CLEARWIRE CORP. COULD EMERGE a dark-horse winner of AT&T Inc.’s $86 billion acquisition of BellSouth Corp., with Craig McCaw’s wireless broadband firm getting the chance it sought to buy additional 2.5 GHz spectrum from the telecom giant at a time when Clearwire is pursuing a $400 million public offering.
Though consumer groups and lawmakers early on had called for BellSouth to divest 2.5 GHz spectrum as a condition of the merger, the broadband wireless issue gradually faded in ensuing
months and became largely overshadowed by other controversial matters that prompted the Federal Communications Commission to postpone votes several times before agreeing to the deal on Dec. 29. Merger litigation is expected.
AT&T’s offer to unload BellSouth’s 2.5 GHz licenses and leases within a year was included in a Dec. 28 package of concessions largely extracted by FCC Democratic Commissioners Michael Copps and Jonathan Adelstein in weeks leading up to final action on the merger.
AT&T, which made a less ambitious proposal on conditions in October, will hold onto its significant 2.3 GHz wireless broadband holdings. AT&T agreed to significantly offer service on that band by July 2010, and to forfeit licenses if the commitment is not met. BellSouth has already launched a handful of fixed wireless broadband trials in the Southeast using its 2.3 GHz spectrum.
Likely WiMAX buyers
Clearwire-in a quiet period due to its initial public offering filed last month at the Securities and Exchange Commission-could not comment on its intentions regarding the available 2.5 GHz spectrum. But it appears AT&T’s consent to divest BellSouth’s 2.5 GHz properties will do nothing but encourage prospective investors if Clearwire’s IPO moves forward.
While controversy steadily escalated over AT&T-BellSouth merger conditions and GOP Commissioner Robert McDowell’s role (he eventually bowed out), Clearwire-hoping to be major player in the WiMAX space-continued to meet with federal regulators and make proposals to keep the door open to BellSouth’s 2.5 GHz properties. Its perseverance appears to have paid off.
“While Clearwire has been the most aggressive in winning recent competitive wireless broadband bids in Atlanta as well as an earlier wireless broadband block it acquired there two years ago, each of Clearwire, Sprint Nextel Corp. and NextWave Broadband Inc. is likely to pursue the boatload of 2.5 GHz spectrum that will soon be available in hot spots including Miami, New Orleans and Orlando. It’s possible AT&T will do better selling parts to several nascent WiMAX providers than the whole enchilada to one,” said Jim Wiesenberg, principal of WW Associates, a wireless advisory firm in Scottsdale, Ariz.
Recently filed SEC papers show McCaw, founder, chairman and co-CEO of Clearwire, owning a 52-percent stake in the company. The documents also indicate Intel Corp. subsidiary Intel Pacific holding a stake of about 32 percent in Clearwire. Those two major holders would still have the ability to appoint the majority of Clearwire’s board of directors after an IPO, the company said.
Other winners
Others joining Clearwire in the winner’s circle include Copps, Adelstein, consumer advocates, Sprint Nextel and T-Mobile USA Inc., which to varying degrees sought conditions on broadband wireless, special access lines and other merger components. The Justice Department unconditionally approved the AT&T-BellSouth merger, an action embraced by FCC Chairman Kevin Martin.
“As a condition of this merger, AT&T will jumpstart service in the under-used 2.3 GHz band by agreeing to a specific construction commitment over the next three-and-a-half years,” Adelstein noted. The merger that created Sprint Nextel included 2.5 GHz wireless broadband construction benchmarks.
Litigation, scrutiny likely
The biggest loser arguably is the FCC, whose chairman lost control of merger proceeding and ultimately agreed to a merger framework he has threatened to alter down the road. Congressional hearings on the FCC’s handling of the merger are likely.
“Importantly . while the Democrat commissioners may have extracted concessions from AT&T, they in no way bind future commission action,” said Martin and fellow Republican Commissioner Deborah Taylor Tate in a statement. “Specifically, a minority of commissioners cannot alter commission precedent or bind future commission decisions, policies, actions or rules. Thus, to the extent that AT&T has, as a business matter, determined to take certain actions, they are allowed to do so. There are certain conditions, however, that are not self-effectuating or cannot be accomplished by AT&T alone. To the extent commission action is required to effectuate these conditions as a policy going forward, we specifically do not support those aspects of the conditions and will oppose such policies going forward.”
With Martin and Tate drawing a new line in the sand, McDowell’s angry rejection of the FCC general counsel’s legal analysis of the former lobbyist’s conflict of interest dilemma and the Copps-Adelstein duo leveraging merger concessions much to their liking, collegiality is apt to be in even shorter supply at the commission going forward.
AT&T, now proudly resting atop the telecom world, came through the biggest winner of them all.
