Sprint - Nextel 2012 Annual Report Download - page 153

Table of Contents
SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Various other suits, inquiries, proceedings and claims, either asserted or unasserted, including purported class actions typical for a large
business enterprise and intellectual property matters, are possible or pending against us or our subsidiaries. If our interpretation of certain laws or
regulations, including those related to various federal or state matters such as sales, use or property taxes, or other charges were found to be mistaken,
it could result in payments by us. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be
resolved consistent with our beliefs, we expect that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse
effect on our financial position or results of operations.
Spectrum Reconfiguration Obligations
In 2004, the FCC adopted a Report and Order that included new rules regarding interference in the
800 MHz band and a comprehensive plan
to reconfigure the
800 MHz band (the “Report and Order” ). The Report and Order provides for the exchange of a portion of our 800 MHz FCC spectrum
licenses, and requires us to fund the cost incurred by public safety systems and other incumbent licensees to reconfigure the 800 MHz spectrum band.
Also, in exchange, we received licenses for
10 MHz of nationwide spectrum in the 1.9 GHz band; however, we were required to relocate and reimburse
the incumbent licensees in this band for their costs of relocation to another band designated by the FCC. We completed all of our 1.9 GHz incumbent
relocation and reimbursement obligations in the second half of 2010.
The minimum cash obligation is
$2.8 billion under the Report and Order. We are, however, obligated to pay the full amount of the costs
relating to the reconfiguration plan, even if those costs exceed $2.8 billion . As required under the terms of the Report and Order, a letter of credit has
been secured to provide assurance that funds will be available to pay the relocation costs of the incumbent users of the
800 MHz spectrum. We submit
the qualified
800 MHz relocation costs to the FCC for review for potential letter of credit reductions on a periodic basis. As a result of these reviews,
our letter of credit was reduced from $2.5 billion at the start of the project to $859 million as of December 31, 2012 , as approved by the FCC.
Total payments directly attributable to our performance under the Report and Order, from the inception of the program, are approximately
$3.2 billion , of which $196 million was incurred related to FCC licenses during 2012 . When incurred, these costs are generally accounted for either as
property, plant and equipment or as additions to FCC licenses. Although costs incurred to date have exceeded
$2.8 billion , not all of those costs have
been reviewed and accepted as eligible by the transition administrator. Regardless, we continue to estimate that total eligible direct costs attributable
to the spectrum reconfigurations will exceed the minimum cash obligation of
$2.8 billion . This estimate is dependent on significant assumptions
including the final licensee costs and costs associated with relocating licensees in the Mexican border region for which there is currently no approved
border plan. As required by the Report and Order, the letter of credit had a minimum of
$850 million , which was largely intended to protect both the
relocating licensees as well as the United States Treasury should an anti - windfall payment be necessary. Given the significant progress that has been
made, the total amounts spent to date, and the remaining forecasted amounts to be spent by the licensees, Sprint believes it is reasonable to allow the
letter of credit to be reduced below
$850 million . Accordingly, in January 2013, we submitted a Request for Declaratory Ruling to the FCC requesting
two items: (i) that it declare that Sprint will not owe any anti
- windfall payment to the US Treasury, because we have exceeded the $2.8 billion of
required expenditures, and (ii) that the FCC remove the $850 million minimum for the letter of credit and allow further reductions based on quarterly
estimates of remaining obligations. This Request for Declaratory Ruling is pending before the FCC.
Completion of the 800 MHz band reconfiguration was initially required by June 26, 2008. The FCC continues to grant 800 MHz public safety
licensees additional time to complete their band reconfigurations which, in turn, delays Sprint's access to some of our
800 MHz replacement channels.
Accordingly, we will continue to transition to our 800 MHz replacement channels consistent with public safety licensees' reconfiguration progress. On
May 24, 2012, the FCC revised its rules to authorize Sprint to deploy wireless broadband services, such as CDMA and LTE, on its 800 MHz spectrum,
including channels that become available to Sprint upon completion of the 800 MHz band reconfiguration program. We anticipate that the continuing
reconfiguration progress will be sufficient to support the
800 MHz portion of Sprint ’ s Network Vision rollout.
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