WHITE PLAINS, N.Y.-Bankrupt NextWave Telecom Inc.’s efforts to keep its 90 wireless licenses despite a cancellation notice from the Federal Communications Commission moved to court last week, as Bankruptcy Judge Adlai S. Hardin Jr. asked the government to explain when the licenses were canceled and how NextWave was to know they were canceled.
Hardin, who did not rule on the case Friday, wants to know when NextWave defaulted on its license payments.
In a related matter, NextWave also signaled it will ask the U.S. Court of Appeals for the Second Circuit to rehear the case. In December, the Second Circuit ruled bankruptcy law could not be used in licensing and regulating spectrum. Based on that decision, the FCC announced Jan. 12 it was canceling NextWave’s licenses and would re-auction them July 26.
On Friday, attorneys from the Department of Justice, the FCC, and NextWave appeared before Hardin so he could determine whether the government could cancel the licenses while they are still tied up in bankruptcy.
U.S. Attorney Daniel S. Alter had a tough time answering Hardin’s questions. In one exchange, Alter did not directly answer the question and in another, he said he was not privy to discussions inside the FCC so he could not answer.
Hardin-who has seen his previous decision to reduce the value of NextWave’s licenses from $4.7 billion to $1 billion appealed and eventually reversed-indicated any decision he made would also be appealed.
“I have to rule on the motion. I know it will be appealed no matter what I rule so I want to get this right. What was in default? How much was due? When was it due? And what documentation is there?,” Hardin asked Alter.
Alter replied: “There was no regulatory requirement for notice of default to be issued.” According to Alter, NextWave was in default since early January 1999, since it had not made any installment payments on its PCS licenses.
NextWave’s attorneys were incredulous at this, noting that 10 separate judges at the federal district and appeals court levels have reviewed this matter.
Hardin seemed to agree and again press Alter for an answer. “If you can’t answer these questions on appeal, all you will hear is (NextWave attorney) Deborah Schrier-Rape saying that had the FCC told the NextWave executives at any time during this proceeding that money was due or the licenses would be canceled, you’d better believe the management of NextWave would have gone out and at least tried to raise the money,” Hardin said.
NextWave believes that since the FCC did not seek relief from the automatic stay (which protects debtors from their creditors) that the FCC cannot take back an asset that is part of the bankruptcy proceeding.
“You see the problem is if I am to rule on this motion, a lot of people have a lot of money at stake if these licenses are to be declared void and canceled and stripped out of the debtor’s estate. Everyone who stands to lose all of this money has the right to know when NextWave was declared in default,” Hardin said.
The C- and F-block licensee filed for bankruptcy June 8, 1998, rather than participate in an FCC restructuring effort for personal communications services licenses. The case went to trial last April.
The case eventually ended up at the Second Circuit, which ruled that neither bankruptcy court nor district court should have used bankruptcy law to tinker with the FCC’s regulatory process of awarding spectrum licenses.
Notwithstanding the Second Circuit ruling, NextWave scheduled a confirmation hearing for its reorganization plan with Hardin. In papers filed with the bankruptcy court the same day the FCC canceled the licenses, the government officially objected to the reorganization plan because it was contingent upon NextWave keeping its licenses.
The FCC’s action came despite a heavy lobbying effort by NextWave to keep its licenses-a fact not lost on Hardin, who noted that NextWave Chairman and Chief Executive Officer Allen Salmasi had written the FCC Jan. 11, offering to pay the full $4.7 billion.
“Are you saying that Salmasi’s letter of Jan. 11, 2000, to the FCC offering to pay the entire $4.7 billion had nothing to do with [FCC] Chairman [William] Kennard’s decision one day later to cancel Next licenses and re-auction them?” Hardin asked Alter. Alter, who works in New York, said he could not speak to that because he was not privy to that decision-making process.
The FCC last week tried to get the case moved from bankruptcy court to a federal district court, but was unsuccessful.
The DE rules debate
Meanwhile, Kennard told reporters Wednesday that large wireless companies hoping to participate in the re-auction of the NextWave licenses will need to ask the FCC to lift the rules that restrict those licenses to small businesses.
“When we made the announcement about the NextWave licenses, we were not making an announcement about [changing our auction rules]. We were not changing our auction rules in any way,” Kennard said. “As we speak, our designated-entity rules are currently in place. As far as I know, there is no request for waiver.”
The Cellular Telecommunications Industry Association believes the designated-entity rules are anti-competitive and is working on Capitol Hill to have Congress pressure the FCC to lift them.
“The only fair and consistent way to re-auction the licenses is in a fashion that allows everyone to bid without restrictions. Keeping the barriers in place will allow the FCC to pick and choose individual companies that will qualify to bid. We have already seen, through legislation the FCC supported last year, they can and will support a sweetheart deal that allows one company to acquire the licenses, and short-change taxpayers by selling the spectrum at less than market value. We believe Congress should clarify that there will be a fair and equitable re-auction process free from any special FCC deals,” said Steven K. Berry, CTIA senior vice president for congressional affairs.
CTIA reportedly has been circulating a draft bill that would lift the DE rules on all bankrupt C- and F-block licenses. The re-auction of all of these licenses would have to occur before Sept. 30.
This is not the first time Congress has been involved in the C-block debacle. Indeed Congress has been a behind-the-scenes player throughout the whole process and is likely to emerge again if, as expected, the FCC or the White House tries to change the law to clarify that spectrum licenses are not subject to bankruptcy law.
“I don’t think we should amend bankruptcy laws to suit the FCC,” said Rep. Billy Tauzin (R-La.), chairman of the House telecommunications subcommittee.
Tauzin is among several lawmakers who have opposed FCC spectrum bankruptcy reform legislation in the past.
Moreover, Tauzin said Congress should not even consider FCC-driven bankruptcy reforms while NextWave litigation is pending.
Washington Bureau Chief Jeffrey Silva and New York Bureau Chief Elizabeth V. Mooney contributed to this report.
