POWELL ANNOUNCES NEXTWAVE SETTLEMENT

Terms agreed to by govt., re-auction winners and NextWave were as expected (CD Nov 2 p1): NextWave will receive $5.85 billion after taxes and govt. will get $10 billion. Total is what re-auction winners bid in Jan., but instead of going to Treasury in entirety, part of it now will be paid to NextWave. While govt. doesn’t get as much as it would have under re-auction, it receives more than the $4.7 billion that NextWave bid for those licenses several years ago. Figures are general and don’t take into account complexities of financing. For example, NextWave already had paid $500,000 to govt. that it won’t get back.

Long dispute over PCS spectrum stems from FCC’s decision to recapture and then re-auction NextWave’s licenses after company failed to meet its payments. After lengthy battle by NextWave, U.S. Appeals Court, D.C., returned licenses to NextWave -- but after FCC already had held re-auction. Settlement negotiations sought way to preserve re-auction results. FCC’s only alternatives appeared to be seeking U.S. Supreme Court ruling overturning appeals court, which was regarded as unlikely and certainly would have taken more time than any party was willing to wait. Deal has been signed by parties but still has to be ratified by Dept. of Justice, which is expected to act as soon as this week. Congressional action also will be needed by end of year to implement settlement, and settlement must be approved by bankruptcy court overseeing NextWave’s Chapter 11 reorganization.

“This has been a long and arduous process involving many different parties and divergent interests,” Powell said. “Some will argue that the result is not perfect, but I believe that it is the best that can be achieved under the circumstances to maximize the benefit to the public.” Verizon Wireless CEO Denny Strigl said “this is the one solution that will work, and we strongly encourage the Congress to act immediately to support it.” NextWave Chmn. Allen Salmasi said company had planned to continue building out its 3G network using those licenses “but entering into this agreement is in the best interest of our creditors and shareholders.” Company said it would retain small number of markets based on D- and E-block licenses and continue building facilities there, particularly in Detroit and Madison, Wis., where it plans to start service in first half of 2002. Re-auction winner Alaska Native Wireless said settlement meant “scarce spectrum tied up for years in litigation will now be available” to provide service to consumers. Leap Wireless said it would become 7th largest wireless carrier in country when it took possession of its pending licenses.

Under agreement, NextWave releases all claims to spectrum, which FCC was to return under appeals court overturning of Commission’s cancellation of licenses for nonpayment. Document summarizing terms said key steps under settlement were: (1) NextWave relinquishment, with approval of U.S. Bankruptcy Court, White Plains, N.Y., of its claims to PCS licenses. That would clear way for FCC to issue licenses to Jan. re-auction winners that agency determined to be qualified. (2) Winning bidders, which included Verizon Wireless, Alaska Native Wireless, designated entity in which AT&T Wireless has financial stake, and Salmon PCS, which has financial backing of Cingular, would pay all of their nearly $16 billion in winning bids by June 28, 2002, then receive their licenses. (3) U.S. Treasury would receive “guaranteed net amount” of $10 billion.

Settlement agreement outlines plan for $9.55 billion to be paid to NextWave, which would make tax and “other payments to the government” that would leave company with net topping $5 billion. After taxes and other payments, net to govt. would be $10 billion. (4) NextWave would be paid by govt. following final bankruptcy court approval of agreement and after winning bidders had submitted payments that equaled or exceeded sum owed to NextWave. As previously reported, letters of credit from major auction winners would provide extra layer of guarantee that govt. would be paid. In recent drafts of settlement, Verizon Wireless and Alaska Native Wireless had agreed to submit those letters. Final settlement indicated that challenges to qualifications of winning re-auction bidders remained unaffected by agreement.

