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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended March 31, 2011

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                  to                

Commission File Number 000-21091

FIBERTOWER CORPORATION

(Exact name of registrant as specified in its charter)

185 Berry Street

Suite 4800

San Francisco, CA 94107

(Address of principal executive offices)

(415) 659-3500

(Registrant’s telephone number, including area code)

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 x 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: The registrant had 49,647,405 shares of its common stock outstanding as of April 29, 2011.

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FIBERTOWER CORPORATION

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ITEM 1.   FINANCIAL STATEMENTS

FIBERTOWER CORPORATION

Condensed Consolidated Balance Sheets

(In thousands, except par value)

See accompanying notes.

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FIBERTOWER CORPORATION

Condensed Consolidated Statements of Operations

(unaudited)

(In thousands, except per share data)

See accompanying notes.

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FIBERTOWER CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

See accompanying notes.

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FIBERTOWER CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 $686.0 million at March 31, 2011. 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.  Our future performance will be affected by financial, business, economic, legislative and other factors, many of which are beyond our control.

Based upon our current plans, we believe that our existing cash and cash equivalents of $14.4 million at March 31, 2011, will be sufficient to cover our estimated liquidity needs until at least March 31, 2012.  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 $13 million and $17 million in capital expenditures during 2011.

We expect that we will be required to obtain financing through the issuance of equity or debt securities, or both, in order to repay our Notes due 2012 when they mature on November 15, 2012, as we do not expect cash flow from operations alone to be sufficient for such purpose.  We also expect that we will be required to obtain such financing to meet our other liquidity needs in the future. There can be no assurance that this financing will be available to us. 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. In addition, the terms of our debt agreements may restrict us from adopting some of these alternatives.

Note 2—Basis of Presentation and Accounting Policies

Principles of consolidation and basis of presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.

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There have been no material changes in our significant accounting policies as of March 31, 2011 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2010.

Concentrations of significant customers— For the three months ended March 31, 2011 and 2010, the following customers accounted for a significant portion of our revenues:

Accounts receivable from these customers comprised the following percentages of our total accounts receivable balances at March 31, 2011 and December 31, 2010:

During the three months ended March 31, 2001, Clearwire terminated service at 220 billing locations, representing approximately $256 thousand in monthly service revenue. We recognized approximately $1.5 million in revenue from Clearwire from the collection of early termination charges.  See Note 11, Subsequent Event for information about an additional early termination notice received from Clearwire in April 2011 to terminate service at approximately 375 additional billing locations effective April 30, 2011.  As a result of the Clearwire terminations, the concentration of revenue from significant customers becomes greater.  If revenue from the contracts terminated by Clearwire to date in 2011 had not been recorded during the three months ended March 31, 2011, the percentage of our revenues from AT&T Mobility would have been approximately 50%, from Sprint Nextel approximately 19% and from T-Mobile approximately 13% in the three months ended March 31, 2011.

Also during the three months ended March 31, 2011, we recognized approximately $0.7 million in revenue from the collection of early termination charges from other customers.  Revenue from customers’ early termination of their contracts is recognized when payment is received.  We do not record accounts receivable related to early termination charges.

Recent accounting pronouncements — There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2011, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2010, that are of significance, or potential significance, to us.

Note 3—Property and Equipment

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

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

We capitalize certain costs related to software developed or obtained.  Computer software costs of $0.5 million were capitalized in the three months ended March 31, 2011 and $0.2 million were capitalized in the three months ended March 31, 2010.

Assets classified as construction-in-progress are not being depreciated as they have not yet been placed in service.

See discussion in Note 4, Long-term Debt and Capital Lease regarding the network equipment under capital lease.

Note 4—Long-term Debt and Capital Lease

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

9.00% Senior Secured Notes Due 2016 (“Notes due 2016”)

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 principal amount of the Notes due 2016 at March 31, 2011 was $120.6 million and at December 31, 2010 was $117.1 million.

The change in the carrying value of our Notes due 2016 for the three months ended March 31, 2011 is summarized as follows (in thousands):

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 1 of 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 $1.5 million increase of the carrying value of the Notes due 2016 in the three months ended March 31, 2011.  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 Condensed Consolidated Balance Sheets, which, together with the earnings thereon, was an amount sufficient to pay the cash portion of the first six interest payments.  On each of January 1, 2011 and July 1, 2010, we paid the $1.8 million cash portion of the first two interest payments.

