ATN International - 10-Q quarterly report FY

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Commission File Number 001-12593

Atlantic Tele-Network, Inc.

(Exact name of registrant as specified in its charter)

600 Cummings Center

Beverly, MA 01915

(Address of principle executive offices, including zip code)

(978) 619-1300

(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 Web site, 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 Exchange Act): Yes  o   No  x

As of May 10, 2011, the registrant had outstanding 15,392,930 shares of its common stock ($.01 par value).

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ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 and 2011

(Unaudited)

(Dollars in thousands, except per share amounts)

The accompanying condensed notes are an integral part of these condensed consolidated financial statements.

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ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS OPERATIONS

The Company provides wireless and wireline telecommunications services in North America, Bermuda and the Caribbean. Through its operating subsidiaries, the Company offers the following principal services:

·                  Wireless.  In the United States, the Company offers wireless voice and data services to retail customers under the “Alltel” name in rural markets located principally in the Southeast and Midwest. Additionally, the Company offers wholesale wireless voice and data roaming services to national, regional and local wireless carriers and selected international wireless carriers in rural markets located principally in the Southwest and Midwest United States. The Company also offers wireless voice and data services to retail customers in Bermuda under the “CellularOne” name, in Guyana under the “Cellink” name, and in other smaller markets in the Caribbean and the United States.

·                  Wireline.  The Company’s local telephone and data services include its operations in Guyana and the mainland United States. The Company is the exclusive provider of domestic wireline local and long distance telephone services in Guyana and international voice and data communications into and out of Guyana. The Company also offers facilities-based integrated voice and data communications services to enterprise and residential customers in New England, primarily in Vermont, and wholesale transport services in New York State.

In the second quarter of 2010, the Company completed the acquisition of its U.S. retail wireless business, which provides wireless voice and data services in rural markets of the United States under the “Alltel” brand name (the “Alltel Acquisition”). Since 2005, revenue from U.S. operations has significantly grown as a percentage of consolidated revenue and as a result of the Alltel Acquisition, a substantial majority of the Company’s consolidated revenue is now generated in the United States, mainly through mobile wireless operations. The Company continues to actively evaluate additional investment and acquisition opportunities in the United States and the Caribbean that meet its return-on-investment and other acquisition criteria. For more information about the Alltel Acquisition, see Note 4 to the Consolidated Financial Statements included in this Report.

In the second quarter of 2011, the Company continued its expansion, entering into a joint venture with the Navajo Tribal Utility Authority to provide retail wireless services on the Navajo Nation, and completed the merger of its Bermuda operations with M3 Wireless, Ltd., a leading retail wireless provider in Bermuda. For more information on the Navajo joint venture and Bermuda merger, see Note 12 to the Consolidated Financial Statements included in this Report.

The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which the Company reports its revenue and the markets it served as of March 31, 2011:

The Company provides management, technical, financial, regulatory, and marketing services to its subsidiaries and typically receives a management fee equal to a percentage of their respective revenue. Management fees from consolidated subsidiaries are eliminated in consolidation. For information about the Company’s business segments and geographical information about its revenue, operating income and long-lived assets, see Note 10 to the Consolidated Financial Statements included in this Report.

2.  BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information included herein is unaudited; however, the Company believes such information and the disclosures herein are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial position and results of operations for such periods. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United

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regulatory, litigation, or related matters listed in our Form 10-K for the year ended December 31, 2010, the Company believes some adverse outcome is probable and has accordingly accrued $5.0 million as of March 31, 2011.

12.  SUBSEQUENT EVENTS

NTUA Wireless, LLC

In April 2011, the Company entered into a joint venture with the Navajo Tribal Utility Authority (“NTUA”) to provide 3G wireless cell phone service and the first 4G broadband service to residents of the Navajo Nation, which spans across parts of Arizona, New Mexico and Utah.  Commnet Wireless, LLC, through its wholly-owned subsidiary, contributed network-related equipment and other assets in exchange for a 49% controlling interest in the joint venture.  The joint venture, which will have its results of operations consolidated in the Company’s financial statements,  is also being partially funded by a $32.1 million broadband grant to NTUA from the National Telecommunications & Information Association as part of the American Reinvestment and Recovery Act.

Bermuda Digital Communications, Ltd.

