8/19/99 - NEXTEL SETS ITS SIGHTS ON C-BLOCK SPECTRUM
Aug. 18, 1999 (PCS WEEK, Vol. 10, No. 32 via COMTEX) -- NextWave Cries Foul Over Government-Brokered Deal
The epic saga of NextWave Telecom Inc. and its C-block ambitions couldn't have gotten any stranger, right? Well, along comes specialized mobile radio carrier Nextel Communications Inc. [NXTL]. It's found a way to write one more bizzare chapter.
Last week, Nextel said it had gotten the approval of both the FCC and the Department of Justice to acquire NextWave's entire inventory of PCS licenses.
Operating under Chapter 11 status for the last 14 months and deeply embroiled in bankruptcy proceedings, NextWave has the goods. It's got C-block licenses covering 63 basic trading areas (BTAs) as well as 32 BTAs in the D, E and F blocks. These licenses cover more than 165 million customers.
While the approval doesn't guarantee NextWave's licenses will go to Nextel, it's a strong possibility. Backed by multibillionaire wireless entrepreneur Craig McCaw, Nextel can't be underestimated. It might outbid other suitors.
Approval from the FCC and the DoJ is necessary because Nextel holds about 10 MHz of non-contiguous spectrum in the 800 MHz and 900 MHz SMR bands.
One might think that approval from the licenseholder would help, though. And NextWave clearly is not trying to sell out. In fact, as soon as Nextel went public, NextWave started screaming bloody murder. The company referred to the announcement as "the remarkable suggestion...that two agencies of the United States government, working in concert, have secretly agreed to lend their respective regulatory and police powers in support of [Nextel's] long standing commercial efforts to obtain spectrum licenses held by NextWave."
A Way To Resurrect Top C-Block Licenses?
An obvious question is raised by Nextel's interest - why would it want a collection of 1900 MHz licenses? The company is competing in the same market space as mobile voice carriers. Yet it has built its current position on 800 MHz and 900 MHz spectrum, and on iDEN technology for which 1900 MHz hardware does not exist. However, Nextel is experimenting with dual-band iDEN/GSM handsets to attract high-end global business travelers. One ironic possibility would be to build out NextWave's properties using GSM. In addition to causing the CDMA purists at NextWave to simply keel over dead, this strategy would greatly expand the overall capacity of GSM in major markets. Also, it would give Nextel both greater reach and more potential off- network roaming revenue.
Another area Nextel might explore is third-generation data services. Indeed some kind of non-voice offering may be the only way to make C-block licenses in major markets economically viable. Heavy hitters like Sprint PCS [PCS] and AT&T [T] have amassed huge head starts in the country's top markets.
Thus it's difficult to see how anybody could justify the startup costs of one more voice competitor using NextWave's licenses. Nextel declined to say how much it would offer for the frequencies or what it would use them for. But the general opinion is that additional spectrum would be used for its upcoming data network, set for commercial release in early 2000. While Nextel's voice coverage could benefit from some improvements, analysts say, that could be handled through more extensive build outs, not more spectrum.
It's Getting Better All The Time
If Nextel obtains the right to buy the spectrum, this could be a "win, win" situation, says Christopher Larsen, an analyst with New York-based Prudential Securities.
"The FCC will probably get a better price than they would get in the bankruptcy courts. For the creditors, it's an easy way to sell out," Larsen says.
Plus, because Nextel is already active in nearly all major markets, this scenario would prevent the addition of another carrier, something nobody wants.
"It would be great to not have the spectrum in another player's hands, " Larsen says.
Certainly other companies will be interested in getting a piece of the pie, says Bradley Williams, an analyst with Legg Mason Wood Walker. But most other carriers could be hindered by spectrum caps that Nextel doesn't face.
Slathering On The Irony With A Trowel
Although buying the frequencies would add to Nextel's $10 billion of debt in the short term, it could potentially boost its valuation in the long term. And that would raise the chances of Nextel getting bought by a large company.
"This could be a significant increase [in Nextel's spectrum holdings] and it makes the company look more attractive [financially]," Williams says. "But this just gives them the right to do it. If it gets the licenses, it could offer a cadre of services."
Talks to merge with MCI WorldCom Inc. [WCOM] broke off last spring after both companies balked on a selling price. At that time, CEO Bernard Ebbers said he might like to revisit the Nextel option if the economics changed for the better. Given that NextWave was at once going to be MCI's entree into the wireless business, it would be another ironic twist of fate if MCI WorldCom ends up eventually offering service on that spectrum after all.
Of course, NextWave still insists that it will pay off its new and improved license debt and enter service as a reseller. The company said it expects to "very rapidly" place its licenses into "productive use" after a Sept. 8 confirmation hearing on its reorganization plan.
(Christopher Larsen, Prudential Securities, 212/778-1023; Kara Palamaras, Nextel, 703/4334579; Bradley Williams, Legg Mason Wood Walker, 410/454-4540.) |
