WASHINGTON-As the Federal Communications Commission set the stage for auctioning nearly 500 returned C-block personal communications services licenses next March, agency lawyers successfully fought lenders Friday in Baltimore bankruptcy court to recover most of the 43 licenses held by Pocket Communications Inc.
Judge E. Stephen Derby’s ruling late Friday afternoon is a major victory for the FCC and potentially a crushing blow for Global System for Mobile communications technology in the United States.
The Debtor in Possession, or DiP, lenders (Pacific Eagle Investments Ltd., Masa Telecom Inc., L.M. Ericsson, and Siemens Information and Communications Networks) wanted an extension of the Nov. 16 preliminary injunction against Pocket’s election to return most of the licenses for which it pledged to pay $1.3 billion in 1996.
The DiP lenders sought an extension until the court ruled on the lenders’ fraudulent conveyance claims.
The fraudulent conveyance strategy pursued by Pocket, General Wireless Inc. and NextWave Telecom Inc. is based on the notion that PCS licenses are not worth what they were when they were bid on two-and-a-half years ago.
The Pocket case follows on the heels of the GWI bankruptcy ruling, which allowed the Texas firm to write off nearly $1 billion and reorganize.
One investor said one reason the Pocket case ended differently was that Pocket Chairman Dan Riker did not cooperate with the DiP lenders.
“The FCC flooded the market with addition spectrum through its D-, E-, and F-block auction,” the DiP lenders unsuccessfully argued in a brief last week. “Thus, by the time the debtors executed and delivered promissory notes evidencing their debt for the licenses, the value of the license was only a small fraction of the original bid. Unable to obtain financing for the buildout of the licenses, the debtors were unable to pay the $1.3 billion owed to the FCC and filed for Chapter 11.”
NextWave, which pledged more than $4 billion for a national footprint of licenses, is expected to make the same argument.
The FCC maintains C-block bidders were aware of the risks involved in auctions.
Pocket wants to keep the Chicago and Dallas licenses, critical markets for the competitive survival of GSM technology in the United States. There is fear a well-heeled carrier could outbid GSM applicants when Chicago and Dallas are re-auctioned next March. That would hurt GSM’s quest for coverage in all major U.S. cities.
Despite the outcome, the overarching struggle continues to be between bankruptcy law and communications policy. In the GWI case, bankruptcy law prevailed.
Shortly before Congress adjourned, the FCC was nearly successful in persuading lawmakers to change the law to enable the government to recover the licenses of bankrupt firms immediately.
