Sprint Nextel will have to vacate its interleaved spectrum in the 800 MHz band by June 26 as part of the rebanding process, a federal appeals court ruled Friday in a decision that is expected to cost the nation’s third-largest carrier at least $1 billion.

In its ruling, the U.S. Court of Appeals for the D.C. Circuit found that the FCC acted reasonably when its order last fall required that Sprint Nextel vacate interleaved spectrum by June 26, 2008, the target date for the completion of rebanding. Of course, rebanding is well behind that schedule, with many industry sources believing that the massive project will not be completed until 2012.

While Sprint Nextel has agreed to vacate Channel 1-120 frequencies within 60 days of a NPSPAC licensee requesting to swap channels, the carrier was counting on being able to continue using its interleaved channels until rebanding was completed in each given geographic area. The interleaved channels were expected to provide the spectral foundation for the iDEN network during the rebanding transition period, Larry Krevor, Sprint Nextel's vice president of government affairs for spectrum, has said.

"We didn't agree to vacate that spectrum before rebanding was done—no one would have," Krevor said during an interview with MRT earlier this year.

But Sprint Nextel never clearly raised its argument that it had agreed to a synchronous swap of interleaved channels, Judge Judith Brown wrote in the majority opinion.

“Nextel insists it raised all of its arguments in the ex parte notices. We think not,” the opinion states. “Nextel’s ex parte notice only argued—in quite general terms—that the Commission unreasonably changed the rebanding process from a synchronized spectrum swap to an asynchronous exchange. Consequently, that is the only argument Nextel preserved for our review.”

The FCC acted reasonably, citing several benefits from its ruling, including the fact that having Sprint Nextel vacate the interleaved spectrum would reduce interference to public-safety agencies communicating on those frequencies—the primary purpose of the order, Brown wrote in the ruling.

“Even if the Commission’s choice will cause disruption to Nextel’s network, the Commission “balance[d] competing goals” in a way that “‘reasonably advances’” some of the Initial Order’s objectives,” Brown wrote.

Both the FCC and the Association of Public-Safety Communications Officials (APCO) released statements that they are “pleased” with the court ruling.

Predictably, Sprint Nextel released a statement that it is “disappointed” with the ruling but reiterated its commitment to rebanding.

“We remain hopeful that we will be able to resolve this issue in a manner that balances the 800 MHz reconfiguration with the needs of our customers—especially the 3 million public-safety customers who rely on our iDEN network,” Sprint said.

Meeting those needs will be a challenge if the FCC enforces its order and forces Sprint Nextel to vacate the interleaved channels by June 26. In an SEC filing earlier this year, the company stated that its rebanding costs—already expected to exceed the $2.8 billion minimum threshold that the company was required to pay—would increase by an amount that is “material” if it lost the case. Industry analysts have said that a “material” amount for Sprint Nextel would be at least an additional $1 billion to $2.8 billion.

Mobile wireless consultant Andrew Seybold said he believes new Sprint Nextel CEO Dan Hesse and his executive team have made contingency plans that will allow the carrier to maintain its iDEN service, but “it will be expensive” and will create logistical challenges if the FCC keeps the June 26 deadline.

“One thing is for sure, they can’t replace [millions of] handsets in seven weeks, even if they had them all stockpiled in a warehouse,” Seybold said during an interview with MRT.

With this in mind, Seybold said he does not believe the FCC will force Sprint Nextel to vacate the interleaved channels on June 26. Instead, FCC Chairman Kevin Martin may use the ruling as leverage to accelerate the rebanding effort, which some observers have claimed is behind schedule because of Sprint Nextel’s tough negotiation stances with public-safety entities, Seybold said.

“The FCC now has a hammer over Sprint,” he said.

For cities and counties that subscribe to iDEN services, Sprint Nextel’s loss in the case could have them reexamining their contracts with the company. Direct Connect remains the industry leader in push-to-talk communications that are vital to enterprises like city and county governments, but no wireless network works effectively if it does not have enough spectrum to support its operations.

Seybold said it is an “interesting question” whether customers would be able to get out of contracts if Sprint Nextel does not have enough spectrum in an area to serve them effectively, but the logistical and financial headaches of switching to another carrier would make most customer reluctant to take such action, Seybold said. That’s especially true in this case, because the iDEN network’s push-to-talk functionality is superior to the offerings of other carriers, he said.

“What are your options? You can’t just dump something without having options,” Seybold said.