NextWave Telecom's Twisted Tale (page 2)
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"Allowing a company to keep its licenses despite its failure to pay on time would be
unfair to others who played by the rules and (would) undermine the integrity of our
auctions process," Bill Kennard, the FCC chief under the Clinton administration, said in
early 2000.
NextWave, meanwhile, vigorously disputed the agency, both in court and in the
corridors of Washington.
Of Lawyers and Lobbyists
Campaign contribution records show that NextWave was a politically well-connected
company even in bankruptcy. Between 1999 and 2000, its CEO, Salmasi, and his wife,
Nicole Salmasi, contributed more than $40,000 to candidates and political action
committees, according to the Center for Responsive Politics.
According to the center, Salmasi also gave $10,000 to a legal defense fund for Sen.
Robert Torricelli of New Jersey. Torricelli later went on to file a legal brief in support of
NextWave, which was at the time defending itself before the federal appeals court in
Washington.
The company also spent liberally on lobbyists. In addition to hiring the well-known
Washington lobbying firm Dewey Ballantine as a principal lobbyist, it enlisted Norm
Brownstein of Denver's Brownstein Hyatt & Farber and the late Barbara Olson, a
lobbyist with strong ties to the Republican Party.
NextWave also spent on lawyers with mixed results.
In 1999, NextWave succeeded in convincing a bankruptcy court that it had been
unfairly forced to overpay for spectrum. The bankruptcy court ruled that NextWave
should only have to pay $1.02 billion, which it believed to be the current fair market
value for the licenses.
The company also attracted fresh investments from the now-bankrupt Global Crossing
(at the time a high-flying public company), Liberty Media and Texas Pacific Group,
among others.
A federal appeals court in New York quickly overturned the decision. The following
year, it ruled that the bankruptcy court lacked the authority to interfere with the FCC's
auction system.
The decision provided the victory the FCC had been hoping for. The agency took back
NextWave's spectrum and re-auctioned it in January 2001. By that time, spectrum
prices were back up again, since no new spectrum had been sold for quite some time.
This time around, the bidders offered upwards of $16 billion for NextWave's licenses --
which the bankrupt company claimed it still owned.
After fighting the FCC for years, NextWave's last hope for getting back the licenses lay
with an appeal pending before the U.S. Court of Appeals in Washington.
To help its case, NextWave employed the legal talents of Theodore Olson, who is
currently the Bush administration's solicitor general and was at the time best known for
arguing the president's case before the Supreme Court in the Florida election
controversy.
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In arguing NextWave's case, Olson focused on the principle that a federal agency
should not be exempt from laws that apply to other creditors.
NextWave's investment in the appeal paid off. In June, the appeals court published a
ruling in favor of the bankrupt wireless firm. The court concluded that the FCC violated
federal bankruptcy laws when it took back NextWave's licenses while the company was
still in Chapter 11.
Two months later, the FCC returned the disputed licenses to NextWave. The company
lined up $2.5 billion in financing from the investment bank UBS Warburg, which it said
would fund the construction of a third-generation, or 3G wireless data network.
A Settlement Reached and Rejected
Back at the FCC, the battle wasn't quite over.
The agency -- which had just received commitments from telcos willing to pay about
$16 billion for NextWave's licenses -- wasn't happy to see them go for a measly $4.7
billion.
In the interests of getting an amount larger than NextWave's bid, the FCC worked with
the bankrupt telco and the winning bidders in the re-auction to cobble together a
settlement.
The resulting plan -- which was presented to members of Congress for approval in
December -- gave NextWave a generous cash settlement in exchange for giving up the
spectrum licenses it controlled.
Under the terms of the agreement, telecom firms, including Verizon Wireless, would pay
$15.9 billion for NextWave's spectrum licenses. Out of that payment, the government
would get $10 billion, and NextWave would get the rest: $5.9 billion.
FCC commissioner Michael Powell publicly supported the deal, despite some
reservations.
"While it surely would have been preferable to have carried through on the re-auction
and collect the $16 billion that was bid, that option was extinguished by the court and I
believe this settlement is the best outcome under the circumstances," he said when the
settlement was proposed in November.
But the leaders of the Senate Commerce Committee, who would have to approve the
settlement, thought otherwise.
The deal, which required approval from Congress, didn't get its rubber stamp from the
Senate Commerce Committee. Sen. Fritz Hollings (D-South Carolina), the Senate
Commerce Committee chairman said the deal was a "windfall" for a bankrupt company.
"This private, backroom settlement is fundamentally at odds with telecommunications
law and has been presented to us at the 11th hour," Hollings said in a letter urging his
colleagues in Congress to kill the deal.
The committee's ranking Republican, McCain, joined Hollings in rejecting the
settlement.
When asked whether NextWave would have accepted a lower settlement, the
company's general counsel, Frank Cassou, said it would depend on the overall offer.
"It's a collection of things, not just a number," he said.
As it stands, NextWave could re-sell licenses once it holds them for five years and
meets certain milestones for building out its network, Wack said -- provided NextWave
gets to keep the licenses, that is.
NextWave spent approximately $270,000 on lobbying efforts in the last six months of
2001, the most recent reporting period. It's unclear how much was spent by the
opposing side, which includes Verizon and AT&T Wireless, solely on the spectrum
issue, although Wack said he believe the sums were greater.
For now, any talk of a network rollout by NextWave is overshadowed by the prospect of
a Supreme Court ruling in favor of the FCC.
In the interim, the FCC is drawing emphasis in its court filings to NextWave's virtually
nonexistent track record as a wireless service provider.
"Respondents have held some of the most valuable spectrum in the nation for five
years, but have spent most of that time restructuring in bankruptcy," reads a recent
filing. "As a result, they have yet to provide service to a single customer."
Not a single wireless customer, that is.
So far, the ongoing dispute has done plenty to service the coffers of legislators, lawyers
and lobbyists. |
