3 CARRIERS CHALLENGE ELIGIBILITY OF NEXTWAVE FOR PCS LICENSES

Petition said that in last 5 years “the FCC has not only found NextWave in default on payments, but also has raised significant questions with regard to its ability to qualify as a designated entity, its foreign ownership, its financial qualifications to enable it to meet its future obligations relating to the licenses at issue and other regulatory requirements.” NextWave hasn’t filed updated plan for reorganization with U.S. Bankruptcy Court, White Plains, N.Y., but has said it plans to do so shortly. Petition said company’s corporate structure, management team and investment interests had changed, “reopening questions” about its ability to meet regulatory obligations. Foreign ownership questions date back to 1997, when 2 failed C-block bidders, Antigone Communications and PCS Devco asked Commission to dismiss NextWave’s conditional license approval based on alleged violations of foreign ownership restrictions. “Based on available information, genuine and material questions of fact exist as to whether NextWave met the basic qualifications for these licenses in October 1998 and whether it meets them today.”

On designated entity (DE) status, petition said C- and F- block auction participation was limited to qualified DE applicants that had: (1) Gross revenue of $125 million in each of 2 years before auction. (2) Total assets of less than $500 million. Subsequent filing by NextWave for Chapter 11 protection shifted fiduciary duty from company’s shareholders to its creditors, petition said. That can raise “significant” de facto control issues over who controls FCC licensees during bankruptcy process, carriers said. Petition also said NextWave had told bankruptcy court it would raise $1.2-$1.7 billion in working capital by issuing convertible preferred stock. “In view of these large- scale investments, material questions of fact exist regarding the percentage of total equity that would be held by noncontrol group investors” and other rights that would be held by those investors in reorganized NextWave, carriers said. Specifically, convertible preferred stock agreements have been made with Global Crossing and Liberty Media, which on their own aren’t eligible for DE status, petition said. Investors such as Global Crossing and Liberty have broad powers under previous plan of reorganization filed by NextWave, it said.

Petition also asked FCC to grant applications for licenses won in Jan. re-auction that haven’t been tied up in NextWave litigation. Verizon, AT&T Wireless-affiliated Alaska Native Wireless and Cingular-backed Salmon PCS had been highest bidders in PCS auction that raised $16.8 billion. Of that total, $15.4 billion represented bids for licenses that will be reclaimed by NextWave under D.C. Circuit ruling. Verizon Wireless was single highest bidder, with $8.8 billion in licenses that covered important markets such as N.Y. Alaska Native Wireless, designated entity in which AT&T Wireless owns 39.9% stake, won 44 licenses in C-block re-auction worth $2.9 billion. VoiceStream won 19 licenses worth $482.7 million and designated entity Cook Inlet VS GSM, in which VoiceStream has noncontrolling stake, won 22 licenses for $506.4 million. “Ownership is just one of the many unresolved issued surrounding NextWave licenses that were reauctioned,” said Verizon Wireless spokesman.

Finally, 25-page petition asks FCC to examine whether reorganized NextWave would have “the capacity to meet its public and private payment obligations.” Along those lines, carriers called on Commission to investigate whether NextWave’s status as “delinquent debtor has implications for its ability to honor future obligations into which it might enter if its licenses are reinstated.” Those obligations, petition said, include buildout requirements, annual regulatory fees, universal service fund contributions.

NextWave Deputy Gen. Counsel Michael Wack said filing marked attempt by carriers “to stop NextWave from building out its PCS network and delivering the next generation of wireless services to consumers.” Petition is “blatant attempt to bottle up a new competitor in administrative proceedings,” Wack said. “The allegations raised in their petition are without merit and are procedurally infirm.” NextWave is in compliance with foreign ownership obligations and it is “absurd” for carriers with foreign ownership themselves to raise this as issue, he said. Wack referred to recent acquisition of VoiceStream by Germany’s Deutsche Telekom and stake that Japan’s NTT DoCoMo has in AT&T Wireless. Verizon Wireless is joint venture of Verizon and U.K.’s Vodafone.

Petition cites “NextWave’s history of noncompliance” with foreign ownership requirements of Sec. 310 of Communications Act and its “failure to provide clear documentation that it meets those requirements.” Those factors combine to raise “substantial questions” about NextWave’s willingness to abide by FCC rules, which petition referred to as “basic requirement for all licensees.” In May 1997, FCC had ordered NextWave to reduce its foreign ownership to under 25% or to show why license approval still would be in public interest even if company didn’t do so. Order had given NextWave 90-day period to attain compliance with World Trade Organization obligations and had ordered NextWave to identify any new foreign investment sources and demonstrated public interest of such investments (CD May 19/97 p5). NextWave had told FCC at that time that it was in compliance with foreign ownership obligations but agency had not ruled definitively on issue. “NextWave’s responses to these obligations have been woefully inadequate and raise questions regarding the extent to which NextWave is complying with the [Wireless] Bureau’s order,” petition said. It contended that NextWave had been unresponsive in providing FCC with updates on changes in its foreign ownership status and hadn’t told Commission about efforts to woo additional foreign investment.