Posted on: Saturday, November 6, 2004

Verizon Wireless adding to network

By Scott Lanman and Tom Giles
Bloomberg News Service

Verizon Wireless will buy NextWave Telecom Inc.'s airwaves for $3 billion, increasing capacity in New York and 22 other cities, as part of efforts to reclaim the No. 1 position in the U.S. cell-phone market.

Verizon Wireless, overtaken by Cingular Wireless LLC as the largest U.S. mobile-phone company last month, will gain the assets when NextWave exits Chapter 11 bankruptcy protection. The purchase is expected close by mid-2005.

The licenses will give Bedminster, New Jersey-based Verizon Wireless more spectrum to offer video and Internet access in markets covering 73 million people from Los Angeles to Boston. Verizon Wireless Chief Executive Dennis Strigl is upgrading his network and bolstering capacity to help battle Cingular, which bought AT&T Wireless in a $41 billion transaction last month.

"Strategically, it's a really good move," said Mark Hesse-Withbroe, an analyst at U.S. Bancorp Asset Management. The transaction will "keep everybody else on their toes," he said.

The purchase, which needs U.S. Bankruptcy Court and Federal Communications Commission approval, would mark the end of NextWave's efforts to compete in the mobile-phone market. The proceeds will help repay NextWave's creditors in full, provide cash to shareholders and finance the company's future business.

NextWave, which sought bankruptcy protection in 1998 after it couldn't pay the FCC for licenses won in auctions, will use other holdings and a unit named Tele*Code to offer high-speed Internet services.

The New York airwaves probably accounted for $1.8 billion of the purchase price, valuing the remaining spectrum at $1.90 per person per channel, compared with $1.40 to $1.70 for other transactions, industry analysts estimated.

Verizon Wireless needs the licenses to maintain calling quality as it adds more subscribers than competitors. In the quarter that ended in September, Verizon Wireless lured 1.7 million customers, more than Sprint Corp. and Atlanta-based Cingular combined.

Cingular has more than 46 million customers compared with 42.1 million for Verizon Wireless. Verizon Wireless is a joint venture of Verizon Communications, the largest U.S. telephone company, and Vodafone Group Plc, the world's biggest cell-phone operator.

Verizon last month completed the purchase of another NextWave license to airwaves in the New York metropolitan area for $930 million. That transaction, combined with the latest agreement, boosts Verizon's wireless capacity in the city by 86 percent, giving the company about one-third of the total cell-phone frequencies available there.

The new transaction also increases spectrum capacity by 57 percent in Washington and Boston; 44 percent in Baltimore; 29 percent in Los Angeles and Philadelphia; and 40 percent in Detroit, according to Verizon Wireless spokeswoman Nancy Stark.

Verizon will expand its network into one new market, Tulsa, Oklahoma, by obtaining 10 megahertz of frequencies from NextWave, or about 5 percent of available capacity. Cingular owns licenses to 65 megahertz in the Tulsa metropolitan area, home to about 824,000 people.