WASHINGTON-In reaching an out-of-court antitrust settlement with Nextel Communications Inc. last week, the Department of Justice found itself defending a deal on grounds that its own antitrust lawyers shot down just months earlier.
The proposed settlement would halt Nextel’s purchase of Geotek Communications Inc. for now, but lift the 1995 antitrust consent decree in October 2000-five years ahead of schedule. In addition, the pact would let the nation’s top dispatch operator buy more 900 MHz channels immediately.
“This brings clarity to Nextel’s business strategy and development,” said Daniel Akerson, chairman and chief executive officer of McLean, Va.-based Nextel. “This will allow Nextel to assemble a critical mass of 900 MHz channels that will facilitate expansion and capital efficiency in the deployment of our iDEN network.”
Wall Street did not react much to the news. The settlement will be subject to public comment before U.S. District Judge Thomas F. Hogan makes a final ruling.
Geotek trustees now must decide whether to sell its licenses to another company or wait 15 months, when Nextel would be free to buy the permits.
Nextel, which controls most 800 MHz dispatch radio channels, needs more spectrum to accommodate growth and wireless Internet services on its nationwide digital network. Its pocket phones, which offer dispatch, mobile telephony and messaging, are marketed to corporate America.
While banning Nextel from buying Geotek today, the proposed settlement would increase the cap on 900 MHz dispatch channels Nextel can own from 30 channels to 108 channels in most cities and sunset the 1995 Nextel antitrust consent decree five years before its scheduled October 2005 expiration. There are 200 total 900 MHz channels, but mobile data and paging firms have a good chunk of them in major metropolitan areas.
The 1995 antitrust decree prohibits Nextel from operating 900 MHz SMR systems in 14 major markets.
The DOJ-Nextel pact, announced at the start of the hearing in Nextel’s lawsuit to vacate the 1995 decree, took many by surprise.
Specialized mobile radio operators that had been assisting Justice on the case for months-some who had spoken to DOJ lawyers as late as the Friday before last Monday morning’s hearing-were left speechless and angry.
Justice Department antitrust lawyers swiftly left the courtroom and would not return calls for comment.
“This battle is far from over. [We] will continue to do everything possible to preserve competition with the specialized mobile radio industry,” said Frank Casazza, president of Mobex Communications Inc., a medium-sized SMR in Lafayette, Calif., that failed to beat out Nextel for Geotek’s 191 900 MHz channels in a Delaware bankruptcy auction last December.
Casazza added: “We believe that some of the reasoning behind the agreement is seriously flawed, and we plan to shed more light on the matter during the public comment period.”
For instance, Justice said terminating the decree in 2000 instead of 2005 seemed appropriate in view of expected dispatch competition from carriers in 220 MHz and from mobile phone carriers in the 800 MHz and 2 GHz bands.
But in a Feb. 26 filing with the court, Justice said something very different. Government antitrust lawyers said that “entry into local SMR markets using any radio spectrum was difficult, and that there were only limited prospects for new entry at both 220 MHz and 900 MHz bands.”
Later, in the same document, Justice shot down the theory that mobile phone carriers would provide dispatch.
“The difficulties encountered by Geotek, combined with the lack of entry in frequencies outside the 900 MHz band, have left dispatch customers with few alternatives,” stated Justice. “Nextel has competed aggressively to serve customers of mobile wireless telephone services, initially competing against the two cellular carriers in each market, and now against multiple PCS (personal communications services) entrants in each market as well. However, consumers who need dispatch services, either alone or in combination with wireless telephone services, have not been so fortunate. Because there are few, if any, alternative suppliers of dispatch services, these customers have not benefited from a truly competitive market.”
To punctuate its point about Motorola Inc.’s dominant position in the 800 MHz dispatch market and its intentions regarding 900 MHz dispatch, Justice pointed to a July 1997 e-mail between Akerson and Nextel cofounder and Vice Chairman Morgan O’Brien. In it, Akerson concluded, “The best strategic move for Nextel is to get in front of the 900 MHz digital technology and try to guide it in ways that complement our 800 MHz iDEN product. We are the leaders of the two-way business and we have to keep fight to stay in that position.”
Representatives of Chadmoore Wireless Group, another up-and-coming SMR headquartered in Las Vegas, said they were dumbstruck by DOJ-Nextel pact and did not see it coming.
“If the settlement is approved, then DOJ might just as well have saved itself a lot of work and given Nextel an agreement to lift the consent decree when they first came in the door,” said Rick Rhodes, senior vice president and chief regulatory officer at Chadmoore.
Charles James, an attorney for Nextel, said the agreement to modify the 1995 antitrust decree was completed on Sunday afternoon, less than 24 hours before the start of the trial. James said Nextel and Justice had been toying with settlement ideas from the time Nextel filed its lawsuit in the U.S. District Court for the District of Columbia in February.
James dismissed speculation that DOJ antitrust chief Joel Klein might have overruled his staff, which for months stood steadfast in opposing the repeal of a 1995 consent decree.
Nextel needed the decree lifted to complete the $150 million purchase of Geotek’s 191 900 MHz. Many believed Geotek, before succumbing to bankruptcy last year, would have been a formidable national competitor to Nextel.
