Following disappointing proceeds from selling its AWS spectrum licenses, and hold-ups in customer orders and product roll-outs, NextWave Wireless is to divest its infrastructure business, largely based on two acquisitions ‘ PacketVideo and IPWireless. This will leave the company – which emerged from Chapter 11 bankruptcy protection seeking to be a one-stop shop for operators, offering everything from chips to networks to spectrum ‘ with a severely watered-down version of that vision, and focused on the highest risk aspect of its business, its chips.
NextWave mark one was a major purchaser of PCS licenses in 1998, and while it went into Chapter 11 without building out any networks, it nevertheless managed to emerge with significant cash reserves from offloading that spectrum. It then embarked on an ambitious R&D roadmap in WiMAX chips and infrastructure, while also buying up more spectrum in 2.5GHz and AWS around the US and Europe. This spectrum was initially positioned as part of a total service to operators ‘ with NextWave deciding not to re-enter the retail operator market ‘ but quickly turned into an asset to be traded and support the products. However, the sale of much of NextWave’s AWS spectrum earlier this year did not reap the targeted sums of money, and the company admitted last month that its cash would run out in October.
Last week it succeeded in securing a $100 million debt financing commitment from Avenue Capital Management II and Sola, which should keep it going until 2010, but it is also undergoing a major restructuring. This was on the cards once CEO Allen Salmasi admitted to the financial predicament during the summer, but it was widely expected that NextWave would center its new-look business around the only really commercially viable elements in its portfolio, PacketVideo and the IPWireless TDtv and MXtv mobile TV technologies for TDD-based networks such as TD-CDMA, WiMAX and, in future, LTE. The PacketVideo and IPWireless technologies were converged in a network-to-device platform for mobile video that has been supported by Huawei and Alcatel-Lucent.
The problem for NextWave is that, while this platform had a real chance of being the basis of a viable business, it is also the only real assets that the company can sell at a decent price ‘ apart from flogging off its remaining licenses in 2.5GHz and its European holdings. So it will sell off infrastructure, which also includes WLan products, and the new financing will enable it to hold out for a decent price, and probably to hold on to some PacketVideo technologies for use in future terminal platform designs. But all these proceeds will support the development of WiMAX and probably LTE silicon, a very high risk venture where NextWave is unproven, despite some impressive engineering resources, and where it will face competition from chipmakers that are larger and/or further down the line to commercial products.
‘This financing will provide the runway we need to execute our strategic plan in an orderly and efficient manner,’ Salmasi said in a statement. ‘It will allow us to seek to maximize the value of our assets, including our spectrum, as we implement a global restructuring of our business. To help conserve cash, we are working to divest our infrastructure business units in the near term.’
But NextWave is taking on new financing at a steep price, while being forced to sacrifice just those products that could have made its fortune. Not only do the notes carry an interest rate of 14%, but in 2010, Avenue and Sola will receive warrants to purchase 40m shares of NextWave stock for a penny each. In averting near term financial disaster, NextWave may have paid far too high a price in terms of its medium term business.