LARGEST C-BLOCK WINNERS URGE ‘IMMEDIATE’ NEXTWAVE SETTLEMENT

“Further litigation serves no one’s interests -- not the interests of the government or our companies, not those who have invested in NextWave and, most importantly, not the American public,” letter said. Letter itself came as little surprise because Verizon Wireless CEO Denny Strigl told reporters Mon. that company would submit its settlement ideas to FCC (CD July 25 p1). “We believe the government has full authority to reach this settlement and should pursue it quickly because it is the right thing to do,” letter said. Carriers make oblique reference to hole that loss of all re-auction proceeds this fiscal year would leave in federal budget at time when Bush Administration was backing $1.3 trillion tax cut. “There is no need for the government to secure a new appropriation from Congress for this payment, nor is there a need to draw on any agency’s previously appropriated funds,” letter said. That’s case because re-auction results pledged by winners “provide ample funds to make the settlement payment to NextWave,” carriers said. After NextWave was paid under plan, remaining funds from original bids would be turned over to Treasury. “If implemented quickly, this approach would allow the FCC to remit monies to the Treasury this fiscal year,” letter said.

Letter proposed that NextWave dismiss claims to PCS licenses that were part of Jan. re-auction “in return for a cash payment and the forgiveness of liabilities NextWave has to the government as a result of its participation in the original auction.” Govt. would settle and adjust re-auction payments of winning bidders by amounts that would be equal to NextWave’s cash payment. Successful bidders would “remit reduced final payments to the FCC in return for grant of their licenses,” letter said. Under that proposal, instead of paying lump sum of original bids to govt., winners would pay difference between their original bids and reduced amounts to NextWave, “thus funding the cash settlement payment,” carriers said.

Carriers suggested that negotiations start at $4 to $5 billion, close to the $4.7 billion NextWave originally bid. “From there, the government well might argue that a lower number (below $4 billion ) is appropriate, while NextWave could be expected to argue that it is entitled to more than that,” letter said. Carriers said that, based on NextWave’s own arguments, U.S. Bankruptcy Court, White Plains, N.Y., whose decision on NextWave’s licenses ultimately was overturned, had put value of licenses at $1.02 billion. Companies told govt. that they did “not underestimate the difficulties that may be involved in reaching a settlement, nor do we wish to foreclose alternative solutions.” They said that under their proposal, they would be paying all of money they had bid for that spectrum. “But essential to our willingness to stand by our auction bids is that the settlement be done quickly,” carriers said. “We are unable to sit back and wait indefinitely for one side or the other to prevail in litigation, since we are caught in the middle.” FCC hasn’t yet signaled whether it planned to appeal D.C. Circuit ruling either to full appeals court or to U.S. Supreme Court.

Verizon Wireless had won by far largest block of licenses in C-block re-auction -- 113 for $8.8 billion (CD Jan 29 p1). Alaska Native Wireless, designated entity in which AT&T Wireless has 39.9% stake, won 44 licenses for $2.9 billion, and Salmon PCS, which has 85% investment from Cingular Wireless, 79 licenses for $2.4 billion. Dobson Communications subsidiary DCC PCS had $546 million in winning bids for 14 licenses. VoiceStream gained 19 licenses for $482.7 million. Cook Inlet, designated entity in which VoiceStream has noncontrolling stake, won 22 licenses for $506.4 million. Letter said companies seeking settlement had paid more than $3 billion as deposits on licenses formerly held by NextWave. “We are receiving no interest on that money,” 5 carriers said. “The government cannot hold money paid to receive spectrum, and hold us to a future obligation to pay further sums, without delivering the spectrum in return.”

Five carriers attached detailed, 6-page memorandum laying out statutory and regulatory basis for potential settlement. FCC has authority to reduce final payment obligations of winners of $16.9 billion re-auction as long as Justice Dept. approves compromise, wireless operators said. Letter asserted that OMB had authority over any solution reached on NextWave licenses.

Wireless operators cited FCC’s authority under Debt Collection Improvement Act (DCIA) of 1996, which gives agencies latitude to compromise and settle claims, including cases in which debt isn’t likely to be paid in full in reasonable time. “Given the D.C. Circuit’s ruling, and further litigation that will arise from it, it is clearly true that the auction winner’s full payments may never be collected or at least not within a reasonable time.” DCIA allows agencies to craft “compromise claims” of govt. against persons or companies. Carriers said that meant that law envisioned situations in which agency such as FCC could judge that it was better to collect certain, smaller pot of money than to pursue larger sum if outcome of collection effort was uncertain. Ability of FCC to collect full amount of bids for NextWave licenses earlier this year carried “a great deal of uncertainty,” legal memo said. In particular, it wasn’t clear whether FCC would appeal decision, return licenses to NextWave or seek to enforce previous cancellation of licenses, carriers argued. “Thus, it is unclear whether the Auction No. 35 winners have any current obligation to make their final payments for the NextWave licenses,” memo said.

Under DCIA, agency has authority only to craft compromise claim if debt is outstanding, memo said. Because auction results were contingent on court’s not ultimately returning licenses to NextWave, D.C. Circuit ruling put cloud over whether re-auction winners had outstanding govt. debt, memo said. That would leave door open for OMB to exercise settlement authority, carriers said.