In May 2011, the Company completed the merger of its Bermuda wireless operations, Bermuda Digital Communications, Ltd. (“BDC”), with that of M3 Wireless, Ltd. (“M3”), a leading wireless provider in Bermuda.  As part of the merger, M3 merged with and into BDC, and the combined entity will continue to operate under BDC’s CellularOne brand under the leadership of BDC’s existing management team.  As a result of the merger offset by the Company’s redemption of a portion of debt owed to it by BDC in exchange for additional equity interests, the Company’s 58% ownership interest in BDC was reduced to a controlling 42% interest in the surviving entity. Keytech Limited, a telecommunications provider and former parent of M3, also owns approximately 42% of the merged BDC, while the remaining 16% is owned by current management and other pre-merger minority shareholders of BDC.   The Company will consolidate the results of the combined entity in its consolidated financial statements effective on the date of merger.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis of our financial condition and results of operations that follows are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions. This discussion should be read in conjunction with our condensed consolidated financial statements herein and the accompanying notes thereto, and our Annual Report on Form 10-K for the year ended December 31, 2010, in particular, the information set forth therein under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Overview

We provide wireless and wireline telecommunications services in North America, Bermuda and the Caribbean. Through our operating subsidiaries, we offer the following principal services:

·      Wireless.  In the United States, we offer wireless voice and data services to retail customers under the “Alltel” name in rural markets located principally in the Southeast and Midwest. Additionally, we offer wholesale wireless voice and data roaming services to national, regional, local and selected international wireless carriers in rural markets located principally in the Southwest and Midwest United States. We also offer wireless voice and data services to retail customers in Bermuda under the “CellularOne” name, in Guyana under the “Cellink” name, and in other smaller markets in the Caribbean and the United States.

·      Wireline.  Our local telephone and data services include our operations in Guyana and the mainland United States. We are the exclusive provider of domestic wireline local and long distance telephone services in Guyana and international voice and data communications into and out of Guyana. We also offer facilities-based integrated voice and data communications services to enterprise and residential customers in New England, primarily in Vermont, and wholesale transport services in New York State.

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other assets to provide last mile services through a 4G LTE network to be constructed as a part of this project. Our partnership with NTUA will receive a portion of the total grant to build-out the last mile infrastructure. This network will allow the joint venture to supply both fixed and mobile customers with high-speed broadband access. The funding of this project is not scheduled to begin until the second half of 2011, once the necessary environmental site work is completed. Accordingly, we did not recognize any of the granted funds during the three months ended March 31, 2011. The results of our wholesale U.S. wireless business are included in our “U.S. Wireless” segment.

On July 7, 2010, in partnership with the Vermont Telecommunications Authority (the “VTA”), we were awarded a $33.4 million federal stimulus grant by the NTIA. The grant, along with partial matching funds to be contributed by us (through a Vermont subsidiary) and the VTA, will be invested in building a new fiber-optic middle mile network in Vermont to provide broadband and wireless services to community schools, colleges, libraries and state-owned buildings in the area. The funding of this project is not scheduled to occur until the end of the second quarter of 2011, once the necessary environmental site work is completed. Accordingly, we did not recognize any of the granted funds during the three months ended March 31, 2011. The results of our U.S. wireline business are included in our “U.S. Wireline” segment.

Results of Operations

Three Months Ended March 31, 2010 and 2011

U.S. Wireless revenue.  U.S. Wireless revenue includes voice and data services revenue from our prepaid and postpaid retail operations as well as our wholesale roaming operations. Retail revenue is derived from access by our retail customers to and usage of our networks and facilities, including airtime, roaming and long distance as well as enhanced services such as caller identification, call waiting, voice mail and other features. Wholesale revenue is generated from providing mobile voice or data services to the customers

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of other wireless carriers and also includes revenue from other, related, wholesale services such as the provision of network switching services and certain wholesale transport services.

The retail portion of our U.S. Wireless revenue was $99.7 million for the three months ended March 31, 2011, substantially all of which is attributable to revenue generated by assets we acquired in the Alltel Acquisition. We had no U.S. retail wireless revenue prior to the closing of our Alltel Acquisition in April 2010.

As of March 31, 2011, we had approximately 674,000 U.S. retail wireless subscribers (including 504,000 postpaid subscribers and 170,000 prepaid subscribers), a decrease of 44,000 from the approximate 718,000 subscribers we had as of December 31, 2010.  Gross additions to the U.S. retail wireless subscriber base were approximately 47,000 for the three months ended March 31, 2011, as compared with approximately 52,000 for the three months ended December 31, 2010.  We expect to experience moderately improved gross additions to our subscriber base in future periods as a result of recent new handset and service plan offerings.

