12/28/99 - NextWave's Gain Is Nextel's Loss
Dec. 27, 1999 (WIRELESS INSIDER, Vol. 17, No. 50 via COMTEX) -- As Broadband Visions Resurrect Urban Licenses, The Carrier
Rises From The Ashes
By John Sullivan
NextWave Telecom is starting to look like the Beck Weathers of wireless, despite a hostile takeover attempt.
Much like the Texas physician who refused to die in a storm on Mt. Everest in 1996, NextWave has walked down the mountain despite
speculation that the company was DOA.
Since June 1998, the PCS licensee mostly lay still and quiet in a New York bankruptcy court while specialized mobile radio giant
Nextel Communications [NXTL] negotiated with the FCC for NextWave's licenses as if it had already passed away.
Yet a resuscitated NextWave suddenly returned from the grave last week when it lined up a $1.6 billion investment package with
financial heavy hitters.
The deal suggests NextWave found a way to scale its biggest market hurdle-the perception that there is no room in top tier markets
where NextWave won its licenses for another mobile voice provider. And now Nextel wants NextWave and will pay $8.3 billion to
acquire it.
NextWave's financial infusion came from a variety of companies with interests other than the traditional mobile voice business.
Prominent among investors is fiber optic network provider Global Crossing [GBLX]. Global Crossing operates a network of more than
97,000 route miles linking 200 major cities in 24 countries on five continents.
AT&T [T] subsidiary Liberty Media [LMGA & LMGB], which holds stakes in approximately 100 cable channels, also is a shot in
NextWave's arm. Liberty's chairman is none other than John Malone, who has a track record of planning cable industry invasions into
the soft underbelly of telephony.
The remaining members of NextWave's new group of backers include Pacific Capital Group and Texas Pacific Group.
Mission Impossible?
The sudden interest of a broadband wireline carrier and a cable industry content provider point to a very different mission for NextWave's
licenses than the one it originally had anticipated during the C-block PCS auction.
NextWave, founded primarily by former Qualcomm [QCOM] executives, had planned to become a wholesaler of high-capacity CDMA
airtime, selling minutes to resellers across the country-at one time including pre-WorldCom [WCOM] MCI, which had a 10-year
agreement with NextWave.
With that objective, NextWave chased the top markets in the auctions, ultimately ending up with 95 licenses and owing the FCC some
$4.7 billion.
Unfortunately, its plan to finance those extreme bids by going public on the strength of its spectrum holdings backfired.
As major carriers rolled out service, Wall Street wanted no part of a late entry competing against much more powerful brands that had a
growing head start.
In the end, it was the much cheaper licenses for smaller markets that gradually started trickling into service, while the three biggest
C-block bidders - NextWave, Pocket Communications and General Wireless - all fell into Chapter 11.
The entrepreneur's block licenses in major markets appeared to be economically dead.
A Death Greatly Exaggerated
However, NextWave's licenses still represented a significant resource: between 10 MHz and 30 MHz of spectrum in the Top 10 U.S.
markets, 28 of the top 30 markets, and 40 of the top 50.
Perhaps NextWave couldn't get financing, but Nextel certainly had some ideas about what to do with that kind of spectrum.
Notably, the best guess of analysts when Nextel expressed interest in the licenses was not that it would fold the licenses into its iDEN
footprint, but that it would use them for high-speed data services.
Clearly, that is the slant Global Crossing and Liberty Media want to take as well.
In their statement announcing the deal, execs from both companies, as well as NextWave CEO Allen Salmasi, repeatedly referred to
NextWave as constructing "a world-class IP-based wireless network."
Global Crossing CEO Robert Annunziata enthused that his backing of NextWave means that "broadband high-speed local access
capability will be available to our customers much sooner than would otherwise be available."
NextWave filed a modified reorganization plan based on the new backing, one that essentially promised to remove obstacles to
NextWave's re-emergence from bankruptcy by paying off all creditors, including the government.
The plan was strongly endorsed by the counsel to NextWave's official creditor's committee, David Friedman of law firm Kasowitz,
Benson, Torres & Friedman.
"It appears there should be no obstacles to NextWave moving rapidly through the confirmation process with the support of all
constituencies, " Friedman said.
In other words, "repurposing" NextWave's licenses has made all the difference, and suddenly life is beautiful.
Analysts even approved of the investment, despite NextWave's previous status as Wall Street pariah.
Paul Saferstein of Morgan Stanley Dean Witter said he was "surprised by [Global Crossing's] interest in the wireless side of the
business [since] they haven't really stressed any type of wireless strategy to date."
"[However] anything that facilitates broadband access is in Global Crossing's best interest," he added.
The deal is a potentially risky one, but Global Crossing can afford some risk.
"They're using their strong balance sheet and their size to try and create reality," said Saferstein.
And taking a chance on NextWave is a bet that could pay off in a big way based on the company's spectrum holdings, which suddenly
look like a strength instead of a weakness.
If NextWave moves into high-speed data with something that looks like 3G while other carriers are still carefully evolving to 2.5G
solutions, then, as Saferstein put it, "suddenly it's not number six in the market, but number one."
Of course neither NextWave nor anyone involved in the deal is talking about technology ... yet.
It remains a huge question mark, and it's not the only one. For one thing, there's still the FCC to satisfy. And Nextel's still out there.
However, the immediate consensus of Wall Street seemed to be that the deal makes it much less likely Nextel would get its hands on
the spectrum. The company's stock fell sharply on the news, from $99 a share to just under $93.
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