Personal communications services provider Omnipoint Corp. last week became one of the first C-block licensees to select options from the Federal Communications Commission’s license rules.
Omnipoint said it elected to return portions of its spectrum in a move it expects will reduce debt and accrued interest by about $300 million.
The company selected the amnesty option for its licenses outside of the Philadelphia major trading area, including Buffalo and Rochester, N.Y.; Lebanon, N.H.; Pittsfield and Springfield, Mass.; Wichita, Kansas; Amarillo, Texas; and Pine Bluff, Ark. The company elected to disaggregate its licenses within the Philadelphia MTA, which include Atlantic City, N.J.; Dover, Del.; and Harrisburg, Philadelphia, Pottsville, Reading, State College, Sunbury, Williamsport and York, Pa.
Amnesty allows a licensee to return a license and either rebid on it in the re-auction and forego the original 10-percent deposit, or forego the right to rebid on the license in exchange for a 70-percent credit on the original deposit. Under the disaggregation option, a licensee can keep 15 megahertz of bandwidth and return 15 megahertz in exchange for forgiveness on 50 percent of the outstanding debt on those licenses. A re-auction of returned licenses is scheduled for next February.
“Omnipoint is making a very smart move,” said John Bensche, an analyst with Lehman Brothers Inc. “The return of licenses puts the company in a stronger financial position to bid on other C-block licenses which may become available.
“In addition to delivering good operating results in its current markets, Omnipoint has a very savvy management team, which is not afraid to wheel and deal in the name of shareholder value,” continued Bensche. “The FCC C-block restructuring rules were a result of missteps by many of the original bidders who spent too much on their licenses and could not afford to build them out. Omnipoint, which is in much firmer financial shape than the majority of C-blockers, is now able to capitalize on the new rules to the benefit of shareholders.”
Omnipoint has been identified as a possible suitor for Pocket Communications Inc.’s Chicago and Dallas markets as well as any markets NextWave Telecom Inc. might choose to return to the FCC. Bensche said he expects NextWave will choose amnesty for many of its licenses in order to raise money to apply toward the licenses it will keep to complement its F-block licenses.
“I think we’ll see a number of C-block winners returning some licenses,” said Chris Larsen, senior wireless telecommunications services analyst at Prudential Securities Inc. “Some will choose amnesty and may decide to go back into the re-auction. A number of carriers also will give up 15 megahertz chunks to reduce their debt load by half.”
The election deadline for all C-block licensees is June 8.
Omnipoint President George Schmitt said none of the spectrum in question will affect the company’s plans in markets it is building out.
“We have already done the frequency planning to operate within 15 megahertz in our licenses for the Philadelphia area,” said Schmitt. “Under our current projections, we could go years before we would need to cell-split in order to add capacity.
“At that time, we will make the economic trade-off as to whether to add more cells or to purchase additional spectrum.”
The company also has taken steps to ensure service continuity in the two western Massachusetts markets where it will return spectrum. Omnipoint has purchased D- and E-block PCS licenses for Springfield and Pittsfield from Atlantic Cellular Corp. The acquisition was part of a deal that also expanded Omnipoint’s spectrum in Providence, R.I.; Worcester, Mass.; and Manchester, N.H., from 10 megahertz to 20 megahertz.
In its Wichita and Rochester markets, which the company will give back to the FCC, Omnipoint owns F-block licenses, and analysts say the company’s licenses in Amarillo, Texas, and Pine Bluff, Ark., are not core to its strategy.
“Although the return of Amarillo and Pine Bluff reduces the company’s POP count, it has little impact from an operating standpoint,” said Bensche. “Amarillo and Pine Bluff stand well outside of Omnipoint’s core footprint and are really noncritical to the business plan.”
Bensche said he does not expect Omnipoint to look for opportunities to regain those markets.
While Omnipoint has selected to return the Buffalo, N.Y., and Lebanon, N.H., markets, analysts say the company most likely will look for ways to re-enter those markets, either through the re-auction or through private purchases.
“Return of these markets creates a hole in Omnipoint’s contiguous northeast footprint and we think it is unlikely that Omnipoint will abandon these markets completely,” said Bensche.
