WASHINGTON-The U.S. wireless industry was rocked on 10 August by revelations that iDEN operator Nextel Communications had entered into an agreement with federal government officials to allow Nextel to buy bankrupt NextWave Telecom’s PCS licenses.
NextWave was one of the top bidders in the U.S. C-block auction, but later filed for bankruptcy and received favorable rulings and significant discounts on license fees.
Now, months later, the Nextel deal is still on the table, but is languishing as the federal government and NextWave argue about the supremacy of U.S. bankruptcy law vs. U.S. communications law.
Nextel released a letter on 18 August signed by Christopher Wright, the general counsel of the U.S. Federal Communications Commission (FCC), and a term sheet that said Nextel would pay US$2.1 billion for the licenses or receive a termination fee if the FCC chose to sell the licenses to another company through its “higher and better offer” process. Reports at press time, however, said Nextel is willing to pay US$6 billion for the spectrum.
Many in the U.S. wireless industry questioned the Nextel deal because NextWave’s licenses had been set aside for small businesses-known as designated entities (DEs). Nextel has twice before been rejected when it applied for DE status. The FCC has said the agreement “contemplates” that Nextel would receive a waiver.
Nextel said access to NextWave’s spectrum would give it greater flexibility in its strategic initiatives and deployment of future generations of wireless services. Nextel, which offers the only U.S. nationwide digital combined dispatch and cellular-like service, is viewed as a strong acquisition target by industry analysts.
If Nextel were to receive a DE waiver to gain access to the NextWave spectrum, it would signal a major shift in U.S. C-block PCS spectrum policy. The C-block was specifically set aside for small businesses.
Other large wireless companies appear to want to enter into negotiations with the FCC to be granted a waiver and buy the NextWave licenses, but to date the FCC has indicated it will honor the Nextel deal, which allows for higher and better offers once the bankruptcy court lifts the exclusivity period. The exclusivity period prohibits negotiations with parties-including Nextel-that are not part of the proceedings.
The FCC and the U.S. Department of Justice have been unsuccessful in convincing both a bankruptcy judge and a federal court judge to change a bankruptcy judgment that reduced Next-Wave’s obligation to the U.S. government from US$4.7 billion to US$1 billion. The FCC had appealed NextWave’s favorable bankruptcy ruling claiming it would destroy the integrity of the FCC’s auction process, but federal Judge Charles L. Brieant disagreed. The FCC has now appealed to the U.S. Court of Appeals for the Second Circuit. Oral argument is set for November.
Following Nextel’s announcement, NextWave persuaded U.S. Bankruptcy Court Judge Adlai S. Hardin Jr. to issue a temporary restraining order (TRO) forbidding Nextel from pursuing its deal. On 20 October, Hardin refused to grant Nextel’s request to lift the TRO.
In addition, the FCC has been urging Congress to include language in the FCC spending bill that would allow the FCC to take back spectrum licenses from bankrupt operators, including NextWave. As of Global Wireless press time, the language has not been included. The FCC spending bill is caught up in legislative wranglings, so there is still a chance-albeit a slim one-that the language could be included.
