Faber: The NextWave Question
By David Faber CNBC TV Wall Street Reporter May 8, 2001 03:40 PM
cnbc.com
By David Faber
CNBC TV Wall Street Reporter
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May 8, 2001 03:40 PM
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The wireless world has begun talking to bankrupt company NextWave as a prelude to what many believe will be that
company's victory in a U.S. court of appeals.
The case in question was heard in mid-March. It is NextWave's appeal of a decision by the FCC to take back wireless
licenses NextWave was awarded, but did not pay for.
At issue in the case is whether the Federal Communications Commission (FCC) acted outside the bankruptcy process in
seizing the licenses or was within its rights as a regulatory agency when NextWave failed to make timely payment for
the licenses.
While it may not be the slam-dunk for NextWave that some who've heard testimony believe, NextWave is seen as having
a decent chance to prevail.
If it does, NextWave will get back licenses that, while now worth close to $17 billion, it committed to pay only $4.7 billion
for and owes the FCC $5.5 billion for including late payments. The licenses in question are for spectrum that other
wireless companies need so they can offer new so called third generation services.
The FCC has already re-auctioned the NextWave licenses. Wireless giants such as Verizon {VZ, News, Boards}, AT&T
{T, News, Boards} and Cingular made commitments to pay the FCC some $17 billion for them.
NextWave's deputy general counsel, Mike Wack, says NextWave hopes to see the verdict in the next few weeks. If
NextWave does win, Wack says the company plans to file a new plan of reorganization with the bankruptcy court,
allowing it to reemerge with its licenses and begin building a wireless network. That may be posturing. NextWave needs
to give that impression, but few who follow the company tell me they expect it to follow that path.
In fact, sources close to Verizon Wireless tell me that company has already begun sounding out NextWave about the
possibility of buying some of its licenses if it wins them back. Verizon bid $8.7 billion for NextWave's licenses when they
were re-auctioned by the FCC.
Other players in the re auction are also believed to be eyeing a deal with NextWave. In fact, if NextWave does win, it
may be in a position to work a deal whereby it stops the FCC from appealing by paying it more than is currently owed.
In order to do a deal with NextWave, Verizon would have to create a so-called designated entity -- something sources
tell me it is already contemplating.
At present, the FCC is NextWave's main creditor. But if NextWave is successful in the case, given the value of its
licenses, its current equity holders could also find themselves with a windfall.
Normally, in a bankruptcy situation, equity is worthless. But in this case, it could be worthless or it could be worth a
great deal. The equity trades in a third market where a piece of 6 million shares has recently been offered at prices
ranging from $2.50 to $3.
This is not the first time NextWave's equity appeared to have value. Before the FCC won the right to take back its
licenses, wireless company Nextel, back in late 1999, was making a hostile $8.3 billion offer for NextWave that would
also have given value to the equity.
NextWave eventually did a deal of its own, raising equity from notables such as John Malone, Gary Winnick and private
equity firm TPG.
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