Subject: [NEXTEL-1] Regulators Mulling Nextel Spectrum Proposal

From: Marcelrf <[email-masked]>
Date: Mon, 08 Mar 2004 03:50:48 -0500

Monday, March 8, 2004

Regulators Mulling Nextel Spectrum Proposal
BY REINHARDT KRAUSE
INVESTOR'S BUSINESS DAILY

Naysayers are fretting about Nextel Communications Inc.'s (NXTL)
long-term prospects, even as the wireless phone company comes off its
best year ever.

For Nextel executives, hearing some analysts declare that storm clouds
are on the horizon is nothing new. Earlier concern centered on Nextel's
long-term debt, which the firm has slashed.

Now one big question is whether Nextel has sufficient radio spectrum to
launch next-generation wireless data services. Federal regulators are
mulling over a Nextel proposal that would increase its spectrum
holdings.

Last month, Nextel posted $1.41 per share earnings in 2003, its first
full year of being profitable. Analysts polled by Thomson First Call
forecast that its 2004 per-share earnings will grow 40% to 1.98, then
climb only 9% to 2.16 in 2005.
Two brokerage firms, Morgan Stanley and Credit Suisse First Boston,
downgraded Nextel's stock recently, while two others, Deutsche
Securities and AG Edwards, upgraded it.

The wireless firm, which focuses on business customers, has a history of
steering through rough waters, says Thomas Kelly, chief operating
officer and executive vice president.

"We've been the best financial-performing wireless company in this
country," he said. "People have been talking about (storm clouds) since
1996 and here we are."

Analyst Simon Flannery says competition is steadily growing for Direct
Connect, Nextel's core product. It sets up group phone calls at the push
of a button. He also cites margin pressure and Nextel's slowing gross
subscriber additions.

Flannery, as well as other analysts, also voice concern over Nextel's
need for a next-generation wireless data network.
Demand for speedy wireless data services has fallen short of rosy
forecasts. On the one hand, Nextel may have made a smart move by
delaying a network upgrade in late 2001, analysts say.

Even so, corporate demand for speedy wireless services is expected to
pick up as new applications emerge. Verizon Wireless (VZ) and Sprint
Corp. (FON) have taken the lead in upgrading wireless networks.

In the long run, Nextel needs to offer business customers faster data
speeds, many analysts say.
Its current wireless network offers average data speeds of 19.2 kilobits
per second. That's slower than dial-up Internet access.
In the near term, Nextel has decided to upgrade iDEN, wireless
technology developed by Motorola Inc. (MOT)

Nextel has used Motorola's wireless gear since the mid-1990s. The
upgrade would boost data speeds by a factor of four.
At average speeds of about 75 kbps, Nextel's network would be on par
with those currently operated by Verizon and Sprint. But those rivals
are planning upgrades to the 300 kbps to 400 kbps range.

Nextel's long-range data plans hinge on acquiring more radio spectrum,
analysts say.

"One keystone to Nextel's next-generation data plans is its proposed
public safety spectrum swap," said Frank Governali, analyst at Goldman
Sachs, in a note to clients.

The idea of a spectrum swap originated because calls over Nextel's
wireless network sometimes cause interference on public safety radios.
The Federal Communications Commission is now mulling a Nextel proposal
to swap spectrum with public safety agencies.

The FCC may announce a decision at its meeting in mid-March.
Rivals Verizon Wireless and Cingular Wireless, owned by SBC
Communications (SBC) and BellSouth, (BLS) have objected to Nextel's
proposal.

Kelly says the FCC has to tackle the issue of interference on public
safety radios.
"Our competitors certainly don't want us to have this spectrum," he
said. "But the primary consideration (the FCC) has to have is doing
what's right for public safety."

Still, Verizon says Nextel would gain spectrum that a consultant has
appraised at being worth $7.2 billion. Verizon calls that a "windfall"
for Nextel.

Nextel has offered to pay $850 million as a "contribution" to help
public safety agencies move to different spectrum slots. It has also
offered to return spectrum slots that public safety agencies would then
use.

Lower Operating Costs

Radio spectrum is shared by many services, including broadcast TV,
wireless phones and satellite radio. Regulators decide how it's
allocated.

Most new digital, next-generation wireless technologies, such as global
system for mobile, operate above 1.8 GHz. Those frequencies are less
crowded so there's less interference.

Several services, though, share frequency in the 800MHz to 900MHz range.
With its proposed swap, one of Nextel's goals is to reorganize spectrum
blocks so that it will be using more airwaves clumped together. Using
such contiguous spectrum would make Nextel's network less costly to
operate.

If a swap is approved, regulators could award Nextel a small block of
spectrum in the 1.9 GHz range or more contiguous spectrum in the 800 MHz
range. Nextel doesn't own any 1.9 GHz spectrum licenses.

However, Nextel is testing a wireless data network developed by startup
Flarion Technologies. The trial, in North Carolina, uses gear that
operates at 1.9 GHz.

If Nextel doesn't get any spectrum in the 1.9GHz range, that's "very bad
news for Nextel's next-generation transition path," according to
Precursor, a research group based in Washington, D.C.

Nextel has alternatives, says Merrill Lynch analyst Linda Mutschler. She
notes that Nextel paid $144 million in cash last year to buy wireless
spectrum assets of bankrupt WorldCom, since renamed MCI.

WorldCom owned spectrum in the 2.2 GHz to 2.7GHz range. The airwaves
were first used by wireless pay-TV companies. The spectrum range is
generally called MMDS, for multichannel multipoint distribution
services.
WorldCom planned to use the airwaves to deliver fixed wireless Internet
services to homes.

To use the WorldCom spectrum, Nextel would have to tweak its mobile
wireless gear — mainly radio antennas located along commuter corridors
and in neighborhoods — to work at higher frequency ranges, analysts say.

Nextel has cobbled together more MMDS spectrum from other sources, says
Mutschler. She estimates that Nextel has such licenses covering about
two-thirds of the top 100 U.S. markets.

http://www.investors.com/editorial/tech01.asp?v=3/6
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