Spectrum Crunch Spurs Deals
Despite the probable settlement of the NextWave Telecom spectrum fight and the advent of creative partnering solutions, wireless operators still need more airwaves for next-generation data services.
NextWave is close to reaching an agreement with the Federal Communications Commission and leading wireless operators that would place new spectrum in the hands of major service providers, according to reports. NextWave won licenses nationwide in 1996, but couldnt pay for them and didnt build a network; since then, it has been involved in litigation with the FCC.
The FCC reauctioned the licenses earlier this year. The parties involved may be close to a deal whereby the winners of the reauction including Verizon Wireless and two companies backed respectively by AT&T Wireless and Cingular Wireless would pay the price they bid. The FCC would receive $11 billion and NextWave would end up with $5 billion.
"This helps a couple carriers in a couple of cities. The call for more spectrum isnt going to go away," said Brent Weingardt, senior counsel of the Bennet & Bennet law firm.
The deal could be held up as parties negotiate over a request from Verizon to delay its payments, according to published reports.
The settlement could make the FCCs role as auction facilitator much more challenging.
"This has huge implications for the future. The only loser here is the FCC," said Iain Gillott, principal of research firm iGillott Research.
Nextwave paid $500 million toward $4.8 billion that it bid on licenses and after five years of litigation may receive $5 billion. The arrangement could set a precedent for future auction winners that default on their bids.
Wireless carriers still in need of spectrum may have another chance to win licenses next June, the new date set for the auction of 700-megahertz spectrum. The auction has already been delayed several times because the spectrum is currently occupied by analog television broadcasters. License winners will be required to negotiate with the current users to encourage them to vacate the spectrum a prospect many believe will discourage would-be auction participants.
"The only ones who can buy it are those who can afford to speculate," Weingardt said.
Some operators are coming up with innovative solutions to the spectrum crunch and ways to cut costs as they face hefty next-generation network upgrades. Last week, Cingular and VoiceStream Wireless built an infrastructure joint venture so that the companies can share one network in California, Nevada and New York, and split the cost of upgrades. The parent companies will allow the joint venture to use their licenses in the regions, and the joint venture will sell network time to the parents.
"The issue of sharing networks has to happen because theres not enough money around," said Herschel Shosteck, chairman of research and consulting firm The Shosteck Group. He said he expects to see more creative solutions to high network infrastructure investment requirements.
Shared networks have some drawbacks, though. The operators cant compete against one another by comparing the technical merits or coverage of the network, Weingardt noted; they can only compete on price.
Nonetheless, he said he also believes other operators will come up with similar innovative deals. "It takes the pressure off of outright mergers," he said.