NextWave Reaches Its Crest
Court Decision Leaves Unhappiness In Its Wake
BY MARK ROCKWELL
MARCH 11, 2002
WIRELESS WEEK
wirelessweek.com
WASHINGTON The U.S. Supreme Court's decision last week to hear the FCC's appeal in the
NextWave Telecom Inc. case brought gasps of surprise and dismay from all corners of the wireless
industry, which was hoping the five-year battle over the company's disputed spectrum would at last be
resolved.
NextWave's plummeting stock price seemed to be the only immediate effect of the decision. Beneath
the surface, however, the industry braced itself for at least another year, and possibly much longer, on
the NextWave roller coaster.
Companies embroiled in the dispute put on a brave face, saying they're in no immediate trouble
because of the court's decision, but no one is happy about it either. Several major wireless players bid
billions of dollars in a January 2001 re-auction of NextWave's licenses, which the FCC reclaimed after
the company declared bankruptcy in 1999. The carriers were hoping to use the additional spectrum to
expand their networks and upgrade to next-generation services. But a federal appeals court in
Washington, D.C., ruled the FCC had violated federal bankruptcy laws when it took back the licenses,
a decision that lead the agency to appeal to the Supreme Court.
The Supreme Court's decision to hear the appeal will add at least another year before some kind of
resolution is reached, observers say. Filing legal briefs, hearing oral arguments and reaching a decision
likely will stretch into mid-2003, says Michael Gill Jr., director of research at Tejas Securities Group. If
the FCC wins, the case will be remanded back to U.S. district court for action, which could take another
nine months to a year, Gill says. "That's the worst-case scenario," he says.
"In the short term, this is going to have little impact" on NextWave, says the company's spokesman,
Michael Wack. The company said in mid-February that it began phase one of its network rollout in 60
markets across the country. Those markets now have data service capabilities and another two
markets will be up and running by April that will be voice and data capable, Wack says.
Still, NextWave is disappointed with the Supreme Court's decision. "We'd hoped to have [the appeal]
denied and emerge from reorganization with funds to go ahead with phase two," Wack says. That
phase, which would expand NextWave's network in more markets, probably will be put on hold, given
the uncertainty of the company's spectrum, he says.
NextWave's stock, which trades over the counter, dropped like a stone last Monday after the Supreme
Court announced it would hear the appeal, plummeting from $6.50 a share just before the
announcement to about $2.75 a few minutes after. The company isn't the most attractive acquisition
target at this point either, analysts say.
But the company can continue on for now in spite of its spectrum being in legal limbo. "They can afford
to chase the rainbow" for a while, says Ric Prentiss, managing director for the telecommunications
services research group at Telecommunications Equity Research. "NextWave can build out 'boom
box' high-powered transmission boxes serving only a few customers networks in its markets" with little
effort, Prentiss says. The company is bound by FCC rules to build out serviceable networks in the
markets where it has licenses or risk losing them.
Verizon Wireless, one of the major bidders in the re-auction, is in an unenviable position as well.
"Verizon is in a tough spot," Prentiss says. "It's got about $1.7 billion tied up in deposits at the FCC." A
U.S. court of appeals recently denied the company's petition to get its deposits refunded, so the
company probably will have to turn to heavy lobbying at the White House and on Capitol Hill for any
chance of getting its money back, Prentiss says.
Verizon spokesmen say only that the company will continue to seek the return of its deposit. Sources
within the company say it is in no immediate need of the additional licenses. "There aren't any
near-term implications of not having the spectrum," says one Verizon executive, because the carrier
has enough to support the rollout of new services until roughly 2004.
The company is looking at alternatives to regaining the NextWave spectrum but hasn't ruled out going
back to the company itself, says the source. He declined to provide details on how the company would
approach another deal, but says any settlement would require the FCC's cooperation.
Analysts agree that a settlement similar to the one reached by NextWave, the rebidders and the FCC
toward the end of last year probably is a long shot now. That deal, which failed to win congressional
approval by the deal's deadline, would have reimbursed NextWave for turning over its licenses to the
rebidders and left the U.S. Treasury with several billions in additional dollars raised at the re-auction.
In a related development, the FCC denied a petition by TPS Utilicom Inc. that challenged the bid by
Alaska Native Wireless in the NextWave re-auction. The petition said Alaska Native was basically
acting as a front for AT&T Wireless. The re-auction was supposed to help small carriers win the
licenses. The FCC said the matter was best left to the courts to decide, not regulators. |