Our overall U.S. retail wireless churn decreased from 4.5% for the three months ended December 31, 2010 to 4.3% for the three months ended March 31, 2011.  This improvement was the result of a more proactive approach in managing delinquent accounts by tightening our collection policies and procedures, eliminating certain high-churn distribution channels and providing our customers with better handset and service offerings.  We expect that the level of churn will decrease moderately in future periods as we continue to improve our credit policies, continue to provide quality handset and service offers and transition many subscribers from one-year contracts that were signed prior to our acquisition of Alltel to more traditional two-year contracts.

We are currently in a transition period as we move from the legacy Alltel network, information technology, and other systems, platforms and processes to our own. During this transition period, which we expect to be substantially completed by the middle of 2011, our ability to drive subscriber additions, control churn and optimize our offerings has been somewhat constrained contributing to a continued decline in our U.S. retail wireless revenue.

Verizon’s acquisition of Alltel in 2009 has caused some loss of wireless wholesale revenue and also impacted our ability to grow wholesale wireless revenue as certain network assets acquired by Verizon overlap geographically with areas of our legacy U.S. roaming network where we previously provided wholesale roaming services to Verizon. Similarly, and of greater importance to us, AT&T’s 2010 acquisition of certain Alltel assets and the completion of its previously announced UMTS network build in those areas overlapping our network in the southwestern United States is expected to negatively impact wireless wholesale revenue in 2011. We expect this loss in wireless wholesale revenue to have a negative impact on our operating income in future periods if it is not offset or replaced by increased operating income from other sources.

The wholesale portion of our U.S. Wireless revenue increased to $44.7 million for the three months ended March 31, 2011 from $22.9 million for the three months ended March 31, 2010, an increase of $21.8 million. The increase in wireless wholesale revenue was due to the $22.3 million of roaming revenue generated by the networks we acquired in the Alltel Acquisition offset by a   $0.5 million decrease in revenues from our legacy U.S. roaming network. Such decrease from our legacy U.S. roaming network was a result of the overlapping of the Company’s networks with the networks of Verizon and AT&T as discussed above, as well as a decline in the rates we charge our carrier customers. Our Alltel Acquisition also increased our base stations from 586 as of March 31, 2010 to 1,588 as of March 31, 2011.

While we expect to see some increase in wireless wholesale revenue from our U.S. wireless business in geographical areas not impacted by Verizon’s or AT&T’s acquisition of Alltel networks, the pace of that increase in non-Alltel overlap markets is currently expected to be slower as compared to the growth in previous periods due to a reduction in the number of new sites and base stations added and recent reductions in roaming rates. Additional rate reductions, under previously contracted agreements, may also negatively affect our revenue growth in upcoming periods.

International Wireless revenue.  International Wireless revenue includes retail and wholesale voice and data wireless revenue from international operations in Bermuda and the Caribbean.

International Wireless revenue increased by $4.0 million to $14.9 million for the three months ended March 31, 2011, from $10.9 million for the three months ended March 31, 2010. This increase was primarily generated by increased subscribers, volume, and new service launches in our Caribbean operations. Wireless subscribers in Guyana increased 6%, from approximately 286,000   subscribers as of March 31, 2010 to approximately 303,000 subscribers as of March 31, 2011.

While we have experienced recent subscriber growth in Guyana, competition remains strong, and the largely prepaid subscriber base means that subscribers and revenue could shift relatively quickly in future periods. In addition, the overall number of our wireless subscribers in Guyana could be reduced as a result of recent regulations imposed on telecommunications carriers, including our operations, to collect proof of address and photographic identification for all new and existing customers.

In May 2011, we completed the merger of our Bermuda wireless operations, Bermuda Digital Communications, Ltd. (“BDC”), with that of M3 Wireless, Ltd. (“M3”), a leading wireless provider in Bermuda.  As part of the merger, M3 merged with and into BDC, and the combined entity will continue to operate under BDC’s CellularOne brand under the leadership of BDC’s existing management team.  To effect the merger, we redeemed a portion of debt owed to us by BDC and exchanged our 58% ownership interest in BDC for a controlling 42% interest in the surviving entity. Keytech Limited, a telecommunications provider and former parent of M3 Wireless, also owns 42% of the merged BDC, while the remaining 16% is owned by current management and other pre-merger minority shareholders.  We will consolidate the results of the combined entity in its consolidated financial statements effective on the date of merger. Partly as a result of this merger, we expect that our International Wireless revenue will increase in future periods.

