IP: Pre-rescue NextWave evaluation

[David Farber <dave () farber net>]

> From: Dewayne Hendricks <dewayne () warpspeed com>
>
> [Note:  This item comes from reader Janos Gereben.  DLH]
>
> At 12:58 -0700 8/21/01, Janos Gereben wrote:
> > From: "Janos Gereben" <janos451 () earthlink net>
> > To: "D.H." <dewayne () warpspeed com>
> > Subject: Pre-rescue NextWave evaluation
> > Date: Tue, 21 Aug 2001 12:58:19 -0700
> > MIME-Version: 1.0
> >
> > NextWave raises wireless stakes
> > Ray Hegarty - www.the451.com [Aug. 17, 2001]
> >
> > New York - At a briefing held in New York on Thursday, NextWave
> > executives reinforced the company's commitment to build out its US
> > nationwide 3G code-division multiple access (CDMA) network, rather
> > than cash in on January's controversial $16.8bn wireless spectrum
> > auction. Verizon and AT&T were among the incumbent carriers that bid
> > for licenses that the FCC had seized from NextWave, after it failed to
> > pay its outstanding debts. A US appeals court, however, later ruled
> > that the FCC had improperly canceled the licenses. NextWave chairman,
> > CEO and president Allen Salmasi said that he couldn't "attach any
> > price to the company," but conceded that NextWave had received "many
> > proposals" and that the company's shareholders had not yet turned down
> > any offers.
> >
> > Salmasi claimed NextWave's existing shareholders - including Global
> > Crossing and Liberty Media - are behind executives' plans to build out
> > its network, but the possibility remains that ultimately investors
> > will be tempted to take the money, rather than take a risk on an
> > unproven business model. Verizon Wireless recently bid $3bn for
> > wireless capacity held by NextWave.
> >
> > NextWave's network buildout plans include launching a data-only
> > cdma2000 1XRTT service in the C license areas, which include New York
> > and Los Angeles, by December. By April 2002, NextWave will have
> > completed the initial 1XRTT data-enabled buildout in 95 C, D, E and F
> > block licenses, running at a maximum of 144Kbps, said NextWave CTO
> > Brian Montgomery. At the same time, NextWave plans to start
> > introducing the 1x-EVDO maximum peak rate 2.4Mbps upgrade. By the end
> > of 2002, NextWave will offer voice and data services on all its
> > networks. The operator's initial plan is to support voice services in
> > only three of its markets.
> >
> > Perhaps the most intriguing aspect of NextWave's plans is that it will
> > offer data-only services on a wholesale basis. Salmasi said NextWave
> > aims to smash the closed-network model run by existing carriers by
> > opening up commercial possibilities for wireless air space. "We are
> > not the seventh [wireless] carrier, but the first of a new kind of
> > carrier," he said by way of a barbed reference to Verizon Wireless,
> > Sprint PCS and AT&T Wireless.
> >
> > NextWave is attempting to appeal to the growing sentiment in the
> > wireless industry that wireless carriers are strangling innovation of
> > data services by refusing to enter into compelling revenue-sharing
> > relationships with third-party service and content providers. Wireless
> > carriers are worried about losing 'retail' branding visibility for
> > their services - the so-called walled garden - to the more established
> > consumer brands and becoming mere 'bit-pipe' players in the wireless
> > data value chain.
> >
> > While the concept of Mickey Mouse-, Gucci- and AOL TimeWarner-branded
> > wireless services sounds intriguing, will it work? The initial
> > offering bears an uncanny resemblance to the recently deceased
> > data-only Metricom Richochet network.
> >
> > NextWave claims it has had inquiries from hundreds of possible MVNO
> > (mobile virtual network operator) customers, including wireless
> > operators, ISPs, content providers and other companies. NextWave
> > senior VP of marketing Roy Berger told the451 that the company would
> > provide billing capabilities where required, but that MVNOs would have
> > to assume responsibility for customer management and relationships.
> > Berger said NextWave would consider entering into revenue-sharing
> > relationships where appropriate, offering a much more competitive
> > proposition than existing carriers. He said, however, that NextWave
> > would expect more than the 9% that Japanese carrier NTT DoCoMo takes
> > for each transaction across its network.
> >
> > Money is another thorny issue. NextWave chairman, CEO and president
> > Allen Salmasi said the company expects to spend about $2.8bn on
> > building its next-generation network. Montgomery claimed that by
> > outsourcing the network construction, NextWave can save about 35% in
> > deployment costs. The company also expects to reduce its construction
> > time from 18 to eight months by outsourcing the network build.
> >
> > But a question mark hangs over NextWave's math. Sprint PCS recently
> > announced a $4bn shelf registration designed to enable it to raise
> > capital to build out its existing network for 2.5G. Sprint PCS spent
> > $3bn in 2000 building out and improving its network. NextWave is a
> > greenfield site and will have to pay for back-end billing software,
> > databases and additional back-end systems. Despite plans to use
> > existing tower inventory, turnkey site development and
> > installation-ready systems, a $2.5bn price tag sounds optimistic.
> >
> > Last week NextWave filed a reorganization plan with a New York
> > bankruptcy court that provided $5bn in total financing. The money will
> > be used to pay off NextWave's $4.7bn debt to the US government,
> > including interest, for its defaulted payments on the wireless
> > licenses bought in 1995, said Salmasi. NextWave is also reviewing
> > other proposals and expects to finalize a debt agreement of $2.5bn by
> > the middle of September. That funding is designed to help NextWave pay
> > for its planned nationwide 3G wireless network and is expected to come
> > from existing shareholders and "financial institutions," said Salmasi.
> >
> > NextWave is also going to need extra cash to meet additional legal
> > bills. The FCC plans to appeal to the US Supreme Court in September to
> > finalize jurisdiction over spectrum allocation and overturn the June
> > appeals court decision that returned the wireless licenses to
> > NextWave. The appeals court ruled that the bankrupt firm had the right
> > to reorganize and pursue its business objectives with licenses intact.
> > Salmasi said he expected a decision from the Supreme Court by
> > mid-November.
> >
> > It is still possible that none of the company's network plans will
> > come to fruition, since NextWave could either lose at the Supreme
> > Court or get an offer it cannot refuse from spectrum-deficient
> > operators including Verizon Wireless, Cingular Wireless and AT&T
> > Wireless. Meanwhile, Lucent's head of national deployment, sales and
> > marketing, Bob Parsloe, said NextWave will have between 600-700
> > data-only cell sites by the end of the year. Lucent signed a $100m
> > network buildout contract with the carrier in June, and already has
> > 400 people working on the network deployment.



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