we create value through excellence options for itfs license holders camilla jensen michael...

We Create Value Through Excellence

Options for ITFS License Holders

Camilla Jensen

Michael Passarelli

Andy Chen

BIA Financial NetworkNIA 2003 Annual Conference

Tampa, FL


BIAfn ◊ BIA Capital Corp. ◊ BIA Digital Partners ◊ SpectraRep™

BIAfn – Who are we?

BIA Financial Network, Inc. has developed an expertise in the telecommunications industry in cellular, PCS,

paging, SMR, fixed wireless, satellite, broadband, long distance, resale, fiber optics, IT services and ASPs, ISPs,

IXCs and CLECs. Our valuation expertise, honed over nearly 20 years, has proven to be of critical importance in the valuation of spectrum, particularly ITFS, MMDS and LMDS. We have assisted many companies with

work-out and bankruptcy strategies, as well as raising capital for acquisition and growth.



Outline

We will focus on:

What current license holders are doing Trends in the ITFS/Telecom industry Current and potential value of ITFS spectrum Future options for license holders Case study



What are license holders doing?

Seeking advice

Looking for financial and technical partners

Waiting for direction from the FCC



What are the FCC’s options?

New band plan Exclusive geographic service areas Replace interleaved with contiguous

spectrum Protection and compensation for existing

license holders Modification of interference protection

Let’s start with a review……….



No significant progress in the industry –why?

Proposed rulemaking still up in the air Vendor equipment and deployment Economy and telecommunications

downfall = capital crunch

A closer look………



Industry Regulation

Waiting on resolution of the NPRM that will enable:

New nationwide band plan that separates high power fixed operations from two-way cellular like operations

Replace the existing system of interleaved channels with substantial contiguous spectrum block

Eliminate site-by-site licensing with defined geographic areas Elimination of interferences consents from adjacent licensees

=> Result in higher viability of business plans and considerable increase in the efficiency and use of the spectrum => Higher value of the spectrum



Deployment and Vendors

2nd generation NLOS is being deployed by the large operators as well as smaller, some examples:

Bell South – 3 months trial of Navini Networks in Daytona, FL. Sprint – Using Navini and IP Wireless is conducting trials while considering best

technology for broadband deployment Clearwire – launched in Jacksonville, FL in January using IP Wireless’ UMTS-

TDD technology. Rioplex Wireless – deployed in Rio Grande Valley using Navini Zephyr Communications to deploy SOMA Networks in Chico, CA

However, large scale deployment is not possible yet – the equipment manufacturer are not capable of it at this point – will limit large scale deployment in the near future! Also capital missing…..



A Closer Look at the Industry and the Economy: Telecom Index

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Telecom Bankruptcies 2001/2002 – Also Affecting Liquidity

Company Date

Pre-Bankruptcy Assets (000)

Total Liabilities (000)

WorldCom,Inc. 7/21/2002 $103,803,000 $43,834,000NTL, Inc. 5/8/2002 $26,345,500 $20,427,800Global Crossing, Ltd. 1/28/2002 $25,511,000 $14,639,000Adelphia Communications Corp. 6/25/2002 $24,409,662 $18,604,914Century Communications Corp. 6/10/2002 $10,700,263 $7,389,612Metromedia Fiber Networks 5/20/2002 $7,024,208 $6,799,321Comdisco, Inc. 7/3/2001 $6,790,000 $6,216,000XO Communications, Inc. 6/17/2002 $5,704,497 $5,819,436Williams Communications Group, Inc. 4/22/2002 $5,664,898 $6,711,509McLeod USA, Inc. 1/31/2002 $4,792,600 $4,419,200

$220,745,628 $134,860,792



Telecom Assets In Bankruptcy – Increased Significantly in 2002

Total Pre-Bankruptcy Assets per Month

$104 Billion

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Asset Recovery of Telecom Companies – The Domino Effect!

Asset Value Comparison of Pre- and Post- Bankruptcies ($ in millions)

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What will the spectrum be worth – should we stick with the licenses?

Assuming new band plan is accepted, interference rules simplified and the major objectives of the NPRM are achieved…

=> A comparison with current values of PCS spectrum……First a look at current MMDS spectrum prices…..



What is being paid for fixed wireless licenses today?

Market is very limited and the outcome of the MCI WorldCom licenses will affect prices significantly until the regulatory uncertainty is eliminated:

Price/HH/Ch:

Median 2001-2002: $0.49

Average 2001-2002: $0.59

Range $0.07 to about $1.3



MMDS/ITFS Transaction Trends

Price Per HH Per Channel in 2002

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Potential Value based on PCS/SMR Spectrum 2001/2002 Transactions of PCS Spectrum Only

Price/POP/MHz for PCS Licenses in Smaller Mkts

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Average Price/HH/MHz: $0.45



How do these values compare with future MMDS/ITFS license values?

Are the PCS spectrum values an indication of value to come for MMDS/ITFS license holders?

Factors that can affect the value of the spectrum: Market will be somewhat flooded with beachfront spectrum =>

lower price FCC does not consent to all rule changes making broadband

and cellular two-way difficult If geographical areas are assigned => positive for the value – if

licenses will continue on a site-by site basis => spectrum will be worth less (more fragmented and then more comparable to SMR)



Value Summary

Nevertheless,

PCS spectrum values today can serve as a guideline for the max the MMDS spectrum can be worth when:

The regulatory issues are resolved The economy is back on track Technology is available on a larger scale The telecom sector is recuperating making capital

infusion easier!



Possible Action Items for ITFS License Holders

Renew lease agreement with current commercial partner

If that is not possible: Work with your attorney to keep license Partner up with small commercial players Find a commercial partner that will help you

maintain your license until the uncertainty is over with

Independently build out a system or maintain a system that will keep you afloat until renewed interest in the spectrum appears.



Full Build Out vs. Minimal Build out

Digital 2-way:Reduce costs for third-party broadband

accessConvenience of WLAN

Analog system:Minimize costs to keep license



Case Study

Assumptions:50,000 pops, 18.5k HH48 MHzDigital build out - $148k ($8 per HH)Analog build out - $100kAnnual lease rate - $2.2k (1/4 cent per

HH/MHz)Current broadband expenses - $50k/yr



Caveats

Returns are based on a time frame of 1,2, or 5 years At the end of the time frame, it is assumed that an

increased potential value will be realized through lease to PCS operator

Assumptions are based on conversations with industry experts, however, the results for each license may vary

This analysis is for illustrative purposes only, and does not include all expenses/benefits associated with ITFS licenses



Build Out Returns

1 Year 2 Years 5 YearsMinimal Build Out 300% 77% 10%Full Build Out 170% 65% 23%

Minimal vs. Full Build Out

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Lease Now or Lease Later?

1 Year 2 Years 5 Years 10 Years+Lease Now $13,807 $13,807 $13,807 $13,807Lease Later $54,465 $46,392 $25,587 $0

Lease Now vs. Later

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Conclusion

2003/2004 will show what the future holds for ITFS/MMDS

Uncertain times - regulation, time value of money

Constantly evaluate alternatives

Think long term



Questions?

[email protected]

[email protected]

[email protected]

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