WASHINGTON – C-block personal communications services auction winner BD-PCS Inc. has several legal channels open to it before it is forced to give up the 17 markets it won at auction because it could not meet a $37 million down-payment requirement.
The Federal Communications Commission rejected QuestCom Inc. subsidiary BDPCS’s emergency waiver request May 17. “Auctions are a market-oriented process, and defaults are a reality in the marketplace. We offer no guarantee of success, only the opportunity to compete. We are prepared to deal quickly and fairly with defaults and put licenses in the hands of the companies that will provide service to the American public,” said Wireless Telecom Bureau Chief Michele Farquhar.
“During the course of the auction, nearly all of the 89 winning bidders were able to secure financing in order to satisfy their down-payment obligations when they became due.*.*.We therefore are not persuaded that BDPCS’s last-minute difficulties in arranging financing warrant deviation from our general rules,” the bureau stated. “Because BDPCS failed to meet its initial down-payment requirement, we have reason to doubt that BDPCS would be able to fulfill its additional down payment, installment payment and buildout obligations.”
Robert H. Kyle, director, chief executive officer and chairman of BDPCS Inc. – which defaulted May 15 on its 5 percent down payment – has not decided what he will do next.
“We are trying to work this out with the FCC to best serve the public interest,” he told RCR. “We had an incredible set of circumstances happen to us. We have not made any decisions at this point.”
According to the waiver paper-work submitted to the commission, BDPCS-the fourth-largest C-block bidder, with 17 markets purchased for $873.7 million – could not deposit nearly $36.7 million in the Mellon Bank because its bridge loan fell through. The small business, whose parent company is QuestCom, said it had “made arrangements with U S West Communications Inc. to receive a bridge loan,” that “QuestCom intended to repay the bridge loan after completing an initial public offering that was to take place while BDPCS’s C-block license applications were pending,” and that “commission staff was aware of U S West’s intention to make a bridge loan available to BDPCS because the bridge loan had been discussed in several meetings that took place between U S West, QuestCom and commission staff.”
In addition to the alleged agreement with U S West, BDPCS continued to negotiate for several forms of financing from other parties. However, just prior to the close of the C-block auction May 6, Kyle got word that U S West was backing off its commitment due to conflict of interest; QuestCom’s IPO underwriter, Merrill Lynch, took that opportunity to withdraw as well, saying it could not act as lead underwriter due to the departure of one of its employees to another PCS concern, NextWave Personal Communications Inc.
Because of the short timeframe and new assurances demanded by other financial institutions and equipment manufacturers courted by BDPCS-including Samsung Electronics Co. Ltd. and Dacom Corp. (known collectively as Samsung and both equity investors in QuestCom)-Kyle asked for a 30-day extension to meet his down-payment obligation.
“This short extension serves the public interest,” the waiver request concluded. “Any delay in issuing the licenses caused by a re-auctioning of the licenses would further impair any new C-block licensee’s ability to compete with the A- and B-block licensees (as well as the incumbent cellular licensees), thus potentially reducing the public’s access to another market competitor.”
Even though it supported BD-PCS’s waiver request, U S West said it had no part in the bidder’s financial problems. While admitting to its financial involvement with the winner during the course of the auction, in a May 17 letter to FCC Chairman Reed Hundt, Solomon D. Trujillo, president and chief executive officer of U S West Communications, wrote, “USWC never had any obligation to fund any of BDPCS’s down-payment obligations to the FCC.*.*.BDPCS may have continued to view USWC as a potential source of funding, but BDPCS was repeatedly told that any such funding would be subject to negotiation.*.*.”
Trujillo also wrote that while senior U S West management decided not approve a loan to BDPCS, the company “continued to provide support, even through the afternoon of May 15, to assist BDPCS in finding such institutional funding, using USWC’s contacts in the financial community, and explaining and confirming USWC’s commitment to the provision of wireless network assistance for BDPCS.”
Kyle disputed Trujillo’s account, telling RCR “everything was true and accurate in our waiver request.”
Within 30 days, BDPCS must decide whether it wants to file a petition for reconsideration with the commission. From there, the FCC can either grant or reject such paperwork, at which point BDPCS could take the matter to the U.S. Court of Appeals. BDPCS’ attorneys did not return telephone calls.
If the bidder finally emerges victorious, its licenses would be granted. If the FCC’s denial holds up, the commission must decide whether to re-auction the 17 licenses or to offer them to the next-highest bidders.
At press time, another unnamed bidder continued to be under FCC investigation for down-payment default.
According to Washington, D.C.-based analyst Taylor Simmons, Cook Inlet Western Wireless PV/SS PCS Inc. would gain the most if the FCC decided to award any defaulted BDPCS licenses to the second runner-up. Depending on if Cook had the money, it could gain control of Minneapolis/St. Paul; Seattle-Tacoma; Olympia-Centralia, Wash.; and Bremerton, Wash. However, Simmons thinks Cook Inlet may lack the funds to afford both Seattle and Minneapolis.
Other beneficiaries of possible defaulted licenses include GWI PCS Inc. (Denver), Mountain Solutions Ltd. (Colorado Springs, Fort Collins-Loveland, Colo.), 21st Century Telesis Joint Venture (Albuquerque, Santa Fe), Western Minnesota PCS L.P. (St. Cloud, Minn.), CDR PCS Inc. (Phoenix), PC Plus LLC (Tucson), PCS 2000 Inc. (Portland, Salem-Albany-Corvallis, Ore.), Polycell Communications Inc. (Eugene-Springfield, Ore.), and Americall International LLC (Longview, Bellingham, Wash.).