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 passu in right of payment with all of our and the guarantors’ existing and future senior indebtedness, including our Notes due 2012. Because the liens

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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 Condensed 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 March 31, 2011, 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 5, Fair Value Disclosures for disclosure of the fair value of our Notes due 2016.

9.00% Convertible Senior Secured Notes Due 2012 (“Notes due 2012”)

The change in the carrying value of our Notes due 2012 for the three months ended March 31, 2011 is summarized as follows (in thousands):

The Notes due 2012, which mature on November 15, 2012, 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, 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 $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 began to accrue from the date they were issued. The interest rate applicable to such interest payments made in additional Notes due 2012 is 11%. Interest payments after November 15, 2010 are payable only in cash.

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.

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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 rank pari passu in 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 Condensed 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.

We concluded that the embedded feature of the Notes due 2012 related to the make-whole premium and the designated event make-whole premium qualified as derivatives (“Derivative”). The carrying value of the Derivative at March 31, 2011 and December 31, 2010 was zero.

See Note 5, Fair Value Disclosures for disclosure of the fair value of our Notes due 2012 and the Derivative.

Obligation under Capital Lease

In 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 March 31, 2011 and December 31, 2010 was $4.2 million as shown in Note 3, Property and Equipment.

Note 5—Fair Value Disclosures

The following table presents information about our assets measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

(1)                                  Includes $4.5 million of money market mutual funds which invest in U.S. Government securities.

(2)                                  Includes $14.5 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 Condensed Consolidated Balance Sheets are classified as held-to-maturity and are reported at amortized cost which approximates fair value at March 31, 2011.

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

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The estimate of fair value for the Notes due 2016 and Notes due 2012 was determined based on bids from market makers.

The fair value of the Derivative at March 31, 2011 and December 31, 2010 was zero. 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 6—Stockholders’ Equity and Stock-Based Compensation

As provided for under the terms of the FiberTower Corporation 2001 Stock Incentive Plan (the “2001 Stock Incentive Plan”), in the first quarter of 2011 we awarded 135,000 restricted shares to certain non-employee directors pursuant to automatic annual awards which vested on the day following the date of grant.  In the first quarter of 2010, we awarded 97,000 restricted shares pursuant to such awards.

During the first quarter of 2011, we granted a service-based restricted stock award of 1,000 shares to an employee that vests annually over a three-year period.  During the first quarter of 2010, we did not award restricted shares to employees.  Under the FiberTower Corporation 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.  See Note 8, Net Loss Per Share for additional information.

A summary of restricted stock award activity for the three months ended March 31, 2011 and 2010 is as follows:

The weighted-average grant date fair value per share of restricted stock awarded was $3.64 during the three months ended March 31, 2011 and $4.37 during the three months ended March 31, 2010.

At March 31, 2011, there was approximately $7.6 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 2.1 years.  The aggregate intrinsic value of the restricted stock outstanding at March 31, 2011 was $7.4 million.

During the first quarter of 2011 and 2010, we did not award stock options.

A summary of stock option activity for the three months ended March 31, 2011 and 2010 is as follows:

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At March 31, 2011, there was approximately $0.2 million of unrecognized compensation cost related to stock options. This compensation cost is expected to be recognized over a weighted-average period of approximately one year.

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

During the three months ended March 31, 2011, we reversed $0.2 million of previously recognized compensation cost related to the cancellation of unvested restricted stock awarded to sales and marketing employees whose employment terminated.  Such amounts were $0.1 million for employees whose payroll-related costs are classified as cost of service revenues and $0.1 million for general and administrative employees.

Warrants — At March 31, 2011, there were 257,000 common stock warrants outstanding with an exercise price of $72.50 per share.  Such warrants expire in December 2014.

Common Stock Reserved for Future Issuance

Shares of common stock reserved for future issuance at March 31, 2011 were as follows (in thousands):

Note 7—Income Taxes

Unrecognized tax benefits were $0.4 million at March 31, 2011, unchanged from December 31, 2010.

