WASHINGTON-The gloves finally are off in the fight for the most desirable C-block broadband personal communications services markets. Instead of taking the battle outside to duke it out, certain C-block bidders are using the Federal Communications Commission as the venue of choice.
In a March 12 letter to FCC Chairman Reed Hundt, GO Communications Corp. President Steve Zecola urged the commission to investigate “illegitimate bidders” who are causing the rapid rise in marketplace values. “Bona fide C-block entrepreneurs are faced with a `prisoners dilemma’ requiring a choice between falling out of the auction or paying escalating prices,” Zecola wrote.
Without naming names, Zecola pointed a finger at rival NextWave Telecom Inc.-which GO backed to the hilt recently when the competing bidder warned the commission in a similar letter to watch out for rulebreakers-by making thinly veiled accusations regarding NextWave’s foreign-ownership limitations.
“Now GO has learned that the most aggressive auction participant has approached the FCC regarding a waiver of the 310(b) ownership restrictions while simultaneously bidding billions in such a manner as to drive out numerous legitimate small businesses,” Zecola added. In a reversal of its opinion two weeks ago that nothing should stop the C-block auctions, even temporarily, GO asked the FCC to “halt the auction if it concurs with GO that several bidders are disqualified under FCC rules*…*these parties should be disqualified from the auction before it is restarted.”
Zecola attached a copy of a Feb. 23 letter from NextWave’s President Janice Obuchowski to FCC International Bureau chief Scott Blake Harris, that it was considering submitting a waiver request regarding the commission’s 25 percent foreign-ownership rules.
“Certain prospective and current international investors have requested the ability to hold shares of NextWave common stock in excess of the statutory benchmarks under the condition that, should the commission not grant NextWave’s petition regarding foreign ownership and require some sort of remedial action, they be better informed concerning the likely duration of the period in which they might be able to take curative action,” Obuchowski wrote.
Zecola told RCR that NextWave’s foreign-ownership figures in its Form 175 were calculated incorrectly and that the possibility exists that NextWave’s true foreign ownership could be close to 50 percent. He would like the FCC to act quickly on this matter rather than waiting for the agency to solve the problem after the auction ends. Zecola also mentioned that GO attorney John Malloy had met with an unnamed senator interested in foreign-ownership rules, and that a letter regarding this could end up on Hundt’s desk.
“It’s one thing if one guy active in one market is thrown out of the auction,” he explained. “If NextWave goes out, it will take two years to unscramble the egg.”
There has been no written response to the Zecola letter from NextWave, but spokesman Kevin Christiano told RCR that the company is in full compliance with all foreign-ownership rules. NextWave’s investors include Sony and several Korean concerns.
“There is a key provision in our bylaws that says at any point, if the [foreign] equity is more than 25 percent, the shares will be converted to debt,” he explained. “The control group still owns 100 percent of the stock and 100 percent of the equity. If our stock were fully diluted, we would be exceeding the limit, but it is not.” Christiano added, “When you are the leading bidder, you put yourself in this position.”
According to Washington, D.C.-based analyst Taylor Simmons of Simmons Associates, GO itself appears to be exhibiting some “body language” that could indicate that a departure is in the works. As of Round 47, it had lain dormant for four consecutive rounds, using up precious time and waivers.
“I no longer view these as `tactical waivers,’ which some bidders appear to have taken in an effort to postpone and possibly avoid expensive bidding wars,” Simmons said. “Instead, it now looks like the unexpectedly high prices have forced GO to pursue its PCS business objectives litigiously rather than financially through the auction. With its top management composed mostly of veterans of MCI [Communications Corp.], who gained entry into the long-distance business only after a years-long battle against AT&T [Corp.], this strategy sort of suits them.”
And what will GO’s strategy be if it chooses to end its C-block bidding participation? “GO likely will seek to have certain bidders disqualified once the FCC long forms are filed, and it probably is counting on other bidders failing to make their first payments,” Simmons said. “Presumably, these licenses would be re-auctioned, and GO would have another chance.”
In response, Zecola said he equates waivers with sick days, and that he isn’t concerned that GO has only one waiver left.
