provides 180-day advance notice to the other. Under the agreement, we pay Sprint a specified
amount per month for each subscriber activated on its network, subject to periodic market-based adjustments. We
have agreed, among other things, to purchase a minimum of $300 million of wholesale services over the initial
five-year term of the agreement, with the following annual minimum purchase commitments: $20 million in
2011; $75 million in 2012; $80 million in 2013; $75 million in 2014; and $50 million in 2015. We entered into
an amendment to the wholesale agreement in February 2013 to enable us to purchase 4G LTE services. In
addition, under the amendment, we can credit up to $162 million of revenue we provide Sprint under other
existing commercial arrangements against the minimum purchase commitment. Any wholesale revenue we
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