pcstel, the Consumers Union state the licenses are set to expire in 2006. According to the Wireless Telecommunications Bureau the C block licenses have a second buildout deadline of 1/03/07. I had assumed if the first buildout deadline of 1/03/02 was not met, the licenses would be forfeited, and the second deadline would be moot. Since reading the following, I'm not so sure.
December 6, 2001
United States Senate
Washington DC 20510
Dear Senator:
Subject: NextWave spectrum reallocation and wireless competition
We understand that an amendment may be presented during the defense appropriations bill to end the
five-year dispute over NextWave’s acquisition of wireless spectrum and subsequent bankruptcy.
Accounts indicate that this legislation may be necessary to facilitate the transfer of NextWave’s wireless
licenses to other wireless carriers who successfully bid for these licenses.
The proposed legislation is a raw deal for American taxpayers. The amendment would make taxpayers
bear the financial risk of the Federal Communications Commission’s (FCC) bungling of the license
process. The FCC should never have handed over these licenses free and clear before they received
payment for them.
Under this deal taxpayers would have to pay Nextwave $9 billion. Nextwave would then pay its tax bill
of $3 billion, leaving the company with $6 billion. Subsequently, the companies that bid $15.7 billion for
this spectrum last January will reimburse the treasury for these payments, covering taxpayers’
expenditures. If everything goes as planned, taxpayers will be covered. However, as this deal should
have taught Congress, things do not always go as planned. Rather than giving Nextwave a huge windfall,
Congress should focus on insulating taxpayers from financial risk and making sure that we serve
consumers’ need for more competition between wireless and wireline companies.
It is important to remember that Nextwave would have originally paid more than $4.7 billion for this slice
of spectrum, but never had to bid against the large incumbent providers under the "designated entity"
rules set up to increase competition by favoring entrepreneurs that would be new market entrants. Now,
five years later—having defaulted on their payments and having served no customers—the FCC is in
effect allowing Nextwave to turn around and sell their licenses to Verizon and other large incumbents for
a $9 billion profit ($6 billion after taxes). The public loses twice. First, spectrum it sold on a discounted
basis to add competition to the market—but that “competition” comes primarily from the nation's largest
cell phone company. Second, a company that manipulated the auction process and defaulted on its
responsibilities is being paid $9 billion in ransom, revenue coming straight out of taxpayers’ pockets.
Instead of handing approximately $6 billion to a company that never signed up a single customer,
Congress should be concerned about making sure independent wireless companies survive. It is the
competition from a diversity of wireless business models that drove wireless prices down and ratcheted
up quality of service over the last decade. As the FCC just eliminated the primary mechanism for
ensuring that competitive diversity—the 45 MHz wireless spectrum cap—it is up to Congress to repair
the crumbling competitive foundation that has given consumers affordable rates, increased choice and
better service.
The FCC claims there is no better alternative to this deal; that at least the public will receive a portion of
the auction revenue ($6 billion instead of the $15.7 bid last January) as well as better cell phone service as
incumbents put the spectrum to use. But in fact, the public would be no worse off—and probably farbetter off—if this settlement is rejected and the FCC proceeds with its appeal to the U.S. Supreme Court.
If the FCC wins before the Supreme Court, the public would receive the entire $15.7 billion and the
confusion over interpretation of bankruptcy law would be resolved in favor of the government. If the
FCC loses in court, then Nextwave will have to pay the government what it owes from the original
auction. If this turns out to be grossly inadequate, the FCC can re-auction the spectrum after 2006 when
the license expires and more than make up for any losses. Even a loss before the Supreme Court would
clarify the disputed interpretation of the status of FCC licenses in bankruptcy law – and allow Congress to
fix that law if it chooses.
Most importantly, Congress should ensure that the FCC uses the license allocation process to create
wireless alternatives to local wireline monopolies, rather than handing over more spectrum to local
monopolies when they have no incentive to compete against their core businesses. If the FCC continues
to foster nothing but consolidation in the wireless industry, consumers will see the vibrantly competitive
marketplace for wireless services evaporate into an extension of the local phone monopoly. Competition,
not the beneficence of incumbent monopolies, is what makes markets work.
If Congress is going to smooth the way for wireless companies to expand their service areas or obtain
wireless licenses, we believe Congress should both ensure that taxpayers do not bear additional financial
risks, and also make sure that the FCC does nothing that diminishes the number of wireless suppliers
unaffiliated with wireline local telephone companies.
Sincerely,
Chris Murray Gene Kimmelman
Telecom and Internet Counsel Co-Director, Washington Office
Consumers Union Consumers Union |
