Cingular Wireless L.L.C.’s rumored $1.4 billion purchase of 34 PCS licenses from NextWave Telecom Inc. was semi-announced last week as NextWave’s public-relations agency distributed a press release claiming the two companies had agreed on a deal that if approved by NextWave’s bankruptcy court and the Federal Communications Commission would provide Cingular with much-needed spectral capacity and NextWave with badly needed cash.
Shortly after the press release was issued, Cingular sent out a statement saying it was still in negotiations with NextWave “concerning the possible purchase of certain spectrum licenses” and that “a definitive agreement has not been reached and there can be no assurance that an agreement will be reached or, if reached, that any transaction will be consummated.”
While the deal is apparently not done and neither side is commenting, the ill-timed press release provided insight into what licenses Cingular is looking to acquire from NextWave.
According to the release, Cingular would acquire 10-megahertz PCS licenses in 32 markets including seven of the nation’s top 10 markets, as well as a pair of 20-megahertz licenses in Tampa, Fla., and El Paso, Texas. The largest markets include Los Angeles, Chicago, San Francisco, Dallas, Houston, Washington, D.C., Boston, Atlanta, San Diego, Baltimore, Las Vegas, Salt Lake City and Portland, Ore.
Cingular previously bid more than $1.5 billion through its Salmon PCS partnership for many of the licenses mentioned in the NextWave deal during the FCC’s previous attempt to re-auction the licenses in early 2001. Other bidders pledged an additional $1 billion for other NextWave licenses.
At the price noted in the press release, Cingular would be spending 4.7 cents per megahertz per pop for the NextWave licenses, which was slightly above the 3.2 cents per megahertz per pop Verizon Wireless recently spent when it acquired 50 PCS licenses from Northcoast Communications L.L.C. covering 47.4 million pops for $750 million.
Despite previous claims by industry analysts that Cingular needed to acquire spectrum licenses in a number of markets, including Phoenix, Denver and Minneapolis, to fill out its “nationwide” network, nearly all of the licenses mentioned in the proposed NextWave deal are in markets where Cingular already owns spectrum and has launched service.
“While this deal allows Cingular to enhance our spectrum position in many of our existing markets, it is primarily for the future growth of the company,” said Mark Feidler, chief operating officer at Cingular, in the press release. “This spectrum will allow us more room to provide additional services and products, to expand coverage in some of our key markets and to better accommodate overall growth.”
Analysts noted this could mean that Cingular is more interested in acquiring additional spectral capacity in markets where the carrier may be running into spectrum problems associated with its GSM overlay plans, which require Cingular to operate the new network in conjunction with its legacy TDMA network. Previous reports have shown Cingular to have the weakest spectrum position in relation to customers served in its markets compared with its nationwide competitors.
Raymond James & Associates Inc. telecommunications analyst Ric Prentiss noted that with PCS spectrum suffering coverage holes vs. cellular coverage, which he said AT&T Wireless Services Inc. has experienced during its GSM overlay, Cingular would probably also need to deploy additional cell sites to use the new spectrum because the carrier relies heavily on cellular spectrum in most of its markets.
Analysts also noted that because Cingular would gain very little coverage footprint if the deal with NextWave is reached, pressure would remain high on the need for industry consolidation.
“I would have been looking for Cingular to expand its footprint with the deal to relieve any consolidation pressure, but it looks like that was not what they were after,” said Tole Hart, senior mobile communications analyst at Gartner. Hart added that the deal could hint towards a future W-CDMA play for Cingular that would require at least 10 megahertz of clean spectrum to implement, though the carrier has to this point committed to only an EDGE network upgrade, which it hopes to complete next year.
For NextWave, the proposed deal would provide the company with at least a portion of the more than $4 billion it still owes the FCC from when it originally won the licenses in 1996 and would still allow the company to move ahead with its plans to build out a nationwide high-speed wireless data network.
Even if the deal is eventually approved, NextWave would still have 20 megahertz of spectrum in Los Angeles, Houston, Washington, D.C., Boston and San Diego as well as 10 megahertz in Tampa, Fla. NextWave would also still control 30 megahertz of spectrum in New York, which drew more than $5 billion in bids during the FCC re-auction and is seen as the most valuable spectrum in the country.
“The transaction strengthens NextWave’s capitalization and positions the company to complete its reorganization and initiate the buildout of its next generation broadband wireless network in a significant number of major markets, including New York, Los Angeles and Washington, D.C., and in other markets around the country,” explained Allen Salmasi, chairman and chief executive officer of NextWave, in the press release.
Analysts noted that while the deal would remove NextWave from a number of large markets, including Chicago, San Francisco, Dallas and Atlanta, the bankrupt company is running out of choices.
“NextWave has few options,” said Iain Gillott, principal analyst at iGillottResearch. “They can either do nothing, they can sell the spectrum for billions of dollars, or they can try to build out a high-speed data network that maybe will see a return in a couple of years in a market that is unproven. If I am NextWave and more importantly NextWave’s bankruptcy judge I think the choice is obvious.”
Gillott added that while NextWave’s options are limited, Cingular also has diminishing choices if it wants to acquire clean spectrum for its network, and he thought the deal made sense for both companies.
“I just hope egos don’t get in the way,” Gillott said.