There is no income tax benefit from our net loss for the three months ended March 31, 2011 as we have recorded a full valuation allowance against our net deferred tax assets.

Note 8—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 three months ended March 31, 2011 and 2010 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):

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For the three months ended March 31, 2011, 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 amount was 0.7 million in the three months ended March 31, 2010.

In addition, during each of the three months ended March 31, 2011 and 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 (see Note 4, Long-term Debt and Capital Lease for additional information) and (2) warrants outstanding to acquire 0.3 million shares.

Note 9—Related Party Transactions

During the three months ended March 31, 2011 and 2010, we leased co-location space from a stockholder that (1) owns approximately 5% of our outstanding common stock at March 31, 2011 and (2) has two of its affiliates who serve on our Board of Directors. The aggregate operating expenses included in the Condensed Consolidated Statements of Operations pertaining to these lease arrangements, were approximately $1.0 million for each of the three months ended March 31, 2011 and March 31, 2010.

Note 10—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 but not limited to, 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.  Many such recommendations are presently under active FCC, Congressional or Executive Branch consideration, including some directly or indirectly related to backhaul. However, it is not clear the extent to which the recommendations will be implemented. Such FCC regulations, legislation and Executive Branch policies are subject to different interpretations and inconsistent application.  They have historically given rise to disputes with other carriers and municipalities regarding the classification of traffic, rates, rights-of-way, spectrum policy, government procurement policy, backhaul platforms, Universal Service Funding for broadband, network reliability, 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 24.25-24.45 GHz and 25.05-25.25 GHz (24GHz) 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 2011 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

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which expired October 18, 2010, are subject to this precedent and were renewed subject to both renewal application filing requirements and substantial service showings or construction extension requests. Accordingly, on October 8, 2008, the FCC extended the substantial service deadline for the 352 EA licenses to June 1, 2012. Applications to renew without condition or renew subject to meeting an extended June 1, 2012 construction deadline for: (1) 39 GHz RSA licenses expiring in 2009 and 2010; and (2) for the 352 EA licenses, have been granted. Recent applications to renew without condition or renew subject to meeting an extended June 1, 2012 construction deadline for 39 GHz RSA licenses expiring in 2011 remain pending. The licenses subject to the unconditioned renewal applications or renewal subject to June 1, 2012 construction deadline 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 a Notice 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 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 the Uniform License Renewal proceeding produces a final Order. We filed comments in the Uniform License Renewal proceeding on August 6, 2010 and are actively monitoring and engaging in this proceeding, which remains pending. It is not clear if the Uniform License Renewal proceeding 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 Renewal proceeding. 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 it decides 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 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

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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 Condensed Consolidated Balance Sheets.

In January 2011, we entered into an indefeasible right of use agreement to lease 2,500 fiber miles of dark fiber with an initial term of 20 years.  Fiber miles are measured by the length of a fiber strand multiplied by the number of fiber strands used in a fiber cable.  We are committed, beginning no later than January 2012, to lease a minimum of 500 fiber miles by the end of each twelve-month period over the first 60 months of the agreement. At the end of the initial term, we have the option to renew the lease for two successive 5-year terms. Our total future minimum lease payments under this agreement are $12.9 million.  No fiber miles have been drawn down on this agreement. Draw downs on this agreement will be accounted for as a capital lease.

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 11—Subsequent Event

In April 2011, we received an early termination notice from Clearwire Corporation to discontinue service at approximately 375 additional billing locations effective April 30, 2011, representing approximately $434 thousand in monthly service revenue.    Upon termination of these services, the customer’s early termination charges are expected to be approximately $1.9 million payable immediately.  We previously received notification in February 2011 from Clearwire of early termination at 220 billing locations representing approximately $256 thousand in monthly service revenue.  In connection with the February 2011 termination notification, we received payment for related early termination charges of approximately $1.5 million in the quarter ended March 31, 2011.

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

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

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 our Annual Report on Form 10-K for the year ended December 31, 2010 and in Part II, Item 1A of this Quarterly Report on Form 10-Q (“Risk Factors”).

Our MD&A is provided in addition to the accompanying condensed 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 as described above.  References in the MD&A to note numbers and note titles refer to those Notes to Condensed Consolidated Financial Statements included in Item 1, Financial Statements of this report.

