WASHINGTON-It took more than a year and it wasn’t pretty, but the Federal Communications Commission and bankrupt NextWave Telecom Inc. Tuesday signed an agreement requiring NextWave to sell more than 70 percent of its remaining spectrum and to pay the FCC $1.6 billion in cash.
“After the U.S. Supreme Court and U.S. Court of Appeals for the District of Columbia Circuit told us, ‘ you are a creditor and you have only your creditor’s hat on,’ I told the chairman, ‘if we are going to be a creditor, let’s be the biggest, baddest creditor on the block,’ ” John Rogovin, FCC general counsel, told the Federal Communications Bar Association Wednesday morning.
Rogovin’s comments coupled with the prepared statement from FCC Chairman Michael Powell shows the agency really believes it finally won.
“After eight long years, we can finally end the litigation and begin the innovation. This landmark agreement takes valuable spectrum resources out of the courts and will put it in the hands of consumers who can finally use it,” said Powell. “Making additional next-generation wireless services available is good for the economy and good for broadband deployment. Ending one of the most hotly contended legal battles with a commercial solution that results in over $4 billion in value to taxpayers makes this settlement a success for the American people.”
The press releases from the two camps also show how the two sides see the world differently. The FCC’s statement talks about how much NextWave will give up; NextWave talks about how much it will retain.
NextWave will return 72 percent of its spectrum to the FCC upon approval of the bankruptcy court. It recently sold 17 percent of its spectrum to Cingular Wireless L.L.C.
A bankruptcy hearing on the deal is scheduled May 25 in White Plains, N.Y. NextWave’s creditors committee supports the deal.
“I believe this agreement gives everyone a fresh start,” said Alan Salmasi, NextWave chief executive officer.
In the end, NextWave will have 30 10-megahertz licenses for 25 markets, and it will return 155 10-megahertz licenses for 60 markets. These 10-megahertz licenses are equivalents since the original C-block auction was for 30-megahertz licenses.
One of the licenses NextWave will retain is for New York. This license was used on an emergency basis in the wake of Sept. 11, 2001, to help with the congested airwaves when so many people lost their landline service. Legg Mason said this license “is probably worth one-third of all the original Nextwave spectrum.” One of the licenses it will lose is for Los Angeles.
The wireless industry was happy that more spectrum will be available for purchase.
“Making more spectrum available is like adding another lane to the freeway. Wider roads make room for more cars and fewer traffic jams, while additional spectrum means more wireless calls, fewer busy signals and room for high-speed data services,” said Travis Larson, spokesman for the Cellular Telecommunications & Internet Association.
Also, in the event that NextWave sells or leases any of the retained licenses before Feb. 14, 2007, the FCC will get a portion of the proceeds above certain target levels, which represent an increase in value.
The Department of Justice signed off on the agreement.
NextWave said it hopes to emerge from bankruptcy sometime after Sept. 20.
A global settlement has long been anticipated following NextWave’s decision to sell licenses for 34 NextWave markets to Cingular for $1.4 billion. NextWave and Cingular announced the proposed sale last summer. Bankruptcy Judge Adlai S. Hardin Jr. approved the sale last fall and recently the FCC approved the license transfer.
Cingular paid the FCC $714 million of $4.7 billion NextWave still owes the government following a five-year litigation saga. The licenses gave Cingular spectrum in major markets, including Los Angeles, Chicago, San Francisco, Dallas, Houston, Washington, D.C., Atlanta, Boston, San Diego and Baltimore. The licenses-some of which are slices of the 30-megahertz licenses won by NextWave in 1997-cover 83 million potential customers.
The U.S. Supreme Court said Jan. 27, 2003, that NextWave could keep its licenses.
In an 8-1 ruling, the Supreme Court agreed with the U.S. Court of Appeals for the District of Columbia Circuit that the FCC could not take back NextWave’s licenses because they were protected by the Bankruptcy Code.
Congress has at various times tried to pass legislation to fix the conflict between the Communications Act and the Bankruptcy Code, but has never succeeded.
Powell said the FCC learned its lesson from the NextWave/C-block debacle and will no longer auction licenses using installment payments. He said this was “unfortunate” because the agency should at times create mechanisms to encourage small-business and minority spectrum use.
The Supreme Court decision ended nearly five years of litigation that began when NextWave filed for bankruptcy June 8, 1998.
After a bankruptcy judge lowered the amount that NextWave owed to the government, the government won favorable rulings by the U.S. Court of Appeals for the 2nd Circuit but that appeals court said it could not rule on whether the FCC could revoke NextWave’s licenses. The FCC claimed in January 2000 that the licenses cancelled in October 1998 when NextWave failed to make its installment payment. NextWave said the licenses were protected by the Bankruptcy Code. The D.C. Circuit agreed, and later the U.S. Supreme Court agreed.
The NextWave case has also cost all sides a lot of money as each hired bankruptcy and lobbying experts. Theodore Olson, solicitor general, had to recuse himself from acting on behalf of the government since he had argued successfully before the D.C. Circuit for NextWave.
