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To AT&T, NextWave’s Spectrum Is Alluring

NEXTWAVE WIRELESS INC.

Acting Principal Executive Officer: Frank Cassou.

Revenue: Zero in 2011; $39.7 million in 2010.

Net loss: $264 million in 2011; $117 million in 2010.

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No. of local employees: 11.

Headquarters: Carmel Valley.

Year founded: 1995.

Stock symbol and exchange: WAVE, Over the Counter Bulletin Board.

Company description: Holder and manager of wireless spectrum licenses.

AT&T’s proposed $600 million purchase of San Diego based NextWave Wireless is all about buying more spectrum to provide greater capacity for its customers.

In the deal announced earlier this month, AT&T said it agreed to buy NextWave for $1 per share, representing a $25 million down payment for the company. In addition, AT&T agreed to buy Nextwave’s outstanding debt of $1.1 billion for $600 million.

The pending transaction, which AT&T said should be completed by the end of this year, appears to rescue NextWave from a possible second corporate bankruptcy.

Earlier this year, NextWave defaulted on bond payments, and obtained several extensions as it attempted to restructure the agreements, but it said in securities filings it was also considering bankruptcy protection.

After the sale to AT&T was announced recently, stock of NextWave stock shot up overnight to $1.29 from 25 cents. Last week, its stock, traded on the Over the Counter Bulletin Board under WAVE, was at $1.18.

“Simply put, to make wireless services run you need spectrum. As you have more and more people using wireless services …you’re going to generate a need for more spectrum,” said Peter Jarich, an analyst at Current Analysis, an industry research firm based in Washington, D.C.

In addition to buying NextWave, AT&T also announced it is acquiring spectrum from two other sources, Comcast Corp and another smaller carrier for an undisclosed price. Jarich said the company has been on a spectrum buying binge since the government nixed a blockbuster, $39 billion purchase of T-Mobile USA last year.

NextWave was confined to operating as portfolio business for its spectrum licenses, some of which it gained in auctions from the Federal Communications Commission. NextWave has been through some ups and downs in its history. The business was formed in 1995 by several Qualcomm executives including Alan Salmasi (former CEO and current chairman of NextWave), bid $4.74 billion on the rights for spectrum licenses auctioned off by the FCC.

However, when the company failed to pony up even a down payment on the licenses, the FCC took them back, setting off a long legal battle that reached the Supreme Court.

In 2005, Nextwave reached a settlement with the FCC and emerged from bankruptcy protection to start anew. As of 2008, the company was selling its broadband wireless services through several subsidiaries including PacketVideo, but things were heading south.

In 2009, it sold off PacketVideo to Japan’s DoCoMo, netting $107 million, but its real assets were the value of the spectrum licenses it held.

“This is not a function of what NextWave is worth, but what the value of the spectrum (the firm owns) is worth to AT&T, and it’s worth so much more to them,” said Ramesh Rao, director of the San Diego division of the California Institute for Telecommunications and Information Technology, or Cal IT2. “This is about what AT&T must do to continue to be a serious player in the market.”

In addition to stocking up on wireless spectrum, AT&T also struck a deal with Sirus XM in June that would set aside parts of its spectrum holdings to create a buffer so that its wireless traffic won’t interfere with Sirus’ satellite radio signals, Rao said.

Rory Moore, chief executive at CommNexus, the nonprofit telecom trade organization, said in recent years Nextwave has been a shell of its former self. “There’s nothing left in the company as far as engineering talent. All the best and brightest have bailed out,” Moore said. “They bet the farm on WiMax (a type of broadband technology standard) that didn’t pan out.”

Also apparently bailed out are Nextwave’s shareholders who saw the value of their shares plummet to below a dime in 2008.

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