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Wireless War Winner and Losers

^_____About Filter^_____ Filter looks at the day's top technology news through snapshots and analysis of what the world's media outlets are covering. Washingtonpost.com's new Mon.-Fri. feature is penned by technology reporter Cynthia L. Webb. If a technology story breaks, a company falters or triumphs, or there's a new trend in technology, Filter wants you to know about it.

^_____Filter Archive^_____

• Apple Stews Over Beantown Expo (washingtonpost.com, Jul 13, 2004)
• Tech Sector Seeks a Hangover Cure (washingtonpost.com, Jul 12, 2004)
• Yahoo Finds Itself Out on the Street (washingtonpost.com, Jul 8, 2004)
• Microsoft Tries to Cache $1 Billion (washingtonpost.com, Jul 7, 2004)
• Kerry Gets Cozy Online (washingtonpost.com, Jul 6, 2004)
• More Past Issues

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By Cynthia L. Webb
washingtonpost.com Staff Writer
Friday, July 9, 2004; 9:55 AM

The wireless wars are expected to intensify with the Federal Communications Commission's decision yesterday to hand Nextel Communications a valuable swath of spectrum and overhaul a number of regulations governing competition in the wireless industry.

Of the two FCC moves, the Nextel decision got the most headlines today. The regulatory agency agreed to let the wireless company swap its existing spectrum holdings for another set of hotly contested spectrum valued at $4.8 billion. The goal is to fix a problem with Nextel's cellphone calls interfering with emergency radio communications of police and firefighters. But, no surprise, Nextel's "rivals denounced the decision, and the matter almost certainly will be fought in court," The Wall Street Journal reported. The newspaper noted that the decision "will give Nextel -- the No. 6 U.S. wireless company measured by subscribers -- greater flexibility to provide services such as high-speed wireless Internet surfing, which it is challenged to do with its current spectrum."
• The Wall Street Journal: Nextel Communications Wins Coveted Swath of Airwaves (Subscription required)
• Text of the FCC's Nextel Decision (PDF)

According to The New York Times, the "decision in the Nextel matter, which will help determine which companies prevail and what services they will be able to provide, was the culmination of years of lobbying by Nextel and its rivals. The case has been among the biggest battles over spectrum policy in recent years, as products and consumers continue to move into a wireless world. Spectrum licenses have become one of the most valuable assets of the information age. Cellphones, hand-held personal digital assistants, laptop computers and other wireless devices need spectrum space to function," The New York Times said. TheStreet.com wrote that the Nextel "swap proposal has been the subject of heated debate in Washington and on Wall Street, as the FCC attempts to balance the interest of public safety with the value of scarce wireless spectrum central to the interests of a highly competitive industry. Based on the reported cost to Nextel and the value of the new spectrum, Legg Mason analyst Craig Mallitz estimated this spring that Nextel will post a gain on the transaction well north of a billion dollars."
• The New York Times: FCC Approves Plan To Swap Nextel Licenses For Safety Uses (Registration required)
• TheStreet.com: FCC Clears Nextel Spectrum Swap

For Verizon, the Fight Goes on

The FCC's unanimous decision "marked a defeat for Verizon Wireless Inc., which had lobbied the agency to auction the disputed frequencies -- worth about $4.8 billion -- instead of 'giving' them to Nextel. FCC Chairman Michael K. Powell characterized the lobbying as 'the most ruthless I have encountered.' The intensity underscored the competition for space on the valuable, publicly owned radio spectrum, which is increasingly crowded with signals from radio stations, mobile phones and wireless computers," The Los Angeles Times reported.
• The Los Angeles Times: FCC Grants Nextel New Radio Spectrum (Registration required)

Verizon Wireless, which "has indicated it would challenge the move in court, urged Congress to step in," The Boston Globe reported. The Globe picked up on this statement by Verizon spokesman Jeffrey Nelson: "Has the FCC financed this project illegally by bypassing both the Congress and the auction process? Is the award of billions of dollars worth of prime spectrum to a private commercial service provider prohibited by federal law?" CTIA-The Wireless Association is among the critics of the decision, even though Nextel is a CTIA member. According to the Wall Street Journal, CTIA president and chief executive Steve Largent said giving the spectrum to Nextel "without a public auction means the U.S. Treasury is losing billions of dollars" that "could've been used to provide public safety with [the] money to make much-needed improvements."
• The Boston Globe: Nextel Wins US Licenses For Airwaves Amid Protests

The FCC's decision is far from set in stone. In addition to potential legal challenges from Verizon, the jockeying continues on Capitol Hill. "The General Accounting Office has opened a review of the FCC's plan to see if it violates laws governing the private sale of public resources. Sen. Frank Lautenberg, D-N.J., requested the review. Verizon Wireless is based in Bedminster, N.J.," The AP said. "Right now it is a game of sharp elbows at a small table," said Nitin Shah, head of the wireless group at market research firm RHK. "Nextel has won this round but the game is far from over," he told CBS MarketWatch.
• CBS MarketWatch via Investor's Business Daily: FCC Approves Nextel Wireless Spectrum Swap

The Bottom Line For Nextel

Surprisingly, an FCC decision largely characterized as a big win for Nextel was not touted as such by the company. According to The Washington Post, the "compromise was not immediately embraced by either side in a 2 1/2-year dispute over the airwaves. Nextel, which would have to pay $1.5 billion to $1.7 billion more than it had proposed for the airwaves exchange, said only that it would have to study the details."
• The Washington Post: Nextel Must Pay At Least $3.2 Billion For Airwaves (Registration required)

Even though Nextel is gaining access to spectrum that will allow it to expand services, the company faces a costly transition. In exchange for the spectrum, Nextel "will give up other spectrum and pay to reconfigure the airwaves it currently occupies to ensure public service communications systems are free of interference. The reorganization would have to be completed within three years. Nextel offered a muted response to the plan, which could end up costing the company some $1.5 billion it had not expected to be charged. 'We have an obligation to review all aspects of the decision to fully understand the implications to Nextel's shareholders,' the company said," The Associated Press reported.
• The Associated Press via washingtonpost.com: FCC OKs Plan To Swap Nextel's Bandwidth (Registration required)

The Los Angeles Times had more details on what Nextel will have to pony up for the new spectrum: "In exchange for relocating, Nextel would abandon some of its current airwaves and pay $2.5 billion to buy new equipment for police and firefighters. The FCC would subtract those payments from the value of the new spectrum as well as credit the company $1.6 billion for returning the frequencies it currently occupies. Nextel would remain on the hook for a so-called anti-windfall payment for the difference between those two costs and the $4.8-billion value of the new spectrum."

Rewriting the Rules

In the long run, the other actions taken by the FCC yesterday may have a broader impact on the state of the wireless industry. The New York Times explained: The commission "adopted rules to make it easier to trade or lease licenses in a secondary market, not unlike the markets that trade commodities. The commission also eliminated a rule that had prohibited the merger of two cellphone providers in the same market. In addition, Verizon Wireless won a major auction held by NextWave Telecom Inc. with the approval of the commission for one of the most valuable licenses in New York for $930 million." FCC Chairman Powell "said on Thursday that the decisions would sharply reduce interference on increasingly overcrowded airwaves and make it easier for police and other safety officers to use their equipment in emergencies. He said the changes would bring more wireless services to rural and other underserved areas and help spur the development of new wireless technologies."

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