A bid by Nextel Communications Inc. to persuade regulators to grant it a broader slice of the airwaves is becoming one of Washington's most intense lobbying clashes, with the company's future and the shape of the cellular phone industry in the balance.
Reston-based Nextel, the nation's sixth-largest cellular phone company, has offered to relinquish part of the airwaves it uses for its walkie-talkie-like wireless service to remedy interference with emergency calls placed by police officers and firefighters. It would pay $850 million to move the public safety groups to less-crowded airwaves and gain a new slice of spectrum.
Nextel calls the transaction a fair trade. Its opponents complain that Nextel would be underpaying by more than $1 billion and tipping the industry's competitive balance in its favor. The Federal Communications Commission, which oversees the cell-phone industry, appeared receptive to Nextel's plan. In April, three of the five commissioners voted in favor of the proposal. But last week Nextel was set back when FCC Chairman Michael K. Powell rescinded his vote, effectively buying time for negotiations on a compromise that Nextel's rivals support, sources close to the commission confirmed. The FCC could still decide the issue by the end of the month.
The battle over the airwaves comes at a critical time for the industry. After consolidation, the nation's remaining wireless phone companies have been slashing prices to win customers for the long term. Nextel, the smallest national wireless operator, is the only one that does not have a large, deep-pocketed phone company for a parent.
In the early days, the FCC gave away the public airwaves for free. No longer. The popularity of cell phones turned airwaves into a scarce and therefore extremely valuable resource. Lawmakers and regulators recognized a potential for government revenue and have auctioned them off for billions of dollars.
Nextel, a scrappy latecomer, built its business by buying up a national hodge-podge of walkie-talkie businesses. It then adopted a technology developed by Motorola Inc. to carry cellular phone service over the airwaves it had bought. If Nextel's plan is adopted, its cell phones could operate much more like those of other companies. Nextel would be able to compete -- for the first time -- on an equal footing with the rest of the industry and would be able to hold onto high-paying business customers its rivals covet.
Just a year ago, Nextel was ill-prepared for a major regulatory showdown. The $10.8 billion-a-year company, headquartered on the doorstep of the nation's capital, did not have the usual complement of lobbyists pressing its interests among Washington's decision makers.
Now, after a flurry of K Street hiring, it finally has the firepower to fight its more established rivals in the cellular telephone business.
Nextel's plan, devised by senior company officials 21/2 years ago, asks the FCC to give it the right to use valuable public airwaves to expand its data and voice services. Nextel would give up its existing rights to some airwaves and pay to help fix the cell-phone interference problems.
The plan sparked protests from its much larger competitors: Verizon Wireless, Cingular Wireless and others. The opponents say Nextel is trying to grab a coveted resource on the cheap. And their complaints have strong financial backing. Verizon and Cingular, along with their regional parent companies, spent more than $23.5 million on lobbying last year, according to disclosure statements.
Nextel spent only about $1.1 million in 2003, which is a sharp increase from the relatively minuscule $280,000 dispensed the year before.
"We didn't think a heavy presence in Washington was necessary," said Leigh Horner, a spokeswoman for Nextel. "We were just focused on our business and on our customers."
Neither side was ever shy about bringing in big names to push its cause. Nextel has worked closely with police, firefighters and emergency rescue organizations on the issue of phone-call interference. For a while, it retained former New York City mayor Rudolph W. Giuliani and his consulting firm to promote its efforts to trade the offending airwaves for better ones. Giuliani, who has not worked for Nextel for a year, was paid in stock options that now are potentially worth millions. Also, the powerful Senate Appropriations Committee Chairman, Ted Stevens (R-Alaska), wrote the FCC a letter supportive of Nextel's proposal.
Nextel's rivals also enlisted a range of advocates. From New York, Democratic Sen. Charles E. Schumer and Attorney General Eliot L. Spitzer have written to the FCC saying that Nextel would hugely underpay for its new airwaves under its proposal.
The outright granting of airwaves would be unusual. Over the past decade, the FCC has conducted auctions for the rights to airwaves, and they have brought in billions of dollars -- and lots of controversy.
Nextel has said that the value of its proposed swap -- combining the airwaves relinquished with its nearly-billion-dollar payment -- is $4 billion. Verizon Wireless and others have said the airwaves, or "spectrum," the company wants is worth at least $1 billion more than that. The industry's trade association, in defiance of Nextel, believes that the FCC should give Nextel a less valuable slice of spectrum at a cost of more than $2 billion above what Nextel has offered to pay.