Wireline revenue.  Wireline revenue is generated by our wireline operations in Guyana, including international telephone calls into and out of that country, our integrated voice and data operations in New England and our wholesale transport operations in

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New York State and in the western United States. This revenue includes basic service fees, measured service revenue, and internet access fees, as well as installation charges for new lines, monthly line rental charges, long distance or toll charges, maintenance and equipment sales.

Wireline revenue increased by $0.2 million to $20.7 million for the three months ended March 31, 2011 from $20.5 million for the three months ended March 31, 2010. A $1.8 million decrease in international long distance revenue was offset by data revenue growth in Guyana and an increase in U.S. revenue and growth generated by the July 2010 launch of our new fiber optic submarine cable in Guyana. Our access lines in Guyana grew from approximately 148,000 lines as of March 31, 2010 to approximately 150,000 lines as of March 31, 2011, an increase of 1 %. Revenue from the growth in access lines has been partially offset by a decrease in usage of those lines that is likely due to growth in usage of wireless service alternatives.

We also believe the decrease in international long distance revenue was a result of continued and considerable illegal bypass activities resulting in lost revenue opportunities, as well as an overall reduction in call volume into Guyana attributable to the current difficult global economic environment. In the U.S., we saw moderately increased revenue from our upstate New York network transport service business. We continue to add business customers in the U.S. for our voice and data services; however, the overall revenue increase is partially offset by the decline in the residential data business, including dial-up internet services.

In future periods, we anticipate that wireline revenue from our international long distance business in Guyana may continue to decrease, but such decreases may be offset by increased revenue from data services to consumer enterprises in Guyana, wholesale transport services in New York and integrated voice and data in Vermont and New Hampshire. We are in the process of expanding our network in New York and have been receiving a portion of a $39.7 million stimulus grant since the second half of 2010. We also expect to begin to receive stimulus funds beginning at the end of the second quarter of 2011 in connection with the expansion of our network in Vermont.

Equipment and Other revenue.  Equipment and other revenue represent revenue from wireless equipment sales, primarily handsets to retail customers, and other miscellaneous revenue items.

Equipment and Other revenue increased by $7.7 million to $8.2 million for the three months ended March 31, 2011, from $0.5 million for the three months ended March 31, 2010. The increase is due to equipment sales from our Alltel Acquisition. We have experienced increased equipment revenue as a result of a high rate of one-year subscriber contracts, signed prior to our acquisition of Alltel, coming up for renewal.  We expect that equipment revenue may decrease in future periods as we transition these subscribers from the one-year contracts to more traditional two-year contracts.

Termination and access fee expenses.  Termination and access fee expenses are charges that we pay for voice and data transport circuits (in particular, the circuits between our wireless sites and our switches), internet capacity and other access fees we pay to terminate our calls, as well as customer bad debt expense.

Termination and access fees increased by $40.7 million from $11.3 million for the three months ended March 31, 2010 to $52.0 million for the three months ended March 31, 2011, of which $39.0 million of the increase resulted from the expansion of operations due to the Alltel Acquisition.

Termination and access fees are expected to increase in future periods, but remain fairly proportionate to their related revenue as our networks expand.

Engineering and operations expenses.  Engineering and operations expenses include the expenses associated with developing, operating, supporting and expanding our networks, including the salaries and benefits paid to employees directly involved in the development and operation of our networks.

Engineering and operations expenses increased by $15.4 million from $6.4 million for the three months ended March 31, 2010 to $21.8 million for the three months ended March 31, 2011 as a result of the Alltel Acquisition. Until we complete the transition of the network that we acquired as part of the Alltel Acquisition, we will incur higher than normal engineering and operations expenses.  Once that transition is substantially completed in the middle of 2011, we expect that engineering and operations expenses will continue to increase, albeit at a slower pace, as our networks expand and require additional support.

Sales, marketing and customer service expenses.  Sales and marketing expenses include salaries and benefits we pay to sales personnel, customer service expenses, sales commissions and the costs associated with the development and implementation of our promotion and marketing campaigns.

Sales and marketing expenses increased by $28.7 million from $3.4 million for the three months ended March 31, 2010 to $32.1 million for the three months ended March 31, 2011.  Of this increase, $27.2 million was the result of the Alltel Acquisition as we incurred additional expenses primarily related to some overlap of expenses from the transition services being performed in connection with the Alltel Acquisition as well as an accelerated pace of customer contract renewals and extensions.

