WASHINGTON-Buried in the legalese of the settlement document between the Federal Communications Commission and bankrupt NextWave Telecom Inc. was an agreement that NextWave would pay the FCC $10 million to cover the commission’s outside legal and investment counsel.
“NextWave shall make a payment of $10 million to the FCC on the effective date for expenses incurred by the commission for its non-governmental outside legal counsel and financial advisers in connection with the bankruptcy cases, this agreement and the NextWave/FCC/Cingular term sheet,” according to a section of the agreement that ends the litigation between the commission and NextWave.
NextWave declined comment on the clause, saying it was part of the agreement that also requires NextWave to sell more than 70 percent of its remaining spectrum and pay the FCC $386 million in addition to its $504 million upfront payment made in early 1997 and the $714 million the commission received earlier this month on the closing of the sale of some NextWave licenses to Cingular Wireless L.L.C. All told, NextWave will end up having paid roughly $1.6 billion.
The clause shows why the FCC last week declared victory even though it had lost the litigation battle.
“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 FCC Chairman Michael 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 two camps spun the agreement, each to its own advantage, in press releases detailing the deal. 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.
A bankruptcy hearing on the deal is scheduled for 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.
NextWave and the FCC entered into settlement negotiations almost immediately after the Supreme Court said the commission erred when it canceled and re-auctioned NextWave’s licenses for non-payment because the licenses were protected under bankruptcy law.
But it wasn’t an easy negotiation, because the FCC seemed to refuse to believe it had lost.
“After the 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,’ ” said John Rogovin, FCC general counsel.
In the end, NextWave will keep 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.
NextWave will retain one prime piece of spectrum: 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.” However, the company will lose its Los Angeles spectrum.
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.
Powell said the FCC learned its lesson from the NextWave/C-block debacle and will no longer auction licenses using installment payments.
