Subject: [NEXTEL-1] Nextel's Sweet Spectrum Win

From: NEXTEL-1
Date: Wed, 14 Jul 2004 16:11:05 -0400

JULY 9, 2004

NEWS ANALYSIS:TECHNOLOGY
By Olga Kharif
Nextel's Sweet Spectrum Win

The FCC's award of key frequency space to the wireless carrier should
help it compete better -- unless rivals get the deal overturned
Good news for Nextel (NXTL ). The Federal Communications Commission has
allotted the nation's No. 5 wireless carrier valuable new spectrum space
to carry its cell-phone service. Under the July 8 deal, Nextel will get
the frequency in return for relinquishing some of its existing spectrum
to police and fire departments and helping them relocate to the spectrum
it's giving up.

The upgrade wasn't cheap: It will cost Nextel three times what it had
originally offered for relocation alone. But having the new spectrum
should allow it to handle more voice calls, provide more advanced data
services, and keep up with its rivals in the long run. Without the
spectrum swap Nextel was widely seen as being at a competitive
disadvantage because its existing spectrum didn't have enough capacity
to support more voice calls and advanced services.

WALL STREET WORRIES. Nextel's rivals greeted the decision with cries of
foul. Verizon (VZ ) immediately threatened to sue, charging in a
statement that "the FCC has failed to provide a lawful solution..." to
Nextel's spectrum problem. Nextel's shares fell 2.9%, to $25.64, on the
day of the news, as Wall Street fretted over the deal's price and the
possibility of litigation.

Still, investors may have the wrong first impression. "This is a huge
victory for Nextel," says Harold Furchtgott-Roth, president of
Furchtgott-Roth Economic Enterprises in Washington, D.C., and a former
FCC commissioner who has no holdings or financial interest in Nextel.
Analysts agree that the company's long-term survival now looks to be
more assured, and the buildout of Nextel's network using the new
spectrum could provide badly needed revenues for struggling equipment
vendors such as Motorola (MOT ), Lucent (LU ), and Nortel (NT ).

Consumers can smile, too. With Cingular, jointly owned by SBC
Communications (SBC ) and BellSouth (BCS ), set to acquire AT&T Wireless
(AWE ) by yearend, reducing the number of wireless carriers from six to
five, the loss of Nextel as an independent company would have reduced
pricing pressure in the industry, where per-minute charges have been
dropping by more than 10% a year for several years.

READY CASH. In truth, Nextel may have gotten a bargain. While the FCC
order hasn't been released yet, the deal ultimately is expected to cost
Nextel $3.2 billion, 20% less than industry watchers had anticipated,
estimates Tom Watts, an analyst with S.G. Cowen. Plus, it won precisely
the kind of spectrum, in the 1.9-gigahertz band, that it had asked for.
Verizon Wireless pushed for an alternative that would have lead to
higher operating costs for Nextel.

Financing this purchase won't be a problem either, especially since
rating services Fitch and Moody's have just upgraded Nextel's debt.
While its bonds are still junk-rated, Nextel has superb operating
performance and should be able to raise the funds easily, says Greg
Gorbatenko, an analyst with Marquis Investment research in Chicago.

Earnings should grow 45% this year, to $2.07 per share, on revenues of
$12.9 billion. This deal should eventually result in reduced
interference and better call quality, most analysts believe, which will
help spur Nextel's growth and reduce its per-call costs longer-term.

WAITING GAME. Courts could shoot down the FCC's decision -- a real
concern given that other major FCC moves have been overturned in recent
years. Still, some industry insiders believe Verizon's legal challenge
will be a stretch. The spectrum that Nextel returned to Uncle Sam is
worth about $1.6 billion, according to FCC estimates, on top of the
roughly $3.2 billion Nextel will eventually pay in cash to several other
parties, including broadcasters and police and fire departments. Verizon
made the FCC a $4.8 billion offer for spectrum reallocation, so it can't
easily make the argument that its offer was any better than Nextel's.

Next will probably have to wait months before building out its new
space, given the legal uncertainties. Still, if this FCC deal stands, it
seems to benefit everyone -— except for Nextel's rivals.

http://yahoo.businessweek.com:/print/technology/content/jul2004/tc2004079_3742_tc119.htm?chan==tc&

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