NextWave Telecom Inc.’s announcement last week that it would give back 60 of its PCS licenses to the Federal Communications Commission could finally give the government a clear path to auction the licenses to a spectrum-starved industry. But unlike the FCC’s previous attempt to re-auction NextWave’s spectrum during the ill-fated Auction 35 in early 2001, analysts warn the list of potential suitors this time could prove few and far between.
“There will definitely be carriers interested in the spectrum,” said Tole Hart, senior analyst of mobile communications at Gartner. “But I think there will likely be fewer interested this time due to the spectrum deals made over the past several years.”
Hart noted the most likely interested parties in the spectrum would include Verizon Wireless, T-Mobile USA, Sprint PCS and a number of regional carriers including Alltel Corp., U.S. Cellular Corp. and MetroPCS Inc.
Verizon Wireless, which was the most aggressive bidder during Auction 35, has taken steps to fill in its spectrum position over the last several years and bolster capacity through a number of acquisitions, including its $2 billion purchase of Price Communications Corp. and buying 50 PCS licenses from Northcoast Communications L.L.C. for $750 million. The carrier also launched improvements to its CDMA-based networks designed to increase capacity and relieve network congestion.
Despite the deals and network upgrades, Verizon said it would be interested in any spectrum auction.
“We’re always window-shopping and are always interested in what the shopkeeper has in the window,” said Jeffrey Nelson, spokesman for Verizon Wireless.
Verizon Wireless also recently announced that it would bid at least $5 billion for a nationwide 1.9 GHz license that the FCC is looking at swapping with Nextel Communications Inc.
T-Mobile USA’s interest in NextWave’s spectrum could be more pressing as the carrier’s network-sharing pact with Cingular Wireless L.L.C.-which gives T-Mobile USA access to Cingular’s California network in exchange for providing Cingular with access to T-Mobile USA’s New York market-could be in jeopardy once Cingular’s pending acquisition of AT&T Wireless Services Inc. closes later this year. Analysts have noted there is little incentive for Cingular to continue the relationship since it would have access to AWS’ GSM network in New York.
T-Mobile USA has expressed confidence that despite the pending deal between Cingular and AWS, terms of the network-sharing arrangement would protect the carrier from being left without a presence in California. In addition, analysts have noted the increasing number of GSM carriers would provide T-Mobile USA with the possibility of providing roaming coverage if necessary, though the carrier would have to move ahead with its own network eventually.
Sprint PCS is expected to take a similar approach to a spectrum auction that it took during Auction 35; acquiring markets to fill in coverage holes if the price is right. The carrier is often regarded as having a strong nationwide spectrum presence and also has deployed capacity enhancements to its CDMA network since Auction 35 wrapped up in early 2001.
While lacking the deep pockets of the nationwide operators, regional carriers interested in expanding their presence in small- and mid-sized markets could find some of NextWave’s licenses attractive.
Alltel has made an effort to refrain from using PCS licenses in favor of the higher propagation of cellular spectrum, but with more than 8 million customers and the rollout of advanced services, Alltel may have to begin looking at enhancing capacity.
U.S. Cellular, which uses a mixture of PCS and cellular licenses, could find some attractive markets among NextWave’s unwanted licenses. The carrier recently completed a network swap with AWS and has expressed interest in expanding coverage around its regional deployments.
MetroPCS is also a potential bidder as the carrier recently acquired spectrum to expand its Northern California network and filed a registration statement for an initial public offering that could leave MetroPCS flush with cash. The carrier, which reported earlier this year that it had signed up more than 1 million subscribers, has not been afraid to mix it up with the larger carriers in some of the top markets in the country.
On the other end of the spectrum are a number of carriers that were aggressive in the original attempt to re-auction NextWave’s licenses but are less likely to take a second look including Cingular and AWS, which will soon be one-in-the-same, and Leap Wireless International Inc.
Cingular just completed a $1.4 billion acquisition of 34 PCS licenses from NextWave in an attempt to bolster its network and actually may be forced to divest some of its spectrum as part of its acquisition of AWS.
Leap, which was an aggressive bidder for mid-sized markets during Auction 35, has itself just emerged from bankruptcy protection and has expressed interest in selling off some of its spectrum holdings.
NextWave’s returned spectrum could also have an impact on Nextel attempts to swap spectrum in the 700 and 800 MHz bands for 10 megahertz of spectrum in the 1.9 GHz bands as part of its Consensus Plan proposal. Analysts noted the glut of spectrum in the 1.9 GHz bands could increase the chances of the Consensus Plan being approved by the FCC despite heated opposition from the plan’s opponents.
“The FCC-NextWave settlement … should make considerably more 1.9 GHz spectrum available to the FCC, and highlights the availability of spectrum from which Nextel could receive a grant,” wrote Tom Watts, telecom analyst at SG Cowen.
Despite being depleted of most of its spectrum holdings, NextWave said the settlement would allow it to launch services, noting the deal with the FCC would allow it to complete its reorganization and emerge from bankruptcy sometime after Sept. 30.
The company is keeping 25 prime licenses including 30 megahertz in New York City, 20 megahertz in Baltimore, Boston and Washington D.C., and 10 megahertz in Denver, Detroit, Los Angeles, Philadelphia and Portland, Ore., and according to Visant Strategies analyst Larry Swasey could have access to the technology needed to launch a data network.
“NextWave’s data plans were always perhaps a little ambitious initially, but the technology is now there to support their original plans,” said Swasey, who added that NextWave’s history leaves open the door to any number of potential outcomes.