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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 March 31, 2011, we had 142 employees, of whom 105 were in Engineering, Market/Field Operations, and Network Operations, the payroll-related costs of which are classified as Cost of Service Revenues; 9 were in Sales and Marketing; and 28 were in General and Administrative.  On March 3, 2011, we implemented a reduction in force resulting in a reduction of approximately 10% of our employee headcount.

As of March 31, 2011:

·                  We provide services to 6,151 billing customer locations at 3,308 deployed sites in 13 markets throughout the U.S;

·                  We have master service agreements with nine U.S. wireless carriers;

·                  We have extensive relationships with fiber service providers giving us access to over 1,000 mobile switching centers, or MSCs, and 125,000 fiber-based aggregation points;

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

·                  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 transport services. The service agreement with Verizon Business also allows us to provide government-grade services for other Verizon Business-managed contracts.

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

·                  improve financial performance while delivering consistent accelerating profitable top-line revenue growth;

·                  leverage our existing fixed cost network infrastructure and customer relationships while supporting higher standards and demand for greater bandwidth capacity;

·                  ensure we are meeting customer commitments with respect to on-time delivery and network quality;

·                  expand our sales efforts and product portfolio, including Ethernet capabilities, to improve our sales funnel and increase bookings;

·                  more fully leverage our national spectrum portfolio;

·                  expand within existing markets or add new markets based on increasing demand for backhaul services;

·                  continue to develop additional revenue sources through new solutions that meet the needs of our customers; and

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·                  allocate capital efficiently by balancing new site and market growth.

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

·                  market demand for wireless services and the impact of next generation technology including Long-Term Evolution (LTE) traffic on the marketplace;

·                  fiber-based solutions vs. wireless solutions;

·                  availability of alternative services at better prices;

·                  predictability of our deployment schedules; and

·                  quality of our services.

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 the first quarter of 2011, we achieved the following financial and operational milestones:

·                  Service revenues grew 32% to $23.5 million from $17.8 million in the first quarter of 2010.  Net of revenue recognized from the collection of early termination charges of $2.2 million in the first quarter of 2011 (including $1.5 million from Clearwire) and $0.6 million in the first quarter of 2010, service revenues grew 23% over that period;

·                  Average monthly revenue per deployed site, net of the revenue recognized from the collection of early termination charges, grew 16% to $2,142 from $1,842 in the first quarter of 2010;

·                  During the first quarter of 2011, we added 32 new deployed sites; and

·                  Adjusted EBITDA improved to positive $3.1 million in the first quarter of 2011 from negative $1.3 million in the first quarter of 2010. Adjusted EBITDA would have been positive $0.9 million in the first quarter of 2011 and negative $1.9 million in the first quarter of 2010, net of the revenue recognized from the collection of early termination charges.  See “Results of Operations—Non-GAAP Financial Measures” below for a reconciliation of Adjusted EBITDA to net loss.

As of March 31, 2011, we had deployed 3,308 sites, of which 2,975 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. 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 this MD&A, is a key operating metric reflecting our ability to scale and leverage our existing network.  The duration of our customer contracts is generally for three or five years.

Traffic grows as we construct new sites for customers, sell services to new customers at existing sites, or sell incremental bandwidth to existing customers. The average monthly revenue per deployed site increased to $2,142 in the first quarter of 2011 from $1,842 in the first quarter of 2010.  The revenue per deployed site amounts exclude $2.2 million in the first quarter of 2011 and  $0.6 million in the first quarter of 2010 recognized from the collection of early termination charges.  We intend to continue our focus on site-level margins, project return on investment, and cost reductions.

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For the three months ended March 31, 2011 and 2010, the following customers accounted for a significant portion of our revenues:

Accounts receivable from these customers comprised the following percentages of our total accounts receivable balances at March 31, 2011 and December 31, 2010:

During the three months ended March 31, 2011, Clearwire terminated service at 220 billing locations, representing approximately $256 thousand in monthly service revenue.  We recognized approximately $1.5 million in revenue from Clearwire for the collection of early termination charges.  See Note 11, Subsequent Event for information about an additional early termination notice received from Clearwire in April 2011 to terminate service at approximately 375 additional billing locations effective April 30, 2011.  As a result of the Clearwire terminations, the concentration of revenue from significant customers becomes greater.  If revenue from the contracts terminated by Clearwire to date in 2011 had not been recorded during the three months ended March 31, 2011, the percentage of our revenues from AT&T Mobility would have been approximately 50%, from Sprint Nextel approximately 19% and from T-Mobile approximately 13% in the three months ended March 31, 2011.

