WASHINGTON-Just days before going to trial last month, high-level Justice Department officials may have overruled government antitrust lawyers who appeared ready to make a strong case in federal court against lifting a 1995 consent decree imposed on Nextel Communications Inc.
Charles James, a lawyer for Nextel at Jones, Day, Reavis & Pogue and former acting assistant attorney general in the Bush administration, said when arguments to vacate the decree failed to persuade Justice’s antitrust staff, he and his colleagues went above their heads to Deputy Assistant Attorney General A. Douglas Melamed.
Melamed is second in command to Justice antitrust chief Joel Klein. James said attorneys in DOJ’s Telecommunications Task Force were present in meetings between Nextel’s lawyers and Melamed.
“I cannot think of a case where briefings and settlement were in perfect alignment,” said James. Melamed could not be reached for comment.
James dismissed speculation among specialized mobile radio operators that the dramatic turn by Justice was the result of big-time political lobbying by Nextel.
Small- and medium-sized SMRs, which worked closely with Justice and were stunned to learn of the settlement at the June 14 opening day of the antitrust trial, remain deeply suspicious that strong legal advocacy alone does not explain DOJ’s sudden change of heart-one favoring a deal many believe is highly generous to Nextel and potentially devastating to the dispatch industry.
One theory circulating in SMR circles is Nextel lobbied Vice President Gore’s staff, which advised the McLean, Va., wireless firm to get representation. The lobbyist SMRs believe Nextel landed is Reed Hundt-a longtime Gore friend who was chairman of the Federal Communications Commission from 1993 to 1997 and now serves as senior adviser on information industries at McKinsey & Co. Inc.
Hundt told RCR he is not working for Nextel. “What’s the issue?,” asked Hundt, sounding clueless about the controversy. Hundt then said he had a friend at Jones Day working on the Nextel case.
A Gore spokeswoman said there have not been any meetings with Nextel on the decree lawsuit, but that a Nextel representative was among a group of high-tech executives from Northern Virginia that met with the vice president’s staff on April 30. She said the subject of the decree was not discussed.
Antitrust guidelines governing modified consent decrees are more lax than those for straight consent decrees. In the latter, lobbying contacts must be disclosed. In modified decrees, such disclosure is not explicitly required.
Up until last month, the Justice Department firmly opposed lifting the 1995 consent decree-first rejecting Nextel’s request last July to terminate or modify the decree and then again in February this year when it opposed Nextel’s motion in federal court here to vacate the decree so Nextel could acquire Geotek Communications Inc.’s 191 900 MHz SMR licensees.
Nextel paid $150 million for the wireless permits at a bankruptcy auction last December.
The 1995 decree, overseen by U.S. District Judge Thomas F. Hogan, bans Nextel and Motorola Inc. from operating 900 MHz SMR systems in 14 major cities through Oct. 30, 2005. The reason: Nextel’s towering dominance of the 800 MHz SMR business.
Most 900 MHz Geotek SMR channels sold to Nextel are subject to decree restrictions.
The proposed Nextel-DOJ settlement, which is expected to attract strong opposition in public comments later this month, prevents Nextel from acquiring Geotek’s channels for the next year-and-a-half but increases from 30 to 108 the number of 900 MHz channels Nextel and Motorola can hold. The accord also terminates the decree five years ahead of time, on Oct. 30, 2000.
In addition to opposing the Nextel-DOJ accord, Mobex Communications Inc. is expected to hammer home its long-held view that Nextel violated the consent decree since 1995 and should not be rewarded for doing so.
The question is what will Geotek’s secured creditors-Hughes Electronics Corp., Merrill Lynch and S-C Rig Investments III L.L.P.-do with the load of 900 MHz SMR licenses that Nextel cannot buy at this time.
Many SMRs believe the creditors will sit on them and sell them to Nextel after the modified decree ends in October 2000.
The regulatory foundation already is being laid for such a move. Geotek and its creditors last month petitioned the FCC for a waiver of coverage requirements for their 900 MHz SMR licenses in order to buy two more years to construct systems.
Other Nextel efforts to win FCC approval for Geotek license transfers and to acquire private wireless frequencies are meeting stiff industry opposition.
For regulators, Nextel is a conundrum. The firm provides competition for mobile phone firms that vie for high-end corporate business, but in considering whether to modify decrees or waive rules, regulators have to weigh the risk that doing so could kill SMR industry competition-depriving millions of users of cheap, low-end dispatch service.
Precisely for that reason, Wall Street loves highly leveraged Nextel-the remaining independent national wireless operator that has Craig McCaw’s backing but has not consummated a deal with a big buyer, like MCI WorldCom Inc.
If Geotek and secured creditors are restricted by the Nextel contract from talking to other prospective buyers, it appears unlikely that Geotek’s 191 SMR licenses will be put in service anytime soon. That would undermine one of Justice’s main rationales for settling with Nextel.
Another DOJ basis for the Nextel settlement is there is spectrum available for dispatch operators at 220 MHz and possibly in other bands and that mobile phone operators are free to offer dispatch.
In totality, Nextel and now Justice claims these unforeseen changes in an increasing competitive wireless marketplace justify changing the decree.
Geotek and its creditors also could decide to sue Nextel for breach of contract and argue Nextel did not do enough to secure approval for the 191 SMR licenses.
