Ball is in Nextel's court, but choice is no slam dunk

For the last two years, Nextel Communications adamantly has stated its desire for 1.9 GHz spectrum. Yesterday, the FCC unanimously passed an 800 MHz rebanding order that would give Nextel the premium airwaves it wants.

So Nextel officials publicly celebrated a hard-fought victory, right? Wrong.

Instead of issuing a flurry of press statements and granting a series of congratulatory press interviews, Nextel was remarkably silent yesterday. Even analysts with usually impeccable sources inside the company failed to get even courtesy acknowledgement of their phone calls for most of the day.

What was missing? Information -- something Nextel noted when it finally issued a brief statement in the afternoon to conclude a confusing day that began with FCC officials apparently working in the wee hours of the morning to hammer out the final points of the order.

Nextel said it would wait until it can review the details of its obligations in the published order -- a document that may not be ready for a month -- before it takes a position.

Although the plan calls for Nextel to get the 10 MHz in the 1.9 GHz band it covets, the wireless carrier's blessing on the deal isn't assured. Guzman & Co. telecom analyst Patrick Comack has said for months that the market would not like the idea of Nextel having to pay more than $2 billion cash to get the 1.9 GHz spectrum. The FCC order calls for Nextel to pay a minimum of $3.2 billion cash with no cap on expenses if rebanding costs more than estimated.

Meanwhile, the $4.8 billion value of the spectrum/cash package Nextel would have to contribute to the plan doesn't look like much of a bargain when compared to the sparse carrier interest in NextWave's private auction of its 1.9 GHz airwaves. In that sale, minimal bids were the order of the day, and spectrum in some markets failed to attract even a single bidder.

To make matters worse, Nextel is not assured of getting the 1.9 GHz spectrum even if it agrees to the deal. The always-present threat of litigation from rival Verizon Wireless looms, and the General Accounting Office is investigating the issue to determine whether the FCC has the authority to dictate where Nextel's payments under the plan would go. Nextel said it would assume the legal risk if the FCC awarded it 1.9 GHz spectrum, but it's unclear what would happen if the spectrum award was blocked.

Nextel may not have much choice though. Without rebanding, it lacks the contiguous spectrum needed to offer broadband services being provided by competitors that are pushing relentlessly to steal Nextel's push-to-talk market share.

And, after doing a masterful job of making the public aware of the interference problems at 800 MHz and working with first responders on rebanding, Nextel faces a potential political/public-relations nightmare if it walks away from a plan that calls for it to receive the 1.9 GHz spectrum it wants.

One of the wild cards in the equation is the portion of the order that requires Nextel to adhere to "enhanced best practices" if it doesn't opt for the rebanding plan. These technical guidelines will set a new standard for what is "unacceptable interference" at 800 MHz, will establish responsibility for the interference, and will dictate that the responsible party must pay to fix the problem, according to an official in the FCC's wireless bureau.

If these "best practices" have teeth, Nextel could be looking at a money pit that would make even higher-than-expected costs associated with rebanding seem attractive.

Either way, this appears to be a great deal for public safety communications. The "best practices" should give public safety more leverage to get interference problems corrected in the short term. But clearly the better alternative is the rebanding plan, which would provide a long-term solution at no cost to public safety while providing first responders with an additional 4.5 MHz of much-needed spectrum at 800 MHz.

Of course, "the devil's in the details" -- a truism that's especially appropriate in this situation. And hidden in those details is the foundation of Nextel's ultimate choice, which promises to be a turning point for the carrier and the future of public-safety communications.

E-mail me at djackson@primediabusiness.com.