Verizon Wireless to Buy NextWave Licenses

Tuesday, November 9th 2004, 10:36 am
By: News On 6

NEW YORK (AP) _ Verizon Wireless is buying cellular capacity for 23 markets from bankrupt NextWave Telecom Inc. for $3 billion, ending the government's long tug-of-war over the never-used licenses and bolstering Verizon against a big new rival created by the merger of Cingular Wireless and AT&T Wireless.

The deal announced Friday gives Verizon Wireless big chunks of additional capacity to handle a growing subscriber base in key markets where it already has its own network, including New York City, Boston, Los Angeles and Washington. It also gives the company its first cellular spectrum in Tulsa, Okla., where it has relied on another carrier's network to provide service.

The licenses represent the last of the cellular spectrum won eight years ago by NextWave with bids totaling $4.7 billion in a series of auctions by the Federal Communications Commission.

The deal will bring the FCC's final recovery from the affair to a little more than $4 billion, including nearly $1.7 billion in cash and $2.34 billion worth of returned spectrum which the agency can now auction anew for considerably more money.

After an initial downpayment of a half-billion dollars, NextWave quickly defaulted on its debt to the FCC. The ensuing legal tussle went all the way to the Supreme Court as the government failed in an attempt to repossess the licenses and then re-auction them for three times their original worth.

The deal with Verizon, which requires approval of the FCC, the U.S. Bankruptcy Court and antitrust regulators at the U.S. Justice Department, follows a settlement reached in April resolving all disputes between the company and the FCC, the main creditor in the bankruptcy case.

The FCC will get only about $72 million from the $3 billion Verizon is paying because the FCC had already received most of what it was entitled to under the April deal.

About $4.2 billion from Friday's agreement and a series of smaller deals reached earlier this year goes to NextWave investors and other creditors, including parties who've put in money during the multiyear legal dispute and bankruptcy. While it is now officially leaving the cell phone business without ever having launched any services, NextWave is selling broadband data services over other spectrum it owns.

Early this year, NextWave sold some licenses to Cingular Wireless for $1.4 billion, of which the FCC received $714 million. Last week, NextWave completed the sale of two Florida licenses to MetroPCS for $43 million and a portion of its New York spectrum to Verizon for $930 million, with about $398 million going to the FCC.

The 10 and 20 megahertz licenses being acquired by Verizon cover markets where 73 million people live.

As a rough yardstick, 10 MHz of spectrum provides enough capacity for a single cell tower to handle 1,000 simultaneous phone calls, according to Tad Neeley, an industry analyst for the research firm RHK.

So, for example, the acquisition of an additional 10 Mhz in Los Angeles will increase Verizon's capacity there by nearly a third to a total of 45 MHz _ possibly enough for each cell tower to carry about 4,500 calls.

But even with the added spectrum, Verizon's capacity still trails in many markets compared with Cingular. With the completion of its $41 billion purchase of AT&T Wireless Services Inc. last week, Cingular boosted its holdings in Los Angeles and several other major cities to 65 MHz.

However, thanks to the technology it uses, Verizon gets more out of its spectrum for both voice calls and wireless data services. That's a crucial factor because both Verizon and Cingular are determined to drive up revenues with bandwidth-hungry services such as high-speed Internet connections for laptops, music and video downloads for handsets, and interactive games for cell phones.

``Each active data user equals many times the network load of an active voice user,'' said Martin Dunsby, general manager of global services for Openwave Systems Inc. ``The big thing driving the need for capacity is the dramatic growth in demand for data and other advanced non-voice services.''

The Verizon-NextWave deal is expected to close by the middle of next year.

Verizon Wireless, a joint venture between Verizon Communications Inc. and Vodafone PLC of Britain, is the fastest growing cell phone company in the nation.

With 42.1 million subscribers at the end of September, it also was the nation's biggest cell phone company until the Cingular-AT&T Wireless deal was completed.

The merger gave Cingular about 47.2 million subscribers and filled in major gaps in Cingular's national network. Cingular is a joint venture between SBC Communications Inc. and BellSouth Corp.

Denny Strigl, president and chief executive of Verizon Wireless, said the additional spectrum would give the company long-term capacity to meet customers' growing demand for wireless voice and data services. He said the purchase is part of an ongoing strategy to continually enhance Verizon's network.

The purchase will be funded through cash from Verizon Wireless operations and loans from Verizon Communications, said Verizon spokeswoman Nancy Stark.