Also during the three months ended March 31, 2011, we recognized approximately $0.7 million in revenue from the collection of early termination charges from other customers.  Revenue from customers’ early termination of their contracts is recognized when payment is received.  We do not record accounts receivable related to early termination charges.

Costs and Expenses

The major components of our cost of service revenues are:

·                  Leasing.  We incur charges for site lease expense for space leased at our sites. When lease arrangements have uneven payment schedules, we account for lease expense on a straight-line basis over the lease term.

·                  Fiber Service Providers.  We pay charges to our fiber service providers for the purchase and lease of fiber. When the fiber leases have uneven payment schedules, we account for fiber lease expense on a straight-line basis over the lease term.

·                  Field Technicians.  We incur costs for engineering and maintenance personnel including stock-based compensation.

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

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

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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.

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 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.

Interest expense is primarily the result of interest cost incurred on the outstanding balance of our indebtedness. See Note 4, Long-term Debt and Capital Lease for additional information.

Challenges Facing Our Business

In addition to the Risk Factors, 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 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 maintaining existing sources of 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 response to recent significant customer cancellations, have implemented further cost savings measures and have reduced our expected 2011 capital expenditures.   On March 3, 2011, we implemented a reduction in force 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

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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 agreements.

We expect that we will be required to obtain financing through the issuance of equity or debt securities, or both, in order to repay our Notes due 2012 when they mature on November 15, 2012, as we do not expect cash flow from operations alone to be sufficient for such purpose.  We also expect that we will be required to obtain such financing to meet our other liquidity needs in the future. There can be no assurance that this additional financing will be available to us. 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. In addition, the terms of our debt agreements may restrict us from adopting some of these alternatives.

Results of Operations

Presented below are selected statements of operations data for the three months ended March 31, 2011 and 2010 that have been derived from our unaudited condensed consolidated financial statements. You should read this information together with the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this report. Our historical results are not necessarily indicative of the results that are expected in future periods.

Statements of Operations Data:

(In thousands)

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

Non-GAAP Financial Measures

We use the total 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

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charges, severance related to reduction in force, 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:

·                  Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital investments or contractual commitments;

·                  Adjusted EBITDA does not include depreciation and amortization expense. Depreciation and amortization are necessary elements of our costs and our ability to generate profits; and the assets being depreciated and amortized will often have to be replaced in the future. Adjusted EBITDA does not reflect any cash requirements for such replacements;

·                  Adjusted EBITDA excludes the effect of all non-cash equity based compensation. We have excluded these financial measures, because we believe non-cash equity based compensation is not an indicator of the performance of our core operations;

·                  Adjusted EBITDA does not include impairment of long-lived assets and other charges and credits. We excluded the effect of impairment losses because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our remaining assets; and

·                  Adjusted EBITDA does not include interest expense. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate profits and cash flows. We excluded interest expense from this measure so that investors may evaluate our operating results without regard to our financing methods.

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):

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Adjusted EBITDA would have been positive $0.9 million in the first quarter of 2011 and negative $1.9 million in the first quarter of 2010, net of $2.2 million in the first quarter of 2011 and $0.6 million in the first quarter of 2010 of revenue recognized from the collection of early termination charges.

Three months ended March 31, 2011 compared to three months ended March 31, 2010

Service revenues for the quarter ended March 31, 2011 increased 32% to $23.5 million compared to $17.8 million for the quarter ended March 31, 2010. This increase was primarily driven by selling additional capacity and Ethernet services to customers at existing sites. In addition, we recognized $2.2 million in the first quarter of 2011 and $0.6 million in the first quarter of 2010 from the collection of early termination charges.  The first quarter of 2011 revenue from early termination charges includes $1.5 million from Clearwire and $0.7 million from other customers. The average monthly revenue per deployed site increased to $2,142 in the quarter ended March 31, 2011 compared to $1,842 for the same period of 2010. The revenue per deployed site amount for the quarters ended March 31, 2011 and 2010 excludes the revenue from the collection of early termination charges.  See Note 11, Subsequent Event, for information about an additional early termination notice received from Clearwire in April 2011.

