re: Allen Salmasi of NextWave
>> NextWave Stubbornly Clings to Life
Andrew Backover
USA Today
07/02/2001
Six years ago, Iranian immigrant Allen Salmasi attracted big names from the communications industry to form a wireless phone start-up. He raised half a billion dollars and bid more than $4.8 billion for wireless licenses that he ultimately couldn't pay for.
Salmasi filed for bankruptcy court protection, fired hundreds of workers and stood on the brink of failure. His company, NextWave Telecom, was so dead that the federal government earlier this year auctioned off its most vital part, the licenses that would allow it to offer wireless voice and data services to more than 160 million people in major markets across the USA.
If the story had ended there, history would have recorded privately held NextWave as just one of dozens of small wireless firms that got swallowed up in the industry shakeout of the late 1990s. But Salmasi is no quitter.
A tennis partner to the likes of Chuck Norris and billionaire Warren Buffett and a man who has partied with presidents, Salmasi assembled an army of lawyers, technologists, Wall Street rainmakers and Washington heavyweights, including powerhouse lobbyist Haley Barbour and former FBI and CIA chief William H. Webster. Together, they took the Federal Communications Commission to court, arguing that the FCC's attempt to revoke the licenses violated bankruptcy law. They told a federal judge that the government was wrong to auction off the licenses, for which it got $16 billion the second time around. And they won.
"It would be a great film," Salmasi, 47, says.
Now, he is adamant that he'll build the wireless network he started out to establish and make good on promises to NextWave investors. He scoffs at suggestions that he's angling to settle the dispute for an estimated $12 billion, the sum that could be left after paying debts, according to industry analysts.
"Never," Salmasi says.
"I have enough money to retire for 10 lifetimes," he insists. "It has gone beyond money. It has become a matter of principle. All of my shareholders feel the same way. No one wants to sell."
How is it that a tiny company with only 40 employees has the FCC and major wireless carriers against the wall? Verizon, Cingular and AT&T bid most of the $16 billion to beef up cellphone coverage in areas where it is spotty.
The answer, in large part, is Salmasi's tenacity and the vagaries of the legal system.
Since filing for bankruptcy court protection in June 1998, NextWave has spent more than $40 million on legal bills while trying to keep the licenses and stay afloat.
It has shriveled from more than 600 employees 4 years ago to a skeleton crew of lawyers, engineers and marketing types. It moved its headquarters from San Diego to a bare-bones hub in an industrial park in Hawthorne, N.Y., to be closer to the Wall Street money it desperately needs. Things were so bad at one point that Salmasi wrote a personal check for $1.3 million to meet payroll. But Salmasi is committed to his dream, one that goes beyond cellphones. He envisions his network delivering high-speed Internet connections to the home or to those on the go.
Birth of an Idea
Salmasi's family built a fortune of "several hundred million" while running a construction business in Iran, he says. They sent him to the USA to study in 1971. A few years later, with revolution rocking their country, they fled Iran and joined him with just a fraction of their wealth intact.
Salmasi, a onetime teenage contestant on a TV quiz show in his native country, earned engineering, management-economics and mathematics degrees at Purdue University and the University of Southern California.
While working for NASA, he saw a market for a satellite technology that could track trucks. He started a company called Omninet in 1983 with $11 million from his family, then asked Qualcomm to build the equipment he needed. The companies merged in 1988. Salmasi, his family and a few others got what was then a 50% stake in Qualcomm, now one of the world's top wireless technology firms. He helped create Qualcomm's widely used CDMA wireless technology and became president of its wireless business.
While at Qualcomm, Salmasi saw opportunity in the FCC auctions. In late 1995 and early 1996, the government was allowing small businesses to bid for radio spectrum. The plan was to spark competition in the young wireless industry, which then had only a few big players.
Salmasi decided to form a "carrier's carrier," selling wholesale minutes to cable TV firms, long-distance companies and others who wanted to offer wireless service but didn't have networks.
The auctions commanded $10.2 billion in bids, and carriers were so aggressive that one trade publication described them as "lapsed members of Gamblers Anonymous." No company was more aggressive than NextWave, the high bidder in two auctions at $4.74 billion. Later, it would bid in another auction, bringing its total bids to more than $4.8 billion. Within months, NextWave had two dozen customers, including a deal with long-distance firm MCI for 10 billion minutes of airtime.
Salmasi's Team Included:
Janice Obuchowski, NextWave's vice chair and co-founder, who was the elder President Bush's policy adviser on telecommunications. She was a former FCC counsel and a Qualcomm board member. She left NextWave 3 years ago to go back to her telecom consulting business.
NextWave General Counsel Frank Cassou, who had a reputation for raising venture capital and taking companies public while a partner at Cooley Godward.
Cassou was named to American Lawyer's list of top attorneys younger than 45. At NextWave, he helped woo investors for the $550 million needed for a down payment on the spectrum and to begin network construction. He also steered the firm through bankruptcy and litigation.
