WSJ -- NextWave Spectrum Could Figure In Some Future Telecom Megadeal.
(This is the "Heard on the Street" column).
Jon.
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March 2, 2004
NextWave Spectrum Could Figure In Some Future Telecom Megadeal
By GREGORY ZUCKERMAN and JESSE DRUCKER
Staff Reporters of THE WALL STREET JOURNAL
The next big telecom deal could feature a company few investors have ever heard of: NextWave Telecom Inc.
NextWave has been operating under bankruptcy-court protection for almost six years and the wireless company has yet to resolve a long-running dispute with the Federal Communications Commission. NextWave owes the FCC more than $4 billion related to radio-wave spectrum licenses the company purchased in an auction in 1996 but never fully paid for.
People close to the matter, however, say NextWave could reach an agreement with the government in the next month or so. That could set the stage for a sale of the company's wireless spectrum, which is valued at between $5.5 billion and $7.5 billion. Verizon Wireless, Nextel Communications Inc. and other large telecommunications players are potential buyers.
NextWave recently agreed to sell $1.4 billion of spectrum licenses to Cingular Wireless, but NextWave still has to satisfy a $4.3 billion debt to the FCC. There are no talks at present with suitors on a sale of NextWave's spectrum, according to people familiar with the matter.
But speculation is growing on Wall Street about the likelihood of a deal. Shares of NextWave, which trade on the Pink Sheets market (where companies don't have to file earnings or other reports with the Securities and Exchange Commission) have soared to $4.60 each, up from just over $3 late last year. Trading volume has been heavy recently.
Radio-wave spectrum, the invisible collection of airwaves that makes wireless calling possible, enables everything from completing a cellular-phone call to broadcasting a television program. Demand for what is essentially the real estate of the wireless industry is increasing as more people gab on cellphones and will jump even higher if wireless data offerings -- or so-called 3G services -- ever take off. Such data services require even more spectrum.
The buzz about a big sale has been growing in the past two weeks, on the heels of an agreement by Cingular, a joint venture of SBC Communications Inc. and BellSouth Corp., to purchase AT&T Wireless Services Inc. for $41 billion. "NextWave and the FCC have been trying to reach a settlement," says Igor Volshteyn, an analyst at Tejas Securities Group Inc. in Austin, Texas, which specializes in "distressed" securities.
Verizon Wireless, a joint venture of Verizon Communications Inc. and Britain's Vodafone Group PLC, is seen as the most likely buyer of the spectrum when the bidding gets under way. While the carrier has hefty spectrum holdings around the country, its strong subscriber growth will eventually put pressure on its capacity. Perhaps more important, the carrier has announced plans to spend $1 billion to upgrade its network to offer higher-speed wireless-data access, which will eventually require much more spectrum.
"We remain interested in any spectrum opportunities that would improve our spectrum position, but we don't have any immediate needs at this time," said Jim Gerace, a Verizon Wireless spokesman. He said deployment of the company's new, higher-speed network wouldn't affect the carrier's short-term spectrum needs, but those needs would eventually accelerate. "We were going to need additional spectrum anyway."
Cingular's acquisition of AT&T Wireless has caused some investors to question whether spectrum is now worth more. Cingular could have solved its spectrum problems for under $10 billion simply by buying all of NextWave's licenses -- instead of paying $41 billion for AT&T Wireless. Cingular has pointed out that the deal also brought in an established business, including 22 million subscribers, a nationwide network and extensive distribution channels.
Moreover, NextWave's spectrum isn't the only game in town anymore. The FCC is expected to hold spectrum auctions during the next year, which could put pressure on the price NextWave could command.
Hence, there is incentive for Nextwave to line up spectrum deals as soon as possible. "These guys have become professionals at pulling rabbits out of hats," says Craig Mallitz, a wireless telecommunications analyst for Legg Mason. "The last rabbit is to get a deal done before the [FCC] auction, because if they don't, that potential need for spectrum could be satisfied for the other carriers."
NextWave's woes have emerged as perhaps the longest running soap opera in the wireless-telecommunications industry. In 1996, the company successfully bid on nearly $5 billion in radio-wave spectrum licenses, but it wound up filing for Chapter 11 bankruptcy-court protection two years later. The FCC repossessed the licenses and reauctioned them in 2001. Several big wireless carriers successfully bid on the licenses, but were put into limbo after NextWave successfully sued the FCC to get the licenses back. Last year, the U.S. Supreme Court ruled that the FCC had improperly reclaimed the spectrum licenses, which put them back into NextWave's hands.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com and Jesse Drucker at jesse.drucker@wsj.com
Updated March 2, 2004
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