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We expect that sales and marketing expenses will decrease as a percentage of revenue once the transition services are completed in the middle of 2011 but will remain higher than normal for the short term as we incur retention costs in an attempt to offset customer churn.

Equipment expenses.  Equipment expenses include the costs of our handset and customer resale equipment at our retail wireless businesses.

Equipment expenses increased from $0.7 million for the three months ended March 31, 2010 to $21.2 million for the three months ended March 31, 2011 as a result of the Alltel Acquisition. We expect that these expenses will decrease as a percentage of revenue in the near-term due to a high volume of handset upgrades related to the accelerated pace of customer contract renewals and extensions in 2010.

General and administrative expenses.  General and administrative expenses include salaries, benefits and related costs for general corporate functions, including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources. General and administrative expenses also include internal costs associated with our performance of due-diligence on our pending or completed acquisitions.

General and administrative expenses increased by $14.8 million from $10.8 million for the three months ended March 31, 2010 to $25.6 million for the three months ended March 31, 2011 mainly due to the Alltel Acquisition. We are currently in a transition period as we integrate the new Alltel business and are incurring incremental general and administrative expenses relating to that transition. During this transition period, which we expect to be substantially completed by the middle of 2011, we anticipate that we will incur higher than usual general and administrative expenses as certain significant costs continue to overlap with our already existing infrastructure. Once this transition period concludes, we expect that general and administrative expenses, as a percentage of revenue, will decrease.

Acquisition-related charges.  Acquisition-related charges include the external costs, such as legal, accounting, and consulting fees directly associated with acquisition related activities, which are expensed as incurred. Acquisition-related charges do not include internal costs, such as employee salary and travel-related expenses, incurred in connection with acquisitions and integrations.

For the three months ended March 31, 2011, acquisition-related charges were $0.3 million, as compared to $4.8 million incurred in connection with the Alltel Acquisition during the three months ended March 31, 2010. We expect that acquisition-related expenses will continue to be incurred from time to time as we continue to explore additional acquisition opportunities.

Depreciation and amortization expenses.  Depreciation and amortization expenses represent the depreciation and amortization charges we record on our property and equipment and on certain intangible assets.

Depreciation and amortization expenses increased by $14.7 million from $10.1 million for the three months ended March 31, 2010 to $24.8 million for the three months ended March 31, 2011. The increase is primarily due to the addition of the Alltel tangible and intangible assets as well as additional fixed assets from our network expansion in our U.S. Wireless business and in the Caribbean.

We expect depreciation expense on our tangible assets to continue to increase as a result of a future network expansion in the U.S. and elsewhere. Such increase, however, will be partially offset by a future decrease in the amortization of our intangible assets, which are being amortized using an accelerated amortization method.

Interest expense.  Interest expense represents interest incurred on our outstanding credit facilities including our interest rate swaps.

Interest expense increased from $1.3 million for the three months ended March 31, 2010 to $3.8 million for the three months ended March 31, 2011, due to the amendment of our prior credit agreement, which increased both our outstanding debt and applicable interest rates on such debt. As of March 31, 2011, we had $261.3 million outstanding in term loans and $35.0 million in outstanding borrowings under our revolver loan. In addition, as of March 31, 2011, we had interest rate swap agreements in place covering $148.0 million of our outstanding borrowings.

Interest income.  Interest income represents interest earned on our cash and cash equivalents.

Interest income decreased to $0.1 million from $0.2 million for three months ended March 31, 2011 and 2010, respectively. This decrease is a result of a decrease in our cash balances.

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Equity in earnings of an unconsolidated affiliate.  Equity in earnings of an unconsolidated affiliate includes our share of the earnings of an unconsolidated affiliate of our U.S. Wireless segment. Equity in earnings of an unconsolidated affiliate was $0.5 million for the three months ended March 31, 2011. We acquired this equity-method investment on April 26, 2010 in connection with the Alltel Acquisition and as such did not recognize any equity in earnings of an unconsolidated affiliate during the three months ended March 31, 2010.

Other income (expense).  Other income (expense) represents miscellaneous non-operational income we earned or expenses we incurred. Other income was $0.6 million for the three months ended March 31, 2011.  We did not recognize any other income (expense) during the three months ended March 31, 2010.

