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Nextel's Tempting Offer

Will pay for stations' digital gear but wants spectrum in return 5/09/2004 08:00:00 PM Eastern

Stations have resisted spending hundreds of millions of dollars to convert their news trucks to digital, despite a government order to give up analog channels. Last week, Nextel offered to write the check itself, with the grateful endorsement of the broadcast industry. How the FCC reacts to the offer is now the multibillion-dollar question.

Live-News Dilemma
Nextel offers to settle news-spectrum crunch, but there are strings attached
Source: MSTV, Nextel, Precursor Group
Nextel offers:
• $512 million or more to cover stations' switch to all-digital remote news feeds
• $850 million to pay for new public-safety communications equipment
Nextel gets:
• Sole possession of uncrowded spectrum for wireless and broadband services
• A saving of billions by avoiding auction

Nextel isn't playing Good Samaritan. It wants a hefty reward for helping resolve the standoff. In return for paying broadcasters at least $512 million to cover the cost of new equipment, Nextel wants the FCC to give it some of the airwaves broadcasters are giving up.

It's either a great solution or a clever trick, or maybe a little of both.

Besides a speedier giveback of newsgathering channels, the government would get another benefit from the new plan: Nextel would vacate its current, crowded spot on the spectrum, where its phone customers routinely interfere with communications of public-safety departments.

To help police and fire departments adjust to the change, Nextel will kick in another $850 million.

The total $1.4 billion price tag is at least $4 billion less than Nextel would have to pay to secure new spectrum at auction, according to estimates by analysts at research firm Precursor Group. Because proceeds from an auction could be applied toward the ballooning national debt, Nextel's deal might be expedient but could be considered too much of a giveaway.

For sure, it would speed the digital transition: During the next 10 years, broadcasters are due to relinquish one-third of their electronic-newsgathering (ENG) frequencies to new users, trading in seven analog channels for seven smaller, digital ones.

The typical mid-market station, with three live trucks and two receiver sites, could be forced to fork over more than $300,000 to pay for the equipment switch. Obviously, stations have been dragging their heels—until Nextel's offer.

"This is a win/win for broadcasters, public safety, and Nextel," says David Donovan, president of the Association for Maximum Service Television (MSTV), a DTV trade group.

Nextel's competitors oppose the plan, announced by the company and the National Association of Broadcasters and MSTV last week. Critics, such as Nextel competitor Verizon Wireless, say it is a ploy to get new spectrum worth at least $5 billion for less than a third of its value.

At the FCC, the broadcast/Nextel plan is getting a serious look, but so is Verizon's call for an auction, according to one official.

"This payoff is a crass attempt at public support," says Verizon spokesman Jeff Nelson. Verizon maintains that any new spectrum slated for wireless telephone service should be auctioned to the highest bidder. Giving Nextel prime spectrum at cut-rate prices would unfairly allow it to undercut competitors, Verizon officials claim.

Nextel responds that allocating the ENG channels to it is the best way to settle two major dilemmas faced by the FCC. In addition to the news-spectrum standoff, the commission must deal with the interference that some Nextel customers are causing police, fire, and other emergency communications across the country. "For five years," says Nextel spokeswoman Leigh Horner, "there has been a growing problem of public-safety interference."

Broadcasters are heaping praise on Nextel's offer because it would mean money in the bank, not only for the slivers of spectrum that wireless companies would get but also for the other portions slated for satellite communications companies. Broadcasters have long been skeptical that they'll ever get paid by the financially shaky satellite firms, at least one of which has gone in and out of bankruptcy.

Broadcasters in the 30 largest markets have until Dec. 8 to negotiate compensation agreements with satellite companies, which the FCC originally envisioned would take the ENG channels first. Significantly, not one of them has stepped forward for talks.

The situation is worse for smaller-market stations. Satellite companies have 10 years to negotiate their compensation deals, but the broadcasters in markets 31-210 in most cases will have to buy digital remote equipment well before the decade expires.

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