BROAD ARRAY OF OPERATORS AWAIT CERTAINTY FROM NEXTWAVE BATTLE

Among those is Urban Communicators, which like NextWave had bid for C-block licenses in 1996 PCS auction and then filed for bankruptcy, with FCC cancelling its licenses when it missed payment. Urban Comm won 10 C-block and 13 F-block licenses in auction for $90 million. Also similar to NextWave, Urban Comm has had bankruptcy case pending in U.S. Bankruptcy Court, White Plains, N.Y., which has been put on hold pending outcome of regulatory and legal disputes over NextWave licenses. Plight of Urban Communicators had piqued interest in Congress as lawmakers pondered NextWave settlement amid questions about why similarly situated Urban Comm wasn’t part of settlement. Among most vocal critics was Rep. Waters (D-Cal.), who questioned why govt. would settle with NextWave but not Urban Comm. Urban Comm was formed by several members of National Assn. of Black Owned Bcstrs. and bid on PCS licenses including C-block spectrum in N.C. In Oct. 2000, Urban Comm filed petition for reconsideration that sought review of public notice that FCC had issued that Sept. on re-auction of PCS licenses, including those previously licensed to Urban Comm and NextWave.

In petition for writ of mandamus filed at U.S. Appeals Court, D.C., last month, Urban Comm asked for expedited decision on its licenses in light of that court’s June ruling in NextWave case. Urban Comm asked court to direct FCC to act on petition for reconsideration filed 15 months ago. In Aug. 2001, following D.C. Circuit decision favorable to NextWave (CD June 25 p1), Urban Comm sent letter to FCC asking it to act on reconsideration petition on expedited basis. According to court filing, Urban Comm argued to D.C. Circuit that quick regulatory decision would mean it “will also be able to take advantage of the capital funding still presently available if [Urban Comm] is able to approach the capital markets without further delay and with a clear right” to these licenses. Without rapid decision, Urban Comm told court, it would “be foreclosed from the capital markets forever due to the continually dimming prospects for the economy and the increased capacity needs of larger, more established carriers in the near future.” Due to “peculiar facts” of case, Urban Comm also said D.C. Circuit could bypass FCC’s reconsideration decision process “and directly decide the ultimate issue.”

Another case affected by outcome of NextWave legal battle is one pending before 10th U.S. Appeals Court, Denver, involving bankrupt C-block bidder Kansas PCS, which was high bidder for 3 C-block licenses. Similar to NextWave, Kansas PCS had failed to make installment payment on licenses, which then cancelled automatically under Commission rules. U.S. Bankruptcy Court had ruled that Bankruptcy Code precluded Commission’s automatic cancellation regulation from taking effect. U.S. Dist. Court then disagreed, siding with Commission and ruling that license cancellation was automatic and wasn’t covered by Sec. 362 of Bankruptcy Code. Kansas PCS is appealing that lower court decision to 10th Circuit, referring to D.C. Circuit’s ruling in NextWave as calling into question action that bankruptcy court took in its own case. Oral argument in Kansas PCS case are set for next month in Denver.

Given crush of legislative proposals that Congress faced right up until break, inaction on NextWave settlement didn’t come as surprise, said Dan Pegg, senior vp, Leap Wireless, one of wireless carriers that won NextWave licenses in Jan. re-auction and was part of settlement. “We got this to them too late in the game,” he said. “I'm still optimistic that the group will hold together” and, at least in first 90 days of next year’s session, there will be window of opportunity for legislation to be taken up again, Pegg said. Ninety days represents “reasonable” period of time if stakeholders are willing to push for approval of deal again on Capitol Hill, he said. Much beyond time, “I think people are going to become frustrated and start looking for other alternatives,” said Pegg, who said he was speaking on behalf of Leap and not coalition of carriers that signed pact.

One issue for carriers is how long uncertainty over NextWave licenses could extent into next year without adverse reaction from capital markets. For Verizon Wireless, issue is particularly significant as carrier prepares for IPO in midyear. Michael Gill, research dir. for Tejas Securities, said of Verizon Wireless that “the IPO issue is a big one for them.” Even before IPO, Verizon Wireless would need certainty over NextWave licenses before beginning roadshow for IPO in weeks leading up to stock offering, Gill said. How long coalition that crafted NextWave settlement could remain intact next year was unclear, with pending petition for certiorari at Supreme Court another complicating factor, he said. NextWave response to FCC petition is due Jan. 18.

In research note to investors released Fri., Legg Mason said it didn’t appear likely that terms of existing agreement would extend beyond Dec. 31 deadline, “given industry impatience, finances and continuing legislative uncertainties.” Next step that Legg Mason expects is for wireless carriers that collectively had made $3 billion in down payments re-auction to ask FCC to return money. Pending outcome of settlement plans, down payments from reauction have continued to be held in escrow and aren’t bearing interest. Any resolution isn’t likely in near term, particularly because action stemming from Supreme Court proceedings may not be forthcoming until Jan. or later, Legg Mason said.