The NextWave Telecom Inc. saga continued last week as the hopeful wireless wholesaler unveiled funding plans to roll out its network, while its potential wireless competitors/customers continued to look for ways to wrestle some control over licenses that are still waiting for a proper owner.
The company’s $5.5 billion financing plans were outlined in a filing with a New York bankruptcy court on Aug. 6. NextWave said the funding, which included $2.5 billion in debt financing and up to $3 billion in convertible preferred stock, would take it through the complete buildout of its network and pay off outstanding debts.
During a news conference last Thursday, Allen Salmasi, chief executive officer of NextWave, said the company planned to have its data-only service launched on its C-block licenses by the end of the year. Its data and voice networks and all of its F-block data markets are expected to be up by next April.
“By the end of 2003, we will cover every nook and cranny of the country,” Salmasi said.
The company believes it can save 10 months in construction time and 35 percent of total cost by outsourcing the network buildout to its vendors and by taking advantage of existing towers that were not in place when it originally won its licenses in 1996.
NextWave has already inked a $100 million, all-cash deal with Lucent Technologies Inc. to begin the company’s buildout plans in its Madison, Wis., and Detroit markets. Additional vendor agreements are expected to be announced in September, Salmasi noted.
While NextWave’s financing plans indicate the company is still determined to launch its network, Verizon Wireless is hoping to obtain a piece of NextWave’s spectrum pie. Verizon Wireless’ latest strategy involves pairing with designated-entity Valley Communications, a new company headed by industry veteran James Dwyer, to purchase a portion of NextWave’s licenses in 50 markets for between $3 billion and $4 billion.
A much larger, but similar deal, was made last month when Cingular Wireless L.L.C. purchased 15 megahertz of spectrum from Leap Wireless International Inc.’s 30-megahertz license in the Salt Lake City market.
For Verizon, the arrangement with Valley Communications is needed since NextWave can only sell the licenses to another designated entity per the original 1996 auction rules.
While Dwyer said he could not comment on the relationship between Valley Communications and Verizon Wireless, citing a nondisclosure agreement, Verizon spokesman Jeffrey Nelson said the carrier has a “significant business relationship” with Valley and supports its talks with NextWave.
Verizon Wireless’ move to align with a DE also raised eyebrows since the carrier was the only large wireless operator that did not bid through a DE during the FCC’s auction earlier this year, and questioned its competitors’ use of DE relationships to receive price breaks on their bids. The DE agreements included AT&T Wireless Services Inc.’s deal with Alaska Native Wireless L.L.C. and Cingular Wireless’ deal with Salmon PCS L.L.C.
While NextWave would not confirm any talks with Valley Communications, the company has steadfastly said it has no plans to sell its licenses.
“NextWave intends to build out its licenses,” said NextWave spokesman Michael Wack. “We are not soliciting offers to sell them, and we don’t intend to `flip’ them.”
But, Wack did acknowledge receiving proposals from competing carriers and said the company is considering all of its options.
“Recently we’ve been approached by lots of folks who’ve made lots of proposals, including Bell companies,” Wack said. “We’ve listened to them and will continue to do so. NextWave has a fiduciary duty to consider proposals that are consistent with FCC rules and potentially beneficial to our creditors and shareholders.
“NextWave has always been open to the idea of strategic relationships, which are commonplace in the wireless industry. The FCC’s rules and orders expressly allow companies like NextWave to enter strategic relationships and to take on strategic partners.”
Whether any deals are eventually signed, Wack said NextWave plans to build out its network, and once it gains control of the licenses, it will flip the switch and become just like any other telephone company.
At the Thursday press conference, Salmasi continued to tout the company’s carriers’-carrier concept. This event came in the wake of the decision by the federal government to ask the U.S. Supreme Court to reverse an appeals court decision, which returned the disputed licenses to him and his company.
“God works in mysterious ways. It is really amazing that exactly five years ago we were here in this room announcing the results of the C-block auction and talking about our buildout plans. With a little delay, we are back to the same story. … We have no intentions of doing anything other than building this network. … Our dream is to build this network,” said Salmasi.
Salmasi believes his carriers’-carrier strategy will enable companies not traditionally involved with wireless to become wireless carriers.
NextWave “will sell its wireless services at wholesale rates to mobile virtual network operator distribution partners, who will re-market the service under their own brand names. NextWave’s unique wholesale distribution strategy will finally provide telecommunications, media & entertainment, retail, and financial-service companies, which lack wireless assets, the ability to market innovative wireless products and services under their own brand names,” according to a fact sheet referred to by Salmasi.
The strategy has detractors, however.
Brian Keeter, a spokesman for Alaska Native Wireless who attended the briefing, said it “raised more questions than were answered.” Noting that Salmasi himself said it was a deja vu situation, Keeter said NextWave had been unable to make the strategy work when market conditions were better, so why did he think it would be better now?
Alaska Native Wireless, through its affiliation with AT&T Wireless, won 44 licenses for $2.9 billion when the FCC reorganized and re-auctioned NextWave’s licenses earlier this year.
Verizon Wireless, the winner of 113 licenses for $8.8 billion in the re-auction, questioned the reasoning behind building out the network when a legitimate offer to sell the licenses is on the table.
“We have a legitimate offer on the table and there is an expiration date. If NextWave’s investors are interested in seriously accepting our offer, we would rather they do that,” said Verizon spokesman Jeffrey Nelson.
Verizon and Alaska Native have been very public about their intentions to get the licenses they won in the re-auction. They have joined with VoiceStream Wireless Corp. in filing a petition urging the FCC to investigate NextWave’s ownership structure. Verizon, Alaska Native, VoiceStream, Dobson Communications Corp. and Salmon PCS have set out a settlement strategy that would have the re-auction winning bidders pay a portion of their winning bids to NextWave if it agrees to give up all rights to the licenses.
Answering the question of how it hopes to be successful as the seventh carrier in some markets, Salmasi said it is the first carrier to build a third-generation-only network.
“We are going to be the first in the market, not only in the U.S. and North America but possibly the first in the world in achieving that network that is optimized for broadband wireless applications and we are going to bring high-quality voice services,” said Salmasi.
Other carriers, Salmasi noted, must keep their circuit-switched first- and second-generation networks in place to protect legacy customers.
While Wack tried to use this as a negative against NextWave’s enemies in the regulatory and policy battles, Salmasi backed away from such negative talk, saying that NextWave didn’t want to “get into any arguments” with its competitors about their 3G buildout plans.
Some of those short-
term next-generation plans may hinge on the spectrum NextWave hopes to control. A recent report from Lehman Brothers showed Verizon Wireless, Cingular Wireless and AT&T Wireless currently operated the three most congested networks of the six national operators. The report showed Verizon, with an average of 29 megahertz of spectrum in its markets, has more than 935,000 subscribers for each megahertz of spectrum it controls. Cingular, with its relatively small average of 23 megahertz of spectrum, is handling nearly 900,000 subscribers per megahertz; with AT&T Wireless, and its average of 33 megahertz of spectrum, serving more than 477,000 customers per megahertz.
