Verizon Wireless said it has reached an agreement to buy all the spectrum licenses held by NextWave Telecom for US$3 billion in cash, just the latest instance of consolidation in the wireless industry and one that ends a years-old legal dispute with regulators.
Verizon, the second-largest wireless carrier behind the newly merged Cingular-AT&T Wireless, said the purchase would help it provide better coverage and allow its subscriber base to grow in 23 different geographic areas, including key markets such as New York, Boston, Washington, D.C., and Los Angeles.
The deal won’t take effect until sometime next year, when NextWave exits bankruptcy protection. In effect, Verizon will be buying NextWave because the licenses are the only assets that will remain when the bankruptcy proceedings end.
NextWave went bankrupt in 1998 when it was unable to continue payments on nearly $5 billion worth of spectrum licenses it had obtained. It has since spun off a number of its licenses, raising around $5 billion in the process.
Regulators had attempted to force the company to surrender its licenses back to the Federal Communications Commission (FCC), which could then sell them to the highest bidder in each market. NextWave waged a successful court battle that let it retain the rights to its licenses.
Gearing Up for Fight
Analysts said even if it is not needed to carry voice traffic currently, the extra spectrum space gives Verizon room to grow both its customer base and its offering of wireless services, something that will become increasingly important as it goes head-to-head with the newly powerful Cingular.
“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,” Verizon Wireless CEO Denny Strigl said.
Verizon said it was buying 10 MHz and 20 MHz frequency licenses that have service areas where 73 million people live. Verizon will gain access to one new market in the process, buying licenses in Tulsa, Oklahoma where it currently does not compete.
Analysts say the bandwidth will be needed as Verizon boosts adoption of its broadband wireless, which is planned to provide fast download speeds for data transfer.
The news is the second positive development this week for Verizon. Earlier, it announced a settlement had been reached in its long-running dispute with Nextel over that company’s attempts to enforce copyright protection for its walkie-talkie, or push-to-talk service.
“Everyone is going to go after everyone else’s customers — that’s a way of life in the wireless industry,” Gartner principal analyst Tole Hart said.
The more customers a carrier garners, the more it can invest in next-generation services that will keep those customers from straying while attracting new ones. While broadband services are the next step, having strong basic networks for new customers and the ability to handle all the voice and data traffic being generated will be key to surviving the fierce competition.
“It won’t be just Cingular and Verizon, but they’ll be well out front in a lot of ways,” Hart added.
While the sale will be reviewed by regulatory agencies, including the FCC, spokeswoman Lauren Patrich said the agency’s goal in its lengthy battle with NextWave had been to free spectrum up for use by consumers.
That battle, which started shortly after NextWave filed for bankruptcy in 1998, culminated last year with the U.S. Supreme Court ruling that NextWave could not be forced to sell,
“The agency didn’t want the spectrum licenses to sit in a vault indefinitely, we wanted them back in use,” Patrich said. “This appears to accomplish that goal.”