WASHINGTON—The negotiators finally reached a settlement agreement Thursday that will give the PCS C- and F-block licenses of bankrupt NextWave Telecom Inc. to the re-auction winners. It remains unclear whether Congress will pass legislation, as called for in the agreement, by the end of the year.
“This is the largest spectrum auction in American history and you can bet your bottom dollar our committee will assert jurisdiction,” said Ken Johnson, spokesman for the House Commerce Committee. “We would like to solve this long festering problem before the end of the year.”
“It is my intention to examine the proposed NextWave settlement to ensure that this matter is resolved upon terms that protect the American taxpayer from being short-changed. The American taxpayer must be made whole before being asked to participate in any settlement. Thus, I will review any proposed settlement agreement that the [Federal Communications Commission] or the administration puts forward to ensure that it protects the financial interests of the true owners of all spectrum resources: the American taxpayers,” said Sen. John McCain (R-Ariz.), ranking member of the Senate Commerce Committee.
McCain recently sent a letter strongly criticizing the proposed deal because the government will only get about $10 billion rather than the nearly $16 billion bid by the re-auction winners.
“It’s too early to pop the champagne corks, but with the Bush administration’s leadership on Capitol Hill to enact legislation that will support the recently announced settlement, we are encouraged that the NextWave situation will be fully resolved very soon. … The sealing of the deal now requires the U.S. Senate and House of Representatives to endorse this settlement. This is the one solution that will work, and we strongly encourage the Congress to act immediately to support it,” said Denny Strigl, Verizon Wireless chief executive officer.
Verizon Wireless bid nearly $9 billion in the re-auction, which concluded earlier this year. On June 22, the U.S. Court of Appeals for the District of Columbia Circuit said the FCC erred when it canceled, reallocated and re-auctioned NextWave’s C- and F-block licenses.
“It is only right that the Congress have an opportunity to pass on the terms and render its judgement as to the benefits for American consumers,” said FCC Chairman Michael K. Powell.
Powell had publicly warned the negotiators earlier in the week that it was now or never.
“If people really want the settlement—I mean parties, the Congress and the government—now is the time. … They owe Congress an opportunity to pass on this and if we’re sincere, it needs to happen very soon or there’s not going to be a really good prospect of getting congressional approval,” Powell told Reuters while he was in Philadelphia attending a meeting of state regulators.
Powell’s statements were backed up by both industry and congressional sources. “The biggest threat with [the legislation] this not being done before the end of the session is the parties not coming to a settlement,” said an aide to Rep. John D. Dingell, ranking member of the House Commerce Committee.
If Rep. Billy Tauzin (R-La.) indeed asserts jurisdiction and McCain sticks to his guns about the American taxpayers not getting their fair share, it could make it difficult for industry lobbyists who have long insisted that the wheels were greased for legislation to be attached to whatever “must-pass” legislation was moving through Congress.
Now Congress will have a week off for Thanksgiving and all sorts of mischief could occur. Some congressional staffers already have complained that the settlement and its codifying legislation, which protects the interests of the wireless companies, including NextWave, but does not protect Congress from criticism of a sweetheart deal for a company that never built out a network and never turned on service.
Another problem for Congress is that the same lawyers who wrote the settlement agreements wrote the draft legislation. The legislation may be too complex.
“The settlement agreement was done by lawyers who are not lobbyists,” said one lobbyist.
“The parties on the settlement should not be pointing their fingers at any committee as being a roadblock to this deal,” said the Dingell aide.
In addition to Congress, the Department of Justice must pass on the deal, said Powell, noting that approval was expected.
Bankruptcy Judge Adlai S. Hardin must also approve the settlement. NextWave told Hardin prematurely on Nov. 8 that a deal was done. The next hearing before Hardin is not scheduled until late next month.
The seemingly endless negotiations were summed up by one analyst in a note to investors on Nov. 9.
“It’s become pretty routine: reports surface, citing unnamed sources, that a settlement of the NextWave dispute has been reached or is imminent, only to be followed by continued haggling until the next reports of a breakthrough. … We believe that parties have continued to make progress but have had to drill into deeper and deeper layers of detail due to the complexity of the settlement, the high stakes, and the number of lawyers. One person’s technicality can be another’s substantive sticking point,” said Blair Levin, former FCC chief of staff now with Legg Mason Equity Research.
