Current TelecomDevelopments

August 3, 2012

NextWave to Sell AWS Wireless Licenses to AT&T

AT&T agreed on Thursday to purchase advanced wireless service (AWS) spectrum licensed to NextWave Wireless, Inc. for $600 million in cash. NextWave, a spinoff of Qualcomm, Inc., entered the spotlight in 1995 after posting bids of $4.74 billion in an FCC auction for 95 wireless personal communications service licenses covering a population of 94 million nationwide. NextWave’s subsequent default on its auction payments and resulting bankruptcy petition induced the FCC to revoke and reauction the licenses, triggering a high profile, multi-year legal battle that reached the steps of the U.S. Supreme Court. Agreeing with NextWave’s claim that it was protected under bankruptcy law from an FCC seizure of its assets, the high court reinstated NextWave’s licenses. (NextWave ultimately emerged from bankruptcy protection in 2005). The licenses at the heart of Thursday’s sale were acquired by NextWave during the FCC’s auction of AWS licenses in 2005. According to NextWave, the licenses in question cover a population of 212 million. Subject to FCC approval of Thursday’s transaction and a settlement agreement between AT&T and Sirius XM Radio that aims to prevent interference from adjacent AWS channels to Sirius’s satellite digital radio service operations, AT&T said it would use the NextWave licenses to boost deployment of wireless broadband services based on long term evolution (LTE) technology. In a pair of similar, yet separate transactions that also aim to boost AT&T’s LTE capabilities, AT&T also agreed to acquire wireless communications service (WCS) licenses from Comcast Corp. and from Horizon Wi-Com LLC. (Details for those transactions were not disclosed.) AT&T—which already owns 44% of licensed WCS spectrum in the U.S.—anticipates launching mobile broadband services on its newly-acquired WCS spectrum within three-and-a-half years. Company officials also expect to complete the NextWave transaction next year.

Verizon Wireless Pays $1.25 Million to Settle FCC Probe into App Blocking

As part of a consent decree announced on Tuesday, Verizon Wireless has agreed to pay $1.25 million to the U.S. Treasury to terminate an FCC investigation into allegations that Verizon had sought to block access to certain Google mobile applications that permit users to tether devices to the Verizon network free of charge. Tethering involves the use of a wireless subscriber’s smart phone to provide Internet access to other Wi-Fi-enabled devices such as tablets and laptop PCs. Prior to the debut of the Verizon “Share Everything” plan in June,

In This Issue:

NextWave to Sell AWS Wireless Licenses to AT&T more

Verizon Wireless Pays $1.25 Million to Settle FCC Probe into App Blocking more

AT&T, Verizon Turn Down Connect America Funding more

AT&T Announces $11 Billion Share Buy Back more

PCAST Official Outlines Competitive Advantages of Spectrum Sharing more

Telenor Plans Bid for Indian Mobile Joint Venture Assets more

©2012 Paul, Weiss, Rifkind, Wharton & Garrison LLP. In some jurisdictions, this brochure may be considered attorney advertising. Past representations are no guarantee of future outcomes.

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smart phone customers on tiered data plans had been charged a monthly fee of $20 to tether devices to the Verizon network. (The Share Everything plan, which offers buckets of data to be shared among all of a customer’s devices, allows subscribers to tether devices for free.) Under the terms of licenses that were purchased by Verizon as part of the FCC’s auction of advanced wireless service spectrum in 2008, Verizon may not prevent subscribers from using software and applications of their choice that do not harm or otherwise impede the operation of the Verizon network. However, during a ten-month probe conducted last year, FCC investigators found that Verizon had pressured Google into removing eleven applications from the Android store that enabled subscribers to use their Verizon smart phones as modems for additional wireless devices without paying the $20 Verizon tethering charge. Tuesday’s consent decree does not include an admission of wrongdoing by Verizon, which explained in a press statement that the settlement “puts behind us concerns related to an employee’s communications with an app store operator about tethering applications, and allows us to focus on serving our customers.” Asserting, “the massive innovation and investment fueled by the Internet have been driven by consumer choice in both devices and applications,” FCC Chairman Julius Genachowski told reporters that the settlement “will not only protect consumer choice, but will defend certainty for innovators to continue to deliver new services and apps without fear of being blocked.” A spokesman for public interest group Free Press agreed, applauding the settlement as “an important victory for consumers” which “sends a clear signal . . . that any practices which block or restrict consumers’ access to the Internet won’t be ignored in Washington.”

AT&T, Verizon Turn Down Connect America Funding

Citing their own plans for deploying broadband service, AT&T and Verizon Communications informed the FCC last week that they would decline Phase 1 monies offered from the agency’s new Connect America (CA) fund for the development of fixed line broadband network infrastructure in rural areas. In a press release issued on July 25, the FCC announced the allocation of $115 million in Phase 1 CA funding that will be combined with millions more dollars in private investment to expand high-speed Internet services to 400,000 U.S. residents and businesses within the next three years. Carriers accepting the CA funds include Frontier Communications, which was granted $71.9 million, and CenturyLink, which intends to use the $35 million it was allocated to extend broadband services to 45,000 homes. AT&T, however, turned down the $48 million in CA funding it was offered, notifying the FCC in a letter that it was “in the midst of evaluating . . . options for further rural broadband deployment.” In the letter, delivered on July 24, AT&T senior vice president Robert Quinn voiced optimism “about AT&T’s ability to get more broadband into rural areas,” but acknowledged: “until AT&T finalizes that strategy, it cannot commit to participating in the [CA] incremental support program.” In a similar communiqué, Verizon—which had been deemed eligible for $19.7 million in CA funding—told the FCC that it had decided against participating in the CA program “in order to focus resources and capital on our own wireline and wireless broadband deployment plans.” While stressing that its broadband strategy “[complements] the FCC’s universal service goals” Verizon further pledged to “continue to work with the FCC to help deliver the promise of broadband to all Americans, wherever they live.” Notwithstanding AT&T and Verizon’s actions, FCC Chairman Julius Genachowski lauded the completion of the Phase 1 CA funding process as “the beginning of the most significant public-private effort in history to ensure that every American has access to broadband by the end of the decade”

