Verizon Wireless announced yesterday that it plans to buy airwave licenses in 23 markets from NextWave Telecom Inc. for $3 billion in cash, giving the cellular phone giant the ability to carry more calls in some of the nation's largest cities.
Verizon Wireless will take control of the airwaves after NextWave emerges from bankruptcy protection, and the company expects the deal to close in mid-2005. The licenses include those in large cities such as New York, Washington, Boston, Baltimore, Los Angeles, Philadelphia, Detroit and Denver.
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The transfer is subject to approval by the U.S. Bankruptcy Court in White Plains, N.Y., the Federal Communications Commission and the Justice Department.
The sale agreement wraps up a long dispute over a set of licenses that NextWave won after bidding $4.8 billion for the rights at a government auction in 1996.
NextWave made a $500 million down payment to the government, but two years it later filed for Chapter 11 bankruptcy protection because it could not make more payments. After the FCC tried to take back the licenses, NextWave fought in court to retain control, arguing that bankruptcy law shielded it from the government's action. In January last year, the Supreme Court sided with NextWave, and the company later reached a settlement with the FCC that allowed the company to keep its most valuable licenses.
The FCC will receive payments totaling about $1.6 billion of NextWave's original bid. As part of its deal with Verizon Wireless, NextWave said it would pay an additional $71 million to the FCC.
NextWave previously returned some of its licenses in smaller markets to the agency as part of the settlement. And last year, it sold licenses in 34 areas to Cingular Wireless for $1.4 billion and split the proceeds with the FCC. In July, it sold licensed in metropolitan New York to Verizon Wireless for $930 million, plus two more licenses in Florida to Metro PCS for $43.5 million.
"It was time to work out a deal," said David Kaut, an analyst with Legg Mason Wood Walker Inc. said of NextWave's deal with Verizon Wireless. After nearly a decade of litigation, the airwaves will finally get put to use, he said.
The sale benefits consumers "by making an enormous amount of spectrum available for use immediately for next-generation wireless services," John A. Rogovin, general counsel of the FCC, said in an e-mailed statement.
Analysts said Verizon Wireless is unlikely to encounter antitrust roadblocks. Regulators recently approved the mega-merger between Cingular Wireless LLC and AT&T Wireless Services Inc., a combination that controls more spectrum in some of its markets than Verizon Wireless would control with NextWave's licenses.
Greenwich, Conn.-based NextWave said it will now focus on marketing high-speed wireless Internet service in the Las Vegas metropolitan area, where it still retains rights to the airwaves, and it is looking to purchase more spectrum to expand similar service around the country, said Michael Wack, NextWave's senior vice president and deputy general counsel. "It was always the company's intention to enter the wireless market."
The company has already collected nearly $5 billion from the license sales, and it will be able to pay its shareholders as well as fund its new business.
"It is rare for a company in bankruptcy to be able to pay off its creditors in full and also give a return to its shareholders," Kaut said. "They were tenacious fighters for their interests."