Subject: [NEXTEL-1] Nextel’s Numbers Don’t Add Up- Nextel’s New Math Does Not Count the Increased Value of its 800 MHz Spectum.

From: Marcelrf <[email-masked]>
Date: Wed, 24 Mar 2004 05:31:32 -0500

.CTIA B u i l d i n g T h e W i r e l e s s F u t u r e . Cellular
Telecommunications & Internet Association

March 17, 2004
The Honorable Michael K. Powell
Chairman
Federal Communications Commission

445 12th Street, SW
Washington, D.C. 20554
In re: Ex Parte Presentation
WT Docket No. 02-55

Dear Chairman Powell,

On March 5, 2004, Nextel Communications, Inc. (“Nextel”) submitted an ex
parte filing entitled “What Windfall? A Review of the Valuation
Components of the Consensus Plan.” In its presentation, Nextel makes a
number of assertions about spectrum valuations that are simply not
credible. The only consistency in Nextel’s “New Math” approach to
spectrum valuations is an aggressive inflating of the value of its
“contributed” spectrum and an aggressive deflating of its desired new
spectrum. Nextel’s question “what windfall?” is resoundingly answered by
any reasonable reading of the facts, the market reactions and the law
bounding agency actions. The numbers do in fact add up to a substantial
windfall.

• Nextel’s Numbers Don’t Add Up. Nextel claims that its spectrum spread
across three bands is more valuable than contiguous spectrum at 1.9 GHz.
This requires a New Math methodology under which its encumbered,
disjointed, non-nationwide 800 MHz spectrum is valued at over 60 percent
more than a comparable amount of exclusive, nationwide 1.9 GHz spectrum.
This makes no sense for two reasons. First, if Nextel valued 1.9 GHz
spectrum at the same MHz for MHz rate as its surrendered 800 MHz
spectrum, Nextel would be receiving $5.76 billion in 1.9 GHz spectrum
rather than the $3.335 billion estimated in its ex parte – a valuation
swing of well over $2 billion. Second, financial analysts have
consistently concluded that contiguous spectrum in the PCS bands would
be worth more than non-contiguous 800 MHz spectrum, not less, as Nextel
pretends. Thus, Nextel’s math is premised upon patently faulty
assumptions.

• Nextel’s New Math Does Not Count the Increased Value of its 800 MHz
Spectum.

A striking feature of Nextel’s submission is its claim that rebanding
within 800 MHz results in a loss of 2.5 MHz of spectrum worth $1.44
billion – a loss that should be counted as a credit toward the 1.9 GHz
spectrum. While Nextel would reduce its total amount of spectrum at 800
MHz from 8.5 MHz to 6 MHz on average, there is no recognition assigned
in the ex parte to the plain fact that the surrendered spectrum is
interleaved, encumbered, and less than nationwide in coverage. The 6 MHz
of spectrum Nextel would receive after rebanding is nationwide,
exclusive, contiguous and adjacent to 10 MHz of other spectrum held by
Nextel. Kane Reece estimates a net gain of $2.3 billion to Nextel from
this change alone within 800 MHz.

• Nextel’s SEC Filings and Analysts’ Reports Contradict Nextel’s Claim
that its Plan Causes a $2 Billion Loss to the Company. Nextel represents
that its proposal will result in a net loss of $2 billion to the
company. However, its March 11, 2004, Securities and Exchange Commission
10-K report omits any disclosure that the plan would have materially
adverse financial effects. In contrast, industry analysts have undercut
Nextel’s own ex parte by noting that the contiguous spectrum being
sought under the plan is more valuable than the spectrum being
contributed. One prominent analyst estimates the net benefit to Nextel
as being in the $1.5 billion to $3.2 billion range.

• Nextel’s Proposal Is Not Legal. Significantly, Nextel’s ex parte
ignores an obvious fatal flaw. Whether the spectrum valuations are right
or wrong, the Commission does not have legal authority to bypass
competitive bidding procedures established by Congress to engage in the
type of private negotiations and spectrum grants inherent in Nextel’s
proposal.
In sum, Nextel’s numbers do not add up. Instead, the facts and
application of a consistent methodology leads to the inescapable
conclusion that Nextel would be receiving a significant windfall under
its “consensus” proposal.

Respectfully submitted,

Diane Cornell
Vice President for Regulatory Policy
Cellular Telecommunications & Internet Association
Cc: Bryan Tramont
 Sheryl Wilkerson
 John Muleta
 Ed Thomas
 John Rogovin

http://svartifoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6516083089

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