NextWave Wireless Hits The Jackpot

| About: Nextwave Wirless (WAVE)

Following eight trading days when Nextwave Wireless (OTC:WAVE) stock shot up 35%, we find out why, and the reasons are multi-fold:

1. WAVE sold $150m worth of AWS spectrum, primarily to T-Mobile USA. My preliminary analysis suggests that approximately 600m MHz POPs were sold, implying an average price of $0.25 per MHz POP. This price, while significantly lower than the recent prices paid in Canada, was still materially higher than the price suggested by short-sellers (see SeekingAlpha article “Why I’m Short NextWave Wireless” from May 16, authored by an anonymous source). This would leave WAVE with 347m MHz POPs in the AWS band to be sold at a future date, perhaps at higher prices resembling the recent Canadian auction.

Conspicuously, the $0.25 price paid for these tier-2 city properties resembles the $0.28 nationwide average price assumed in the Sprint (NYSE:S) - Clearwire WiMax merger little over two months ago. In the US alone, WAVE now has 347m + 2,807m + 972m = 4,126 MHz POPs left after the first tranche sold to T-Mobile USA and others. Forgetting the huge premium normally assigned to NYC and other properties, simply and crudely applying a $0.25 price across the board, still leaves you with over $1 billion coming into the door over the next several months. Figure $150m or so per month for 7 months for $1.05 billion.

WAVE’s market cap on Tuesday was $3.91 x 103m shares = $403m. Then add WAVE’s international spectrum assets plus the chip, systems level and software businesses.

2. Speaking of future spectrum sales, Tuesday night’s 8-K filed with the SEC provides for what will likely be the next milestone in WAVE’s monetization schedule: “NextWave plans to provide an update regarding these efforts upon filing its Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2008 on August 7, 2008.” These next steps can include a combination of more spectrum sales, divestiture of any of the chip, software or systems level businesses, or new equity/debt investments. The newly beefed-up balance sheet could also allow for a favorable debt renegotiation.

3. WAVE appears to be only a week away from hitting the jackpot with the FCC in conjunction with the Sirius (NASDAQ:SIRI)/XM (XMSR) merger. This article lays out the details as well as any. In brief, the FCC may impose a condition on the Sirius/XM merger to the effect of them having to clean up their long-time pollution of the 2.3 GHz WCS spectrum. If this happens – and it’s now looking likely, if one is to believe the experts and the recent reporting – it would dramatically increase the value of WAVE’s 2,807m MHz POPs in this band. The FCC vote is scheduled for August 1. Would anybody in the right mind dare be short WAVE stock going into that meeting?

4. Google reiterated its plan to bring its Android operating system to market later this year. WAVE’s PacketVideo software is part of this, and numerous reports on Engadget and similar sites show several top-tier handset makers finalizing their products. The significant value of this WAVE software will become evident in less than 6 months from now, when it will be mentioned alongside iPhone and Blackberry in terms of underpinning the hottest handsets in the market.

$60-$80m in 2008 revenue, growing 100%+ into 2009, multiplied by a 4x-5x multiple…hmm, could be worth almost $1 billion once the Google Android phones hit the market this Holiday Season. Hey, why not spin it out or sell it? Is this the update we should expect on August 7? Probably not, but would you dare bet against it?