WASHINGTON-In what appears to be a win for bankrupt PCS carriers, the U.S. Court of Appeals for the 5th Circuit in New Orleans has ruled in favor of Metro PCS (formerly General Wireless Inc.) and against the Federal Communications Commission.
The current and future fate of Metro and NextWave Telecom Inc. came the same week as fellow bankrupt C-blocker, Pocket Communications Inc., sold its licenses to a subsidiary of VoiceStream Wireless Corp. and Leap Wireless International Inc. Also, the government won a federal district court ruling that prevents Kansas PCS Inc. from emerging from bankruptcy.
GWI could help NextWave
The 5th Circuit’s decision sets up competing appeals court decisions and could increase the chances that the U.S. Supreme Court will agree to resolve the dispute.
NextWave is appealing to the Supreme Court a ruling from the U.S. Court of Appeals for the 2nd Circuit that said the bankruptcy court did not have jurisdiction to prohibit the FCC from canceling the licenses. The 2nd Circuit said the decision whether the FCC could cancel the licenses must be appealed to the U.S. Court of Appeals for the District of Columbia Circuit.
The Supreme Court earlier this month let stand a 2nd Circuit ruling that said NextWave was obligated to pay its full bid amount ($4.74 billion) not the $1.2 billion ordered by the bankruptcy court.
The facts in the Metro PCS case track closer to this decision so NextWave is expected to ask the Supreme Court to reconsider its decision.
The 5th Circuit said the FCC could not appeal the Metro bankruptcy court’s ruling, which also substantially reduced the amount Metro owed the FCC. It said the FCC’s appeal was moot because Metro had “substantially” emerged from bankruptcy.
The New Orleans appeals court disagreed with the 2nd Circuit, saying that it chose not to defer to the FCC on the interpretation of its regulations.
“In circumstances such as these, where an agency’s interpretation occurs at such a time and in such a manner as to provide a convenient litigation position for the agency, we have declined to defer to the interpretation,” said the 5th Circuit.
NextWave obviously was quite happy with the 5th Circuit’s decision.
“The 5th Circuit’s decision is exceptionally important because it not only rejected the FCC’s arguments, it carefully explains why they are so outside the bounds of conventional legal precedent. The decision undercut any rationale for the FCC proceeding toward a re-auction of NextWave’s C-block licenses,” said Michael Wack, NextWave deputy general counsel.
The FCC did not respond to requests for comment by RCR Wireless News press time Friday.
While Metro was winning in the 5th Circuit and NextWave was celebrating, the wireless industry was trying to thwart any last-minute legislative attempts by NextWave to either delay the Dec. 12 scheduled re-auction of its licenses or prohibit the FCC from canceling the licenses in the first place. Congress extended its session again to this week, giving NextWave another week in its three-year quest for legislative relief.
The wireless industry again expressed its views on Capitol Hill in a letter sent to Senate Majority Trent Lott (R-Miss.).
“We are writing to express our strong opposition to any legislative `compromise’ that would grant to NextWave all or part of the valuable spectrum licenses that were revoked by the [FCC] or that would delay the Dec. 12 auction of these licenses. Such special-interest legislation would reward a company that refused to abide by the FCC’s auction rules and then sought refuge in bankruptcy and litigation to the disadvantage of taxpayers, consumers and carriers,” said the industry in a letter on CTIA stationary.
Leap gains 8 licenses
Bankruptcy Judge E. Stephen Derby on Oct. 16 agreed to the sale of Pocket Communications Inc.’s licenses to Civis IV, an entity controlled by Cook Inlet/VoiceStream, for $195 million.
Civis has agreed to sell eight of the 12 licenses to Leap.
Both transactions are subject to approval by the FCC.
According to the sales agreement, the Pocket/Civis sale must close before July 5. This date may be extended if the FCC extends the current buildout date which is Nov. 4, 2001, said Kenneth W. Irvin, a Morrison and Foerster attorney who represents Siemens Information and Communications Network Inc. one of Pocket’s Debtors-in-Possession lenders.
Following the closing of the sale from Pocket to Civis, Civis and Leap will then file transfer papers with the FCC transferring to Leap its licenses.
The terms of the deal between Civis and Leap were not disclosed.
Leap announced in August that it had agreed to buy the licenses of Pocket subsidiary DCR Inc. for $132.8 million but Cook Inlet made a higher and better offer forcing the two to an auction on Oct. 12.
The DiP lenders said they eventually chose Cook Inlet’s Civis as the winner because it was an all cash offer and Civis assured them the license transfer would be approved by the FCC. The main goals of the DiP lenders was to get maximum value for the licenses but also be certain the deal would close, said Jay Goffman, attorney for DiP lenders L.M. Ericsson and Masa Telecom Asia Investment.
“We hit a home run on both cases,” said Goffman.
The other DiP lender was Pacific Eagle Investments Ltd.
FCC wins a stay against Kansas PCS
A federal district court has said that Kansas PCS cannot emerge from bankruptcy until the court reviews an appeal by the FCC on a bankruptcy court ruling that said Kansas was not required to make installment payments while in bankruptcy. The FCC argues that canceling licenses for failure to make timely installment payments is allowed under the regulatory exception in the bankruptcy code.
The federal district court’s stay only lasts until that court rules on the government’s appeal.
The government is moving forward with this case filing a brief with the district court that mirrors arguments it successfully made before the 2nd Circuit.
