Odds Against NextWave Survival in Spectrum Game
wirelessnewsfactor.com
By Dan McDonough, Jr.
Wireless NewsFactor
February 20, 2002
'There are some serious politics involved,' Yankee analyst Gene Signorini told Wireless
NewsFactor. 'They tried to push [a compromise deal] through Congress quickly, and
Congress didn't respond well to that. Some members of Congress believe NextWave is being
rewarded with millions of dollars it doesn't deserve.'
With billions of dollars at stake, and spectrum-thirsty wireless carriers flying around like buzzards, the
executives at bankrupt NextWave Telecom are doing what they can to get their affairs in order.
Trouble is, the odds are stacked against the company, which has been stripped of billions of dollars
in spectrum licenses by the U.S. Federal Communications Commission (FCC).
"My expectation is that the spectrum that NextWave owns will eventually end up in the hands of the
major operators or their affiliates who bid in the contested auctions. This could come about in a
number of ways, but I believe it is the ultimate outcome," Forrester senior analyst Charles Golvin told
Wireless NewsFactor.
"I don't believe NextWave will emerge as a viable operator because they will not have the spectrum
or wherewithal to build the network," Golvin added.
As of now, though, the issue is tied up in the courts. A handful of carriers bid on NextWave's revoked
spectrum licenses, but the FCC cannot make good on the transaction. NextWave still wants to do
business, and it wants its spectrum back. Right now, however, the company is waiting to find out if
the case will be heard by the U.S. Supreme Court.
A Second Chance
"The company is focusing on resolving
pending litigation and moving forward
with deployment and activation of
wireless facilities in all 95 markets
where we hold FCC licenses to provide
PCS service," NextWave senior vice
president and deputy general counsel
Michael Wack told Wireless
NewsFactor.
"Completion of our reorganization
necessarily awaits resolution of the
litigation," Wack said, "but we anticipate
emerging from bankruptcy as quickly as
possible."
NextWave is looking to the high court to
decline the case, which will give the
company a second chance to get its act
together and pay up the billions it owes for the spectrum licenses it bid on in the government's
auction.
"The government has asked the U.S. Supreme Court to review the June 2001 decision of the U.S.
Court of Appeals for the District of Columbia Circuit, which found that the FCC's purported
cancellation of NextWave's PCS licenses was unlawful," Wack said. "Many observers predict the
Supreme Court will decide in March of this year whether to hear the case."
Smart Solution
Even so, many observers believe that NextWave's best option already was put on the table by the
FCC. NextWave and the carriers looking to scoop up the spare spectrum backed the deal, too. It was
Congress that balked.
Under a deal brokered last year, NextWave would have received US$6 billion from the U.S.
government in exchange for the licenses it had regained as a result of last summer's appellate court
ruling. The FCC was poised to bring in about $10 billion by reselling the spectrum to 13 other carriers
-- which already have placed down $3.1 billion in deposits.
Congress did not move on the deal by the deadline of December 31st.
"There are some serious politics involved," Yankee Group analyst Gene Signorini told Wireless
NewsFactor. "They tried to push this through Congress quickly, and Congress didn't respond well to
that. Some members of Congress believe NextWave is being rewarded with millions of dollars it
doesn't deserve."
Money for the Government
If Congress was skeptical, it only is because that is the nature of Congress. The analysts agree that
this deal would have made a lot of sense under the difficult circumstances.
"I do think it's a viable solution," Signorini said. "The FCC came up with the best solution for a
complex problem."
More than just a viable solution -- the FCC deal would have brought in more revenue for the
government and it would have put the spectrum to use.
"The redux of the NextWave saga will be seen in future auctions," Golvin said. "Ultimately, the
biggest loser in the NextWave story is the consumer because [consumers] have gotten nothing from
the public resource that spectrum represents -- no revenue to the government to offset taxes and the
spectrum lies fallow."
More Lawsuits
Because of the delay by Congress, more wrangling has begun.
In January, the 13 carriers that were counting on getting the 197 NextWave spectrum licenses
auctioned by the FCC petitioned the FCC for a refund of their deposits. Since the deposits come to
more than $3 billion dollars, the carriers say they are losing more that $400,000 a day in interest
payments.
One of the major players to bid on NextWave's spectrum, Verizon Wireless filed a lawsuit earlier this
month to recoup the $1.7 billion deposit it paid to the FCC.
"The FCC has neither delivered the licenses to us in the year since the reauction's close, nor has it
recognized that the auction is void. Instead, the FCC continues to hold Verizon Wireless' $1.7 billion,
without paying any interest," Verizon Wireless president and CEO Denny Strigl said earlier this
month.
The company said the loss of interest alone is costing more than $250,000 a day, for a total of more
than $80 million to date.
Exit Strategy
"It's not going to be a quick decision now," Signorini said. "We're looking at a couple more months."
And time also is putting NextWave in a difficult position to play a role in a changing marketplace.
"It's a crowded marketplace now. They have to find customers -- and large customers. That's not
going to be easy," Signorini said. He believes the smartest strategy right now for NextWave is to
focus on an exit strategy. "That makes financial sense for them," he said.
"If the Supreme Court rules with them, it will give the company leverage for negotiations," Signorini
said. "If the Supreme Court rules against them, well that's the end of NextWave, obviously." |