Verizon Wireless started negotiations for a settlement this summer with the blessing of the government. Once the general outlines were agreed to, then other players, such as AT&T Wireless Services Inc.’s affiliate, Alaska Native Wireless L.L.C., Cingular Wireless L.L.C.’s partner, Salmon PCS L.L.C., and VoiceStream Wireless Corp., entered the negotiations.
“All of the [re-auction] winners were happy to let Verizon do the tough negotiations,” said one industry source who declined to be named.
The settlement ends the endless litigation that began when NextWave declared bankruptcy on June 8, 1998. The FCC had asked the Supreme Court to review the D.C. Circuit’s decision that said bankruptcy law trumped communications law but the FCC will now drop that appeal.
“The commission has fought aggressively for years to recapture these licenses, insisting they were public assets. … Regrettably the D.C. Circuit has interpreted the law differently, and without a prospective legislative change, the public will bear this risk in future auctions,” said Powell.
“The circumstances that presently exist drove the commission to seek a resolution that would capture as much value for the public as possible. This settlement does just that,” he added.
“This settlement takes us down a different path, but entering into this agreement is in the best interest of our creditors and shareholders. The FCC will be able to deliver additional spectrum to the wireless industry through its auction process, the treasury will receive in excess of $10 billion of auction proceeds, and NextWave is receiving value for returning our licenses to the government,” said NextWave CEO Allen Salmasi.
One of those investors, Bay Harbour Investments, which has spent millions lobbying on behalf of NextWave, is expected to reap hundreds of millions of dollars.
An outline of the settlement, obtained by RCR Wireless News, is as follows:
- The FCC and re-auction winners will drop their Supreme Court appeal.
- With bankruptcy court approval, NextWave will relinquish all of its C- and F-block licenses, clearing the way for the FCC to issue the licenses to the qualified re-auction winners. There have been some challenges at the FCC and in the courts that some of the winners, namely Alaska Native and Salmon should be disqualified because of the ownership interest held by their large wireless carrier partners. These challenges are not impacted by the settlement agreement. Verizon Wireless does not have thi
s problem since it did not claim to be a small business when bidding on its licenses. - The re-auction winners m
ust pay the full amount of their winning bids by June 28 and then they will receive their licenses. This timetable allows Verizon to raise money through an initial public offering expected to happen in the next few months. - The government will pay NextWave $9.55 billion after bankruptcy approval of the settlement and the re-auction winning bidders have submitted payments that equal or exceed the payment owned to NextWave. Letters of credit from the largest auction winners will ensure that the government will receive such amounts. These letters of credit will essentially guarantee that Verizon and Alaska Native will pay regardless of what happens in court and in Congress.
- NextWave will pay taxes and other payments to the government leaving it with more than $6 billion.
c If the re-auction winners have not received their licenses (or receive them, but later lose them and their rights are not restored) by Dec. 31, 2002, due to a successful challenge to the settlement agreement or the legislation, the re-auction will be rescinded, and the spectrum will revert to the FCC. The Dec. 31, 2002, date can be extended for up to 90 days in limited circumstances. - Any re-auction winner who is not among the initial parties to the settlement agreement may elect to join the agreement by Jan. 30.
- Smaller winning bidders in the re-auction, whose total bids did not exceed $10 million are provided a window in which they may withdraw all of their bids without penalty, in which case the FCC could proceed to re-auction that spectrum again.
- The proposed legislation approving the settlement provides for expedited consideration of any constitutional challenges by the D.C. Circuit.
NextWave will continue to build out its network until Congress and Judge Hardin approve the deal. Hardin must also approve NextWave’s fourth reorganization plan, which is expected be filed after the settlement is approved. A component of that plan will be to operate the five remaining D- and E-block licenses that it will still own, said NextWave. NextWave expects to turn on service for its carriers’ carrier network in Detroit and Madison, Wis., by the middle of next year, the company said.