Income taxes.  Income tax expense includes federal and state income taxes at their respective statutory rates as well as foreign income taxes in excess of the statutory U.S. income tax rates. Since we operate in jurisdictions that have a wide range of statutory tax rates, our consolidated effective tax rate is impacted by the mix of income generated in those jurisdictions. Our effective tax rates for the three months ended March 31, 2010 and 2011 were 39% and 49%, respectively.  The increase in the effective tax rate was due to the mix of income generated in different jurisdictions.

Net Income Attributable to Non-Controlling Interests.  Net income attributable to non-controlling interests includes minority shareholders’ share of net losses in our less than wholly-owned subsidiaries. Net income attributable to non-controlling interests reflected an allocation of $0.1 million and $0.5 million for the three months ended March 31, 2010 and 2011, respectively.

Net income attributable to Atlantic Tele-Network, Inc. Stockholders.  As a result of the above factors, net income increased to $4.5 million for the three months ended March 31, 2011 from $4.0 million for the three months ended March 31, 2010. Also included in net income for the quarter ended March 31, 2011, was approximately $9.3 million (net of one-time items) of duplicate operating expenses relating to the transition of the legacy Alltel network, information technology and other systems, platforms and processes to our own.  We expect to substantially complete this transition during the middle of 2011. On a per share basis, net income increased from $0.26 per basic and per diluted share to $0.29 per basic and diluted share for the three months ended March 31, 2010 and 2011, respectively.

Segment results.  Upon the completion of the Alltel Acquisition, we restructured how we manage our business, and accordingly, modified our reportable segments. The previously reported Rural Wireless segment has been combined with the operating results of Alltel and is now being reported as the U.S. Wireless segment, which generates all of its revenue and has all of its assets located in the United States. In addition, the previously reported Wireless Data segment has been merged into the Island Wireless segment which generates its revenue, and has its assets, in Bermuda, Turks and Caicos, the U.S. Virgin Islands and Aruba. Integrated Telephony—International has been renamed International Integrated Telephony and has its assets located in Guyana. Integrated Telephony—Domestic has been renamed U.S. Wireline, and has its assets located in the United States. The operating segments are managed separately because each offers different services and serves different markets. Reconciling items refer to corporate overhead matters including general and administrative expenses and acquisition-related charges.

Regulatory and Tax Issues

We are involved in a number of regulatory and tax proceedings. A material and adverse outcome in one or more of these proceedings could have a material adverse impact on our financial condition and future operations.

Liquidity and Capital Resources

Historically, we have met our operational liquidity needs through a combination of cash on hand and internally generated funds and have funded capital expenditures and acquisitions with a combination of internally generated funds, cash on hand and borrowings under our credit facilities. We believe our current cash, cash equivalents and availability under our current credit facility will be sufficient to meet our short-term cash needs for working capital and capital expenditures.

Uses of Cash

Capital Expenditures.  A significant use of our cash has been for capital expenditures to expand and upgrade our networks. In addition, capital expenditures within the last several quarters have also included significant costs associated with network migration and development of operational and business support systems related to the Alltel Acquisition.

For the three months ended March 31, 2010 and 2011, we spent approximately $16.9 million and $16.3 million, respectively, on capital expenditures. The following notes our capital expenditures, by operating segment, for these periods:

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We are continuing to invest in expanding our networks in many of our markets and developing updated operating and business support systems. We expect to incur capital expenditures between $105 million and $120 million during 2011. Of this amount, we anticipate capital expenditures of between $70 million to $80 million in our U.S. Wireless business.

We expect to fund our current capital expenditures primarily from cash generated from our operations and borrowings under our credit facilities.

Acquisitions and Investments.  Historically, we have funded our acquisitions with a combination of cash on hand and borrowings under our credit facilities. In April 2010, we funded the purchase price of the Alltel Acquisition with cash-on-hand and borrowings under our then existing credit facility. We drew down a $150 million term loan under the credit facility and borrowed $40 million under our previously undrawn $75 million revolving credit facility. On September 30, 2010, we amended our 2010 Credit Facility and drew down a $50 million term loan, repaid the outstanding balances on our 2010 Revolver Loan and also expanded the revolving credit facility to $100 million.

We continue to explore opportunities to acquire or expand our existing communications properties or licenses in the United States, the Caribbean and elsewhere. Such acquisitions may require external financing. While there can be no assurance as to whether, when or on what terms we will be able to acquire any such businesses or licenses or make such investments, such acquisitions may be accomplished through the issuance of shares of our capital stock, payment of cash or incurrence of additional debt. From time to time, we may raise capital ahead of any definitive use of proceeds to allow us to move more quickly and opportunistically if an attractive investment materializes.

