VERIZON TAKES OFFENSIVE IN ONGOING NEXTWAVE SAGA

Unable to secure valuable spectrum from NextWave Telecom via a settlement with the FCC, Verizon Wireless may be positioning itself to cut a deal without the government middleman.

Last week, Verizon Wireless asked a federal appeals court to enforce last year's ruling that returned $15.85 billion worth of spectrum to NextWave. If the court agrees, the January 2001 re-auction in which Verizon bid $8.7 billion for airwaves would be invalidated, likely dashing any hope that last fall's settlement between NextWave, the FCC and auction winners could be resurrected.

Verizon wants the government to return its $1.7 billion deposit, from which the company has lost more than $80 million in interest payments during the last year, according to CEO Dennis Strigl. In a statement, Strigl described as “unlawful” the FCC's decision to hold the deposit until the Supreme Court rules whether NextWave can keep the spectrum.

“I think their strategy is simple: Keep your options open,” said Blair Levin, wireless analyst for Legg Mason. “And they have more options if they have their money.”

One option is to try to buy the spectrum from NextWave, but such a license transfer could be tricky. Even if the Supreme Court rules for NextWave, the FCC could block a deal by claiming NextWave violated the agency's guidelines for buildout and transfer procedures.

But Levin believes the FCC would be reluctant to take action that would block the spectrum from being used by a legitimate carrier — a sentiment that FCC Chairman Michael Powell indicated has merit.

“There is a crisis in spectrum, and all the government wants is to get the spectrum back in use,” Powell said during The Precursor Group conference last week. “This has been going on too long.”

Another option for Verizon would be to purchase Sprint, which would include the Sprint PCS nationwide spectrum, CDMA network and 15 million customers — as well as a significant debt, which has caused the carrier's market cap to plunge 40% to $25 billion.

If the FCC plays hardball with its license transfer rules, analysts believe it would be difficult for NextWave to raise the necessary $5 billion at a time when Wall Street is hammering established operators.

“The wireless industry has a lot of things to worry about, but having NextWave as a seventh nationwide carrier is not on my top 10 list,” Levin said.

Additional reporting by Glenn Bischoff in Washington.