Federal Communications Commission Chairman Michael K. Powell has decided to support a plan giving Nextel Communications Inc. rights to cellular frequencies that the mobile-phone company wants, according to sources familiar with the decision.
The move marks a crucial victory for Reston-based Nextel, which has been lobbying for the airwaves in the 1.9-gigahertz frequency range, although the FCC is still determining what the company should pay in return. The decision involves airwaves worth billions of dollars and is critical to Nextel's future.
It's a bitter setback for Nextel's cellular-industry rivals, led by Verizon Wireless and Cingular Wireless, which have vowed to go to court to block Nextel from taking control of the disputed airwaves.
Powell's decision was described by sources at the agency and in the industry who declined to comment publicly until the FCC chief announces his stance.
Powell appears likely to win approval from the full commission: Three of the five commissioners backed Nextel's position in an initial vote in April, and sources said the commissioners are seeking unanimous agreement.
Nextel, which has 13.4 million subscribers, now carries phone calls using slivers of airwaves interspersed with frequencies used to carry police and fire dispatch calls. That tangled setup often causes public safety radios to go fuzzy or drop calls.
New airwaves would reduce the interference, while making Nextel a much stronger competitor in the cutthroat wireless industry because it could carry more cellular and Internet traffic.
"We have been focused on this problem from one perspective, how to fix the interference problem for public safety. And to do it in a way that doesn't provide an excessive windfall to any one company but gets the problem solved," Powell said yesterday on CNBC's "Kudlow & Cramer" program. "We believe we have come close to figuring out how to do that, and we'll get that decision out to the market soon."
To make its case before regulators and Congress, Nextel hired a dozen lobbyists -- including former high-ranking congressional and FCC staffers -- and spent the past 21/2 years trying to persuade the commission to accept its plan. It periodically sweetened the deal by offering to pay more money and give up more of its existing airwaves. In recent weeks, the company took a hard-line stance, telling the FCC it would mount its own legal challenge if it didn't receive the airwaves it wanted.
Still, the commission isn't prepared to hand Nextel a wholesale victory. How much Nextel will have to pay -- both to help relocate public-safety groups to less congested airwaves and to compensate for Nextel's new airwaves -- is still under negotiation, according to sources familiar with those discussions. A final decision appears likely in early or mid-July.
Representatives from Nextel and Verizon Wireless and FCC spokeswoman Lauren Patrich declined to comment on the issue.
Nextel has offered to pay $850 million in cash to relocate public-safety users and other private carriers to clearer airwaves. In addition, it has agreed to absorb the $512 million cost of moving existing occupants of the airwaves it desires. This month, the company also agreed to give up some additional airwaves to boost the total value of its exchange, which the company maintains is now worth more than $5 billion.
Nextel's big cellular rivals launched an aggressive campaign against Nextel's plan. Verizon Wireless and Cingular, the nation's number one and two cellular phone providers, have said Nextel is trying to game the regulatory system to lay claim to airwaves.
Verizon Wireless argued that Nextel should not be rewarded for helping to create the interference problem and said the FCC should auction off the airwaves as the commission has done in other cases for the last decade.
As an alternative, the company argued Nextel should be required to pay $3 billion to public safety agencies and receive less valuable airwaves at a higher frequency where cellular carriers don't currently operate. That would require Nextel to spend more for development of new technology.
Some prominent politicians have objected to Nextel's plan as a windfall for the company. House Budget Committee Chairman Jim Nussle (R-Iowa) plans to introduce a measure tomorrow barring the FCC from granting airwaves except through an auction, a committee spokesman confirmed.
In March, the FCC appeared close to an agreement. The commission's wireless bureau recommended Nextel pay $1.3 billion to $1.5 billion more than it proposed, and later three of the commissioners -- including Powell -- voted to grant Nextel the 1.9 gigahertz spectrum.
Since then, Nextel has offered to pay to move broadcasters off of the airwaves it wants, and it has offered to hand over additional airwaves to public safety. But the company has not publicly responded to the FCC staff's recommendation that it pay more.
After some members of the FCC commissioners' staff and Nextel's rivals proposed offering alternate airwaves, the commission staff reopened the debate. Powell pulled his vote, effectively giving the regulators more time to consider their options.
Nextel's stock closed yesterday at $26.81, up 85 cents a share.