WHITE PLAINS, N.Y.-The government late Friday was granted a last-minute emergency stay in its appeal against the bankruptcy reorganization of NextWave Personal Communications Inc., despite a stinging rebuke from another judge earlier in the week that blocked FCC appeal plans.
The stay, signed by Chief Judge Ralph K. Winter, grants a motion filed by the Federal Communications Commission’s New York Department of Justice attorney Daniel S. Alter. The stay is effective until the judge has a chance to hear the case on Tuesday.
The paperwork indicates NextWave was not aware the stay was being filed.
The emergency stay request shows the government’s intent to continue every legal avenue to prevent NextWave’s reorganization plan from being confirmed on Sept. 8. “Absent the requested stay, bankruptcy plan confirmation may moot this appeal on Sept. 8,” according to the document.
While the government was granted the emergency stay, a different judge who listened to eight hours of testimony from NextWave and the government discounted the government’s request to stop NextWave’s reorganization plan.
As such, the confirmation hearing on its Chapter 11 plan still is ward as scheduled on Sept. 8 due to the decision handed down Aug. 25 by Adlai S. Hardin Jr., presiding judge for the U.S. Bankruptcy Court for the Southern District of New York.
“The FCC has made no showing whatsoever … presented no evidence at all … and no cogent or intuitively persuasive argument that the debtor and the debtor’s estate will suffer no substantial harm if the stay is granted,” he said.
By contrast, Judge Hardin said NextWave’s witnesses presented “compelling … extremely convincing and credible” testimony that the company, heretofore locked out of the capital markets, has been able to raise substantial financing in recent months. That turnaround in receptivity among potential financial backers has occurred since he and an appellate judge dismissed earlier FCC challenges to the company’s license award.
The fledgling C-block designated entity, which is based in Hawthorne, N.Y., hopes to proceed with its two-pronged plan, which would cost $10 billion in 10 years, to provide carrier’s carrier services, Roy Berger, NextWave’s senior vice president for business planning, and Ray Dolan, the company’s chief operating officer, testified at the hearing.
NextWave hopes to position itself to offer a lower-cost alternative to resellers. After November 2002, resellers no longer will be entitled to obtain wholesale rates from existing wireless network providers, in accordance with an FCC sunset provision, said Michael Wack, a former FCC attorney who is NextWave’s vice president, regulation.
And by early 2002, the company must offer commercial services to 30 percent to 50 percent of the population its FCC licenses cover in order to retain them, he said.
NextWave first plans to provide fixed wireless local loop services for resale by various kinds of local exchange carrier competitors seeking to bypass the last-mile wireline bottleneck in order to offer basic telephony and high-speed Internet access to individual and small-business customers. A test of the service could begin by October in San Diego and, if successful, commercial service would be launched by mid-2000, Dolan said.
“What we can provide are levels of interconnection unprecedented in these resellers’ architectures … and not offered technologically by existing carriers today,” he said.
“We need a flexible infrastructure design from vendors to meet the needs of various resellers … We want to accelerate trends going on or develop new Internet-based protocols not yet developed in the wireless world.”
The later and larger part of NextWave’s business plan is to use revenues generated by its fixed wireless infrastructure to support the company’s construction of a third-generation Code Division Multiple Access wireless network for mobile voice and data communications, Berger and Dolan said.
The two-stage plan has received the endorsement of the company’s unsecured creditors, who have invested about $400 million in NextWave, said David M. Friedman, a partner in the New York law firm of Kasowitz, Bensen, Torres & Friedman, which represents those parties.
Contingent on final court approval of its bankruptcy reorganization, NextWave also has received tower and equipment vendor financing commitments of about $750 million so far, company executives said. Of this amount, about $100 million will be used for interest payments to the FCC that have been accruing without interruption since the C-block auctions concluded a few years ago.
Judge Hardin offered an extensive and scathing rationale, rendered in an hour-long, extemporaneous decision that was part of the eight-hour hearing. He will provide a written decision at a later date.
The primary reason Assistant U.S. Attorney Eric B. Fisher offered for the FCC’s objections is the agency’s belief that NextWave’s receipt of the C-block licenses at a lower cost than it bid originally undermines the integrity of all FCC spectrum auction processes. This could encourage other participants in future auctions to bid more than they can pay in hopes a bankruptcy court subsequently would lower their obligation, Fisher said. Consequently, if allowed to stand, the bid award would be adverse to the public interest, which the FCC serves, he said.
Besides considering such a possibility remote to nonexistent, the judge identified a host of contradictions that rendered the FCC’s position untenable. “We wouldn’t be here today” if the FCC had given NextWave the licenses in May 1996 when it won them, he said. Instead, the agency waited until February 1997, by which time the license value had dropped, largely due to the FCC’s unprecedented decision to auction additional spectrum simultaneously.
The judge also noted, and Fisher concurred, that the FCC had dropped its opposition to his reduction of NextWave’s C-block bid obligation to $1 billion from $4.7 billion. Hardin’s original decision, rendered May 13, was upheld on appeal in late July by Judge Charles L. Brieant, also of the U.S. District Court for the Southern District of New York.
Additionally, Judge Brieant dismissed the FCC’s contention that it is an entity above and beyond the status of a normal creditor and therefore not subject to adjudication by the bankruptcy courts with respect to its relation to NextWave. It was this decision that the FCC is appealing before the Second Circuit.
In his Aug. 25 ruling, Judge Hardin took into account testimony about several FCC attempts to eliminate the bankruptcy courts’ jurisdiction over FCC licenses, including a provision in one version of pending Fiscal Year 2000 federal budget legislation.
Despite the U.S. Attorney’s assertions about maintaining the integrity of the FCC auction process, the judge also noted that the FCC’s general counsel had recently recommended the federal agency sell 95 of NextWave’s licenses to Nextel Communications Inc. Not only would this transaction have occurred without competitive bidding, but the licenses would have been awarded to a large, national company with deep pockets. The C-block auction was designed for participation by entrepreneurial, small businesses. Nextel has failed in several earlier attempts to obtain FCC classification as a qualified designated entity, according to testimony Aug. 25.
“Of course, this court is of the opinion that its decision is correct … Without hesitation, my view is that there is not a strong or even reasonable likelihood of success on the merits in an appeal,” Judge Hardin said.
“But I have not infrequently granted a stay pending appeal, irrespective of my opinion on the merits, where there is significant harm to the party seeking it and modest harm to the (other) party … The only irreparable injury identified by the FCC is that its appeal
will be rendered moot,” Judge Hardin said.
On the other hand, the judge said he believes the uncert
ainties created by the potential for a drawn-out appeals process would do serious harm to two kinds of public-interest constituencies. The first are NextWave’s creditors, for whom Chapter 11 of the federal bankruptcy code is designed to protect by enabling a floundering company with promise to get back on its feet.
The second group is defined in Section 309J of the Communications Act, which the FCC is mandated to implement, Hardin said.
“It appears from provisions of the statute that the public interest is reflected in the rapid deployment of new technologies and services for the public benefit without judicial or administrative delay. This debtor is positioned to proceed quite rapidly with the utilization of its licenses.
“The second fundamental policy objective (of Section 309J) is to promote economic opportunity and competition by disseminating the licenses among a variety of small and emerging businesses and designated entities such as NextWave.”
In particular, the company’s plan to “act in the public market as a carrier’s carrier” will multiply these public benefits, Judge Hardin added.
RCR Washington Reporter Heather Forsgren Weaver contributed to this report.
