VERIZON WIRELESS BID PLEDGE COMPLICATES 800 MHZ PLAN

A promise from Verizon Wireless to open bidding for the 10 MHz of 1.9 GHz spectrum at $5 billion if the airwaves were auctioned has further muddled the FCC's efforts to resolve public safety radio interference problems with Nextel Communications at 800 MHz.

Most insiders expected the FCC to decide on a solution by its open meeting last Thursday. Numerous reports indicated the FCC's draft order used the framework of the “Consensus Plan,” which calls for rebanding at 800 MHz to give public safety and Nextel contiguous blocks of spectrum, with Nextel committing $850 million to pay for the retuning of public safety radios.

But the deal also calls for Nextel to receive 1.9 GHz spectrum, which the wireless carrier needs to offer 3G services — likely using Flarion Technologies' Flash-Orthogonal Frequency Division Multiplexing architecture that Nextel is testing with paid customers in North Carolina. Valuing that spectrum has been deemed a primary sticking point in completing the deal, with the Verizon Wireless pledge to bid $5 billion likely adding more pressure from Congress to auction the airwaves.

Verizon Wireless and other wireless operators have maintained that the Communications Act requires the FCC to auction these airwaves rather than awarding the frequencies to Nextel. If the airwaves are not auctioned, a legal challenge on the 1.9 GHz spectrum is virtually assured.

But Sen. Ted Stevens, R-Alaska, recently wrote FCC Chairman Michael Powell a letter that an auction may not be necessary. “If … Nextel must give up its spectrum in the 700 and 800 bands to eliminate interference to first responders, it must be given replacement spectrum elsewhere,” Stevens' letter stated. “As author of the spectrum auction program, I do not believe an auction would be required in this instance.”

Furthermore, Stevens noted in the letter that any plan “must be self-financing,” because “our committee does not have the ability to appropriate any funds for this purpose.”

And financing is crucial for public safety entities, most of which cannot afford to pay for rebanding on their own, according to Harlin McEwen, chairman of the communications and technology committee of the International Association of Chiefs of Police. It also makes the Verizon pledge ring hollow, because it would take an act of Congress to designate those funds to pay for rebanding, he said.

“If [Verizon Wireless] got this to go to auction and they paid $5 billion for that spectrum, we have no solution to the problem,” McEwen said.

As a result, Nextel likely will not have to pay more than an additional $2 billion to get the 1.9 GHz spectrum, according to Patrick Comack, telecom analyst at Guzman & Co. This is considerably less than the Verizon Wireless pledge, but Comack said “the FCC basically has no choice,” because of pressure from the Bush administration to address this issue at a time when Homeland Security communications are a priority. “I guarantee you, President Bush did not spend time in [Nextel CEO Tim] Donahue's box at Daytona to talk about race cars,” Comack said.

A deal could significantly affect the commercial wireless landscape. Nextel has one of the most attractive customer bases in the industry, but its interleaved 800 MHz spectrum is almost useless to other wireless operators. If Nextel emerges from this deal with contiguous spectrum at 800 MHz and 1.9 GHz, Comack believes the wireless carrier will be a consolidation target.

This sentiment is shared by Precursor wireless strategist Rudy Baca, who expects an FCC decision by the end of April.

“I've thought Nextel's been dressing itself up for the takeout prom for some time now,” he said.

Glenn Bischoff, editor of Mobile Radio Technology magazine, contributed to this article.