WASHINGTON-NextWave Telecom Inc., a one-time poster child for everything that went wrong with the government’s C-block auction for PCS licenses, said it stands ready to continue to build its network, following an appeals court ruling last Friday that said the government could not cancel NextWave’s 90 licenses.
NextWave said it has $90 million in debtor-in-possession financing from recent bankruptcy-court-approved financing.
“Having this financing on hand enables us to resume critical construction activities, such as fine-tuning our network design and switch engineering, completing microwave clearance, establishing our backhaul network and local interconnection arrangements, and finalizing tower site selection and development,” said NextWave Chairman Allen Salmasi. “The funds give us the capability to jump start our overall network deployment effort while we put the finishing touches on a reorganization plan that will fund a full-scale network buildout. We feel very fortunate to be in a position where we can get out of the courtroom, get into the field, and resume doing the things the company was created to do, which are to build wireless networks and serve customers.”
A federal appeals court Friday said the Federal Communications Commission could not cancel for non-payment NextWave’s C- and F-block licenses, noting the carrier was protected by the bankruptcy code-thus throwing into chaos the status of the licenses the FCC re-auctioned earlier this year.
NextWave originally bid $4.7 billion for the 90 licenses. When the FCC took back the licenses and re-auctioned them, the agency split the licenses into smaller chunks of spectrum and raised nearly $17 billion. However, none of the carriers that “won” licenses in the re-action have made final payment yet. As part of the re-auction, the FCC warned that the licenses were under a cloud of legal uncertainty.
“Having chosen instead a scheme that put it in a creditor-debtor (and lienholder) relationship with its licensees and conditioned licenses on timely payment of their debts, and having as a consequence run afoul of [the bankruptcy code], the [FCC] may not escape that provision’s clear command simply because it acted for a regulatory purpose. … We therefore reverse and remand to the [FCC] for proceedings not inconsistent with this opinion,” said the U.S. Court of Appeals for the District of Columbia Circuit.
NextWave was ecstatic about the opinion, while the FCC said it was “reviewing the decision” and could not comment any further.
“As the record of our reorganization proceeding demonstrates, NextWave has been ready, willing, and able for several years now to pay its debts to the FCC and other creditors in full, deploy state of the art wireless facilities, and offer the public new competitive services. Now that the Court of Appeals has spoken, we look forward to pouring all of our energies into those tasks. NextWave sincerely hopes that today’s decision marks the end of this litigation, and that it clears the way for us to resume our deployment efforts and begin delivering high quality wireless services to consumers,” Salmasi said.
When the FCC reviews the decision, it most likely will not like what it reads. Writing for the D.C. Circuit, Judge David S. Tatel said the court agreed with NextWave and found the FCC’s argument implausible.
“The [FCC’s] alternate view of the [U.S. Court of Appeals for the 2nd Circuit’s] opinion-that the court decided as a substantive matter that nothing in the bankruptcy code prevents the [FCC] from canceling NextWave’s licenses-is implausible,” said Tatel, noting that two decisions by the 2nd Circuit were jurisdictional in nature and did not get to the merits of NextWave’s bankruptcy case.
The FCC relied on the two 2nd Circuit opinions when it announced on Jan. 12, 2000, that it was taking back NextWave’s licenses and would re-auction them, which took place in December.
In the end, Tatel seemed to imply that a key turning point in the case might have occurred even before the 2nd Circuit got involved. In a bankruptcy court hearing on Nov. 12, 1998, the FCC said the licenses had not cancelled “due to the automatic stay.”
“These circumstances suggest that the [FCC] believed NextWave’s licenses had not cancelled prior to the notice of re-auction. At the very least, they created doubt about the matter,” said Tatel.
The court’s ruling upset former FCC chairman William E. Kennard, who made the decision to cancel NextWave’s licenses.
“Now that the court has acted, this case cries out for a settlement. The settlement should still net billions of dollars to U.S. taxpayers. But the tragedy here is that by welching on its promise to pay the U.S. government, NextWave could walk away with billions of dollars,” said Kennard.
Kennard’s general counsel, Christopher J. Wright, said he was pleased the court acknowledged that its decision was “grossly unfair” to those who participated in the FCC’s auctions in good faith. Wright is now in private practice.
Verizon Wireless, which bid $8.7 billion for 113 licenses, including more than $4 billion for two-thirds of the New York license, said it remained hopeful it would be able to obtain the licenses.
“We are disappointed by the court’s decision. The FCC has an obligation to ensure that the American people don’t continue to lose out. The FCC and NextWave need to settle this dispute in a way that permits the FCC’s auction results to stand, and this spectrum to be quickly deployed,” said Denny Strigl, president and chief executive officer of Verizon Wireless, the nation’s largest wireless carrier.
A negotiated settlement would most likely require the implicit, it not the explicit, approval of the winning bidders, the FCC, NextWave, the White House and Capitol Hill.
Verizon’s spokesman said the FCC and NextWave need to sit down and negotiate. “We have strong opinions as to where the negotiations should lead,” said Jeffrey Nelson. “It is very important for the FCC to be informed by the opinions of key lawmakers in Congress and the Bush administration.” Other big winners included AT&T Wireless Services Inc.-which won licenses on its own and through its affiliate Alaska Native Wireless-and Cingular Wireless Inc., which bid through a small-business affiliate called Salmon PCS L.L.C.
AT&T Wireless said it was confident the FCC had the authority to auction the licenses.
For its part, Alaska Native Wireless is hanging onto the hope that the FCC will appeal the court’s ruling. “We anticipate and support the [FCC’s] appeal of this decision and look forward to final award of the licenses as quickly as possible,” said Conrad Bagne of Arctic Slope Regional Corp., managing member of Alaska Native Wireless.
Cingular refused comment until it had completed its review of the decision.
The decision was not expected to impact the stock prices of Verizon Wireless or the other winners, said Frank Marsala, vice president and wireless equity analyst at Robertson Stephenson.
Marsala said companies such as Nextel Communications Inc. and Leap Wireless International Inc. could become take-over targets for larger companies looking to get spectrum. He tempered that, however, by saying there were still regulatory and legal hurdles such as antitrust considerations and the cap that limits the amount of spectrum a company can control to 45 megahertz in urban areas and 55 megahertz in rural areas.
“Nextel’s spectrum and Leap’s spectrum could garner more, but they all have issues,” said Marsala.
The Cellular Telecommunications & Internet Association, which had joined the case on behalf of the FCC, used the decision to reinforce its belief that government must remove the spectrum cap.
“Today’s court decision underscores the immediate need for spectrum cap relief and the allocation of additional spectrum for a thriving wireless industry. These licenses would have provided some relief to companies already reaching their capacity to serve consumer
s,” said CTIA President Thomas E. Wheeler.
Strigl also highlighted the spectrum cap in his reaction. “The NextWave situation underscores why it is critically important for the government to develop and implement a long-term spectrum management policy, to ensure that the American people and business can take advantage of benefits to come in a world of next-generation wireless telecommunications. It’s time to eliminate the spectrum cap, identify additional unencumbered spectrum and bring it to market in short order,” said Strigl.
It now looks like wireless companies hoping to gain access to spectrum in constrained markets will have to go hat-in-hand to NextWave to rent the spectrum in much the way NextWave planned in its original business model.
NextWave billed itself as a carrier’s carrier, planning to build out a network and then lease capacity on that network to carriers to market to end users.
