WORLDCOM ASKS FCC TO RULE ON ITS AUCTION ELIGIBILITY

WorldCom, which now does business as MCI, said in a filing last week that the Bureau had raised questions about the status of 2 MDS licenses held by WorldCom subsidiary Wireless One and “suggested that SkyTel is ineligible to participate” in the auction of upper and lower paging bands. It said the licenses weren’t in default and the company and its wireless arms met auction eligibility requirements. “Moreover, even if those licenses were technically in default, the Bankruptcy Code and the requirements of due process prevent the Commission from excluding SkyTel or any other WorldCom subsidiary from future auctions on the basis of any purported default,” it said. WorldCom asked the Bureau to either: (1) Issue a declaratory ruling that Skytel and other wireless affiliates could participate in FCC auctions. (2) Or grant a waiver of competitive bidding rules that make auction participation hinge on satisfying outstanding installment payment defaults.

“The issues are still pending and under review,” a Wireless Bureau spokeswoman said Fri. “The Bureau is planning to release a public notice shortly announcing entities eligible to participate in Auction 48.”

The company stressed that that scenario presented “highly unusual” facts because security agreements and promissory notes never were issued for the licenses in dispute, the FCC failed to send payment notices and the “uncertainty regarding the status of these licenses was never clarified despite the good-faith efforts of Wireless One.” One complicating factor is that Wireless One wasn’t part of WorldCom at the time it bid on the licenses at issue. WorldCom said the installment payments at the center of its petition were missed “due to an honest, and mutual, mistake on the part of the FCC and Wireless One.” Another complicating issue has been that Wireless One itself was in Chapter 11 proceedings when WorldCom bought it and later was folded into WorldCom’s own bankruptcy process, a source said. WorldCom told the Bureau in its April 15 filing: “Barring SkyTel or any other WorldCom subsidiary from future auction participation solely because of a mistake regarding 2 licenses would violate several provisions of the Bankruptcy Code, the Due Process clause of the Constitution and basic principles of fairness.”

As part of a series of deals involving MDS spectrum in 1999, WorldCom bought wireless cable operator Wireless One for $22.61 million and earlier that year acquired paging provider SkyTel for $2 billion in what at the time represented its only major wireless investment. Wireless One earlier had purchased one of the MDS licenses now at issue, the McComb, Miss., basic trading area, from TruVision Cable, which won it in the 1996 MDS auction. Wireless One in that same auction won the Hammond, La., license. WorldCom said Wireless One had won about 60 other licenses in FCC auctions, executing promissory notes and security agreements for them and making timely installment payments, meaning those licenses never had been in default. “But the Hammond and McComb licenses appear to have slipped through the cracks,” WorldCom said. “Wireless One never received the promissory notes or security agreements for those licenses, and, to Wireless One’s knowledge, the FCC never sent them.” That meant that notes and security agreements weren’t issued for those licenses and Wireless One said it couldn’t determine what payments, if any, were due in the absence of a security agreement or promissory note. Installment payments weren’t made, WorldCom said. In the meantime, WorldCom filed for bankruptcy with affiliated debtors that included Wireless One.

WorldCom said that after it started discussions with Bureau staff on the status of the Hammond and McComb licenses, the Wireless Bureau issued a notice on April 9 that announced “for the first time that the Hammond licenses were forfeited years earlier.” There hasn’t yet been a public notice on the status of the McComb licenses, WorldCom said.

SkyTel isn’t disqualified from the auction, WorldCom said, because: (1) The licenses at issue weren’t in default because the FCC never sent the documents needed to establish an installment payment plan. (2) The Bankruptcy Code prevented the default and cancellation of the Hammond license. Even if Wireless One failed to make installment payments, any resulting debt is a debt of WorldCom before it filed for reorganization, meaning Sec. 525 of the Bankruptcy code prevents the FCC from conditioning the company’s ability to obtain other licenses on the satisfaction of that debt.

Sec. 525 was one of the central issues in the NextWave case on which the U.S. Supreme Court ruled earlier this year. One key dispute had been whether the FCC’s cancellation of NextWave’s licenses fell under Sec. 525 of the Bankruptcy Code or the auction provisions of Sec. 309(j) of the Communications Act. Sec. 525 bars a federal agency from cancelling a license “solely” for a debt dischargeable in bankruptcy. The Supreme Court disagreed with FCC arguments that Sec. 525 didn’t apply because the Commission had a valid regulatory motive for the cancellation. The “plain language” of Sec. 525 prevents the FCC from declaring the Hammond license in default, WorldCom said. “As the Supreme Court recently confirmed, this provision bars the automatic cancellation of FCC licenses when a licensee misses payments during bankruptcy,” it said, citing the NextWave ruling. Wireless One was in Chapter 11 when the installment payments “allegedly came due,” and Sec. 525 barred the FCC from declaring the Hammond licenses in default, it said. WorldCom said the bureau’s decision on the Hammond license April 9 was “erroneous.” It stressed that the FCC had the discretion to allow licensees to keep their spectrum despite a missed installment payment. The agency’s decision not to exercise that discretion by instead issuing a public notice on the Hammond default and cancellation is the kind of auction barred by the automatic stay, WorldCom said.

WorldCom told the FCC that barring subsidiaries such as SkyTel from competing in future auctions because of the alleged default “would also be arbitrary and capricious agency action that violates due process, because the Commission never provided Wireless One or WorldCom with notice of the amounts due for the alleged default, and thus never gave Wireless One or WorldCom an opportunity to cure any defaults that may have existed.”