Cost of service revenues (excluding depreciation and amortization) increased 15% to $16.2 million for the quarter ended March 31, 2011 compared to $14.0 million for the quarter ended March 31, 2010.  This increase reflects a $1.2 million increase in fiber service provider charges reflecting growth in Ethernet services and fiber network expansion fueled by new business.  In addition, headcount classified as cost of service revenues increased throughout 2010 to meet the demand for increased construction activities resulting in higher payroll-related expenses and there was an increase in travel and contractor expenses.

Service revenues tend to lag behind cost of service revenues initially for new sites, especially for new construction projects, 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 decreased 32% to $0.7 million for the quarter ended March 31, 2011 compared to $1.0 million for the quarter ended March 31, 2010.  The decrease reflects (1) lower payroll-related expenses, including stock-based compensation, resulting from the cancellation of unvested restricted stock awarded to employees whose employment terminated and (2) lower sales commissions.

General and administrative expenses increased 6% to $5.4 million for the quarter ended March 31, 2011 from $5.1 million for the quarter ended March 31, 2010. This increase reflects the recording of $0.5 million in severance expenses related to the reduction in force implemented on March 3, 2011 which resulted in a reduction of approximately 10% of our employee headcount.

Depreciation and amortization expense increased 26% to $8.0 million for the quarter ended March 31, 2011 from $6.4 million for the quarter ended March 31, 2010.  There were $37.0 million in capital additions during the past 12 months driven by upgrading capacity and overlaying Ethernet capability at existing sites and by the addition of 189 new deployed sites.

Interest expense is primarily the result of interest cost incurred on the outstanding balance of our indebtedness.  Interest expense was $3.4 million for each of the quarters ended March 31, 2011 and March 31, 2010.  See Note 4, Long-term Debt and Capital Lease 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.

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The following table shows quarterly key operating metric information.

(1)                                  During the first quarter of 2011, Clearwire terminated service at 220 billing locations.  See Note 11, Subsequent Event for information about an additional early termination notice received from Clearwire in April 2011 to terminate service at approximately 375 additional billing locations effective April 30, 2011.

(2)                                  The average monthly revenue per deployed site excludes $2.2 million in the first quarter of 2011, $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 the collection of early termination charges.

Average Monthly Revenue per Site is the average monthly revenue per deployed site.

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

Co-location rate is 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 Deployed represents 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.

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 $14.4 million at March 31, 2011, will be sufficient to cover our estimated liquidity needs until at least March 31, 2012. 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 capital, we may be required to issue equity securities in public or private offerings or to seek debt financing, or both. We may be unable to secure such additional financing when needed 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 $13 million and $17 million in capital expenditures during 2011.  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.

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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.

Our future performance will be affected by financial, business, economic, legislative and other factors, many of which are beyond our control. We have built flexibility into our spending by reducing recurring general and administrative expenses and, in response to recent significant customer cancellations, have implemented further cost savings measures and have reduced our expected 2011 capital expenditures.  On March 3, 2011, we implemented a reduction in force 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 agreements.

We elected to pay the 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 $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.

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 January 1, 2011, we paid the $1.8 million cash portion of our interest obligation.  We issued $3.5 million on January 1, 2011 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 March 31, 2011 was $131.6 million and at December 31, 2010 was $130.1 million.

We expect that we will be required to obtain financing through the issuance of equity or debt securities, or both, in order to repay our Notes due 2012 when they mature on November 15, 2012, as we do not expect cash flow from operations alone to be sufficient for such purpose.  We also expect that we will be required to obtain such financing to meet our other liquidity needs in the future. There can be no assurance that this financing will be available to us. 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. In addition, the terms of our debt agreements may restrict us from adopting some of these alternatives.

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.

