Subject: [NEXTEL-1] UBS With $736,947,512 Invested In Nextel, Tells Investors A More Expensive Consensus Plan Still Makes Nextel A Buy

From: [email-masked]
Date: Fri, 07 May 2004 05:14:38 -0400

Friday, May 7, 2004 

UBS With $736,947,512
Invested In Nextel, Tells Investors 
A More Expensive Consensus 
Plan Still Makes Nextel A Buy

May 5, 2004 4:41pm
Wireless Data News

Sources inside the FCC say the commission's decision regarding 
Nextel's consensus plan will be put off another month due to the 
complexities of the issue, which has pitted carrier against carrier 
and association against association. However, investment firm UBS 
has come down solidly on Nextel's side, saying the consensus plan 
not only will solve the interference problems that plague public 
safety at 800 MHz but it believes Nextel has the cash ready to pay 
more than it first proposed for the spectrum it will reap once its 
rebanding plan - or one that closely mirrors it - is adopted. 

"We believe that the FCC's primary objective is to eradicate 
interference in the 800 MHz band and that the Consensus Plan is the 
best approach to achieve this goal. Furthermore, we believe that 
Nextel's participation is essential to the re-banding process," 
wrote Colette M. Fleming, Mark Kinarney and Rise A. Barron, analysts 
in UBS' New York City office. "Also, we believe that Nextel should 
have built up a certain amount of goodwill since it has been working 
with the FCC on this issue for over two years." 

Verizon Wireless, which has forwarded a rebanding plan of its own, 
has suggested to the commission that it give Nextel spectrum in the 
2.1 GHz band instead of at 1.9 GHz, which it proposes to buy at 
auction. Nextel, of course, won't accept this for a number of 
different reasons, including the fact that the FCC hasn't gathered 
any record regarding operations in the 2.1 GHz band. In the more 
than 18 months since the consensus plan was filed at the FCC, Nextel 
says all possible technical, legal, economic and other factors 
concerning granting it replacement spectrum at 1.9 GHz "have been 
extensively evaluated and considered in the exhaustive record of 
this proceeding." Thus, it can't just summarily re- adjust the 
consensus plan. 

"This detour will only delay eliminating interference to public 
safety communications and the availability of additional 800 MHz 
channels for public- safety use," says Robert Foosaner, Nextel's 
senior vice president and chief regulatory officer. (Editor's note: 
In a former life, Foosaner served as chief of the FCC's Private 
Radio Bureau, which is now the Wireless Telecommunications Bureau.) 

The Lone Bidder? 

The UBS trio doesn't believe the FCC will be swayed by Verizon 
Wireless' assertion that it will bid "at least $5 billion" for 
spectrum in the 1.9 GHz band Nextel says it should get as payment 
for its giving up other channels in the 800 MHz band. In fact, it 
believes Verizon Wireless would be the only bidder in such an 
auction. Instead, they say, "Nextel will prevail in obtaining the 
1.9 GHz spectrum as part of the proposed spectrum swap." 

A bold statement, yes, but the analysts came up with some firm 
financials to back it up. Nextel has said it was willing to pay $850 
million for additional spectrum that will result from rebanding, but 
UBS thinks that number will ramp up to between $2 billion and $3 
billion when all is said and done. This apparently will not be a 
deal-breaker, in that "given the selloff in Nextel's stock price 
over the past two months, we believe this extra outlay...has already 
been more than reflected in Nextel's trading value," the three 
wrote. "Therefore, we believe that the downside from an announcement 
on this issue is limited. In fact, we would argue that Nextel's 
stock could rebound once the facts on this issue are known, and 
investors can go back to focusing on the strong fundamentals at 
Nextel." 

"Our $5 billion offering is true, fair and honest," Verizon Wireless 
spokesman Jeffrey Nelson told Wireless Business Forecast. "The goal 
must, in fact, be to provide law enforcement with clear 
communications and to alleviate Nextel's interference [with their 
channels] in a legal way." Nelson notes that spectrum earmarked for 
commercial wireless usage must be auctioned, and he predicts that if 
the FCC gives Nextel the spectrum it wants instead of putting it up 
for competitive bidding, lawsuits will push back any interference 
solutions, making public safety suffer even longer. 

Nextel's Financials 

UBS also seeks to allay investors' fears that Nextel's free cash 
flow would be affected adversely by such a huge spectrum payout by 
saying Nextel's future success depends on the technology with which 
it chooses to move forward and the timeframe in which it can build 
out its service plan. While the UBS analysts admit they may 
be "overestimating" Nextel's free cash flow for the next few 
years, "we would counter that we have also not built in the 
additional revenue streams and income that would come from 
additional capital deployed (thereby underestimating cash flow in 
the outer years)," they said. "We believe that it is unfair to 
assume that Nextel pays a couple of billion dollars for spectrum 
[and] then increases its capital expenditures to deploy a new- 
generation technology with no incremental income." 

At presstime, Nextel was trading at $24 and change, some $5 off its 
52- week high of $29.37. The company is capitalized at nearly $27 
billion. Since April 1, company principals have been actively 
acquiring more personal shares, and UBS itself says it would buy 
Nextel shares. UBS owned 26.2 million shares as of Dec. 31, 2003. 
This makes it the sixth largest institutional holder. 

Despite all the kudos, UBS makes it quite clear that Nextel is a 
primary contributor to the interference with public-safety 
operations along with other wireless carriers, even those that are 
operating within the letter of FCC law. "Accordingly, we believe it 
would be tough for the FCC to force Nextel to move from its existing 
800 MHz spectrum allocation without negotiation," they say. 

Nextel's Foosaner, of course, agrees, saying, "The commission should 
give no weight to Verizon's claims. Contrary to Verizon's 
assertions, the assignment of the 1.9 GHz band is a lawful and 
integral part of the plan to realign the 800 MHz band, fund public 
safety and private wireless relocation costs, and provide additional 
spectrum to public safety communications. The record in this 
proceeding shows that these steps will result in enormous public-
interest benefits - on the order of more than $1 billion every 
year." 

UBS believes Nextel is "essential" when it comes to any FCC order 
that re-aligns the 800 MHz band because its operations occupy so 
much of it. The investment house also calls Verizon Wireless' 
auction posturing "just more noise," because it doesn't address the 
public-safety interference problems. "We believe that it could be 
argued that if it weren't for Nextel's spectrum swap proposal to 
begin with, the 10 MHz of 1.9 GHz frequencies would not even be 
available," the analysts wrote. "We believe that the FCC reclaimed 
these frequencies (from MSS and unlicensed spectrum.) for its 
potential use in the Nextel swap proposal." 

>>Colette M. Fleming, [email-masked], 212/713-6184; Mark 
Kinarney, [email-masked], 212/ 713-6170; Rise A. Barron, rise-
 [email-masked], 212/713-2589; Robert Foosaner, 703/ 433-4000; 
Jeffrey Nelson, [email-masked], 908/306-4824<< 

www.telecombweb.com

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