NextWave charges ahead despite FCC appeal

Despite not officially holding spectrum licenses, NextWave Telecom is building a wireless network in 95 markets and has nailed billions in new financing.

Last week the embattled wireless service provider announced that UBS Warburg is providing a $2.5 billion debt allowance that the company will use to fund the construction of its third-generation (3G) wireless network. UBS Warburg is also NextWave's financial adviser.

Earlier this month NextWave also received $300 million from wireless equipment company Qualcomm. These new commitments are part of NextWave's $5 billion reorganization plan filed Aug. 6 with the U.S. Bankruptcy Court for the Southern District of New York. The court is expected to confirm or deny NextWave's plan by the end of October.

The plan also states that NextWave will not sell its services directly to consumers or business users, but will offer wholesale wireless data services to other carriers.

"In light of the competitive nature of the [wireless] market and when they will enter, it may be more feasible to offer wholesale services than to attack the traditional carriers that have legacy voice customers," says Eugene Signorini, analyst at consulting firm The Yankee Group.

The Yankee Group predicts there will be 11.4 million wireless users accessing e-mail, calendar and other data applications via handheld devices by year-end. That number is expected to jump to 52.8 million users by the end of 2004.

Companies such as AOL or Microsoft's MSN might be interested in branding their wireless service to their customers without having to deploy or manage a network, Signorini says. But he believes NextWave will have an uphill battle.

"Any wireless service provider would rather hold its own licenses and network infrastructure," he says.

And because NextWave hasn't made friends with some of the biggest wireless services providers in the industry, it may have a difficult time reselling its network to the likes of AT&T, Verizon or VoiceStream.

The animosity stems from the fact that NextWave is trying to take back the licenses that it won in 1996 - and subsequently lost - from the very providers that acquired the disputed licenses just this year.

Soon after NextWave filed for bankruptcy in 1998 the Federal Communications Commission repossessed the company's licenses.

The FCC resold the licenses to companies such as Verizon, Cingular (BellSouth and SBC's joint venture), VoiceStream and an AT&T affiliate called Alaska Native in an auction that closed in January. The licenses were repossessed and resold because NextWave failed to pay for them.

After a multitude of court battles, NextWave saw its first win this June when the appeals court ruled that the FCC did not act in accordance with bankruptcy code. The upshot was that the licenses still belong to NextWave. Or do they?

NextWave claims the FCC "explicitly said if NextWave won the appeals case it would return the licenses and would not continue litigation," says Ray Berger, senior vice president of marketing at NextWave. But the FCC is taking its fight to the Supreme Court, which could delay any decision by a year.

However, NextWave isn't waiting. It's building out its network with 1xRT Code Division Multiple Access 2000 2.5G gear that will support mobile wireless data transmissions at 144K bit/sec. The company says its network will primarily offer data services when completed early next year.

NextWave's network will cover 95 markets in 30 states and Washington, D.C.

NextWave charges ahead despite FCC appeal

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