WSJ article on today's NextWave / Appeals Court news.
June 22, 2001
Appeals Court Reverses the FCC
In NextWave Wireless Auction Case
By MARK WIGFIELD
Dow Jones Newswires
WASHINGTON -- A federal appeals court threw the results of a $17 billion
wireless spectrum auction into chaos Friday, ruling that regulators improperly
canceled licenses held by the bankrupt wireless firm NextWave Telecom Inc.
The U.S. Court of Appeals for the District of
Columbia ruled that the Federal Communications
Commission wasn't exempt from federal
bankruptcy law that bars seizure of assets of
companies in bankruptcy protection. The FCC
had canceled NextWave licenses after it failed to pay the $4.5 billion it owed.
In January, the FCC reauctioned the spectrum, raising $17 billion in sales from
companies like Verizon Wireless and firms backed by AT&T Wireless Group
Corp. and Cingular Wireless. But the court reversed the FCC decision,
canceling NextWave licenses and asked the FCC to review the case again for a
decision consistent with the court's view of the bankruptcy code.
"Applying the fundamental principle that federal agencies must obey all federal
laws, not just those they administer, we conclude that the commission violated
the provision of the Bankruptcy Code that prohibits governmental entities from
revoking debtors' licenses solely for failure to pay debts dischargeable in
bankruptcy," wrote Judge David Tatel in an opinion adopted unanimously by a
three-judge panel of the court.
Telecommunications analyst Paul Glenchur of Schwab Capital Markets'
Washington Research Group said the bottom line is that the FCC's cancellation
of NextWave's licenses "was unlawful. What it probably means is that the
licenses return to NextWave." But Mr. Glenchur added that he expects "fairly
serious settlement discussions between NextWave, auction winners, the FCC,
the Justice Department, federal budget officials and members of Congress with
an interest in how the billions of dollars at stake in this case will find its way
into the U.S. Treasury. Whether or not taxpayers take a bath "depends on how
the settlement is worked out."
While NextWave has said it wants to be a wireless provider and not just sell the
licenses, the company "is a little late to the party in the highly competitive
wireless-services market," Mr. Glenchur said. "It's probably in their interest to
monetize the spectrum and for the FCC to get it into use."
NextWave's licenses represented about $16 billion of the January auction's $17
billion total. But changing market conditions make it unclear exactly how much
those licenses are worth now.
The value could be increased by the difficulties the FCC has had in clearing
additional bands of spectrum to meet the needs of a spectrum-hungry wireless
industry, Mr. Glenchur says. But the telecommunications market is doing
poorly, doubts have been raised about much-hyped "third-generation" wireless
mobile Internet, and the competitive climate "is fierce."
In a statement, NextWave Chairman Allen Salmasi said the company "is very
pleased by today's decision." NextWave has been "ready, willing and able for
several years to pay its debts to the FCC and other creditors in full, deploy
state-of-the-art wireless facilities, and offer the public new competitive
services."
He added that the company "sincerely hopes that today's decision marks the
end of this litigation." FCC attorneys were still reviewing the opinion and had
no immediate comment.
The NextWave story has its roots in a 1996 auction, dubbed the "C-Block"
auction by the FCC, for wireless spectrum. The auction was reserved for
start-ups and entrepreneurs, and the rules allowed winning bidders to pay on
the installment plan.
NextWave won 63 licenses for $4.7 billion. It made a $474 million
down-payment, but then, like many other bidders in the auction, couldn't raise
the rest of the money and filed for protection from creditors under the federal
bankruptcy code.
The FCC's attempts to cancel the licenses and reclaim them were overturned
by a federal bankruptcy court in New York. But the Second Circuit Court of
Appeals ruled that the FCC's regulatory role -- ensuring efficient use of the
public airwaves -- trumped bankruptcy law, allowing the agency to reauction
the spectrum.
All the major wireless companies bid in the January auction, but it was
dominated by Verizon Wireless, which spent $8.7 billion. It was followed by
AT&T Wireless, which spent $2.8 billion, and Cingular Wireless, a joint
venture between BellSouth Corp. and SBC Communications Inc., at $2.3
billion. Unlike Verizon, AT&T and Cingular both bid through small firms
classified as entrepreneurs, which were eligible to bid on licenses that were set
aside for that class of company.
Write to Mark Wigfield at mark.wigfield@dowjones.com
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved. |