Nextel's lobbying effort was always dwarfed by the other side. The company had to build its lobby army from scratch. It has retained more than a dozen lobbying firms to blanket Capitol Hill with its pleadings. It is also attempting to become a bigger player in the influence game by raising money for congressional election campaigns. For the first time in its 17-year history, Nextel is asking its executives to fork over thousands of dollars to establish a political action committee.
"Once we realized our opponents had a very entrenched lobbying apparatus, we knew we needed to make sure that our voice was heard," Horner said.
Nextel's rapid move from the sidelines to the front lines of lobbying fits a well-worn pattern. Even large companies and industries resist involvement in the frustrating and expensive world of influence peddling. But when they get thrown into a regulatory or legislative fight, they ramp up quickly by purchasing many weapons of pressure.
Microsoft Corp. co-founder Bill Gates, for example, did not hide his distaste for the capital's money-soaked inside game and for years steered clear of it. But after the Clinton administration Justice Department filed an antitrust lawsuit against the company, Gates abandoned his objections and developed what has become one of Washington's best-financed and most sophisticated lobbying operations. Under the Bush administration, the antitrust suit was settled on terms agreeable to Microsoft.
The credit union industry was also a minor participant in Washington's ways until a Supreme Court decision threatened its ability to expand several years ago. Then the Credit Union National Association awakened, hired high-priced consultants and created a state-of-the-art lobbying presence in the districts and states of pivotal members of Congress. Eventually, the association mobilized those local advocates to defeat the potent American Bankers Association and enact legislation in 1998 that overturned the Supreme Court decision.
Now it is Nextel's turn. Beginning in late spring 2003, Robert S. Foosaner, the firm's chief regulatory officer, went on a K Street spending spree, quickly quadrupling Nextel's lobbying expenditures.
He hired former Republican and Democratic staff members from both the House and Senate, primarily to contact their old bosses, their current aides and colleagues. He also retained telecommunications analysts who could tag along with those access specialists to explain Nextel's policy positions in as much detail as the lawmakers could tolerate.
The initial decision about the airwaves' sale lies exclusively with the five-member FCC. But its choices are heavily influenced by the opinions of lawmakers, especially those who sit on committees that fund or oversee its work. In addition, Congress can second-guess the FCC and modify the agency's ruling if it so chooses.
To gain entry to the offices of Senate Republicans, Nextel retained McSlarrow Consulting LLC's Alison H. McSlarrow, a former senior aide to Sen. Trent Lott (R-Miss.). Nextel also looked to Fierce, Isakowitz & Blalock, a lobbying firm that is 100 percent Republican, to help it gain access to Republicans in both the House and the Senate.
For assistance with Democrats, Nextel brought on Ricchetti Inc., which is headed by Steve Ricchetti, who was a deputy chief of staff to President Clinton. It also hired the Harbour Group LLC, a unit of the law firm Swidler Berlin Shereff Friedman LLP, whose managing director, Joel Johnson, is a former aide to Senate Minority Leader Thomas A. Daschle (D-S.D.).
Nextel also carefully targeted the Senate's powerful telecommunications subcommittee. It retained the firms of two former aides to the panel's chairman, Sen. Conrad Burns (R-Mont.); the Giacometto Group LLC's Leo A. Giacometto; and Capitol Coalitions Inc.'s Brett Scott. Scott's partner, Amy R. Mehlman, is the sister-in-law of Kenneth B. Mehlman, President Bush's campaign manager.
With so large a contingent, Nextel had to establish a hierarchy. To coordinate the team's efforts, it assigned Harbour Group's Johnson along with Alexander Strategy Group's Terry Haines. Haines, a former aide to Rep. Michael G. Oxley (R-Ohio), and his partner Ed Buckham, a former top aide to House Majority Leader Tom DeLay (R-Tex.), often pair up with the Democrats at Harbour Group to give lobbying campaigns bipartisan coverage.
Nextel believes it has enough lobbyists to defend itself on the airwaves issue and to take on others as well. But it does not underestimate the difficult road it still must travel.
"Nextel is fully aware of the lobbying power of our opposition. They are unbelievably well funded and they have long relationships" in Washington, Horner said. "When you're fighting the entire cellular industry, that's a formidable challenge."