Most details that had been in draft settlement circulating recently among stakeholders appear to have remained intact in final version. One small change involved timing of when winning reauction winners must submit payments to federal govt. Final terms would require re-auction winners to pay full amount of their winning bids by June 28, 2002, when they would receive their licenses. Earlier versions of proposal had put date at June 30, with apparent last-minute wrangling over which quarter major wireless carriers would report payment in. Remaining in place is stipulation that if winning bidders have not received their licenses or receive them and later lose them and their rights aren’t restored by Dec. 31, 2002, as result of successful challenge to settlement agreement or legislation, re-auction results will be rescinded. Under that scenario, spectrum would revert to FCC. One change that wasn’t in earliest versions of proposed settlement was that date could be extended for up to 90 days “in limited circumstances.” Change would have had govt. providing NextWave with promissory note that would ensure additional layer of safety that carrier would be paid. Instead, govt. now would certify that NextWave payment would be under settlement terms, several sources said.

Any winning bidder not among initial parties to settlement has window until Jan. 30 to choose to join agreement. Late Thurs., NextWave, Verizon Wireless, Salmon PCS and Alaska Native Wireless all had signed agreement, source said. FCC had been expected to sign Fri., along with other carriers. Small winning bidders in re-auction, whose total winning bids didn’t top $10 million, would be given window in which to withdraw all of their bids without penalty, in which case FCC could re-auction that spectrum.

Summary document said draft legislation approving settlement would provide for expedited court consideration of any constitutional challenges by U.S. Appeals Court, D.C. Legislation implementing terms of agreement is critical to settlement’s being carried out. Legislative vehicle on which language would be attached still was being worked out Fri. and had been subject of White House-level meeting earlier in day, several sources said. One possibility could be omnibus spending measure that Congress must pass before adjourning, but prospects for that weren’t clear.

House Commerce Committee Chmn. Tauzin (R-La.) intends to take active role in reviewing proposal to resolve NextWave spectrum auction. But just because agreement was reached by bankrupt company and govt., it didn’t mean that Tauzin would put issue at top of committee agenda, spokesman Ken Johnson said: “We would like to resolve this long-festering problem before the end of the year, but frankly we have more pressing issues to deal with first, i.e., bioterrorism.” However, Johnson said Tauzin was eager “to put valuable spectrum back into play,” measure that would be “good for government and consumers” while satisfying Tauzin’s property rights concerns: “This was the largest spectrum auction in American history, and you can bet your bottom dollar that this committee will exercise its jurisdiction one way or another.”

Ranking Democrat Dingell (Mich.) said committee “has no small interest” in NextWave issue: “In fact, we communicated strongly to the Commission on many occasions to delay the re- auction of these licenses until clear title had been established with finality with the courts. Unfortunately for all concerned, the FCC ignored our advice.” He said he “believes it is appropriate for the committee to review any legislation necessary to bring this issue to a close.”

Congressional source said Tauzin’s declaration to assert jurisdiction shed little light on actual movement of settlement via legislative process. Proposal needs congressional approval since it would alter FCC auction rules and provide for expedited legal review if challenged, source said. But Tauzin’s concerns can’t be interpreted as guarantee of hearings or markup, he said. Tauzin, for example, might send letter to House Speaker Hastert (R-Ill.) to assert jurisdiction. Hastert, in turn, could acknowledge Tauzin’s jurisdiction and still see that measure was attached to one of few appropriations bills still to be tackled by Congress by year-end, source said. He said Office of Management & Budget was “looking to put it in a money bill,” since terms of settlement require appropriations. Another factor is role of Judiciary Committee, which also could assert jurisdiction since NextWave settlement involves expedited judicial review of constitutional challenges, he said.

Senate Commerce Committee ranking Republican McCain (Ariz.), who blasted terms of initial proposed NextWave settlement as theft from taxpayers, also expressed strong interest in reviewing latest plan: “The American taxpayer must be made whole before being asked to participate in any settlement. Thus, I will review any proposed settlement agreement that the FCC or the Administration puts forward to ensure that it protects the financial interests of the true owners of all spectrum resources, the American taxpayer.”