Webster, who brought Washington contacts and a solid reputation. "Someone of his stature could help us with some of the interactions we had with the government," Salmasi says. Webster is still a member of NextWave's board, owns options in the company and calls Salmasi about once a week for updates.
Michael Regan, a senior vice president at NextWave, who counseled the House Commerce committee on the 1996 telecom reform law. He is News Corp.'s senior vice president of government affairs.
Chief Operating Officer Ray Dolan, who worked for predecessors of Verizon Wireless before joining NextWave. Dolan, a former Navy fighter pilot, left NextWave last year and now runs his own tech firm.
"Many of my colleagues left behind prominent and successful careers in the telecom sector and, in many instances, have invested a significant portion of our life savings into the company," Dolan told the Senate Budget Committee last year at a hearing on spectrum management. "To us, this was the entrepreneur's dream."
Political and Financial Snarls
To build the bulk of its network, NextWave needed quick delivery of licenses it won. But opposition from rivals sparked an FCC review of NextWave's then-considerable foreign ownership ranks, delaying arrival of the licenses until early 1997.
By then, the capital markets had dried up, and other wireless firms were going under. Investors soured on the sector because of a glut of players and spectrum, not unlike today's crowded market for fiber-optic networks. Given the conditions, the FCC suspended payments for a year for struggling firms, and later offered them ways to restructure or reduce their debts.
In spring 1998, Salmasi learned that two major investors were backing out. Salmasi, who says he had loaned NextWave about $20 million by then, couldn't pay installments to the FCC. The company filed for bankruptcy protection June 8, 1998.
Critics claimed NextWave was using bankruptcy to get the licenses for pennies on the dollar. Indeed, the value of the licenses was a key issue during bankruptcy proceedings. One court reduced their value to $1 billion because of the depressed market. It was later overturned.
But Salmasi said he offered to pay for the licenses in full. He had lined up $2 billion in financing and was about to emerge from bankruptcy. Barbour's firm lobbied Congress in an unsuccessful attempt to keep the FCC's hands off the licenses.
In January 2000, Salmasi backed President Clinton's plan to bridge the Digital Divide, offering to donate $1 billion of wireless Internet access to Native American reservations and underserved areas. A few weeks earlier, he and his wife, Nicole, had been guests at Clinton's Millennium bash, sitting a few tables from Elizabeth Taylor and Sophia Loren. The donation was an olive branch to the FCC, but it did no good.
The FCC revoked the licenses in mid-January, saying NextWave lost the right to them when it missed payments. The two sides have been in court ever since.
Those on the NextWave side chart life milestones, such as weddings, births and deaths, by key events in the 3-year saga.
Salmasi recalls taking a call about a $2 billion bid for his wireless licenses from Nextel Communications while playing tennis with actor Chuck Norris. "There are many Kodak moments at NextWave," Salmasi says. "That was one of them."
"I got married during the NextWave auction," says Chief Marketing Officer Roy Berger. "In the Louvre in France on my honeymoon, I was trying to determine what to bid for Chicago."
NextWave, once considered foolish for its aggressive bids, got a bargain compared with what others offered this year. Verizon Wireless pledged about $8.3 billion for NextWave's licenses. Cingular Wireless and a partner bid $2.3 billion. AT&T Wireless and an affiliate bid $2.9 billion.
"Spectrum is of value only if you make use of it in two ways. One is to build a network. The other is to sell it," says Verizon Wireless' Jeff Nelson. "Most of the analysts don't believe (NextWave) can build it. If that's the case, (it) needs to do a deal."
But NextWave isn't ready to let go. Salmasi still needs approval for his reorganization plan but says he has lined up several billion dollars in equity financing from the likes of Global Crossing, Liberty Media, Bay Harbour Management, BFD Capital and others. He also has more than $4 billion in debt financing. He says he can pay $550 million to creditors, about $1.6 billion in interest to the FCC, and still build a multibillion-dollar network and pay off $4.3 billion for the licenses in installments.
Most analysts and competitors give NextWave no chance. They doubt the company can find investors and say the market is too crowded now. Most predict NextWave will settle with the FCC, and the licenses will go to its rivals. "They have so much work cut out for themselves," says WR Hambrecht analyst Peter Friedland.
The FCC is mum on its next move. An appeal to the U.S. Supreme Court or settlement talks could drag on for 1 to 2 years. The FCC was dealt a blow Friday when the justices refused to review a lower court ruling that let General Wireless, now called Metro PCS, keep wireless licenses despite not making full and timely payment.
"If I was a betting man," says Nextel CEO Tim Donahue, Verizon, Cingular and AT&T "will have to find alternatives" to the NextWave spectrum.
Berger agrees. "People have tended to always underestimate NextWave," he says. "Anybody who thinks we are not going to build our network is making the same mistake all over again." <<
- Eric - |
