WASHINGTON-Nextel Communications Inc. remains silent as to whether it plans to accept a government offer to pay $5 billion in cash and spectrum to gain access to spectrum in the coveted 1.9 GHz frequency band.
The Federal Communications Commission Thursday voted unanimously to reconfigure the 800 MHz band to solve public-safety interference in a controversial move that would give Nextel contiguous spectrum at 1.9 GHz, clear spectrum for public-safety agencies and relieve an interference problem that has been going on for decades. However, questions linger whether the plan can survive legal scrutiny.
“The question now shifts to Nextel. It has been a good partner and worked cooperatively with the Federal Communications Commission and public safety to bring a workable plan together,” said an emotional FCC Chairman Michael Powell at the meeting approving the plan. “In many ways, we have adopted a plan along the lines that Nextel has urged. We have not, however, approved its plan outright because we always remain cognizant that our allegiance is only to the public good, not the private good. But it is a fair balance of the issues, and it is the best solution this commission can find. I am confident Nextel will make the best choice for its shareholders as it must, but we urge them to make the best choice for the good of the American people, as it should.”
Because there was so much contention around the proposal, which is more than two years old, several FCC commissioners commented on how important it was to reach a unified decision. Powell has often faced split commissions when the agency makes controversial decisions.
As part of the plan, Nextel will give up spectrum in the 800 MHz and 700 MHz bands and receive spectrum in the 1.9 GHz band.
But it is unclear whether Nextel will accept the plan. Executives of the company, which previously have been available, were not commenting following the FCC vote.
“The information released today by the FCC contains few details regarding the obligations its decision would impose on Nextel. Once the commission’s order is released, we have an obligation to review all aspects of the decision to fully understand the implications to Nextel’s shareholders,” said Nextel in a statement.
The FCC has valued the 1.9 GHz spectrum at $4.8 billion. It has valued the 800 MHz and 700 MHz band spectrum that Nextel will relinquish as part of the reconfiguration at $1.6 billion.
The value of replacement spectrum has been the most controversial part of what FCC Commissioner Kathleen Abernathy said was a “costly, complex and critical” plan. It also is the major difference between what the FCC proposed and the Consensus Plan, which also called for Nextel to give up spectrum in the 900 MHz band.
Nextel will relinquish 4.5 megahertz of spectrum in the 800 MHz band and approximately 4 megahertz in the 700 MHz band. It will receive 10 megahertz of spectrum in the 1.9 GHz band, but it must first clear this spectrum of the incumbent broadcast auxiliary service.
“The major difference between the two proposals is the valuation of the spectrum that Nextel is contributing. Nextel values this spectrum at almost double the FCC’s assessment. With a lower value being given to the assets contributed, the expected cash outlay under the FCC’s proposal is higher. We believe the $1.6 billion figure for the value of Nextel’s spectrum contribution is not yet set in stone. In fact, the $1.6 billion figure is nowhere to be found in the FCC’s press release. The figure was mentioned in a press conference with John Muleta, chief of the FCC’s Wireless Telecommunications Bureau, after the commission meeting had ended. Therefore, we believe there may be some wiggle room in this figure, which could modify the expected cash outlays in the final order,” said UBS Investment Research.
Nextel is required to secure a letter of credit for $2.5 billion to pay to relocate public safety, private wireless, other ESMRs and the broadcast auxiliary service.
If the relocation costs-including Nextel’s own costs plus the value of the spectrum it relinquishes-are less than $4.8 billion, Nextel will pay an anti-windfall payment to the U.S. Treasury. Concerns have been expressed by Verizon Wireless and others that Nextel would receive valuable spectrum for less than it is worth. By assessing an anti-windfall payment, the FCC hoped to quiet those complaints.
It didn’t work.
“Giving up such valuable spectrum without a public auction means the U.S. treasury is losing billions of dollars. Those funds could have been used to provide public safety with money to make much-needed improvements in the vital care it provides all of us,” said Steve Largent, president and chief executive officer of the Cellular Telecommunications & Internet Association.
The FCC also adopted the best practices advocated by opponents of the Consensus Plan as an interim step while the 800 MHz band is being reconfigured.
