NEXTWAVE EYES PENT-UP DEMAND FROM VIRTUAL NETWORK OPERATORS

Salmasi declined to disclose names of MVNOs that NextWave was talking with, but said financial arrangements with some could be part of plan of reorganization that company planned to file with U.S. Bankruptcy Court, White Plains, N.Y., in next few weeks. Interest in virtual network operators stems from fact that they “have been talking to incumbent carriers for the last 6 months to the last 6 years,” Salmasi said. “What they are consistently telling us is that the types of arrangements that are being proposed by carriers are not MVNO arrangements, they are pure reseller arrangements that date back to the early 1980s. You don’t see any effort by carriers to open their networks to put a switch on the network” that would maintain reliability levels and billing confidentiality that MVNOs seek, he said. Since start of year, Virgin Mobile reportedly has been close to signing MVNO deal with Sprint PCS, although formal announcement hasn’t been made.

Potential MVNO customers also can be drawn from fairly wide pool since it would include companies other than traditional wireless carriers, NextWave Exec. Vp-General Counsel Frank Cassou said. “The potential customers are everyone from carriers in the U.S. to ISPs to international carriers to companies like Sony or Citigroup,” he said. “By having a wireless broadband connection for data, you really open the network to a lot of different types of customers, not just existing carriers.”

U.S. Appeals Court, D.C., ruling June 22 (CD June 25 p1) reversing FCC on its taking back NextWave PCS licenses has touched off wave of speculation in wireless industry about what happens next. Verizon Wireless CEO Denny Strigl has called for quick settlement between NextWave and FCC that could put licenses into hands of bidders that collectively were poised to spend $15.4 billion following re-auction of bankrupt C-block bidder’s licenses earlier this year. Verizon Wireless bid single largest sum for licenses -- $9 billion, followed by designated entities in which AT&T Wireless and Cingular Wireless had stakes. Industry observers have said that scenarios under which settlement could be reached or under which NextWave would keep licenses and build out network both hold challenges. Under first plan, congressional appropriation probably would be needed if settlement were reached between $4.7 billion NextWave originally bid for licenses and $15.4 billion in other bids. Under scenario in which NextWave would retain licenses, analysts said it faced twin challenges of building out network by pending construction deadlines and being late entrant into markets where competitors had vied for business for years. NextWave reached agreement with Lucent at reported value of $100 million last week to build out its 95 PCS markets, with data-only network planned for 93 of them within next 10 months. Two markets, Detroit and Madison, Wis., will be built out for both voice and data (CD July 3 p5). NextWave, which has chosen CDMA as its wireless technology, described network as 3rd generation CDMA2000 1X technology.

Asked about possibility of settlement on licenses and re- auction bidders that were poised to spend $15.4 billion on spectrum, Salmasi said carrier was focusing on buildout plans instead. Cassou said company hadn’t yet met face-to-face with anyone at FCC on license situation. “We have reached out to them and told them that we would like to come in and meet with them,” he said.

“Frankly, at this point, our issue has really turned into more of a political issue with the incumbent carriers trying to keep additional competition out of the marketplace,” Salmasi said. “That is what we have been wrestling with for the last 4 years. We are hoping that the Commission and the Administration really take a hard look of the implications of providing for a wide range of new service providers in the marketplace.” Planned NextWave construction of 3G network can have “profound” economic impact by creating new jobs and creating competition with European carriers that have open network models and are interested in investing in U.S., Salmasi said. “We'd like to put the past behind us and establish good relations with the FCC,” Cassou said.

“Very quickly” after bankruptcy court confirms plan of reorganization, NextWave plans to expand all of its markets to voice and data and offer product company is calling mobile DSL, Salmasi said. That will give network capability of providing up to 2 Mbps of high-speed data connections for end uses ranging from laptop computers to onboard systems in cars to fixed wireless access terminals, he said. Those capabilities are expected to be available in 2nd half of 2002, he said. NextWave isn’t focusing on role as retail provider of such services, but is looking for partners to provide them to market, he said.

Decision to roll out both voice and data networks in Detroit and Madison is because those 2 markets had not been tied up in litigation, NextWave Deputy Gen. Counsel Michael Wack said. NextWave has owned D-block licenses in those markets since 1997 and they were seen as good candidates for first voice and data markets, he said.

U.S. Bankruptcy Court June 13 approved $200 million in debtor-in-possession convertible financing from Germany’s BFD Communications Partners, fund managed by private equity firm BFD Capital but BFD didn’t announced details of its involvement until last week. Loan includes $90 million to fund deployment of NextWave’s national wireless network. Aside from money that went toward network construction, “a good chunk of it went immediately to retire postpetition debt,” Wack said, referring to debts that had accumulated since company filed for bankruptcy June 8, 1998. Last week, over-the-counter shares of NextWave climbed to $8 from $3.