licenses for wireless phone systems, is having a difficult time winning financing. The San Diego company's $4.2 billion bid won the rights to more than 56 licenses in this summer's Federal Communications Commission auction. But market sources say Nextwave has taken the unusual step of replacing Merrill Lynch & Co. as leader on a $150 million initial public offering and $400 million of high-yield bonds more than six months after filing registration statements. The wireless communications company turned to Smith Barney & Co. to lead the equity offering and Canadian Imperial Bank of Commerce to manage the debt. Amended Securities and Exchange Commission filings are expected in the next week and a half. Nextwave, which would not comment on its financing, is not the first wireless company to encounter difficulties in the financial markets. Sprint Spectrum, a joint venture with more than $4 billion of equity from Sprint Corp., Cox Communications, Telecommunications Inc., and Comcast Cable, gave the lead on a $2 billion loan to Chase Manhattan Corp., replacing Citicorp, J.P. Morgan & Co. and Toronto Dominion Bank late in the game. Chase faced an uphill battle to find lenders who would commit themselves to the loan, ultimately scouring the globe for investors. Market experts suggested that the new leaders on the Nextwave deal will face similar challenges. "Companies like Nextwave and all the entrepreneurial personal communication service providers are attempting to reconcile what was a very aggressive business plan in terms of penetration and prices against reality," said Steven Maloney, president of Devonrue Ltd., a Boston consulting firm. Even before the new leaders try to sell the equity and debt deals, the markets seem reluctant to support a company that aggressively bid for licenses that could cover as many as 60 million subscribers. "Investors are uncertain about how many players can meaningfully survive in the rapidly expanding wireless and telecommunications market," said Ned Zacker, a managing director in high-yield research at Chase Securities. "These companies have not yet proven to be financeable in this market," said Jerry Paul, portfolio manager for Invesco PLC's high-yield fund. "It's really inappropriate to use my capital to fund this kind of business. I'd like to get my money back, and generally with interest." Currently, commercial and investment banks do not have particularly large exposure to Nextwave. CIBC and ING Barings put together about a $150 million bridge loan for Nextwave this summer that they sold to a number of hedge funds, said market sources. One expert in the wireless industry said it was likely that those funds would be applied to the new deals. Despite the uphill financial battle, Nextwave has some factors working in its favor. MCI Communications Corp. has signed an agreement to buy at least 10 billion minutes of wireless airtime from Nextwave. "It's an exciting company with quality people," said Mr. Maloney, the consultant. Nonetheless, he cautioned that the company has an unprecedented business plan that creates significant risks. "This is a very tricky business," he said, "and Nextwave has no track record to sustain the kinds of penetration all the players are assuming."

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