Verizon to Buy All of NextWave’s Spectrum

If completed, the sale will essentially end the multiyear NextWave saga, one of the telecom industry’s most dramatic ongoing stories. Verizon Wireless previously emerged as the likely buyer because of the deep pockets of its parents, Verizon and Vodafone (CD Oct 15 p1). Nextel, like other carriers, “desperately” wanted the spectrum but couldn’t pay the price, especially as it puts together financing for its purchase of a nationwide 10 MHz license at 1.9 GHz through the 800 MHz rebanding, sources said.

Under the agreement, Verizon gets 10- and 20-MHz licenses in 23 markets across the U.S., including 20 MHz in N.Y., D.C., Boston and Baltimore and 10 MHz licenses in L.A. and Philadelphia. All the licenses are in the 1.9 GHz band. The deal prices the spectrum at $2.85 per MHz POP, compared to the $4.63 the company paid for its other purchase of N.Y. spectrum. Legg Mason calculated that if the N.Y. spectrum was similarly valued this time, the rest of the spectrum purchased would be valued at $1.90-$1.95 - - marginally more than the $1.50-$1.70 in comparable deals.

The purchase comes a week after Verizon was overtaken by Cingular as the largest U.S. wireless carrier with the AT&T Wireless acquisition and adds to the company’s already formidable spectrum holdings.

An FCC source said the agency got a heads up Thurs. on the announcement. “I think it’s pretty straightforward,” the source said: “I don’t think there’s competition issues or anything like that.” After the court acts, NextWave must file with the Justice Dept. and the FTC for antitrust review. NextWave said it would still pay the govt. $71 million and any other money owed.

Precursor analyst Rudy Baca told us he expected Verizon to sell off its 900 MHz cellular licenses and consolidate its holdings at 1.9 GHz, which will accelerate deployment of Verizon’s EvDO network. Baca doesn’t expect Verizon to have to sell off any of the spectrum, provided it doesn’t exceed 80 MHz in any market.

“This is exactly what we thought would happen,” he said. Baca said the deal had major implications for Jan.’s Auction 58, which includes the licenses NextWave returned to the govt. “It basically takes out one of the major buyers,” he said. “Verizon has got what it needs. It basically frees spectrum up for Nextel, Sprint and T- Mobile.”

Legg Mason said it expects the bankruptcy court and shareholders to approve the deal in early 2005. “We are not aware of any potential deal breakers, though the spectrum acquisition by Verizon Wireless will presumably receive careful government scrutiny, particularly the additional 20 MHz in N.Y.,” the firm said. “We understand that the additional spectrum in N.Y. City would raise Verizon Wireless’s spectrum holding there to 65 MHz, below a ‘cap’ applied by regulators in some markets in evaluating the Cingular merger with AT&T Wireless.”

“We will put this spectrum to work in our network to benefit customers, by having the long-term capacity in place when they need it to meet their growing demand for wireless voice and data services,” said Verizon Wireless CEO Denny Strigl.

NextWave CEO Allen Salmasi said he examined a range of possibilities, including a system build-out using the spectrum. “It became clear to us that the most prudent course of action is the one currently being pursued, given the level of maturity, and the scale and scope, that the major wireless carriers have achieved with their PCS networks and distribution channels,” he said. “We believe this transaction provides the greatest value and certainty for our stakeholders.”