NextWave: We’re a wireless player

The market potential for bankrupt wireless service provider-hopeful NextWave Telecom is significantly stronger today than it was when the company won its C Block spectrum licenses in 1996, assuming an FCC appeal doesn’t prevent NextWave from building out most of its network by the end of this year.

NextWave’s protracted legal wrangling with the FCC and potential competitors have served to increase the value of the company rather than retract from its chances, said NextWave President and CEO Allen Salmasi. In the late 1990s, the investor community didn’t want to support NextWave’s then-extravagant $4.7 billion bid for its licenses. NextWave’s business plan depended on a limited pool of telecom companies interested in reselling its wireless services, all of which contributed to the company’s bankruptcy. Other carriers proved this year—by bidding $16.8 billion in January’s reauction—that NextWave’s licenses are worth much more.

“We didn’t want to be delayed as much as we were, but frankly the timing couldn’t be more perfect in terms of the valuation of our assets, the availability of our equipment and our readiness to emerge in a major way to effectively provide services,” Salmasi said.

He hopes these factors will convince the FCC to end its legal battle with NextWave. “Hopefully the commission realizes the value of the type of services we’re offering to the consumer market and the benefit of unleashing literally hundreds of thousands of new players,” he said. “Then they will effectively not get in the way of our play.”

So far, the commission has declined invitations from NextWave executives to explain the next-generation wireless services it plans to introduce by the end of the year.

The FCC has the option to appeal NextWave’s recent court win that returned to the company many of the C and F Block licenses the commission revoked from NextWave and reauctioned to other carriers in January. The January winners, which want the spectrum to offer more advanced wireless data services, are pressuring the FCC to settle.

Five major bidders from January’s reauction last week sent a proposed “settlement framework” calling for the FCC to offer NextWave $4 billion to $5 billion in cash to abandon its claims on the licenses. Earlier this month, they asked the FCC to probe into whether NextWave meets the foreign-ownership restrictions of C Block operators—an issue carriers have contested before.

“It’s not a desperate situation, but it’s one of planning for the growth of our business,” said a Verizon spokesman. “We need additional unencumbered spectrum brought into the marketplace.”

VoiceStream Wireless agrees the situation is not desperate but maintains a quick resolution is necessary to get the U.S. spectrum policy on the right track.

“If we don’t have enough spectrum we stop acquiring customers, prices go up, and companies have to invest more in sophisticated equipment to use spectrum more efficiently,” said Brian O’Connor, vice president of legislative and regulatory affairs for VoiceStream Wireless. “If we have flawed auctions going forward, the U.S. could really become a backward nation in terms of wireless telephony.”

AT&T Wireless, which partnered with Alaska Native Wireless to bid in the reauction, said in a proxy sent to shareholders that its expansion plans could be thwarted if the reauction results were not affirmed.

O’Connor is confident the current offer before NextWave is as good as it can get.

“We made the decision to make a substantial offer, not to begin by making a low-ball offer. We think this offer...is a windfall for NextWave because if you look at its business prospects, it will be the seventh player in a tough marketplace,” he said. “The company’s present value is far below $4 billion or $5 billion, and the only reason NextWave would reject the offer is if they want to flip the licenses and take all of the money existing wireless companies would be willing to pay for supplemental spectrum.”

NextWave executives said carriers will continue such scare tactics until the bankruptcy court approves the company’s reorganization plan—likely in mid-October. Salmasi said NextWave has received a variety of proposals from carriers interested in cutting a deal but adamantly denied NextWave will sell at any price.

“It boggles our minds that people are talking about a settlement after what we’ve been put through in the last five years,” Salmasi said. “This company was formed to build a network. Carriers have been consistent going at any length to stop us as a competitor from entering the market, and we don’t expect them to behave any differently now.”

Salmasi said NextWave’s shareholders agree with the company’s plan to deploy cdma2000 1X technology via a $100 million deal with Lucent Technologies in all its C Block markets by December. All 95 licenses will be launched by the first quarter, giving the company access to 70 of the top 100 markets, he said. Shortly after, NextWave will introduce what it calls wireless DSL, an enhanced version of 1X technology known as 1X-EVolution that will provide data speeds up to 2 Mb/s. NextWave plans to partner with others to achieve a nationwide footprint.

“We’ve had daily conference calls with our major shareholders, and everyone is committed to building out this network,” Salmasi said. “They see us in a position now to create something much bigger than any of the wireless companies that are out there.”

NextWave has presold 26 billion minutes of airtime, more than double the minutes it contracted with the former MCI in 1997, Salmasi said. He also noted a plethora of parties interested in crafting mobile virtual network operator (MVNO) deals, in which non-telecom companies offer service over NextWave’s network.

Major ISPs such as America Online and MSN, which weren’t thinking about wireless in 1996, want to expand to devices beyond the traditional desktop. Media companies such as Viacom might want to offer MP3 devices that let MTV followers download music. Financial-service and insurance companies want to introduce their own devices that provide access to accounts and create brand loyalty.

Potential customers of a reorganized NextWave
WorldCom	Company’s original agreement to resell NextWave capacity has expired; companies are negotiating what could be the foundation of WorldCom’s wireless strategy
Financial service companies	Could use capacity to offer mobile applications such as stock tracking and alerting
International carriers	Despite NextWave’s CDMA platform, international carriers have few other places to turn for wireless capacity in the U.S.
Internet service  providers	Need wireless capacity to extend their platforms to the mobile masses and those without PCs

European operators are interested in establishing a presence in the U.S. and telecom companies such as WorldCom don’t have their own wireless business and are looking for wireless plays. A high-speed data network adds another appealing factor to potential MVNO partners, Salmasi said.

Richard Siber, partner and head of the global wireless practice with Accenture, said several companies—including those in the retail, fast food, credit card and automotive industries—are crafting MVNO strategies in the U.S. But many of these players lack the components to effectively compete in the wireless market place.

“NextWave, in taking a wholesale approach, has the ability to put in place the infrastructure for some of these other companies so they can piggyback off of the network and NextWave’s existing capabilities,” Siber said.

U.S. carriers have been slow to adopt MVNO strategies primarily because they are reluctant to admit they cannot effectively target the different market segments MVNOs can exploit, Siber said. NextWave could become the catalyst for this industry, said Dominic Endicott, partner with DiamondCluster International.

“NextWave has nothing to lose and a lot to gain. If NextWave is successful at gaining and executing one or more MVNO deals, it would have a provocative effect on other carriers.” 
Kelly Carroll contributed to this story.