FCC RELIEVES NEXTWAVE RE-AUCTION WINNERS FROM BID ‘OVERHANG’

FCC in Sept. had floated options for allowing NextWave re-auction winners that faced potential payment obligations of $16 billion to opt out of their bid commitments, which are entangled in pending litigation. Commission returned licenses to NextWave after U.S. Appeals Court, D.C., last year reversed agency’s decision to cancel licenses for nonpayment. In March, Commission had refunded $2.8 billion to re-auction winners, but retained 3% of net winning bids for licenses and maintained status of applications for them. That meant that if FCC ultimately were to win in court and upheld results of NextWave re-auction, it could demand payment from winners within 10 days. FCC action allows bidders to exit from auction, requiring them to make choice on whether they will relinquish license claims within 45 days of order’s release. FCC press release said order included procedures for requesting dismissal and refunds and Justice Dept. approval.

FCC said it was “under no legal obligation” to provide relief to bidders, which included Verizon Wireless, Alaska Native Wireless, which had funding from AT&T Wireless, and Salmon PCS, which had financing from Cingular Wireless. Wireless industry had stepped up campaign at Commission in recent months, arguing that “overhang” from those payment obligations had been creating financial hardship, including cases of credit rating agency downgrades that cited auction debts. U.S. Supreme Court heard oral argument last month on FCC’s challenge to D.C. Circuit decision that had led to return of PCS licenses to NextWave. Order came in advance of high court ruling in that case, which is expected as early as Jan.

“As the months have passed and the economic difficulties have worsened, it has become increasingly clear that allowing the eligible Auction 35 winners to exit the auction is the right course,” FCC Chmn. Powell said: “Although the Commission cannot cure the capital crunch, it can remove the cloud of uncertainty that has followed the Auction 35 winners.”

Comr. Martin said history of auction had been “long and tortured.” His partial dissent centered on requirement that carriers withdraw from entire auction to be relieved of obligations. For example, Alaska Native Wireless, which bid $2.9 billion, had asked FCC to give winning bidders flexibility to make license-by-license decisions on any spectrum for which they decided to keep outstanding obligations intact and for which ones they would relinquish all claims. FCC appeared to take route of requiring bidders to leave all of their auction obligations if they chose to quit bidding. “I do not see a need to require carriers to make a single election for all of the markets awarded at auction as a condition to withdrawing from any one market,” Martin said.

FCC Comr. Abernathy said she didn’t think public interest would be served by continuing to tie up deposits “in light of the ongoing uncertainty regarding our ability to award these licenses and current economic conditions.” Worse would be “subjecting carriers to the risk of having to produce billions of dollars on short notice if the Commission prevails in the Supreme Court,” she said in separate statement.

“We're glad to have this behind us,” Verizon Wireless spokesman said. That carrier had largest exposure in outstanding auction obligations, having bid $8.7 billion. Verizon plans to opt out of applications for licenses on which it bid, spokesman said.

“We appreciate the Commission’s leadership in freeing up $16 billion in wireless assets that had been held hostage for too long,” CTIA Pres. Tom Wheeler said. “This is a straightforward solution -- allowing those resources to be put to work creating jobs in the telecom sector and increasing service levels for wireless consumers.”

Order doesn’t prevent bidders from reacquiring spectrum for which they are bowing out of auction obligations. Nextel told FCC in recent comment that applicants wanting to opt out of their commitments shouldn’t be able to rebid them in subsequent auctions or acquire them in secondary market for limited period.

On eve of FCC adoption of order Thurs., AT&T Wireless had changed terms of its participation in bidder Alaska Native Wireless. Citing “extent of the delay and uncertainty” surrounding auction results, it had reached agreement revising terms that controlled its obligations to other investors in ANW. “Both the delay and uncertain outcome of the auction were outside the scope of expectations when the venture was formed in November 2000,” AT&T Wireless said. Under terms of pact, by April 30, 2003, AT&T Wireless and ANW must make series of payments and distributions to other ANW investors “that will be fully funded with cash held by ANW at the time of the amendment,” carrier said. AT&T Wireless said new terms also “significantly” trimmed its potential obligation to buy ANW interests held by other investors to $145 million. If ANW ultimately received spectrum on which it bid, AT&T Wireless would fund balance of its remaining purchase price for licenses. AT&T Wireless said it planned to take $108 million charge in 4th quarter due to difference between amounts “accrued for its potential obligation under the original terms of the venture and its current obligation” under revised terms.

Meanwhile, bill that would have allowed bidders in NextWave auction to opt out got additional support. Sen. Stevens (R-Alaska) offered support to bill by Sen. Kerry (D- Mass.) (S-2869) after Alaska Native Wireless (ANW) worked out agreement with AT&T, majority owner of company. Stevens aide said Alaska Native Wireless was worried bill would have allowed cause of action if ANW declined to opt out. Aide said ANW worried AT&T would file suit if ANW didn’t opt out. But AT&T and ANW resolved issue privately, aide said, leading Stevens to drop opposition to bill. Bill has 58 co-sponsors, gaining Sens. Chafee (R-R.I.) and Bond (R-Mo.) on Wed. But aide said it was doubtful House would address measure, since adjournment was imminent. Also, Sen. Biden(D-Del.) had hold placed on bill over concerns of unrelated bill.