Last month's changes to the 800 MHz order reduced by $452 million the minimum cash outlay Nextel Communications would have to pay in the rebanding process, removing what is expected to be the final barrier in the three-year proceeding.

Under the original order — approved in July and released in August — Nextel was given a credit of $1.6 billion for its spectrum contribution in the 700 MHz and 800 MHz bands. However, Nextel claimed the FCC erred in its calculations and undervalued its spectrum, in part by failing to recognizing that wireless carrier's nationwide airwaves serve 286 million pops instead of the 234 million cited in the agency's calculation.

Using the FCC's formula based on estimates, the corrected valuation would have increased the spectrum credit by $740 million, according to Nextel. However, Nextel's more detailed study of its actual license holdings reflected that the corrected value should increase by $452 million — the final figure adopted by the FCC.

“This current order used the same formula but uses a much more granular set of data,” Wireless Telecommunications Bureau Chief John Muleta said during a Dec. 23, 2004, press conference. “I think this reflects a much higher level of precision.”

As a result, the minimum amount of cash Nextel would pay in the rebanding proceeding is $2.8 billion. If the rebanding process costs less than that amount, the difference would be deposited in the U.S. Treasury. If rebanding costs exceed the $2.8 billion amount, Nextel would be required to pay all additional expenses.

Other aspects of the 800 MHz order that were altered or clarified included details regarding Nextel's $2.5 billion letter of credit, its payment procedures and a decision not to enforce more stringent interference criteria during the rebanding process.

Nextel must decide by Feb. 7 whether to accept the terms of the FCC order (see timeline). Nextel said it was “gratified” that the FCC took the action and said it is reviewing the 68-page amendment to the order. However, Nextel declined to make a commitment as the 800 MHz alterations were released.

“The detailed supplemental order addresses numerous issues, and Nextel will need to carefully study it, so we can fully understand the commission's decision,” Nextel spokesman Tim O'Regan said in a statement. “This is an important step in moving the 800 MHz proceeding forward.”

Most analysts believe it is virtually a foregone conclusion that Nextel will accept the rebanding terms. Not only does the amended order address most of Nextel's concerns with the original order, the company's pending $35 billion merger with Sprint may well depend on Nextel moving forward with rebanding. (see news story, page 8)

Most industry observers believe it would be very difficult for Nextel to merge with another commercial operator with its current spectrum holdings, which include the interleaved airwaves at 800 MHz that has created the interference problems with public-safety communications. However, with the contiguous spectrum in the 800 MHz and 1.9 GHz bands it would receive as a result of rebanding, Nextel's proposed merger with Sprint makes a great deal of sense as the two carriers combine assets to build a 3G network.

If Nextel decided not to accept the terms of rebanding, the wireless carrier would be left with interleaved spectrum and no clear path for offering 3G services in the future, which many analysts believe would spell doom for Nextel's long-term potential. In addition, much more stringent interference thresholds — possibly very limiting to Nextel — would become effective when the amended order is published in the Federal Register. Nextel also probably has little desire to face the expected wrath of policymakers and public-safety officials if the wireless carrier decided not to agree to the rebanding plan.

Meanwhile, any merger with Sprint will not impact the rebanding process, according to multiple sources. Even if Nextel combines with Sprint, the obligations for Sprint Nextel would remain the same.

“We're protected,” said Harlin McEwen, chairman of the communications and technology committee of the International Association of Chiefs of Police.

Reconsideration petitions for the original order were due to the FCC on Dec. 22, 2004. Although a number of filings were received, Muleta indicated that many of them were filed in case the FCC did not address a given issue in the amended order.

“My sense was that a number of the petitions were insurance policies,” Muleta said. “A lot of things were items that we dealt with in this order. We think, in this order, we've addressed most of the issues that would get in the way going forward.”

Filings for reconsideration on the amended order are due within 30 days of its publication in the Federal Register. Muleta said he wasn't sure whether that filing deadline would pass before Nextel is required to make its decision.


A look ahead at the 800 MHz rebanding process

Dec. 22, 2004

FCC approves changes to 800 MHz rebanding order; deadline passes for reconsideration of original order.

Jan. 12

Comments due to transition administrator regarding rebanding scheduling and procedures.

Jan. 31

Transition administrator submits rebanding schedule to FCC.

Feb. 7

Deadline for Nextel Communications to make its decision.

Feb. ??*

Deadline for filing reconsideration petitions regarding amended 800 MHz order.

*Thirty days after order is published in federal register

Source: FCC