Nextwave plan begins to take shape – as IP Wireless finds a home

Eating its own dogfood

NextWave’s founder and CEO, Allen Salmasi, was a member of the original Qualcomm executive team and played a key role in the development and commercialization of CDMA. Which is perhaps why the latest chapters in the NextWave story look so familiar. Qualcomm initially worked the kinks out of CDMA by buying and using chunks of spectrum, and eventually decided that a technology provider was the right future for them.

NextWave is also designing its own WiMAX equipment which it ambitiously dubs 'WiMAXplus', designed to given it an early edge due to differentiated technology, and driving up its potential future acquisition value. Perhaps Qualcomm is one vendor that will look at it at some stage.

NextWave kept about 10 per cent of its original 2.5 GHz holdings, roughly 30 allocations of 10MHz across 25 markets, including Las Vegas, where it has launched its first network. In the AWS spectrum auctions, in the fall, it added $140m of licenses covering 63 million people in territories taking in Puerto Rico, Indianapolis, and cities Pittsburgh, Sacramento, Tulsa, Little Rock, El Paso, Albany, Louisville, Sarasota, Fort Myers, and Anchorage.

NextWave is due to begin field trials this year and is currently working on semiconductors to enhance the basic 802.16 functionality. A key task will be to ensure that this equipment can handle AWS spectrum which has a 400MHz separation between the transmit and receive bands.

Today NextWave has revenues of just $24m, on which it made a loss of $105m, and is valued on the stock market at $823m and at the end of the year it had $275m in the bank, to which was recently added a further $355m in new capital raised in March through a private placement, which means it almost has as its market value the cash it has in the bank.

Already as part of building its WiMAXplus, NextWave has also acquired chipmaker Cygnus and operators two divisions, the Advanced Technology Group a fabless chip maker, and its Network Solutions Group, for Network design and implementation. Cygnus was acquired in February 2006, and was a privately held WiMAX base station specialist.

NextWave also spent $13 million on Go Networks, an Israeli specialist in campus and municipal Wi-Fi systems this January. NextWave may not have the potential market weight of Sprint or Clearwire, but it has significant spectrum assets, including some in Europe, and has paid for most of them this time. So it could be a strong customer and another weapon in the battle of Motorola, Intel and others to make WiMAX an important element of the US telecoms jigsaw and of the emerging '4G' picture.

However, the company has changed its planned business models several times and at this stage has almost no revenues and little track record, but it could be well placed to offer a business model like Qualcomm’s MediaFLO, supplying technology and spectrum for networks that will end up being taken to market by third parties.

From IP Wireless’s point of view it had stretched the patience and nerve of its venture capital backers, anxious for an exit before the winners in global mobile TV and mobile web had finally been decided.

On its website the company says it has raised more than $200 million in venture capital through Bay Partners, Doll Capital Management, Gabriel Venture Partners, GIC Special Investments, JF Shea Venture Capital, Northwood Ventures and Oak Hill Capital Management.

At the current sale price few or none of these investments has made any positive yield and if IP Wireless doesn’t go on to meet its performance targets, it will have halved their collective investment in the firm. But that may only mean that NextWave got it cheap.

Copyright © 2007, Faultline

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