All eyes on NextWave's exit
Mon Sep 6, 6:00 AM ET
news.yahoo.com
by Chris Nolter
Over the next several weeks, NextWave Telecom Inc. will craft the blueprint for its exit from Chapter 11 after a six-year stay. Barring extensions, the Greenwich, Conn., company has until mid-October to file its reorganization plan, which will feature an unusual provision-money left over for shareholders.
"The debtors are in a position to propose a plan that not only pays creditors in full, but also provides value to equity holders," NextWave counsel Deborah Schrier-Rape said in court pleadings.
Industry sources will scour the plan for answers to a question with larger implications than shareholder recoveries: what NextWave will do with a portfolio of wireless spectrum worth billions of dollars.
"The nature and value of the debtors' assets [have] generated a number of alternatives that the debtors have been both obligated and fortunate to have to evaluate," NextWave pleadings state.
"The debtors have now narrowed their focus to a very few selected alternatives."
NextWave is completing sales of spectrum in New York and the Florida markets of Sarasota and Tampa-St. Petersburg to Verizon Wireless and MetroPCS Inc., respectively. Together, the divestitures are bringing in $973.5 million.
When the transactions close, NextWave expects to have $900 million in cash left over to satisfy creditor claims. It will also have the nation's sixth largest wireless spectrum footprint, covering more than 72 million people in such lucrative markets as Boston, Los Angeles, Philadelphia, New York and Washington.
One obvious option is to sell the remaining spectrum.
"It still has very good licenses left," said one analyst. "They kept more or less the gems."
The New York and Florida markets sold for 50% of the prices the government received when it tried to auction the markets in December 2000 and January 2001. Using those valuations, Igor Volshteyn of the San Antonio firm Tejas Securities Group Inc., which makes a market in NextWave securities, says the remaining portfolio could be worth $2.9 billion, with New York accounting for $1.9 billion.
For more than a year, however, NextWave has held out the option that it may use the spectrum itself. The company established a strategic partnership with the Beverly Hills, Calif., investment firm Clarity Partners LP, to explore opportunities.
Building out a network to cover its markets would be costly. And risky. There are already six national wireless carriers, though AT&T Wireless Services Inc. is being acquired by Cingular Wireless, the Atlanta joint venture between SBC Communications Inc. and BellSouth Corp.
Still, industry sources said there has been recent buzz about NextWave teaming up with a wireless partner.
Dallas-based MetroPCS Inc. would be an interesting match. MetroPCS, which pulled July plans for a $500 million IPO because of accounting questions, has grown revenues quickly but only has operations in Atlanta, Miami, Sacramento, Calif., and San Francisco. The company provides wireless services on plans that are similar to a traditional local wireline offerings, with customers paying a flat fee for unlimited calls within a specified area. MetroPCS would be hard pressed to raise sufficient funds to buy spectrum in the nation's top markets on its own.
A MetroPCS spokeswoman did not deny that the two companies had held discussions, but she said that any speculation of a pending deal with NextWave was unfounded. NextWave declined to comment.
MetroPCS' internal issues would make a union a complex proposition, however. In addition to shelving its IPO, the company recently said that it would violate debt covenants because of a delay in its filings for the second quarter. It does not expect to trigger an event of default, though.
Leap Wireless International Inc. of San Diego has a business model similar to MetroPCS and also could be an option. The company emerged from bankruptcy protection this summer, and its ownership will be concentrated among former creditors.
In addition, Reston, Va.-based Nextel Communications Inc. has historically been hungry for spectrum. Some of its needs may be satisfied through a license swap approved by the Federal Communications Commission (news - web sites) this summer, though. Nextel has not said whether it will accept the deal proposed by the government, which could cost it at least $3.2 billion, in addition to licenses it would surrender.
Finally, NextWave has expressed interest in offering wireless broadband services. It participated in a bankruptcy auction for MCI Inc.'s broadband wireless licenses, and received court permission to purchase spectrum from a San Bruno, Calif., company called IPWireless Inc. for a service trial in Las Vegas.
"This is an area where they've been continuing to look to invest," said Jim Wiesenberg, a managing director at Phoenix investment bank Carmichael & Co. LLC.
"There's room for them and other new advanced wireless service providers."
Of all the options, a union with MetroPCS would be the most poetic. Like NextWave, MetroPCS' predecessor company sought Chapter 11 protection amid similar circumstances in the 1990's, when it could not pay for spectrum licenses it won at an FCC (news - web sites) auction. It found a quicker route out of bankruptcy, however, exiting in 1998. |
