Spectrum Swap in Sight at Nextel

An FCC representative declined to comment on the status of the plan, but disputed the notion that Nextel would see a windfall from any agency decision. "There's simply no guarantee of how much the spectrum could be sold for," says FCC rep Lauren Patrich.

Wireless calling volumes are soaring as more than half the U.S. population now uses a cell phone. On top of that, mobile data traffic is starting to rocket as telcos offer faster Net connections for email, photo swapping and Web browsing. This has fueled greater demand for wireless spectrum, especially in the higher capacity frequencies like 1.9ghz.

But the growth of cell phone use has also further disrupted fire and police communications, which happen to share the 800mhz airwaves with commercial carriers. The FCC is under pressure to ensure public safety and faces few alternatives outside the Nextel swap proposal that meet that objective.

Red Tape

While an auction of the airwaves would represent the most equitable solution from an industry perspective, the proceeds would go to the U.S. Treasury. The problem with that approach is that it would require separate funding to pay for the relocation of nonemergency 800mhz license holders, and the FCC is required to find a solution that pays all the relocation costs.

So far, the Nextel swap proposal is the only plan that addresses the relocation expenses.

Nextel has proposed to pay $850 million to cover the cost of moving nonemergency occupants of the 800mhz band. A company representative would not comment on the prospect of the company having to contribute an additional $1.5 billion.

For Nextel, the swap would solve many of its network capacity constraints for years to come, but investors worry about the costs. Even though Nextel would get a clean new swath of spectrum for a good price, the company will have to raise a considerable amount of cash to pay for the deal, not to mention the expense of network upgrades and expansion.

Nextel shares were up 21 cents, or 1%, to $25.59 in midday trading Thursday.