NEXTWAVE SETTLEMENT CLEARS HURDLE IN NEGOTIATIONS AS DEAL NEARS
Agreement in principle appeared to have been reached late Fri. on NextWave’s PCS licenses after thorny issues of payment schedules and guarantees to govt. seemed to have been reconciled. Negotiators have been closing in during last several weeks on nearly $16 billion deal over disputed spectrum, although industry observers repeatedly have cautioned that details were complicated and several factors could spoil final accord. Source said agreement in principle was expected to lead to work over last weekend on legal documents setting out terms and draft legislation that would secure deal. Under tentative settlement shaping up late Fri., 2 or more large carriers would provide govt. with bank letters of credit in Jan. for total amount that govt. would be obligated to pay NextWave. At that point, govt. would return to carriers 50% of down payments they made in Jan. re- auction of NextWave’s PCS licenses, source said. Then, in May-June time frame, carriers would pay govt. in full for licenses, minus portion of down payments that govt. already had, source said. NextWave would receive payment shortly thereafter, source said. Condition of settlement would be enactment of legislation that would back up its provisions, source said. As final details were in works, Sen. McCain (R- Ariz.) wrote to Senate leadership to voice concerns about budget implications of potential deal.
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“The last hurdle was crossed this afternoon,” source said. Reuters reported late Fri. that announcement of agreement was expected early this week. Negotiators have appeared to be edging toward final agreement, although as recently as last Tues., FCC Chmn. Powell had cautioned that deal was “still an open question.” Source told us Fri. that deal was “done” and weekend work by attorneys on all sides would involve “crossing t’s and dotting i’s.” In last several weeks, talks appeared to be centering on keeping intact total of $16 billion that was bid for NextWave licenses at auction (CD Oct 19 p1), including $10-$11 billion in new cash for govt. and $5-$6 billion for NextWave to relinquish licenses. Under deal’s latest terms Fri., carriers that had bid for NextWave licenses in Jan. would receive them when final payment was made in full to govt. Exact date would be laid out in legislation. Exactly how legislative terms would work wasn’t clear Fri. But in last few weeks, provision under discussion would direct federal courts to expeditiously address pending challenges and related litigation on NextWave licenses.
Successful re-auction bidders had made down payments totaling 20% of $15.8 billion that NextWave licenses had received in re-auction, so govt. already has $3 billion of those upfront payments. Under terms in which half of those down payments were returned to carriers, they would receive $1.5 billion in Jan. Letters of credit that would be furnished to govt. at that time would be “same as cash” financial vehicles that would ensure govt. that payments would be coming during agreed-upon time frame. At least 2 of large carriers that won spectrum in re-auction are expected to provide letters of credit, most likely largest bidder Verizon Wireless and another carrier such as designated entity Alaska Native Wireless, source said. Source described transaction under such terms as being of “zero risk” to govt. What exit provisions, if any, would be afforded Verizon Wireless under such scenario wasn’t clear. Guarantee of payment to govt. had been among thorniest issues that had been causing concern at Office of Management & Budget and that provision now appeared to be structured to allay concerns of federal budget-writers.
But McCain warned that any loss of spectrum revenue stemming from possible settlement of cancelled NextWave PCS licenses would impede nation’s ability to fund fight on terrorism and to bolster weakened economy. McCain, ranking minority member of Senate Commerce Committee, decried possibility that bankrupt carrier could walk away with at least $5 billion, despite having defaulted on more than $4 billion in spectrum auction payments to FCC. NextWave is “exploiting legal technicalities” that may deprive taxpayers of “desperately needed” funds that could be used in the aftermath of the Sept. 11 attacks, he said in a letter to Senate Majority Leader Thomas Daschle (D-S.D.) and Minority Leader Trent Lott (R-Miss.): “What troubles me is that spectrum auction revenues are being lost just when they are most needed… I believe that the government can no longer afford to simply ‘pay off’ a company whose only contribution to the American economy has been to manipulate, for private gain, the results of an improperly designed auction of a valuable public good.”
McCain said his concerns “reflect no distrust” of spectrum auction process. Spectrum allocation via market- driven forces, even if through imperfect auction process, “is less susceptible to error, delay and corruption than a process of allocation by bureaucratic fiat.” He also criticized delayed multibillion-dollar payment process being sought by Verizon Wireless, which is seeking to make payment for re-auctioned spectrum in May 2002 rather than by end of this year: “What assurances will the American taxpayer have that the federal government will receive the billions owed to them from the January re-auction? The taxpayers of this country deserve an agreement that properly ensures that settlement funds are paid, in full, before the American taxpayer is asked to participate in any settlement.”