Sprint loses rebanding appeal

Federal court says June 26 deadline to vacate iDEN 800 MHz spectrum stands firm regardless of whether public safety is ready to move

Sprint will have to vacate its Nextel 800 MHz spectrum in June, even if public safety agencies haven’t vacated the spectrum by then, a federal appeals court ruled today. Sprint has said that if it lost its appeal, the fallout could cost it as much as $3.4 billion, resulting from the loss of its iDEN network in hundreds of areas.

“Sprint has been and continues to be committed to working with public safety to eliminate the risk of interference for public-safety communications,” Sprint said in a statement after the ruling. “However, more than 500 public-safety agencies have requested more time--in many cases, years--to complete their retuning activities. … We remain hopeful that we will be able to resolve this issue in a manner that balances the 800 MHz reconfiguration with the needs of our customers--especially the 3 million public-safety customers who rely on our iDEN network.”

Sprint said it has agreed to leave the spectrum in individual markets within 60 days when the public safety agencies are ready to retune their systems to the frequencies and has requested waivers from the FCC to allow it to remain beyond its June 26 deadline until those agencies are ready.

But neither the FCC nor the US Court of Appeals for the DC Circuit is accepting that compromise. The FCC has said that the deadline stands firm regardless of whether public safety is ready to make the transition in individual markets. The court sided with the FCC today, saying the spectrum swap was never predicated on a synchronized exchange.

Equity research firm Stifel Nicolaus said in an analysis note said it does not expect the FCC to enforce the deadline in such a “draconian” manner, but it added that Sprint is now clearly at the mercy of the government at a time when it faces operational and financial problems. Today Standard & Poor’s dropped Sprint’s credit rating to BB status, moving from investment grade to junk status, which will make it difficult for Sprint to raise capital at low interest rates in the future.

“With only a few weeks before the June 26 deadline, there is no way for Sprint to rule out a need to develop an alternative operation as a contingency plan, and as a practical matter, no way for them to develop an adequate one at this point,” Stifel Nicolaus said in the note.

Nextel Communications and the FCC agreed to rebanding in 2005 in order to eliminate interference issues with nearby public safety airwaves. Nextel’s current frequencies interleave spectrum allocated to public safety agencies, causing the interference, but under the deal, the band would be reconfigured to give both Nextel and public safety contiguous chunks on either end. Nextel was to bear the estimated $2.8 billion cost of the rebanding and, in exchange, receive licenses in the PCS band, which Sprint received shortly after purchasing Nextel.

Of the 900 agencies affected by the rebanding, 500 have requested more time, some a matter of weeks while others as long as two years. If Sprint does not get its deadline extended in those markets, it could be forced to shut down critical parts of the iDEN network, cutting off service to its subscribers. Sprint estimated in a recent SEC filing that the cost to its business could be as high as $3.4 billion, but Stifel Nicolaus said that would be a worst-case scenario in which the FCC would force Sprint to flash-cut the iDEN network.