WASHINGTON-NextWave Telecom Inc. at RCR press time was expected to file papers with the bankruptcy court asking Judge Adlai S. Hardin Jr. to explicitly declare that any attempt by the Federal Communications Commission to cancel and/or re-auction its 90 personal communications service licenses without first seeking relief from the bankruptcy court violates federal law.
On Wednesday, the FCC cited a federal appeals court ruling and canceled the 63 C-block and 27 F-block licenses and scheduled a re-auction for July 26.
“The [U.S. Court of Appeals for the Second Circuit’s] ruling has confirmed the FCC’s authority over these licenses. To ensure swift service to the public, our rules require that C-block licenses cancel when a licensee fails to pay its obligations on time. Allowing a company to keep its licenses despite its failure to pay on time would be unfair to others who played by the rules and would undermine the integrity of our auctions process. This spectrum has laid fallow for too long. Now it is time to act swiftly to auction this spectrum and put it to productive use for U.S. consumers,” said FCC Chairman William Kennard.
NextWave believes that since the FCC did not seek relief from the automatic stay (which protects debtors from their creditors) that the FCC cannot take back an asset that is part of the bankruptcy proceeding.
The C- and F-block licensee filed for bankruptcy in June 1998, rather than participate in an FCC C-block restructuring effort. The case went to trial last April.
In a win for NextWave, Judge Hardin reduced the value of NextWave’s licenses from $4.7 billion to $1 billion. Hardin said the FCC erred when it transferred the licenses, which Hardin said was a fraudulent conveyance.
The FCC said the fraudulent-conveyance ruling impaired the integrity of its auction process.
The government appealed to the federal district court and lost. It then appealed to the Second Circuit.
Neither the bankruptcy court nor the district court should have used bankruptcy law to tinker with the FCC’s regulatory process of awarding spectrum licenses, the Second Circuit ruled.
Notwithstanding the Second Circuit, NextWave scheduled a confirmation hearing for its reorganization plan. In papers filed with the bankruptcy court last Wednesday, the government officially objected to the reorganization plan because it was contingent upon NextWave keeping its licenses-the same licenses the FCC had canceled earlier that day.
The FCC’s action came despite a heavy lobbying effort by NextWave to keep its licenses.
“NextWave Telecom has done everything in its power to avert further litigation with the FCC and place its licenses into productive use immediately. The FCC has repeatedly acknowledged that NextWave’s payment obligations are suspended by operation of the bankruptcy code. The FCC’s action is a radical departure from established law and agency conduct, and an unwarranted blow to the reasonable reliance that the company and its creditors placed on the agency’s own statements in various courts,” NextWave said in a statement reacting to the FCC’s action.
CTIA, PCIA duke it out over the DE, spectrum-cap rules
If the FCC moves forward with its plan to re-auction the licenses-plus licenses left over from the last auction, other canceled licenses and licenses that have been returned since that last re-auction-it will find itself in the middle of a battle between the Cellular Telecommunications Industry Association, which represents incumbent operators, and the Personal Communications Industry Association, which represents start-up operators, over the issue of whether licenses should be auctioned only to small businesses.
Congress specifically said the FCC was to set aside PCS spectrum for small businesses. In the original auctions, C- and F-block licenses were restricted to small businesses, known as designated entities. In previous C- and F-block re-auctions, bidding was limited to DEs.
The FCC did not specify whether DE rules would be waived for the re-auction, which led both trade groups to come to different conclusions.
“Reclaiming NextWave’s licenses is pro-competition and pro-consumer … Now the next step is to act expeditiously with an auction free of barriers that affect efficient use, and maximizes return to the taxpayers,” said CTIA President Thomas E. Wheeler.
“As the FCC did for last year’s re-auction of licenses turned in or canceled, PCIA understands that the [FCC] intends to retain its eligibility rules for the C- and F-blocks that reserve these licenses for small businesses and entrepreneurs. We applaud this approach. At this late date, there simply is no public policy reason to change license eligibility standards that were created so that new companies could establish a foothold in the PCS market. These standards have been a major catalyst in providing consumers a true choice of service options, and they must continue to do so in the months ahead,” said PCIA President Jay Kitchen.
PCIA came to its position based on conversations with staff of the FCC’s Wireless Telecommunications Bureau, said Brent Weingardt, PCIA vice president for government relations.
“We made some calls and we discussed their intentions procedurally … Without a rule making, they cannot change the eligibility rules,” Weingardt said.
CTIA is not deterred. The trade group is currently lobbying Capitol Hill to get both DE and spectrum cap rules lifted for this auction, said Steven K. Berry, CTIA senior vice president for congressional affairs. The spectrum cap limits a wireless carrier from controlling more than 45 megahertz of spectrum in an urban area and 55 megahertz in rural areas rules.
Berry believes the re-auction will become an issue when Congress gets down to figuring the fiscal year 2001 budget. To date, receipts from the C-block auction process have been a liability on the budget and now they could be an asset.
“Between [the Office of Management and Budget] and the Hill, I think there will be legislative action so we just want to make sure that whatever is done benefits the entire industry and puts that spectrum out there to be put to the best use,” Berry said.
If indeed a congressional effort is made to lift the DE rules, PCIA will fight this move, said Mary McDermott, PCIA senior vice president and chief of staff for government relations.
If CTIA is successful and the DE and spectrum-cap rules are lifted, one DE, Leap Wireless Inc., believes it will result in fewer choices for consumers.
“The traditional wireless carriers shouldn’t be able to gobble up all of the licenses offering the traditional wireless offerings … the service [these carriers] would turn on is the same old service,” said Dan Pegg, senior vice president of Leap Wireless.
