NEW YORK-Even if it fails to acquire the radio-frequency licenses of NextWave Telecom Inc., Nextel Communications Inc. already owns sufficient spectrum to fulfill its 10-year business plan, according to its chief executive.
Timothy M. Donahue, Nextel president and chief executive officer, told attendees last week at Warburg Dillon Read’s “Global Telecom Conference,” “We have plenty of spectrum to meet our narrowband and business needs for the next 10 years.
“I am under a gag order. But I can say, if we are successful in what we are trying to do with NextWave, we would love to have the spectrum because of what we think is happening in broadband.”
Several days earlier, details had come to light of Nextel’s latest attempt to obtain the licenses now held by NextWave. A legislative proposal, backed by the Clinton administration and opposed by House Majority Leader Richard Armey (R-Texas), would balance the federal budget by allowing a new buyer to purchase NextWave’s licenses for $3.5 billion.
Federal bankruptcy and bankruptcy appellate courts ruled NextWave owes $1 billion for the licenses.
The Federal Communications Commission has sought a federal appeals court ruling upholding its position that it is outside bankruptcy court jurisdiction and should be able to regain and re-auction NextWave’s C-block licenses.
The FCC appeal of NextWave’s reorganization does not contest the purchase price the bankruptcy courts have ruled is adequate. Furthermore, the FCC previously has rejected Nextel’s request to gain status as a designated entity entitled to bid for C-block licenses.
However, the federal budget proposal’s eligibility criteria for such an unnamed buyer of NextWave’s licenses seemed tailored uniquely to Nextel, an enhanced specialized mobile radio carrier.
At RCR press time, it appeared that legislation would not be part of the budget.
“Absent NextWave, we could increase our spectrum by about 25 percent, based on what is available,” Donahue said. “In the last several years, we have acquired about 40 percent more spectrum.”
Recently, Nextel obtained a new $5 billion credit line, raised $2.4 billion in a secondary stock sale and raised another $2 billion in bonds.
“We have raised a lot of money, so we can take advantage of any opportunity for us to get large blocks of spectrum, especially in the 800 (MHz) and 900 (MHz) bands,” he said.
Nextel’s biggest challenge is keeping its network ahead of the 5 percent to 7 percent annual growth in usage it is experiencing, Donahue said. “We are not shy about spending the capital necessary to keep up quality, to put supply ahead of demand. We are six months ahead on switches and four months ahead on RF,” he commented.
“Look what happened to AT&T (Wireless Services Inc.) They let the New York network go to hell, and they are paying for it. If there’s one thing I learned from Craig McCaw, it’s that it is the kiss of death in this business to let quality deteriorate.”
Nextel also is deploying $125 million of its capital to build an all-packet data network, which gobbles less spectrum than a circuit-switched network, Donahue added.
By the second quarter of next year, the company plans to begin commercial rollout of its packet data service, which will be available in all its markets by mid-2000.
It has joined forces with Microsoft Corp., which has made a $600 million investment in Nextel, to build an Internet portal, now undergoing testing in six cities, he said. Through it, Nextel plans to offer horizontal applications, like stock quotes.
The company also is working with more than 100 software developers to provide “vertical applications for the large number of (corporate) accounts with specific data and data access needs,” Donahue said.
Since mid-1999, Motorola Inc. has supplied Nextel with integrated Digital Enhanced Network phones that have built-in Web browsers.
Asked if Motorola had made its iDEN technology available to other wireless device manufacturers, Donahue responded, “Stand by; you’ll hear soon about a second source of handsets for us.”
Next year, Nextel also expects to announce that several European wireless carriers “unhappy with roaming services in the U.S.” will sell Nextel’s iDEN-Global System for Mobile communications phones for use by their customers who travel here, he said.
“I hope (John) Stanton (of Western Wireless Corp.) rolls up GSM here, but iDEN may prove more convenient for foreign travelers,” Donahue added.
In the United States, Nextel does not expect there to be a single wireless standard.
With its roots in “offering phones like bricks” to blue- and gray-collar workers, Nextel’s goal is to penetrate the white-collar business sector. Today the carrier counts as customers half of the Fortune 500 corporations, which comprise its fastest-growing customer base.
“I have challenged our sales staff to triple our corporate accounts in 2000,” Donahue said.
Nextel also is determined not to use growth as an excuse for poor cash flow, he added. During the third quarter, 59 cents of every dollar of incremental revenue the carrier generated went to the bottom line.
