WSJ article on FCC / Wireless Firms Will Be Freed From NextWave Auction Bids.
September 12, 2002
Wireless Firms Will Be Freed From NextWave Auction Bids
By YOCHI J. DREAZEN and JESSE DRUCKER
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- In a move with big implications for the battered
wireless industry, federal regulators have decided to free major carriers of
their obligation to potentially fork over the $16 billion they bid in an ill-fated
spectrum auction, according to people familiar with the matter.
The Federal Communications Commission could release an order seeking
public comment on a range of options for resolving the issue as early as
Thursday, these people said.
But the main proposal, these people say, would allow the carriers to opt out
of the auction and free themselves of their obligation to the government
altogether. Many of the carriers, which have lobbied for such a decision,
are likely to exercise that option almost immediately.
Exercising the opt-out option
wouldn't indicate that the
companies have lost interest in
the spectrum. Instead, they
want to improve their balance
sheets by removing the $16
billion in potential debt
obligations to the government
and believe that they could
acquire the spectrum more
cheaply in the future. Some
analysts estimate today's
market value of those
spectrum licenses is roughly
half of the $16 billion that was
bid last year.
At issue are dozens of
spectrum licenses that the
government reclaimed from
NextWave Telecom Inc.
when the company filed for
bankruptcy protection before
paying the $4.7 billion it bid
for the spectrum in 1996. The FCC reauctioned the spectrum last year,
only to see the results of the auction nullified by an appellate-court decision,
ordering the agency to return the spectrum to NextWave. A settlement
calling for NextWave to transfer the licenses to the winning bidders fell
apart last year, and all parties are waiting for the Supreme Court to decide
the matter.
Even with the pending litigation, the FCC gave back billions of dollars in
down payments to the bidders but has so far refused to free the carriers
from their obligation to pay the remainder of their bids if the government
were to regain the NextWave spectrum. The agency also held 3% of the
total amount bid, or about $500 million, which is the penalty assessed if the
carriers were to withdraw their winning bids.
If the FCC allows wireless companies to abandon their bids, the move
could boost the sagging fortunes of the nation's wireless industry, which
has been plagued by plunging stock prices, brutal pricing wars and
continued investor skepticism about growth prospects. Spectrum is scarce,
making it harder for carriers to improve their service quality and so-called
next-generation services such as high-speed mobile Internet access appear
to be years away from widespread usage.
Several analysts said the FCC move showed that the government has finally
grasped the severity of the broader crisis in the telecom industry.
"The government is now actively trying to find ways to help the industry get back on its feet," said Scott
Cleland of the Precursor Group.
Privately, FCC officials concede that the agency was driven by high-level concern about the wireless
industry's condition. FCC spokeswoman Robin Pence declined to comment on the expected move, and
NextWave spokesman Michael Wack also declined to comment.
The FCC decision could have a dramatic impact on Verizon Wireless, a joint venture of Verizon
Communications Inc. and Vodafone Group PLC, which successfully bid about $8 billion for numerous
NextWave licenses. In May, Moody's Investors Service put Verizon Communications and Verizon Wireless on
review for a possible downgrade, citing, among other factors, the uncertainty surrounding the money bid for
those licenses.
Verizon Wireless has led the lobbying campaign to convince regulators to free the carriers of their debt
obligations to the government. "We do think that the overhang industrywide has been stifling to the entire
industry," said spokesman Jeffrey Nelson. "This has not allowed wireless service providers to look forward
and plan for growing our businesses."
The FCC returned $2.8 billion of the carriers' combined $3.3 billion down payment in March, but Mr. Nelson
said the FCC still had $261 million of Verizon Wireless's deposit.
The top bidders in the auction also included a company affiliated with AT&T Wireless that submitted $2.9
billion in winning bids and one backed by Cingular, which submitted $2.2 billion in bids. Cingular is a
partnership between SBC Communications Inc. and BellSouth Corp.
Write to Yochi J. Dreazen at yochi.dreazen@wsj.com and Jesse Drucker at jesse.drucker@wsj.com
Updated September 12, 2002
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