Sprint - Nextel 2007 Annual Report Download - page 136

SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
licensees that should complete the BAS transition by September, 2009. The FCC subsequently extended the
waiver of the BAS relocation date until March 5, 2008 and encouraged the BAS licensees and new entrant
mobile-satellite service licensees to continue discussing ways to share use of the spectrum before the transition is
completed.
The Report and Order requires us to make a payment to the U.S. Treasury at the conclusion of the band
reconfiguration process to the extent that the value of the 1.9 GHz spectrum we received exceeds the total of the
value of licenses for spectrum positions in the 700 MHz and 800 MHz bands that we surrendered under the
decision, plus the actual costs that we incur to retune incumbents and our own facilities under the Report and
Order. The FCC determined under the Report and Order that, for purposes of calculating that payment amount,
the value of the 1.9 GHz spectrum is about $4.9 billion and the aggregate value of the 700 MHz spectrum and the
800 MHz spectrum surrendered, net of 800 MHz spectrum received as part of the exchange, is about $2.1 billion,
which, because of the potential payment to the U.S. Treasury, results in minimum cash expenditures of about
$2.8 billion by us under the Report and Order. The FCC has designated an independent Transition Administrator
to monitor, facilitate and review our expenditures for 800 MHz band reconfiguration. A precise methodology for
evaluating and confirming our internal network costs has not yet been established by the TA. Because the TA
may not agree that all of the costs we submit as external and internal costs are appropriate or are subject to credit,
we may incur certain costs as part of the reconfiguration process for which we will not receive credit against the
potential payment to the U.S. Treasury.
In addition, a financial reconciliation is required to be completed at the end of the reconfiguration
implementation to determine whether the value of the spectrum rights received exceeds the total of (i) the value
of spectrum rights that are surrendered and (ii) the qualifying costs referred to above. If so, we will be required to
pay the difference to the U.S. Treasury, as described above. Based on the FCC’s determination of the values of
the spectrum rights received and surrendered by Nextel, the minimum obligation to be incurred under the Report
and Order is $2.8 billion. The Report and Order also provides that qualifying costs we incur as part of the
reconfiguration plan, including costs to reconfigure our own infrastructure and spectrum positions, can be used to
offset the minimum obligation of $2.8 billion; however, we are obligated to pay the full amount of the costs
relating to the reconfiguration plan, even if those costs exceed that amount. From the inception of the program
and through December 31, 2007, we have incurred approximately $1.1 billion of costs directly attributable to the
spectrum reconfiguration program. This amount does not include any of our internal network costs that we have
preliminarily allocated to the reconfiguration program for capacity sites and modifications for which we may
request credit under the reconfiguration program. If we are successful in our appeal of the Third MO&O, we
estimate, based on our experience to date with the reconfiguration program and on information currently
available, that it is unlikely we will be required to make a payment to the U.S. Treasury. This belief is dependent
on significant assumptions including the final licensee costs, and costs associated with relocating licensees in the
Canadian and Mexican border regions for which there are currently no approved border plans and does not
include any of our apportioned internal network costs. Actual results could differ from such estimates. In
addition, we are entitled to receive reimbursement from the mobile-satellite service licensees for their pro rata
portion of our costs of clearing a portion of the 1.9 GHz spectrum. Those licensees may be unable or unwilling to
reimburse us for their share of the costs, which we estimate to be approximately $200 million. If we are
unsuccessful in our appeal of the Third MO&O, we anticipate that our additional costs would likely be material.
As required under the terms of the Report and Order, we delivered a $2.5 billion letter of credit to provide
assurance that funds will be available to pay the relocation costs of the incumbent users of the 800 MHz
spectrum. Although the Report and Order provides for the possibility of periodic reductions in the amount of the
letter of credit, no reductions had been requested or made as of December 31, 2007.
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