While lawyers have spent the past four years wrangling over the fate of Nextwave Telecom Inc.’s 93 C- and F-block licenses, the wanna-be telecom company has been moving ahead with its plans to build out and launch its network. With the U.S. Court of Appeals for the District of Columbia Circuit recently granting NextWave’s appeal of the Federal Communications Commissions’ revoking of the licenses, NextWave finally has the most important piece of its network puzzle in hand.
“We have been working on those licenses for a while,” said Allen Salmasi, president and chief executive officer of NextWave. “We were anywhere from 33-percent to 50-percent built out in most of our major markets when the FCC cancelled the licenses. We completed the RF design, identified sites and signed leases for 2,500 sites. We were halfway through the buildout when we filed for bankruptcy.”
Salmasi said when NextWave filed for reorganization protection in 1999, there were still plans to launch the network by 2000.
“We made quite a bit of headway when these licenses were cancelled,” Salmasi explained.
Now, with the licenses nearly back in NextWave’s control, the company is moving ahead full-steam with its buildout plans. Shortly after the appeals court ruling, NextWave signed a reported $100 million contract with Lucent Technologies Inc. to provide CDMA-based voice and data infrastructure for two markets, Madison, Wis., and Detroit, and preliminary work on the rest of the markets. The decision to start with Madison and Detroit was made easier for NextWave since the FCC never confiscated either license, the D-Block for Detroit and E-Block for Madison.
Salmasi said the remaining C-Block licenses, which the company could regain control over by mid-August, are scheduled to be built out by early December, with the remaining F-Block licenses built out next year.
“Contrary to many media reports, we have 40 employees in the company, and only two are lawyers working on the litigation,” said Frank Cassou, executive vice president of corporate development for NextWave. “One guy built and ran AirTouch’s operations in San Diego, Los Angeles and San Francisco.”
When completed, NextWave’s network will cover more than 168 million potential customers in 40 of the top 50 U.S. markets, including all top 10 markets.
While the FCC mandated the C- and F-Block licenses be built on a time frame set to expire next year, Salmasi said the company’s rapid buildout plans will allow it to meet the requirements without having to file an extension, which some analysts say NextWave should be granted.
“We currently don’t feel we will need an extension,” Salmasi noted. “We would meet the buildout time frame by December for the C-Block licenses.”
While the company’s bravado in proclaiming its intent to build its network in record time has made news, the deal with Lucent has gone a long way toward stabilizing both NextWave’s plans to launch its network, and analysts’ expectations that NextWave is serious about its network and not just waiting for an eventual settlement with the FCC or other carriers.
“Although the ultimate fate of the NextWave licenses is uncertain, we believe this is a clear indication that NextWave is serious about building a wide-scale network,” said Peter Friedland, wireless analyst with W.R. Hambrect+Co. “Moreover, it seems unlikely that NextWave would enter into an equipment deal with Lucent if this was simply `posturing’ by NextWave to force a settlement with the FCC.”
In fact, some of the same carriers that “won” NextWave’s licenses in the FCC’s re-auction earlier this year have provided the company with valuable information on the stability of next-generation CDMA infrastructure.
“We have reviewed the fairly extensive trial that Verizon did in Philadelphia six months ago and Sprint PCS in Kansas City,” Salmasi explained. “We have the exact same equipment in Detroit, where we have done limited testing in the field.”
While initial plans call for the company’s remaining markets to be data only, due to possible delays with Enhanced 911 requirements, NextWave said it plans to roll out voice capability in all of its markets as soon as possible.
The biggest question surrounding the PCS bidder’s plans, as they have been for some time, surrounds financing. Salmasi has said that including the recent $100 million contract with Lucent, NextWave expects to spend $6 billion to fully build and run its network.
“We believe we have lined up all of the financing we need, which is to get our plan of confirmation through the bankruptcy court,” Salmasi said. “We are effectively paying cash to Lucent, and they are obligated to meet our timelines. We have created a financing pool, which includes a substantial amount of equity commitments as part of our prior $1.8 billion of financing raised in 1999, showing to the commission that this is a real commitment to the buildout of the network in record time.”
Lucent said it recognized NextWave’s financial past, and structured the contract accordingly.
“It’s an all-cash deal, which was an important part of the contract,” said Debi Lewis, spokeswoman for Lucent.
While NextWave remains confident of its financing goals, some are still skeptical considering the country’s current financial situation.
“While NextWave has publicly stated that it plans to build out a 3G network and become a carrier’s carrier, we believe that obtaining financing to build out a seventh national network would be extremely difficult and that the company is more likely to be a seller than an operator,” said Goldman Sachs.
Once up and running, NextWave expects revenue to be driven from two different models. The first and original goal of the company was to provide extra spectrum capacity for established carriers, the so-called “carrier’s carrier” model. The second revenue stream will center on the potentially lucrative mobile virtual network operator model made popular in Europe.
Currently no U.S. carriers have signed on to provide non-telecom companies access to their networks. Sprint PCS has been the only carrier interested in such a deal, and recently reported it was in talks with United Kingdom-based Virgin to provide a MVNO arrangement in this country.
“MVNO customers will be using the networks by the end of the year,” Salmasi claimed. “Our plan is to serve every MVNO and execute on our carrier’s carrier strategy. Given how many credible MVNOs are out there and on our recent discussions with many of them, our MVNO strategy will be a huge success.”
If NextWave does push the MVNO market in the United States, other carriers may be forced to look more seriously at the arrangements.
“Once a big MVNO deal is signed, it could trigger a whole bunch of other deals,” said Dominic Endicott, North American wireless practice managing director for DiamondCluster International. “The MVNO market in the U.S. is not strong yet, but once a deal is signed, there will be a lot of pressure for others to sign.”
Endicott noted the biggest challenges for NextWave in the MVNO arena are its current lack of network and full nationwide coverage similar to the other current wireless operators.
“I would think a nationwide presence is very important for an MVNO,” Endicott said.
