The Street reports one day after the $35 billion Sprint/Nextel merger was unveiled (NewsHour), published reports indicate the Nextel is due a windfall for its participation in a government-brokered wireless spectrum swap.

The FCC is circulating a new draft of an order that would grant Nextel the $452 million credit it was seeking in the swap arrangement, according to telecom policy publication TR Daily and Lehman Brothers analyst Blake Bath.

The development suggests the Reston, Va., wireless shop has won its appeal of the FCC’s ruling on the matter. An FCC representative didn’t immediately return a call seeking comment.

In July, the agency proposed a $3.25 billion radio spectrum swap in which Nextel would vacate certain airwaves in order to reduce interference on emergency services radios. In exchange, Nextel gained an enviable new slice of 1.9-gigahertz spectrum. But the company said it wasn’t given full credit for the size of the U.S. population covered by the old 800-megahertz spectrum it was giving up.

Apparently, the original calculations were made using old spectrum-license information. Newer information showed Nextel’s network covered more of the population. The bigger credit will lower Nextel’s total spectrum and relocation costs to about $2.8 billion.

The Nextel Spectrum Swap
Under the agreement, public service agencies will gain use of the 700 and 800 Mhz bands currently operated by Nextel that were causing interference. Nextel will exchange 16 megahertz of spectrum spread around the 700 MHz, 800 MHz and 900 MHz bands for 6 megahertz in the 800 MHz band and 10 megahertz in the 1.9 GHz band. Nextel will then have 16 megahertz of contiguous spectrum in the 800 MHz band, on which the carrier could continue to offer its voice service, and 10 megahertz in the 1.9 GHz band to offer “3G” services in the future. Nextel would then have a total of 26MHz, about what it has now, but allocated differently to avoid interference and consolidate their spectrum bands in 800 Mhz and 1.9Mhz.

The move will be completed over 42 months. The first nine months will be dedicated to frequency planning and data collection. The movement of the largest public safety systems would occur in the final stages.

This deal is completely separate and independent of Nextel’s other spectrum resource; the 2.6 MMDS band (above). That licensed band could enable Nextel to offer “4G” services — like those enabled by WiMax and Flarion. Public safety broadband, for example, might be backboned with Sprint fiber (or a cable deal).

Critics and industry observers said the Consensus Plan would be a great windfall for the No. 5 player, giving it a heaping helping of primo real estate in the PCS (celllular) band at 1.9GHz. It prompted an outcry from Verizon Wireless, which has urged the FCC to auction off the spectrum. Earlier this year, Molly Feldman, Verizon Wireless’ vice president for business development, wrote to commissioners saying that an auction is the only way to obtain fair market value.

“There is absolutely no justification for squandering such a valuable asset by giving it away to Nextel or anyone else through a ‘private sale’” she wrote. In a press release issued during the FCC’s deliberations, Verizon Wireless was even more caustic, charging that Nextel’s deal amounts to a “multi-billion-dollar give-away.” Verizon threatened to sue FCC commissioners personally to prevent the 1.9 GHz Nextel spectrum swap.

Both Verizon and Cingular have now withdrawn their objections to the FCC’s spectrum-swap decision. Whether the cell carriers believed it was a lost cause has not been publically discussed. Perhaps they withdrew their objections because they were hoping to work with Nextel in bidding for “city cloud” proposals. Whatever. Nextel now faces almost no opposition to the order.

Wireless Week reported that Verizon Wireless “agreed not to oppose the FCC’s decision to realign the 800 MHz band, including Nextel’s receipt of spectrum in the 1.9 GHz band.”

Verizon Wireless’ objections to allowing Nextel to get 1.9 GHz spectrum in exchange for giving up 800 MHz spectrum to public safety were rancorous, loud and long. Among the numerous and varied arguments Verizon Wireless had against the idea: It accused Nextel of undervaluing the 1.9 GHz spectrum while it overvalued the 800 MHz spectrum. The combination of the valuation would give Nextel a profitable windfall.

The two companies declined to comment on any of the details of the settlement, although Nextel spokesman Tim O’Regan called the agreement “great news for public safety.” Verizon Wireless officials say privately that it’s simply time to move on from what was becoming a legal swamp that threatened to bog down the company.

It represents one of the final hurdles that must be cleared for the FCC and Nextel to reach agreement on the swap. The FCC has until next Wednesday to file the final order.

Perhaps there’s another reason to bury the hatchet over the Consensus Plan. A $10 billion VHF, trunked network, called the Integrated Wireless Network, using interoperable, Project 25 radios with an IP backbone, is planned to serve more than 80,000 law enforcement users, nationwide. Maybe the prospect of a $10B contract or perhaps the municipal/public service clouds being considered by cities like Pittsburgh, L.A. and New York City was a factor. Or maybe they’re just being nice.

Nextel just got the last laugh.

The merger will give Sprint a new opportunity to add Nextel capabilities to Sprint’s multi-billion dollar FTS 2001 contract and offer additional services, like push-to-talk. The Networx program is the replacement for the expiring FTS2001, the contract for the federal telecommunications network. Its expected to have a ceiling of $10 billion, solicits bids in 2005 and awards a contract in 2006. Here’s a handy list of multi-billion dollar federal telecommunications contracts opening up. The GSA’s Alliant caper rings up $150 Bad Boys over 15 years.

Related DailyWireless stories include, Consensus Decision in Nextel’s Court, FCC: Nextel Gets PCS Spectrum, Consensus Plan From FCC?, Consensus Plan Near?, Freq Consensus?, Localizing Consensus Plans, Nextel’s Consensus Move, Nextel Gets 2.1 & 2.5 GHz, 800 MHz Spectrum Swap Near?, WiFi Vrs WiMax, Will 802.20 Challenge WiMax? and Nextel Adds Priority Service.

Posted by Sam Churchill on Thursday, December 16th, 2004 at 7:19 am.