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August 03, 2012

AT&T Acquires NextWave, Looks to Gain Much-Needed Spectrum for LTE Deployments

Long Term Evolution (LTE) is a technology that simply cannot wait to be implemented. Mobile users need it, and the carriers need it to deliver on user expectations, as well as to deliver higher ARPU services.

The recent T-Mobile deal fiasco hurt AT&T (and T-Mobile) in terms of the LTE infrastructure that deal would have delivered. Simply acquiring spectrum isn't an answer – there are only certain bands that can be used for LTE, and that spectrum isn't always easy to come by.

In this light, it is notable that AT&T announced today that it agreed to acquire NextWave Wireless, a small company that has had its financial ups and downs but that owns some spectrum AT&T can put to use. NextWave owns licenses in the Wireless Communication Services (WCS) and Advanced Wireless Service (AWS) bands that will now become AT&T's.

WCS spectrum was first auctioned in 1997, but putting it to use for mobile Internet access and wireless data usage has been prohibited due to technical rules designed specifically to avoid possible interference to satellite radio users in adjacent spectrum bands. In June 2012, AT&T and Sirius XM filed a joint proposal with the FCC that the companies strongly believe will protect the adjacent satellite radio spectrum from interference and enable WCS spectrum — for the first time — to be used for mobile Internet service.

This proposed solution on WCS spectrum, still under review by the FCC, effectively creates much-needed new spectrum capacity.

AT&T said the proposed WCS rule changes and NextWave acquisition represent an alternative approach to creating additional wireless network capacity to help support skyrocketing wireless data usage on smartphones and tablets. If approved – the transaction (and the WCS spectrum issue) is subject to review by the Federal Communications Commission, and of course to other customary closing conditions – the proposal will enable AT&T to begin initial deployment of WCS spectrum for added 4G LTE capacity, in approximately three years. That’s a long time to wait nevertheless.

To date, WCS spectrum has been completely useless for LTE use due to its extremely close (in fact overlapping) proximity to Sirius satellite spectrum. There has always been a solution around this – placing "guard bands" of spectrum around the Sirius bands - what are known in the industry as C and D blocks of spectrum.

The actual technical issues aren't important to grasp - what is important to understand is that AT&T has not had access to much C and D spectrum…but NextWave has plenty in hand - enough to provide the needed guard bands - this is at the core of the SiriusXM-AT&T proposal 0 NextWave not only delivers the bandwidth necessary to create LTE capacity, but it also provides the spectrum needed to "unlock" it. It's simply a great deal for AT&T. The cost of making the deal happen - which will total about $600 million will quickly be covered be the high ARPU high bandwidth services AT&T will be able to deliver.

AT&T will acquire all NextWave equity for approximately $25 million plus a contingent payment of up to approximately $25 million. In addition to the usual FCC review, Unlike T-Mobile however, this deal should fly right through all reviews, and AT&T expects to close the transaction before 2012 is over.

The deal should also make NextWave's thorniest problem – its bondholders – happy campers. Through a separate agreement with NextWave’s debt holders, all of the company’s outstanding debt will be acquired by AT&T or retired by NextWave, for a total of $600 million in cash. The outstanding debt held by NextWave’s bondholders will be satisfied through cash and a transfer of selected NextWave assets (though this asset transfer may be subject to Hart-Scott-Rodino review by both the FCC and the Justice Department).

NextWave’s debt holders have agreed to the terms, and a majority of its shareholders have agreed to support the transaction.

NextWave will disappear and won't be missed – but its bondholders will go home happy and AT&T will, over time, be able to deliver on and nicely monetize mobile customer demand.


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Tony Rizzo has spent over 25 years in high tech publishing and joins MobilityTechzone after a stint as Editor in Chief of Mobile Enterprise Magazine, which followed a two year stretch on the mobile vendor side of the world. Tony also spent five years as the Director of Mobile Research for 451 Research. Before his jump into mobility Tony spent a year as a publishing consultant for CMP Media, and served as the Editor in Chief of Internet World, NetGuide and Network Computing. He was the founding Technical Editor of Microsoft Systems Journal.

Edited by Braden Becker


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