RCR Wireless News -- Allen Salmasi / NextWave.
Industry awaits next move in Salmasi PCS license saga
By HEATHER FORSGREN WEAVER
December 17, 2001
Editors' Note: Each year RCR Wireless News chooses the person who has most impacted—either good or bad—the wireless industry. The 2001 Person of the Year is Allen B. Salmasi, chief executive officer of bankrupt NextWave Telecom Inc. While we recognize that some in the industry have bitter feelings about Salmasi and NextWave, it was impossible to ignore that the year started and ended with Salmasi's NextWave. The Federal Communications Commission auctioned his licenses for $15.85 billion early in the year and today has agreed to pay NextWave about $6 billion to relinquish those same licenses. In a year filled with tumult, one of the largest
questions for wireless carriers has been how to gain spectrum. Most of the nation's largest carriers' future plans in part depend on how the NextWave deal with the government and re-auction winners is settled.
Long before the Internet bubble and the craze of bidding up Nasdaq stocks, there was a man whose company had bid almost $5 billion for wireless licenses and then went bankrupt. But today as people lick their wounds from the Internet bubble burst and with the Nasdaq trading around 2000, Allen B. Salmasi is set to reap $6 billion from a dream he did not realize.
Salmasi is a rocket scientist—literally. He was a contestant on an Iranian TV quiz show before coming to the United States to pursue his education at Purdue University. After getting a master's degree in electrical engineering from the University of Southern California, he worked for the National Aeronautics and Space Administration at the Jet Propulsion Lab.
In addition to being a rocket scientist, Salmasi is wealthy. His family at one time ran a construction firm in Iran that was worth several million dollars. While they lost most of that when the Shah was toppled, he was still able to tap into a fortune to start his own satellite truck tracking firm, Omninet.
To develop the technology necessary for the venture, Salmasi turned to Qualcomm Inc., then a little-known start up. Eventually, Salmasi merged Omninet with Qualcomm, and he and his family gained nearly 50 percent of the company. This was later reduced to 30 percent when Qualcomm went public in 1991.
Many figure Salmasi's war chest kept him in the fight with the Federal Communications Commission over NextWave's licenses when others would have given up. At least once, Salmasi had to pull out his personal checkbook to meet payroll while the battle was wending its way through the various courts.
At Qualcomm, Salmasi was a key figure in the development of the CDMA protocol, said Perry LaForge, executive director of the CDMA Development Group.
"Allen was the inside guy, and I was the outside guy. … Allen and I had a number of tough calls to make CDMA happen. Without Allen and me, CDMA wouldn't have happened. … As a team it was a unique blend. Missing one piece and I don't think [CDMA's success] would have happened," said LaForge.
LaForge fondly remembers working with Salmasi as a time when a great team accomplished great things. "I will always remember those days very fondly. We worked really, really hard."
As the mid-1990s rolled in, Salmasi started talking about leaving Qualcomm to form a CDMA services company. Salmasi said several people, including former FCC chairman Alfred Sikes, talked him into forming NextWave.
"After a lot of soul searching, I decided to enter the C-block fray. It was a hard thing for both of us (Qualcomm's CEO Dr. Irwin Jacobs) for me to leave," said Salmasi, referring to several meetings he had with Jacobs prior to leaving Qualcomm.
Qualcomm was NextWave's first main investor.
Salmasi gathered a team around him, developed a business plan to resell wireless CDMA service and prepared to enter the now infamous C-block auction in 1996.
Since the C-block was aimed at getting smaller players into the wireless arena, the FCC set up an installment payment plan where successful bidders could pay for their spectrum over a 10-year period.
And thus began the saga of the C-block debacle and NextWave 's role in it. NextWave bid more than $4.7 billion for 63 licenses. These licenses were further split by the FCC when it re-auctioned them earlier this year.
As the years went by, many would accuse NextWave of bidding up the prices too high, perhaps never intending to pay it back.
At a recent joint hearing by two House Judiciary subcommittees, Rep. Chris Cannon (R-Utah) said by settling the government was "caving into extortion. … This is a profit that makes the dot-com boom look silly."
Once the auction ended and NextWave had successfully bid on some of the most valuable licenses in the country, foreign-ownership questions were raised and a tug-of-war with the FCC ensued. It would be nine months before NextWave would receive its licenses—conditionally.
Accounts differ as to what happened next. Did the FCC release spectrum too early and depress prices, or was this part of the Salmasi/NextWave scheme all along?
