WASHINGTON-The status of NextWave Telecom Inc.’s 63 personal communications services licenses is in doubt after an appeals court ruled that communications law supersedes bankruptcy law.
In making that judgment, the U.S. Court of Appeals for the Second Circuit said it would be fair to assume the government would seek to revoke the licenses and collect on its debts.
The FCC reacted with glee at the news, but stopped short of saying it planned to revoke the licenses.
“This is a big win for American taxpayers. This decision will allow us to return to the business of getting valuable spectrum quickly into the hands of companies who can provide new wireless service to the American people,” said FCC Chairman William Kennard.
NextWave, meanwhile, said it is ready to turn the clock back and begin making payments to the FCC to pay its full bid amount of $4.7 billion, not the $1 billion amount the bankruptcy court said it owed.
“Although we had hoped for an affirmation of the district court’s decisions, nevertheless, consistent with the opinion received, we are fully positioned to work closely with the FCC to implement a market-based solution that results in the immediate assumption of the full amount of the original obligation, immediate payment of all accrued interest and principal to date, while presenting a plan to the FCC and the bankruptcy court that is fully compliant with the FCC rules,” said NextWave.
NextWave is able to make this claim because of financial commitments it received last month. The December agreement calls for $1.6 billion in equity investments from Global Crossing Ltd., AT&T subsidiary Liberty Media Corp., Pacific Capital Group and Texas Pacific Group.
But the FCC instead may take back the licenses to re-auction them.
Nextel Communications Inc. is banking on that scenario. The enhanced specialized mobile radio operator had planned a hostile takeover of NextWave, but a few days later withdrew its $8.3 billion offer, citing the Second Circuit’s decision.
“Nextel has abandoned its intention to proceed to take the actions contemplated in its Dec. 21 term sheet concerning a potential resolution of the NextWave bankruptcy cases … These decisions primarily are the result of the recent significant developments in the NextWave bankruptcy cases,” including the Second Circuit opinion, Nextel said in a filing with the Securities and Exchange Commission.
However, NextWave is expected to litigate the matter further if the FCC tries to take back the licenses.
NextWave filed for bankruptcy in 1998, rather than participate in an FCC C-block restructuring effort. The case went to trial in April. In a win for NextWave, Judge Adlai Hardin reduced the value of NextWave’s licenses from $4.7 billion to $1 billion.
In overturning Hardin’s decision, the Second Circuit said neither the bankruptcy court nor a subsequent district court should have used bankruptcy law to tinker with the FCC’s regulatory process of awarding spectrum licenses.
Notwithstanding the appeals court decision, NextWave scheduled a confirmation hearing for its reorganization plan this Wednesday. At RCR press time, the hearing was still set.
Even though the Second Circuit said that the bankruptcy court did not have jurisdiction, the FCC still would like Congress to declare that radio-frequency licenses are not subject to bankruptcy law.
“As long as there are people out there who believe they have a shot at bankruptcy, we are going to spend a lot of money on court cases,” said Ari Fitzgerald, Kennard’s wireless legal adviser.
Impact on Metro?
Another bankrupt C-block licensee, Metro PCS (formerly General Wireless Inc.) does not believe the decision will impact its case, but the FCC is expected to alert the U.S. Court of Appeals for the Fifth Circuit about the decision. Later this month, the Fifth Circuit will examine whether the FCC’s challenge of a bankruptcy decision lowering Metro’s obligation from $1.06 billion to $166 million is moot because Metro has emerged from bankruptcy.
Metro’s financing arrangements are still in negotiations, pending the outcome of the Fifth Circuit case, but the company has been making its payments (based on the reduced amount) to the FCC, said Dennis Spickler, vice president and chief financial officer of Metro PCS.
Nextel efforts
An interesting side bar to the NextWave-government battle has been Nextel’s efforts to acquire NextWave’s licenses.
Nextel in August announced the FCC and the Department of Justice had agreed to allow it to buy NextWave’s licenses. A week later, Nextel released a letter signed by FCC General Counsel Christopher Wright and a term sheet that said it would pay $2.1 billion for the licenses or receive a termination fee if the FCC chose to sell the licenses to another company.
Tomorrow Nextel is expected to appear before Judge Hardin to explain why it should not be sanctioned for attempting the hostile takeover of NextWave. Hardin has said Nextel’s aborted bid may violate bankruptcy rules that call for an exclusivity period where only parties to the bankruptcy can discuss reorganization plans.
Hardin has not been friendly toward Nextel in the past. When Nextel announced the August agreement with the FCC and Justice Department, Hardin slapped a temporary restraining order on Nextel. That order was lifted by a district court Dec. 15.
For Nextel to be eligible for the NextWave licenses, the FCC would need to waive the rules reserving the licenses for small businesses. The August term sheet contemplated such a waiver.
The designated-entity rules also could cause trouble for NextWave since some of its financing partners may not qualify for DE status.
