NextWave still alive??
JohnG
Appeals Court Rulings Question
FCC's Next Move on NextWave
By STEVEN LIPIN
Staff Reporter of THE WALL STREET JOURNAL
November 2, 2000
Two strikingly different opinions in federal appeals-court cases raise questions about the
Federal Communications Commission's move to auction off wireless licenses once held by
NextWave Telecom Inc.
At issue: whether the FCC, having auctioned off valuable wireless-communications licenses to a
company that then filed for bankruptcy protection, can take the licenses back and reauction
them to another company.
That is exactly what the agency wants to do with licenses once held by NextWave, a New York
wireless start-up that was the largest winner of FCC "C Block" auctions beginning in 1995 and
has since filed for bankruptcy protection.
The stakes are big: Wall Street is closely following how the legal situation shakes out, because
it will answer the question of whether federal agencies can be considered licensors -- entitled to
take back licenses won by companies such as NextWave that might struggle to pay for them --
rather than creditors, which would allow companies in NextWave's situation to keep and possibly
sell the licenses like any other asset.
The most recent of the two appeals-court cases concerned Metro PCS, formerly known as
General Wireless, another wireless company that filed for bankruptcy protection. Metro PCS
sought to have the purchase price on licenses it agreed to buy reduced after their values
plunged between the auction's ending and when the company took control of the licenses. The
Fifth U.S. Circuit Court of Appeals Oct. 20 upheld an earlier decision allowing the company to
pay a price of 20% of what it originally agreed to pay for its licenses.
But in NextWave's similar case, the Second U.S. Circuit Court of Appeals earlier this year
upheld an earlier decision that overturned a bankruptcy court's ruling reducing NextWave's
purchase price. The Second Circuit sided with the FCC, treating the agency not as creditor but
as licensor. Soon after the decision, the FCC seized the licenses, which it expects to reauction
next month. NextWave has appealed at the U.S. Court of Appeals for the District of Columbia
on the grounds that the FCC didn't have the authority to seize the licenses, for which the
company originally agreed to pay $4.7 billion.
The licenses once held by NextWave are among the most prized in the industry, and further
delay affects potential buyers such as Nextel Communications Inc., as well as equipment
makers who would help build the spectrum. For its part, NextWave has offered to pay the full
price and has received backing from Global Crossing Ltd., AT&T's Liberty Media Group and
Texas Pacific Group.
The FCC has rejected NextWave's offer, arguing that NextWave violated terms of the original
auction and therefore shouldn't be allowed to obtain the licenses.
But the delay that position is causing is at odds with the FCC's goal of getting the spectrum up
and running as quickly as possible, some observers say. "Someone like Nextel [is] hoping to
get NextWave's frequency in a timely, exclusive and expensive fashion. I don't think that's going
to be the case," said George Reed-Dellinger, a partner at Washington Analysis, an
investment-research boutique. "Because of politics, two big blocks of spectrum are going to lay
fallow."
Now, observers say that the two appeals-court decisions, with their differing views on the role of
the FCC, raise the odds the Supreme Court may weigh in. In addition, they may increase the
odds that the U.S. Court of Appeals in Washington will temporarily suspend the auction.
"Facing similar circumstances and the same regulatory agency, [Metro PCS and NextWave are]
finding themselves in a dramatically different situation. NextWave is out of luck, and [Metro PCS]
is in fat city," said Douglas Baird, professor of law at University of Chicago. "The sheer contrast
of the two cases with similar facts is the kind of thing that gets the attention of the Supreme
Court."
He added, "My sense is the disharmony between the treatment of [Metro PCS] and NextWave
will stir the pot in a number of quarters, not just the courts."
There has been an attempt by NextWave to obtain a legislative "fix." Lawmakers have been
writing FCC Chairman William Kennard to try to persuade him to delay the auction. But so far
that effort has failed.
Wall Street analysts who have been following the situation agree that the Fifth Circuit opinion will
further delay the re-auction. "Due to the split in the Circuits, the chance of a delay in the
reauction is increased," said Linda Mutschler, a wireless analyst at Merrill Lynch & Co., in a note
to clients.
In a statement, the FCC said, "We are disappointed by the decision allowing [Metro PCS] to
keep valuable wireless licenses for a fraction of what it bid. However, because the court
reached that decision on procedural grounds, it did not disturb the FCC's authority to cancel
other licenses for failure to pay the full bid price."
The agency added that it is considering its options with the Justice Department, which acts as
the FCC's legal representative.
NextWave's Michael Wack, deputy general counsel, said, "The 5th Circuit's decision is
exceptionally important because it not only rejected the FCC's arguments, it carefully explains
why they are so outside the bounds of conventional legal precedent. The decision undercuts
any rationale for the FCC proceeding toward a reauction of NextWave's C block licenses."
In any case, it's proven to be a continued thorn for the FCC. Said Mr. Reed-Dellinger about the
auction process, which began five years ago, "This has gotten bogged down. It's a mess." |
