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Putting to rest months of speculation, NextWave Telecom Inc. said Friday that it has an agreement to sell spectrum licenses in 34 markets with 83 million potential customers for $1.4 billion in cash to Cingular Wireless, a joint venture between BellSouth Corp. and SBC Communications Inc. The licenses cover Los Angeles, San Francisco, Washington, D.C., and Boston, among other markets. Cingular already has operations in most of the cities, and this move will allow the company to expand coverage and add new services. The news means that NextWave, which has spent much of the last several years in litigation with the government over spectrum auctions, is likely headed for another auction — though this time the process would presumably be less of a saga. Because NextWave is in bankruptcy protection, the company could either hold a so-called 363 auction for the licenses, to see if it could find a higher bidder, or incorporate the transaction into a reorganization plan upon which creditors would vote. A press release by NextWave and Cingular did not state which route the companies would take. “Asset sales are almost always done as auctions in the bankruptcy court,” said Chester Salomon of Salomon Green & Ostrow, who noted that a stalking-horse bidder can negotiate break up fees and other bidding protections in its favor. “Unless [plan] negotiations have already taken place between all other interested parties, it would be in everyone’s best interest to make Cingular a stalking-horse bidder and then see how interested Verizon Wireless and AT&T Wireless Services Inc. are,” said Igor Volshteyn, an analyst with Tejas Securities Group Inc. “An auction with three very interested bidders could get pretty exciting.” But a reorganization plan is also an option, though perhaps a more difficult one for NextWave. The reason: The company’s complex relationship with the FCC, which is its biggest creditor and for years was its biggest opponent in litigation, could make it difficult for the debtor to wrap up such a plan quickly. Hawthorne, N.Y.-based NextWave was formed in 1995, and won rights to 63 spectrum licenses in an FCC auction a year later with a bid of $4.7 billion. The company sought bankruptcy protection in 1998, after having paid $474 million, when it was unable to line up financing for the remainder. The government auctioned the licenses a second time in January 2001, receiving bids of about $16 billion from wireless carriers. NextWave and the government wrangled over ownership of the assets in courts until the U.S. Supreme Court ruled in the company’s favor in January. A 363 auction could have particular appeal for Cingular. “Buyers typically like 363 sales as opposed to reorganization plans because then they are certain that there aren’t going to be any liabilities trailing the assets,” explained Tom Davidson of Akin Gump Strauss Hauer & Feld. “A 363 sale is much cleaner because it does ensure that they get title free and clear of liens.” Speculation of the NextWave-Cingular spectrum sale surfaced in May, but the transaction may now be an easier proposition for the buyer. “Cingular probably feels more confident about making an acquisition after reporting improved results in [the second quarter],” wrote Greg Gorbatenko of Chicago-based Loop Capital Markets LLC in a report. The company added 540,000 net subscribers and its churn dropped to 2.5 percent. Plus, the analyst notes, SBC Communications decided to invest $500 million in EchoStar Communications Corp. to add video to its bundle of services, rather than engage in a bidding war with Rupert Murdoch’s News Corp. for DirecTV Inc., giving it some financial flexibility. “Overall, we do believe it may be a little easier for investors to swallow now rather than last quarter when Cingular was just coming out of its net additions slump,” Gorbatenko added. The debtor has said the transaction will help it complete its Chapter 11 reorganization and start to build out its network in major cities like New York and Washington. The company has even said that it may start to acquire spectrum. NextWave has court approval for a partnership with Clarity Partners, to explore strategic spectrum acquisitions, with an eye to providing services to other telecoms. The partnership made an offer for some of bankrupt WorldCom Inc.’s wireless licenses and assets earlier this month, though Nextel Communications Inc. prevailed with an offer of $144 million plus non-cash consideration. NextWave and Clarity were given until July 31 to explore possible deals, though the debtor has asked the court to extend its deadline to bid for spectrum until Oct. 31. The company has the exclusive right to file a reorganization plan until Sept. 30, though Judge Adlai Hardin has granted the company several extensions and could give it more time if needed. Copyright �2003 TDD, LLC. All rights reserved.

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