TALKS ON NEXTWAVE LICENSES SLOG ON, BUT SOME PROGRESS IS SEEN
Negotiators were closing in Thurs. on deal on NextWave’s PCS licenses, with changes in areas such as carrier payment timelines and guarantees of when spectrum tab would be paid in full. Talks continued Thurs. morning at OMB on proposal in which NextWave would be paid $9.55 billion upfront that would be secured through 2002 legislative appropriations package, industry source said. Bankrupt carrier then would net $6.3-$6.5 billion, after first level of taxes were paid. One point of contention in final rounds of talks has been how Verizon Wireless’s request for additional time to make payments would be handled (CD Oct 1 p5), sources said. Under revised terms of deal now under consideration, 2-part payment process to govt. reportedly sought by Verizon would be scaled back to one payment to be made in May, source said. Verizon Wireless would have letter of credit to guarantee its full payment in that time, mechanism that other carriers could sign on to as well. Re-auction winners would agree to keep intact total of $16 billion that was bid for NextWave licenses at auction, including $10 million in new cash for govt. as well as $3 billion on hand from upfront payments required in Jan. re-auction.
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Timing of any announcement on settlement terms still appeared to be quite fluid at our deadline, with several industry observers cautioning that final outcome wasn’t foregone conclusion. Expectation is that letters of credit from carriers such as Verizon, which has $6.7 billion commitments to govt. under plan that matches its original bidding for former NextWave licenses in reauction, would allay cash flow concerns of OMB, sources said. Unclear was timing of payments to NextWave, with one source speculating its portion of payments could be made in May instead of by end of this year. Successful re-auction bidders had made down payments totaling 20% of $15.8 billion that NextWave licenses had won, so govt. already had $3 billion of those upfront payments. That and May 2002 letter of credit provides “enough cash so that OMB is comfortable,” source said.
Despite tricky details that have slowed discussions, announcement is expected shortly, possibly next week. One apparent driver has been deadline of today (Fri.) for FCC to file petition for certiorari asking U.S. Supreme Court to review U.S. Appeals Court, D.C., ruling that overturned its decision to cancel NextWave licenses for missed payment. “We are close to being done,” industry source said. Some industry observers, however, still expect FCC will file for Supreme Court review today as details of settlement deal remain to be finalized.
Another key issue for major carriers backing settlement plan has been assurance of some finality on possible legal challenges. Besides Verizon Wireless, other carriers involved in discussions have been AT&T Wireless, which has provided financial backing to designated entity Alaska Native Wireless; Cingular Wireless, which provided financing to designated entity Salmon PCS; and VoiceStream. Concerns over finality have centered on bankruptcy court, FCC proceedings and any other potential litigation. In letter Sept. 24 to Chmn. Powell from Verizon Wireless CEO Denny Strigl, carrier had sought “complete finality” over such proceedings as contingency of payments. FCC apparently had balked at complete finality as condition of payments. As of Thurs., issue had been fleshed out in talks with proposal for quick court action on any pending litigation. Such terms are expected to be attached to congressional spending bill that could move as early as next week. Legislation could direct courts to handle challenges involving NextWave licenses on expedited basis, industry source said. Direction from Congress that courts resolve such issues quickly would provide degree of certainty to carriers seeking to raise capital in down market, source said.
Letter of credit guaranteeing payment to govt. for licenses is designed to allay concerns that federal coffers would be exposed if NextWave received all its cash early and then govt. had to wait several months for its share. That issue came up in series of meetings Tues. involving officials of OMB, Justice Dept., FCC and carriers, source said. Reuters reported Thurs. that OMB officials had raised 11th hour objections to 2-part payment process because of concerns of potential loss of accrued interest to govt. But as of Thurs., one-part payment scheme and letter of credit appeared to have tempered those concerns. “This is a real coup for Chairman Powell,” source said.
Another source said one of factors that made eventual settlement agreement so complicated was finality provisions in court actions. Legislation would help by providing another layer of certainty for court to take into account, instead of just terms worked out by FCC and carriers, source said.
Meanwhile, NextWave this week told U.S. Bankruptcy Court, White Plains, N.Y., that it would ask for continuance of hearings now set for Mon. Hearing is to include adequacy of NextWave’s disclosure statement accompanying its 2nd joint plan of reorganization and motion for order approving technology cooperation agreement and subscription agreement with Qualcomm. NextWave said it would ask to have hearings rescheduled for Nov. 1. FCC also submitted request for document to court this week that seeks details on financing behind NextWave’s proposed plan of reorganization. Filing seeks NextWave projections for 2002-2012, and information supporting such estimates, for: (1) Full cash flow forecasting, market size, subscriber forecasts. (2) Expected mobile virtual network operator (MVNO) partners and status of negotiations with those partners. (3) Number of MVNO subscribers and expected demand. (4) Revenue from sale of services to MVNO partners.
In sign of how liquid terms of possible settlement are, rumors were still circulating late Thurs. of possible 2-stage payment plan in which carriers would pay some money now and some next year. OMB Dir. Mitchell Daniels also was quoted by Bloomberg late Thurs. as saying he was optimistic about possibility for settlement, although he said there were “still some i’s to be dotted.”