Dividends.  We use cash-on-hand to make dividend payments to our common stockholders when declared by our Board of Directors. For the three months ended March 31, 2011, dividends to our stockholders were approximately $3.4 million, which reflects dividends declared on March 18, 2011 and paid on April 11, 2011. We have paid quarterly dividends for the last 50 fiscal quarters.

Stock Repurchase Plan.  Our Board of Directors approved a $5.0 million stock buyback plan in September 2004 pursuant to which we have spent approximately $2.1 million as of March 31, 2011 repurchasing our common stock. We may repurchase shares at any time depending on market conditions, our available cash and our cash needs. We did not repurchase any shares under this plan during the three months ended March 31, 2011.

Sources of Cash

Total Liquidity at March 31, 2011.  As of March 31, 2011, we had approximately $47.0 million in cash and cash equivalents, an increase of $9.7 million from the December 31, 2010 balance of $37.3 million. The increase in our cash and cash equivalents is attributable to the cash provided by our operating activities partially offset by investments in capital expenditures.

Cash Generated by Operations.  Cash provided by operating activities was $21.0 million for the three months ended March 31, 2011 compared to $10.1 million for the three months ended March 31, 2010. The increase of $10.9 million was mainly due to increased net income and depreciation and amortization, as well as an increase in our provision for doubtful accounts.  Such increases were partially offset by a decrease in our working capital.

Cash Generated by Financing Activities.  Cash provided by financing activities was $4.5 million for the three months ended March 31, 2011 as compared to cash used by financing activities of $7.2 million for the three months ended March 31, 2010.  The $11.7 million increase was primarily the result of additional borrowings under our revolver loan.

On January 20, 2010 the Company amended and restated its existing credit facility with CoBank as Administrative Agent (the “2010 CoBank Credit Agreement”). The 2010 CoBank Credit Agreement provided for a $298.9 million credit facility, consisting of (i) a $73.9 million term loan (the “2010 Term Loan A”) which was the amount then outstanding under the 2008 Term Loan, (ii) a new $150.0 million term loan (the “2010 Term Loan B”), (iii) a $75.0 million revolver loan (the “2010 Revolver Loan”) and (iv) one or more additional term loans up to an aggregate $50.0 million, subject to lender and administrative agent approval (together with the

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The Amended 2010 CoBank Agreement provides for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy. After the occurrence of an event of default and for so long as it continues, the administrative agent or the requisite lenders (as defined in the Amended 2010 Credit Agreement) may increase the interest rate then in effect on all outstanding obligations by 2.0%. Upon an event of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Amended 2010 Credit Facility will become immediately due and payable and the lender commitments will be automatically terminated. Upon the occurrence and continuation of any other event of default, the administrative agent and/or the requisite lenders may accelerate payment of all obligations and terminate the lenders’ commitments under the Amended 2010 CoBank Agreement.

As of March 31, 2011 and December 31, 2010, the total notional amount of cash flow hedges under our interest rate swap agreements was $148 million.

Factors Affecting Sources of Liquidity

Internally Generated Funds.  The key factors affecting our internally generated funds are demand for our services, competition, regulatory developments, economic conditions in the markets where we operate our businesses and industry trends within the telecommunications industry. For a discussion of tax and regulatory risks in Guyana that could have a material adverse impact on our liquidity, see “Risk Factors—Risks Relating to Our Wireless and Wireline Services in Guyana”, and “Business—Guyana Regulation”in our Annual Report on Form 10-K for the year ended December 31, 2010.

Restrictions Under Credit Facility.  The Amended 2010 CoBank Credit Agreement contains customary representations, warranties and covenants, including covenants by us limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. In addition, the Amended 2010 Credit Facility contains financial covenants by us that (i) impose a maximum ratio of indebtedness to EBITDA (ii) require a minimum ratio of EBITDA to cash interest expense, (iii) require a minimum ratio of equity to consolidated assets and (iv) require a minimum ratio of EBITDA to fixed charges (each as defined in the Amended 2010 CoBank Credit Agreement). As of March 31, 2011, we were in compliance with all of the financial covenants of the Amended 2010 CoBank Credit Agreement.