By the time NextWave received its licenses from the FCC, prices for spectrum had depressed to the point that financing for paying its debt to the government while building out its network was hard—if not impossible—to come by.
Other C-blockers faced similar predicaments. The FCC halted installment payments before NextWave was scheduled to make its first payment.
Months more went by. NextWave and other C-blockers argued strenuously that their debt should be reduced to reflect market prices at the time the licenses were issued rather than when bidding took place.
Some C-block companies successfully argued that point in bankruptcy court.
Not satisfied with reducing bidder's debt, the FCC instead allowed C-blockers to restructure their debt by giving back some or all of their licenses. Companies had to make their choices by June 8, 1998. Instead of choosing an option, NextWave filed for Chapter 11 bankruptcy reorganization that day, setting off a legal tussle between the FCC and NextWave that would bloody and tarnish the reputations of all involved, including Salmasi.
"You have a whole bunch of bureaucrats who have spent their entire careers being savaged by this entity. There is a logic to the way Washington behaves. It may not be the logic of the [Wall] Street, but it is a logic nonetheless," said Rudy L. Baca, global strategist and vice president with the Precursor Group, explaining why he did not believe the FCC would ever walk away from the litigation. Baca was senior legal adviser to former FCC Commissioner Jim Quello.
The FCC just plain didn't play fair, charges NextWave. "I don't think they have proceeded in a fair manner. They represented to the bankruptcy court in 1998 that NextWave would be protected," said Frank A. Cassou, NextWave's executive vice president and general counsel. Cassou called the FCC's action to cancel NextWave's licenses on Jan. 12, 2000, "unlawful."
Watching the NextWave bankruptcy was like watching a sporting event, where one side or another extends the game by winning an unexpected point. It disrupted holidays and caused millions in legal fees, but Salmasi has hung on.
"I always believed we were on the right side of the issue. I never doubted that we had done anything wrong or missed any opportunity," said Salmasi.
A turning point in the license fight between the government and NextWave came on June 22 when the U.S. Court of Appeals for the District of Columbia Circuit ruled that NextWave was entitled to the licenses at the $4.7 billion amount. The problem was the FCC had already promised those licenses to other carriers that bid more than $15 billion for them.
Today NextWave's precarious agreement with government and re-auction winners looks like it could be completed. As such, some former foes—even those who privately derided him in the past—have praised him.
Congress, meanwhile, wants to know what will happen with the $6 billion NextWave is expected to get from the settlement.
"Who gets the $6 billion in spectrum ransom payments that Congress is being asked to pay for NextWave? Who gets it? So far as I can tell, no one in the government knows for sure. NextWave's history suggests that little or none of this money will be used to provide telecommunications services to the American public," said Sen. John McCain (R-Ariz.), ranking member of the Senate Commerce Committee.
Cassou said such questions are premature. Salmasi claims that NextWave investors would have been better off without the settlement.
"We decided to enter into the settlement because that is what [FCC] Chairman [Michael K.] Powell asked us to do," said Salmasi.
"I think he was very successful. … He was sincere. All along he said he wanted to build out his network. I don't think he gamed the process," Denny Strigl, chief executive officer of Verizon Wireless Inc., told RCR Wireless News after appearing before the House telecommunications subcommittee last week.
Per the deal, Verizon Wireless will pay $8.8 billion for some of NextWave's most prized licenses.
Steven M. Roberts of Eldorado Communications L.L.C. said that while he "did not know the man," he too does not believe the process was gamed for NextWave or Salmasi's benefit. Roberts thinks some of the $6 billion should be awarded to C-blockers that returned their licenses rather than seeking bankruptcy protection.
Another person who said "he has never met the guy," is John Tynan, one of NextWave's creditors. "They owe us a lot of money, so I am hopeful things can get worked out and we get paid."
Salmasi expects to stay in the wireless business whether or not the settlement deal gets done.
"I really do believe in the future of wireless. I really do believe in five years from now our kids will laugh at us if we are talking on a device that is tethered to a wall," said Salmasi.
In the short term, Salmasi said he and his team are building out their network in all of their markets, but focusing most on the markets they will still own after the settlement is codified. NextWave expects to turn on service in Detroit in April or May.
"The proof is in the pudding ultimately. If the settlement doesn't happen, we will build out the network that will really provide a service that is far superior to what is being offered today," said Salmasi.
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