During the quarter ended March 31, 2011, we entered into an indefeasible right of use agreement to lease 2,500 fiber miles of dark fiber with an initial term of 20 years.  Fiber miles are measured by the length of a fiber strand multiplied by the number of fiber strands used in a fiber cable. We are committed, beginning no later than January 2012, to lease a minimum of 500 fiber miles by the end of each twelve-month period over the first 60 months of the agreement.  At the end of the initial term, we have the option to renew the lease for two successive 5-year terms. Our total future minimum lease payments under this agreement are $12.9 million.  No fiber miles have been drawn down on this agreement. Draw downs on this agreement will be accounted for as a capital lease.

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 the quarter ended March 31, 2011, net cash used for operating activities was $1.3 million compared to net cash used for operating activities of $0.6 million in the quarter ended March 31, 2010. After adjusting for our net loss of $10.1 million and non-cash charges of $11.6 million as shown below, our cash flows used for operations were principally from (1) a decrease in accounts payable

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of $3.3 million at March 31, 2011 reflecting payment of increased purchases of property and equipment at the end of 2010, partially offset by (2) a decrease in accounts receivable of $0.6 million.  Our days sales outstanding of 43 for the quarter ended March 31, 2011 was essentially flat from the prior quarter.

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

Investing Activities

Net cash used in 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 March 31, 2011, we provided services to 3,308 deployed sites in 13 markets throughout the U.S.

There were capital additions of $7.4 million in the first quarter of 2011 compared to $2.5 million in the first quarter of 2010.  During the first quarter of 2011, we added 32 new deployed sites.  Additional capital expenditures were made in the first quarter of 2011 in order to upgrade capacity and overlay Ethernet capability at existing sites.  In addition, we incurred capital expenditures to support site builds beyond the first quarter of 2011.  We anticipate that we will incur between $13 million and $17 million in capital expenditures during 2011.  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.

Financing Activities

There was $0.1 million provided by the exercise of stock options during the quarter ended March 31, 2011 and a negligible amount during the quarter ended March 31, 2010.

Restricted Cash and Investments

We had total restricted cash and investments of $8.2 million at March 31, 2011 and $10.0 million at December 31, 2010. The balance at March 31, 2011 consisted of (1) approximately $7.5 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 four 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 2015.  The $1.8 million cash portion of the second interest payment for the Notes due 2016 was paid from restricted cash on January 1, 2011.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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 U.S. Generally Accepted Accounting Principles. 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.

Our critical accounting policies include revenue and expense recognition, useful life assignments and impairment evaluations associated with long-lived assets, including intangible assets, FCC licenses, asset retirement obligations, deferred taxes, leases and stock-based compensation, which are discussed in detail under the caption “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2010.  There were no significant changes in our critical accounting policies or estimates since December 31, 2010.

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Related Party Transactions

See Note 9, 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 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We believe that there have been no material changes in our market risk exposures for the quarter ended March 31, 2011 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

ITEM 4.          CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As of March 31, 2011, 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-Q, (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) Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2011, 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.

PART II — OTHER INFORMATION

Item 1.                 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 1A.  Risk Factors

Except for the risk factor set forth below, there have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2010.

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. During the first four months of 2011, Clearwire Corporation has cancelled approximately 90% of its contracts with us, resulting in early termination penalties which are expected to offset the loss of monthly recurring revenue from Clearwire only for the short term.  As a result of the Clearwire terminations, the concentration of revenue from significant customers becomes greater.  If revenue from the contracts terminated by Clearwire to date in 2011 had not been recorded during the three months ended March 31, 2011, the percentage of our revenues from AT&T Mobility would have been approximately 50%, from Sprint Nextel approximately 19% and from T-Mobile approximately 13% in the three months ended March 31, 2011.  If we are unable to replace this lost monthly recurring revenue through new sales, our business, financial condition and operating results will be harmed.  Further, if we were to lose any of AT&T Mobility, Sprint Nextel, 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 further 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. If the announced merger of AT&T and T-Mobile is completed, this will result in further concentration of our customer revenues, and could also result in future cancellations of redundant services as the AT&T and T-Mobile networks are consolidated.

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Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     (Removed and Reserved)

Item 5.     Other Information

None.

Item 6.     Exhibits

The exhibits listed in the accompanying exhibit index are filed, furnished or incorporated by reference as part of this Form 10-Q.

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SIGNATURES

Pursuant to the requirements 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.