FCC Clears Nextel Spectrum Swap

Federal regulators Thursday approved a deal handing Nextel (NXTL) a valuable and controversial swath of wireless spectrum.

The Federal Communications Commission voted unanimously to give Nextel a chunk of 1.9 gigahertz spectrum in exchange for various parcels of 800 megahertz spectrum the wireless carrier had been using. The FCC said the swap will eliminate disruption to fire and police communication systems.

The deal calls for Reston, Va.-based Nextel to set aside $2.5 billion to make the switch. But Verizon Wireless, a big Nextel rival in the fast-growing cell phone business, has opposed the deal, saying rights to the spectrum would garner at least double that sum in an auction.

The swap proposal has been the subject of heated debate in Washington and on Wall Street, as the FCC attempts to balance the interest of public safety with the value of scarce wireless spectrum central to the interests of a highly competitive industry.

Based on the reported cost to Nextel and the value of the new spectrum, Legg Mason analyst Craig Mallitz estimated this spring that Nextel will post a gain on the transaction well north of a billion dollars.

Verizon Wireless -- a joint venture of Verizon (VZ) and Vodafone (VOD) -- have argued that the chunk of spectrum is worth $7.2 billion. But industry observers question the validity of those politically charged estimates and the viability of an auction.

Police and firefighters first started complaining about interference from Nextel phones five years ago. Calls for a change gained momentum after the Sept. 11, 2001, terror attacks on New York and Washington.

On Thursday, Nextel dropped 26 cents to $26.15 and Verizon slipped 55 cents to $35.52.

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