Going for broke NextWave bets on CDMA newcomer

NextWave Telecom has a penchant for doing things its own way and not looking back, so the company's announcement last week that Hughes Network Systems would supply it with code division multiple access infrastructure should come as little surprise.

The reasons the C block personal communication services licensee decided to go with a veritable unknown in the CDMA world are also not surprising. With most of the major vendors of CDMA gear busy financing other ventures, the $1 billion deal with Hughes was likely too good to pass up.

The agreement covers delivery of turnkey wireless systems-including mobile switches, base stations and base station controllers-to NextWave. Hughes is not only financing $245 million in equipment with an option to finance the remaining $755 million, but it also has a $50 million equity investment in NextWave to support a joint effort in developing products and services.

For Hughes, being able to enter the CDMA market quickly meant creating a joint product development and supply arrangement with Qualcomm. The deal gives Hughes immediate access to Qualcomm's products and gives Qualcomm access to Hughes' products as they are developed, said Pradeeb Kaul, executive vice president of Hughes Network Systems.

"The technology is reaching the maturation point when systems can be built and the technology hurdles have been overcome," Kaul said. "Customer demand for CDMA is increasing, and we want to supply all the standards.

CDMA's acceptance in Asian markets was also an appeal, Kaul said. As for why Hughes decided to invest in NextWave, the PCS entity's resale strategy and potential wide-ranging presence were both draws, he said.

"We believe a company like NextWave has larger potential than the first wave of services," Kaul said. Services beyond wireless voice, including Internet access and local exchange bypass, are possible with NextWave's large footprint, he said. "We're buying insurance for what we think the future holds.

With the exception of supplying equipment to BellSouth Mobility for its cellular networks, the bulk of Hughes' wireless experience has been international. NextWave's decision to tap Hughes for the job may be based too much on financial issues and not enough on technological ones, said one analyst.

"Taking a risk on a manufacturer that hasn't proved itself in the U.S. is a bit risky," said Clint McClellan, industry analyst of the personal communications program at Dataquest. "The networks Hughes has put up have not been a huge commercial success.

In addition, granting such a large contract to a single vendor could be too risky, McClellan said. Other PCS providers with large footprints-such as PrimeCo Personal Communications and Sprint PCS-have split the award to cover themselves. "If one of the manufacturers falters, they have a backup," he said.

NextWave has also weathered past criticism for being little more than an offshoot of Qualcomm, and observers needn't look far to make a connection between NextWave and Hughes, either. Ragu Patel, senior vice president for network systems and chief strategic officer of NextWave, used to run the wireless business at Hughes.

"We know the strengths of Hughes and we know the strengths of Qualcomm," said Patel. "The two companies together create a unique opportunity for us and for them.