Report: FCC draft calls for Nextel to get 1.9 GHz spectrum

Mar 10, 2004 12:00 PM, Donny Jackson

Nextel Communications would get 10 MHz of spectrum at 1.9 GHz, if the FCC adopts a draft order to reband 800 MHz airwaves that is being circulated among commissioners at the agency, according to a report issued yesterday by Legg Mason.

Under the hotly contested rebanding proposal, Nextel and public-safety agencies would move from their interleaved spectrum—the source of numerous interference problems—to contiguous spectrum within the 800 MHz band. In addition, Nextel would receive the airwaves at 1.9 GHz while paying $850 million to pay for the public-safety rebanding. Other commercial wireless operators, such as Verizon Wireless, contend that the deal is worth $7.2 billion to Nextel and that the spectrum should be auctioned.

The draft proposal of the order calls for Nextel to receive the controversial 1.9 GHz spectrum, but the wireless company likely will have to pay more than it proposed, according to the Legg Mason report.

“Our understanding is that at least four of the five offices have, as a preliminary matter, accepted the need to make the 1.9 MHz spectrum available to Nextel, but at a price,” the Legg Mason report states. “We do not know whether the draft order actually includes a dollar amount for what the commission seeks from Nextel to compensate for the greater value of the spectrum it will receive.”

However, the fact that a draft order has been circulated is “significant,” because it means that the matter has proceeded beyond the FCC staff level and now is a subject for the commissioners to consider, the report states. While this means the process is in the “final stage,” the report notes that the commissioners will continue to be “heavily lobbied” as they try to reach a final determination.

With reports that Nextel also will get to keep its spectrum at 700 MHz and 900 MHz under the draft order, the carrier would receive a net benefit of about $3 billion worth of spectrum under the proposal, according to Patrick Comack, telecom analyst for Guzman & Co. Because the federal government needs to resolve the interference problems for public safety, Comack believes Nextel will not have to pay an additional $3 billion to make the deal. Instead, he projects Nextel will pay an extra $1.5 billion, which would result in a total cash commitment of $2.35 billion.

Nextel wants the spectrum so it can offer high-speed data services, probably using CDMA 1X technology. However, with the new spectrum, Nextel would become an attractive takeover target, and a potential buyer could influence the technology choice, Comack said.