WASHINGTON-Nextel Communications Inc., in a move possibly signaling capacity problems that may be forcing the already highly leveraged wireless giant back into acquisition mode, is negotiating with the Justice Department to lift a 1994 antitrust consent decree.
“We have had discussions on this and, no, they have not turned us down,” said Ben Banta, a spokesman for McLean, Va.-based Nextel.
According to one source, however, Nextel talks with Justice antitrust officials have not gone well. The Justice Department would neither confirm nor deny the existence or substance of discussions with Nextel.
The 1994 antitrust settlement, which governed Nextel’s purchase of Motorola Inc. specialized mobile radio licenses, required Nextel to sell most 900 MHz channels in Boston, Chicago, Dallas, Houston, Denver, Los Angeles, San Francisco, Miami, Orlando, New York, Philadelphia, Washington, D.C., Detroit and Seattle.
In addition, Nextel was forced to surrender some 800 MHz SMR channels in Atlanta.
Anne Bingaman, chief of the DOJ antitrust division at the time, said the Nextel-Motorola consent decree restrictions were necessary to ensure “that businesses and individuals that need dispatch services will not be at the mercy of a single service provider.”
Today, Nextel dominates the SMR industry even as it forays further into mobile phone and wireless local loop markets. Nextel controls half of the 3.1 million SMR units in use, which gives it a controlling position in the 800 MHz band.
Nextel also has a hefty supply of 900 MHz spectrum by virtue of its purchase of SMR licenses from the Federal Communications Commission in a 1996 auction.
Nextel iDEN networks, designed by Motorola Inc. to offer customers a combination of digital dispatch, mobile phone and alphanumeric messaging services, are said to be at near or full capacity in Atlanta and in other major markets.
Nextel’s 800 MHz integrated Dispatch Enhanced Network covers nearly two-thirds of the U.S. population and 75 of the largest U.S. markets.
Partially contributing to the capacity crunch is the steady growth of digital subscribers. Nextel, unlike cellular and personal communications services operators, does not have a lot of spectrum to work with.
The most spectrum in any given Nextel market is around 12 megahertz. Cellular operators have 25 megahertz and large PCS operators have as much as 30 megahertz.
Moreover, Nextel has had to reserve a portion of 800 MHz frequencies to accommodate relocated analog SMR customers.
Limited spectrum, steady subscriber growth and the fact that Motorola is developing iDEN 900 MHz phones (an iDEN 900 MHz system is being tested in Las Vegas) has prompted speculation that Nextel may be angling for 900 MHz SMR properties like those held by Geotek Communications Inc.-currently in Chapter 11 reorganization-and others. Geotek, of Montvale, N.J., is a major 900 MHz SMR licensee.
“You’ve have to consider them [Nextel] the prime candidate [for Geotek licenses],” said Steve Virostek, a messaging and dispatch analyst at the Strategis Group here.
“Definitely, in a couple key cities I think Nextel realizes it needs extra capacity,” he stated.
Nextel’s aggressive U.S. digital buildout and expansion into overseas markets have been driven in part by debt financing.
In February, Nextel sold $1.63 billion in high-yield debt securities-the single-largest junk-bond wireless deal in that quarter. Nextel has $7.8 billion in debt overall.
Despite massive debt and losses (Nextel had a first quarter loss of $386.9 million), Wall Street remains bullish on Nextel. Revenue is up and a positive cash flow is expected in the near future.
That optimism also is based on several other factors: strong management, dominant market position, an aggressive business strategy and Craig McCaw.
McCaw became a billionaire by creating value with the purchase and networking of cellular systems throughout the country in the 1980s, a business plan not unlike Nextel’s. That McCaw and his family have pledged $1.6 billion toward Nextel represents a loud vote of confidence on Wall Street.
Whether trust busters at the Justice Department share that good feeling about Nextel is another question.
