Legg Mason said in research note Wed. that while govt. won in 70%...

also said it appeared unlikely that winners of Jan. 2001 NextWave re-auction ultimately would have to pay for spectrum at total $16 billion set in that bidding. Pending high court review, FCC has refunded all but 15% of deposits paid by winning bidders, who would be required to pay full amount they bid on spectrum if court reversed U.S. Appeals Court, D.C., decision that had ruled against Commission’s cancellation of NextWave licenses for missed payment. Meanwhile, Wall St. Journal editorial Wed. took FCC to task over “ongoing NextWave spectrum fiasco,” arguing Commission decision to not release re-auction winners from their bid obligations “is paying havoc with an industry already in chaos.” Editorial said Verizon Wireless had $8.7 billion liability, “money it can’t effectively touch because of the 10-day future payment obligation.” It said FCC booked $4.8 billion that NextWave bid on those PCS licenses in federal budget in 1997 and then booked $16 billion from 2001 re- auction, as well, minus money lost from NextWave. “Chairman Michael Powell keeps promising a telecom revival, but this FCC money-grubbing doesn’t help,” editorial said. “The re- auction is tying up much-needed investment capital.” Journal referred to recent study by American Enterprise Institute economist Gregory Sidak that concluded that if released, $16 billion in NextWave re-auction overhang would increase gross domestic product by $19-$52 billion. Separately, Legg Mason cited mounting pressure for FCC to remove $16 billion re- auction overhang. CTIA and group of economists have urged FCC to cancel auction or allow winning bidders to opt out of obligations, citing drag on carrier finances. “Although the FCC may not act until after the Supreme Court decision, we believe that the FCC will find it increasingly difficult to stand by an abstract commitment to the integrity of the auction process in the face of mounting claims that such a position stands in the way of contributing to economic recovery,” Legg Mason said. Analyst report said it believed re-auction winners ultimately wouldn’t be compelled to pay prices set in bidding. Among vulnerabilities in arguments in case govt. has laid out to Supreme Court, Legg Mason cited: (1) Congress has carved out exceptions for other govt. actions taken to promote regulatory objectives, but not for spectrum auctions. (2) Justices may follow reasoning of D.C. Circuit, which focused on Sec. 525 of U.S. Bankruptcy Code, which stipulates federal agency can’t cancel license solely for nonpayment of debt dischargeable in bankruptcy. “It’s difficult to argue that the FCC cancelled the license for a reason other than solely because of NextWave’s failure to pay a dischargeable debt.” (3) High court could conclude that FCC created tension between Communications Act and bankruptcy law “by permitting the C-block auction winners to pay off unguaranteed debts in installments over 10 years.” However, report said that among factors that weighed in govt.’s favor in Supreme Court case was strong argument that D.C. Circuit’s decision placed Sec. 525 in conflict with Communications Act provision directing FCC to allocate spectrum by auction. Sidak study, set for Mon. release, is expected to say economic stimulus of releasing carriers from re-auction would free $12-$38 billion by end of 2005, date by which NextWave- related litigation is expected to play out if FCC wins at Supreme Court because of outstanding issues that would be taken up at D.C. Circuit.