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Wavelengths
Rebanding doesn't look like a
'sweetheart' deal anymore
By Donny Jackson
March 7, 2008
In the spring of 2004, U.S. wireless carriers were up in arms over the
FCC's consideration of an 800 MHz rebanding proposal that would have
resulted in Nextel Communications paying $850 million to mitigate
interference that cellular carriers were causing to public-safety radio
systems in the band.
Under the proposal, Nextel would end up with contiguous spectrum at 800
MHz and a new, nationwide 10 MHz swath at 1.9 GHz, where most of the
other cellular carriers operated. Some of Nextel's competitors called
the proposal a "giveaway" of the valuable 1.9 GHz spectrum.
When the FCC passed its rebanding order in the summer of 2004, it valued
the 1.9 GHz spectrum in the proposal at $4.9 billion, and required
Nextel to pay at least $2.8 billion for rebanding and contribute some
spectrum to make up the difference. With competitor Verizon Wireless
claiming that the 1.9 GHz spectrum actually was worth $7.2 billion, the
cry that rebanding represented a "sweetheart" deal for Nextel persisted.
And maybe those claims were correct regarding Nextel, which never really
dealt with rebanding as a company because it announced a lucrative
merger with Sprint shortly after agreeing to the FCC's order. For the
new Sprint Nextel, however, rebanding has not gone smoothly at all.
Under the FCC's order, rebanding was supposed to be completed in a
three-year period ending this June. There was no cap on the amount of
money Sprint Nextel would have to spend on rebanding, but most believed
the $2.8 billion obligation would be more than enough to cover the
costs, with any surplus earmarked to go into the national treasury --
the reason is why rebanding accounting was styled to meet government
standards.
While rebanding is proceeding, it bears little resemblance to the
initial vision expressed by the FCC.
It's been slow. Four years after the FCC passed an order calling for
rebanding to be done in three years, the most optimistic scenario we
hear today is that it will take another four years to complete
the massive project, in 2012 -- and that's assuming vital border
agreements are finalized in a timely manner.
It's also been a spectral headache. Under the terms of the FCC's order,
Sprint Nextel would be finishing up rebanding and beginning to execute
its plans to utilize contiguous spectrum in the 800 MHz and 1.9 GHz
bands. Instead, 800 MHz capacity issues related to rebanding have helped
erode much of the value of the old Nextel iDEN network, as customers are
dropping the service in droves. It's going to be several years before
Sprint Nextel can use the contiguous spectrum blocks.
And it's been expensive. In its 10-K filing with the SEC a week ago,
Sprint Nextel said it is "unlikely" to make any payments to the
government after rebanding, estimating that its total costs will be $2.7
billion to $3.4 billion -- and that's the best-case scenario. Bigger
money is tied to the outcome of litigation.
In a little more than a week, Sprint Nextel will argue before a federal
appeals court that the FCC unilaterally changed the terms of its
rebanding "contract" last fall with the carrier. If it loses the appeal,
Sprint Nextel will have to abandon its interleaved channels in the 800
MHz band in June, even though rebanding isn't complete.
Sprint Nextel says the original FCC order stipulated that Sprint Nextel
only would have to vacate its interleaved spectrum after rebanding is
finished, at which time the carrier would have access to contiguous
spectrum in the 800 MHz band. While shuffling spectrum with NPSPAC
licensees during rebanding, the ability to maintain operations on the
interleaved spectrum is critical to Sprint Nextel's iDEN operations,
said Larry Krevor, Sprint Nextel's vice president of government affairs
for spectrum.
"We didn't agree to vacate that spectrum before rebanding was done -- no
one would have," Krevor said during an interview with MRT at the APCO
Winter Summit earlier this year.
Without the interleaved spectrum, Sprint Nextel would have to scramble
to keep its iDEN services going, with many believing that the carrier
would move much of its operations to 900 MHz -- if it can secure the
spectrum.
Of course, whatever strategy might be employed would cost more money --
an amount that would be "material," according to Sprint Nextel's 10-K
filing. When asked what is "material" to a company like Sprint Nextel,
every analyst I've interviewed on the subject has said it would be at
least another $1 billion.
When asked whether "material" could mean doubling Sprint Nextel's
original rebanding cash obligation of $2.8 billion, Roger Entner, senior
vice president of communications for IAG Research, said, "Possibly."
Also generally accepted in the analyst community is the notion that the
market has not figured the impact of rebanding when valuing the
company's stock price -- after all, the consensus was that Sprint Nextel
was on the hook for $2.8 billion and additional funds were not expected
to be needed.
"I don't think the investment community really understands the
implications of rebanding at all," said wireless consultant Andrew
Seybold.
Amid all the talk about the company's new CEO Dan Hesse, WiMAX plans,
layoffs and eroding subscriber base, rebanding may have seemed like a
blip on the radar screen for the investment community. That could change
quickly if rebanding ends up costing Sprint Nextel $4 billion to $6
billion instead of the $2.8 billion the company is obligated to spend --
and that's bad news for a company that already has seen its stock price
plummet 70% in the last eight months.
In addition to the money, Sprint Nextel has been impacted by the fact
that rebanding has to be a huge distraction to its core business,
requiring enormous amounts of time, effort and personnel that I bet the
company would love to use elsewhere, especially after announcing 4000
layoffs last week.
Rebanding is not going to make or break this company, but it certainly
does not look like a "sweetheart" deal at the moment.
E-mail me at djackson@mrtmag.com.
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In Print
Rough waters
By Lynnette Luna
February 2008
Network capacity and reliability problems, customer
defections, uncertainty over its future technology plans, and the
draining 800 MHz rebanding efforts - no matter which way it turns,
Sprint Nextel finds itself in the middle of a tsunami.
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In the News
Icom
America to split LMR business
By Glenn Bischoff
March 7, 2008
Icom America will split its land mobile radio business
into separate units that will focus on the business and industrial, or
B&I, and government sectors, respectively, said Chris Lougee, Icom vice
president, during an interview last week at IWCE 2008 in Las Vegas.
Sprint
Nextel: 800 MHz rebanding more costly than expected
By Donny Jackson
March 3, 2008
Sprint Nextel's costs associated with 800 MHz rebanding
almost certainly will exceed the $2.8 billion figure the carrier is
required to pay for reconfiguration and that the amount could increase
considerably if it fails in its case against the FCC, the carrier stated
in an annual SEC filing released this past Friday.
Click here for more
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