Verizon Wireless, NextWave nail down $3 billion airwave deal

Bankrupt NextWave Telecom today announced that it plans to sell its remaining PCS licenses in 23 markets to Verizon Wireless for $3 billion, which the company says it will use to emerge from bankruptcy as a wireless broadband provider using MMDS airwaves.

The proposed sale—awaiting the expected approval from NextWave’s bankruptcy court—would bolster the already-strong spectrum position of Verizon Wireless, which agreed in July to pay $930 million for one of NextWave’s 10 MHz license in New York. Today’s agreement will yield Verizon Wireless another 20 MHz of spectrum in New York, as well as considerable airwaves in 22 other markets.

In addition to being scrutinized by the bankruptcy court, the deal will be reviewed by the FCC, according to a Legg Mason report released today.

“We are not aware of any potential deal breakers, though the spectrum acquisition by Verizon Wireless will presumably receive careful government scrutiny, particularly the additional 20 MHz in New York,” the report states. “We understand that the additional spectrum in New York City would raise Verizon Wireless' spectrum holding there to 65 MHz, below a ‘cap’ applied by regulators in some markets in evaluating the Cingular merger with AT&T Wireless.”

For NextWave, selling the spectrum is expected to generate enough money to let the company emerge from bankruptcy. In addition to the $3.93 billion spectrum purchases by Verizon Wireless, NextWave received $1.4 billion from a private sale to Cingular Wireless early in the year and about $200 million more from other bidders participating in its private auction conducted in July.

"The acquisition agreement with Verizon Wireless represents the best available transaction with respect to our PCS spectrum assets for the benefit of all our stakeholders,” NextWave Chairman and CEO Allan Salmasi said in a prepared statement. “The plan we intend to file is not the end of NextWave, it's a new beginning. The Company looks forward to continue developing the promising opportunities generated by the broadband wireless activities we have undertaken in recent years."

Today’s deal is expected to mark the end of a lengthy, messy episode regarding the spectrum, which NextWave won by bidding $4.8 billion in the FCC’s infamous C block auction conducted in 1996. After NextWave declared bankruptcy and failed to make scheduled payments for the licenses, the FCC reclaimed them and conducted a reauction for the spectrum in 2001 that netted more than $15 billion in bids, including $8 billion from Verizone Wireless.

However, that auction was nullified in court, which ruled that NextWave’s spectrum could not be seized by the government when the company was under bankruptcy protection. In late 2001, Congress nixed a complicated settlement that would have netted NextWave $10 billion and the U.S. Treasury $5 billion while awarding the spectrum to the 2001 auction winners.

After reaching a settlement with the FCC to return most of its spectrum licenses—but keeping all 30 MHz of its most valuable airwaves in New York—NextWave conducted a private auction in July but received minimal bids. The FCC plans to auction the returned spectrum in January.