Capital Markets.  Our ability to raise funds in the capital markets depends on, among other things, general economic conditions, the conditions of the telecommunications industry, our financial performance, the state of the capital markets and our compliance with Securities and Exchange Commission (“SEC”) requirements for the offering of securities. On May 13, 2010, the SEC declared effective our “universal” shelf registration statement. This filing registered potential future offerings of our securities.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities in and out of Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update was effective for companies with interim and annual reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which became effective for interim and annual reporting periods beginning after December 15, 2010. The Company has adopted the updated guidance in the first quarter of 2010 and the adoption did not have an impact on our financial position, results of operations, or cash flows.

In June 2009, the FASB issued new authoritative guidance that amends certain guidance for determining whether an entity is a variable interest entity (VIE). The guidance requires an enterprise to perform an analysis to determine whether the Company’s variable interests give it a controlling financial interest in a VIE. A company would be required to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance. In addition, this guidance amends earlier guidance requiring ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The adoption of the provisions of this guidance, which was effective January 1, 2010, did not have a material impact on the consolidated financial statements.

In December 2007, the FASB issued new authoritative guidance that requires the Company to revise its application of the acquisition method for business combinations in a number of significant aspects such as requiring the Company to expense transaction costs and to recognize 100% of the acquiree’s assets and liabilities rather than a proportional share for acquisitions of less than 100%

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of a business. In addition, the guidance eliminates the step acquisition model and provides that all business combinations, whether full, partial, or step acquisitions, results in all assets and liabilities of an acquired business being recorded at their fair values at the acquisition date. The Company adopted the provisions of this guidance on January 1, 2009. The impact of the provisions of this guidance on the Company’s financial statements will be dependent upon the number of and magnitude of the acquisitions that are consummated. Under this new authoritative guidance, the Company expensed acquisition-related costs of $13.8 million and $7.2 million during the years ended December 31, 2010 and 2009, respectively, and recognized a bargain purchase gain of $27.0 million, net of tax, during the year ended December 31, 2010.

Other new pronouncements issued but not effective until after December 31, 2010, are not expected to have a material impact on our financial position, results of operations or liquidity.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Sensitivity.  The functional currency we use in Guyana is the U.S. dollar because a significant portion of our Guyana revenues and expenditures are transacted in U.S. dollars. The results of future operations nevertheless may be affected by changes in the value of the Guyana dollar, however the Guyanese exchange rate has remained at approximately $205 Guyana dollars to $1 U.S. dollar since 2004 so we have not recorded any foreign exchange gains or losses since that date. All of our other foreign subsidiaries operate in jurisdictions where the U.S. dollar is the recognized currency.

Interest Rate Sensitivity.  Our exposure to changes in interest rates is limited and relates primarily to our variable interest rate long-term debt. As of March 31, 2011, $148.0 million of our long term debt had a fixed rate by way of interest-rate swaps that effectively hedge our interest rate risk. The remaining $148.3 million of long term debt as of March 31, 2011 is subject to interest rate risk. As a result of our hedging policy we believe our exposure to fluctuations in interest rates is not material.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2011.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of March 31, 2011, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There was no change in the internal control over financial reporting that occurred during the three months ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

See Note 11 to the Condensed Consolidated Financial Statements included in this Report.

Item 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2010 Annual Report on Form 10-K as filed with the SEC on March 16, 2011. The risks described in

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our 2010 Form 10-K are not the only risks facing our Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

In September 2004, the Board of Directors authorized the Company to repurchase up to $5.0 million of common stock. The repurchase authorizations do not have a fixed termination date and the timing of the buyback amounts and exact number of shares purchased will depend on market conditions.

The following table reflects the repurchases by the Company of its common stock during the quarter ended March 31, 2011:

(1)          Represents shares purchased on February 11, 2011 from our executive officers and other employees who tendered these shares to ATN to satisfy their tax withholding obligations incurred in connection with the vesting of restricted stock awards on that date. These shares were not purchased under the plan discussed above. The price paid per share was the closing price per share of our Common Stock on the Nasdaq Global Select Market on February 11, 2011.

Item 5.  Other Information.

On May 6, 2011, the Company entered into standard indemnification agreements with each member of its Board of Directors and each of its executive officers.  Under these indemnification agreements, the Company agrees to indemnify these individuals to the fullest extent permitted by law and public policy for claims arising in their capacity as a director, officer or employee of the Company or any of its subsidiaries. Each of these individuals is only entitled to indemnification to the extent he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, he had no reasonable basis to believe that his conduct was unlawful. Subject to the applicable provisions of the Delaware General Corporation Law, the Company will reimburse each individual for expenses covered by the indemnification agreement within thirty days of the individual’s request for such payment.

Item 6. Exhibits

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