Nextel Communications Inc.’s persistence finally paid off.
After years of waiting and working to get a hold of 900 MHz Specialized Mobile Radio licenses originally owned by Paging Network Inc., the company finally purchased the spectrum from Arch Wireless Inc. for $250 million in a deal announced last week. Arch inherited the spectrum when it merged with PageNet.
“When they (Arch) acquired PageNet … they acquired these assets,” said Steve Virostek, Nextel’s director of investment relations.
Under the deal, Nextel will pay an aggregate price of $175 million and invest $75 million in a new Arch equity issue of Series F junior preferred stock.
The companies said they would also explore ways to collaborate in joint-marketing agreements.
Nextel said the additional SMR licenses would bring its total spectrum to 20 MHz in the 800 and 900 MHz bands. Along with Nextel Partners Inc., of which Nextel owns one-third, the companies cover 99 of the top 100 markets, or two-thirds of the country.
Nextel’s purchase comes after a five-year struggle to acquire more 900 MHz spectrum. In 1996, Nextel, PageNet and the now-defunct Geotek Communications Inc. were the top players in a 900 MHz government auction. After Geotek went under, Nextel made a bid for the company’s spectrum but a court-approved antitrust consent decree shut it down. Newcomer Neoworld Inc. ended up with the spectrum.
At the same time, Nextel was trying for PageNet’s licenses while PageNet was in acquisition talks with Arch. Nextel saw its chance to grab PageNet’s spectrum through Metrocall Inc., which was trying to steal PageNet from under Arch’s nose. To help fund Metrocall’s acquisition bid, Nextel bought a $75 million equity stake and $175 million in SMR licenses from Metrocall. When Metrocall failed to get PageNet, Nextel lost its bid for PageNet’s spectrum.
But last week’s deal changed Nextel’s losing streak.
Currently, the company operates a nationwide network in the 800 MHz band. Virostek said Nextel is in talks with Motorola Inc., its primary infrastructure supplier, to build out a 900 MHz network.
However, “we haven’t made any decisions to deploy,” he said.
Additional spectrum coverage will most likely help Nextel’s position, analysts agree. Fitch IBCA Inc. gave Nextel’s senior note offering a “B+” and said the company’s competitive position would be “greatly strengthened” if it acquired more spectrum.
Nextel officials had no word on whether the company would participate in the upcoming 700 MHz auction, currently scheduled for March 12.
The spectrum swap will likely benefit Nextel with additional customers in the long run, but Arch is the clear winner now.
Arch said the money from the licenses would go toward paying down debt, generating working capital and general corporate purposes.
“Proceeds from the spectrum sale and equity investment will greatly enhance our financial flexibility and allow us to prepay all required 2001 amortization payments under our bank credit facilities,” said J. Roy Pottle, Arch’s executive vice president and chief financial officer.
Pottle reaffirmed the company’s previously disclosed guidance for the fourth quarter ended Dec. 31, 2000, pegging the revenues at about $95 million. However, Pottle said the company’s operating and financial projections are no longer applicable due to “the industrywide pace of decline of one-way units and a slowing national economy.”
Arch executives said the company wouldn’t have used the SMR licenses.
“Our willingness to sell the SMR spectrum resulted from the pending upgrade of Arch’s two-way network to ReFLEX Version 2.7,” said C. Edward Baker Jr., Arch’s chairman and chief executive officer. “This upgrade is expected to produce a substantial increase in the effective capacity of our network, making the SMR licenses redundant to our spectrum requirements.”
Baker said the company’s nationwide N-PCS licenses would meet the company’s future spectrum needs.