AT&T Announces $11 Billion Share Buy Back

Coming off of a healthy second quarter marked by strong results from its wireless phone service unit, AT&T confirmed last Thursday that board members had authorized the repurchase of up to 300 million shares of AT&T stock valued in excess

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of $11 billion. The buyback comprises five percent of AT&T’s outstanding stock and follows on a similar stock repurchase that was approved in December 2010 that also covered 300 million shares. Through June 30 of this year, AT&T has spent $4.6 billion to buy back 143.5 million shares as authorized by the company’s board in 2010. Sources also report that the company has returned nearly $10 billion in dividends and other compensation to investors since the beginning of this year. During the second quarter, AT&T posted a net income gain of 8.7%, beating analyst forecasts by three cents per share. Although capital spending for the quarter fell by 15% from the same period last year, AT&T’s wireless division reported its highest quarterly profit ever, as well as a net gain of 320,000 subscribers. Randall Stephenson, the CEO of AT&T, boasted to reporters that the board’s action will allow AT&T “to continue returning cash to our shareholders . . . while maintaining a strong balance sheet and investing in the future of our business.”

PCAST Official Outlines Competitive Advantages of Spectrum Sharing

Addressing the International Symposium on Advanced Radio Technologies, Mark Goldberg, a member of the President’s Council on Advisors in Science and Technology (PCAST), advised symposium participants that a shift away from long-term, exclusive spectrum licensing to a shared paradigm will spur competitive and investment opportunities. Goldberg is a co-author of the recently-released PCAST report that urges the Obama Administration to mandate the sharing of government channels (in lieu of the current system of reassigning federal spectrum to commercial entities) as a means of freeing up capacity for wireless broadband use. In remarks to his audience, Goldberg emphasized that PCAST’s goal is to “turn spectrum from scarcity to abundance so that we can create that innovative, virtuous cycle and really have the opportunity to create a lot of companies as we saw in the Internet of the 1990s.” While admitting “there is an expectation, important to the people who bid on these auctions . . . that there’s sort of a lifetime renewal as long as they want to use [the auctioned spectrum],” Goldberg pushed the case for short- and medium-term spectrum licenses “that match the capital investment that people will want to put forward.” Predicting a dynamic spectrum sharing mechanism that recognizes the rights of both federal and commercial users could be in place within three years, Goldberg said: “it’s not just the commercial side that needs more spectrum—the federal government continues to use and will continue to use more spectrum for its work.” Preston Marshall, a second co-author of the PCAST report from the University of Southern California, added that the key is a shift in focus from spectrum efficiency to spectrum effectiveness, explaining that spectrum effectiveness “focuses not on how transmitters use spectrum but on how systems and architecture allow spectrum to be reused.”

Telenor Plans Bid for Indian Mobile Joint Venture Assets

Telenor of Norway took steps to extricate itself from its troubled Indian joint venture, announcing plans to participate in an auction for assets held by its Indian partner in a venture that currently serves five percent of the 930 million subscribers in India’s wireless market. Currently, Telenor owns 67% of Uninor, a wireless joint venture in which Unitech, a domestic Indian real estate developer, holds a 33% stake. Uninor is among eight mobile carriers caught in the crosshairs of the recent decision of India’s Supreme Court to revoke 122 regional wireless licenses as a consequence of improprieties during the initial license award process in 2008. Under the high court directive, affected licenses held by Uninor and other entities are to be reauctioned, and the government has set an unofficial deadline of September 7 by which auctions are to be conducted. Telenor, which has expressed an interest in buying out Unitech’s stake, has accused Unitech of misrepresentation and charged in a recent press statement that the rights of Unitech as spelled out in the Uninor shareholder agreement were “based on fraud.” Unitech, meanwhile, has staunchly opposed Telenor’s move and has taken

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its Norwegian partner to court. Notwithstanding the ongoing legal battle, Uninor announced its intention on Wednesday to offer its business assets for auction, upon which Telenor confirmed its plan to bid for those assets. Uninor has set a reserve price of Rs40 billion (US$721 million) for the assets in question. If no other party steps forward with a bid proposal by August 6, the assets would be sold to Telenor at the established reserve price. Emphasizing that its future in India depends on the enactment of rules and reserve prices for the upcoming government auction, a Telenor spokesman maintained: “our ambition has been that we want to continue our operations in India, [and] this is why we have clearly stated that we intend to participate in the sale of the assets of Uninor.”

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For information about any of these matters, please contact Patrick S. Campbell (e-mail: pcampbell@paulweiss.com) in the Paul, Weiss Washington office. To request e-mail delivery of this newsletter, please send your name and e-mail address to telecom@paulweiss.com. (No. 2012-31)