Continuing his vision to build a worldwide telecom powerhouse, Craig McCaw and his gaggle of companies have agreed to share the cost of building Level 3 Communications’ national fiber optic network by contributing $700 million.
Newly formed Internext L.L.C., to be beneficially owned by competitive local exchange carrier Nextlink Communications Inc., Nextel Communications Inc. and Eagle River Investments L.L.C., made the agreement with Level 3. The agreement allows Internext access to 24 fibers and one empty conduit in the network that is expected to cover more than 15,000 route miles and connect almost every major city in the United States to data services.
The Internext piece positions McCaw, who sold his cellular empire to AT&T Corp. for $11.4 billion in 1994, to become a worldwide player in virtually every sector of the telecommunications business.
“The McCaw strategy seems to be to create the strongest single company within each market segment and leverage off of those strengths to provide worldwide telecommunications,” said Timothy O’Neil, telecom analyst with SoundView Financial Group. “He just strikes ventures and partnerships and the links are completed.”
The prospect could mean inevitable value for consumers, who telecom companies say want to shop at one place for telecommunications services. By owning key infrastructure, McCaw’s related companies are trying to avoid any interconnection costs and any reliance on competitors for services.
“We have the opportunity to control what happens once services leave the local network,” said Todd Wolfenbarger, spokesman with Nextlink. “From a revenue standpoint, we want to control as much as we can, and be the least dependent on competitors to provide network elements.”
Here are the pieces:
Nextel, a nationwide enhanced specialized mobile radio operator based in McLean, Va., that provides integrated wireless services mostly to working groups. The company recently added its 2 millionth digital customer. McCaw is chairman of the board. The McCaw family plans to invest a total of $1.6 million in Nextel.
Nextel International Inc., a wholly owned subsidiary of Nextel Communications Inc. that recently launched wireless service in Manila, Philippines and Rio de Janeiro, Brazil. In addition, the company holds wireless interests in Canada, Mexico, Indonesia, Japan, Peru, Argentina and Shanghai, China.
Nextlink Communications Inc., a publicly traded competitive local exchange carrier based in Bellevue, Wash., founded by McCaw in 1994 to provide local, long-distance and enhanced communications services to commercial customers. Today the company operates 18 facilities-based networks providing switched local and long-distance services in 32 markets in nine states. The company is aggressively building out fiber rings to cover the country’s largest cities. By 1999, it aims to cover cities with more than 21 million addressable business lines. McCaw is the primary shareholder.
NextBand Communications L.L.C., a joint venture equally owned by Nextlink and Nextel Spectrum Acquisition Corp.-the holding company that bid successfully for the majority of 800 MHz licenses. NextBand was the second-largest bidder in the local multipoint distribution services auction. LMDS spectrum can be used to offer wireless local loop service, high-speed data transfer and video broadcasting. The McCaw family holds much of the financial interest in the venture.
Internext, to be beneficially owned by Nextlink, Nextel and Eagle River Investments-McCaw’s private investment arm. The company’s fiber network will be the centerpiece of Nextlink’s emerging data strategy, said Wayne Perry, chief executive officer of Nextlink. Nextel will use Internext to interconnect its mobile switch centers.
Teledesic L.L.C., founded in 1990, aims to build a global, broadband “Internet-in-the-Sky” using a constellation of 288 low-earth-orbit satellites. The service will provide fixed access to telecommunications services such as broadband Internet access, videoconferencing, voice and other digital data. The company’s vision is to provide the service to rural customers through service providers in individual countries, although other market segments will be targeted, including corporate users. Motorola Inc. recently joined Teledesic in exchange for a 26-percent stake. McCaw is Teledesic’s chairman, co-chief executive officer and a principal shareholder.
Nextel, which added about 400,000 subscribers during the second quarter, already has expanded its service offerings to include landline long-distance service. The operator, which offers voice, paging and two-way radio service in one handset, is providing long distance as a value-added service to its existing customers through a resale agreement with LCI.
“Nextel has experienced robust inter-city long-distance growth as a result of our wireless no-roaming offering,” said Daniel Akerson, Nextel chairman and chief executive officer. “We expect this traffic to grow and generate additional traffic with a newly announced initiative to offer wireline long-distance to our existing customer base, with reduced telecommunications costs due to our ability to bypass local interconnection charges.”
“This is the second announcement we’ve heard that states Nextel is going to broaden its audience,” said Larry Swasey, analyst with Allied Business Intelligence in Oyster Bay, N.Y. “It makes sense to do so because they have been so successful at what they have been trying to do.”
The company plans to introduce soon a smaller, lighter handset aimed at the white-collar business user, said David Freedman, managing director with Bear, Stearns & Co. in New York. Nextel will go head to head with AT&T Wireless Services Inc.’s One Rate Plan that eliminates higher charges for roaming and long-distance fees.
McCaw also is a major stockholder of AT&T, but has declined to sit on its board.
