In latest round in U.S. Appeals Court, D.C., involving cancelled NextWave C-block licenses, company filed reply brief this week reiterating arguments that FCC’s cancellation of licenses for missed payment wasn’t allowed under law “and is outrageous on the facts of this case.” Oral argument in Appeals Court is set for March 15. Last year, 2nd U.S. Appeals Court, N.Y., granted FCC petition in NextWave case, concluding agency had acted as regulator and not creditor when cancelling company’s licenses. NextWave has argued that 2nd Circuit’s ruling didn’t decide merits of case, which it said was left to D.C. Circuit. “In abruptly and retroactively cancelling NextWave’s licenses, the FCC disregarded its own regulations; ignored controlling provisions of the Bankruptcy Code; and repudiated more than 18 months of its own conduct, including numerous explicit statements and in-court representations that the licenses remained in NextWave’s possession,” NextWave brief said. “The FCC’s litigation position is directly inconsistent with its past statements and conduct, which repeatedly assured NextWave, its investors and creditors that NextWave was protected by the same legal rules that Congress created for everyone,” said Theodore Olson, who will argue for NextWave in oral argument. Opponents, including CTIA, AT&T Wireless, BellSouth, CTIA, Dobson Communications, Sprint PCS, Verizon Wireless and VoiceStream, filed brief Jan. 24 weighing in on side of FCC. They argued that court lacked jurisdiction “because NextWave failed to preserve any challenge at the Commission to the automatic cancellation of its licenses.” They also contended that 2nd Circuit already had concluded that U.S. Bankruptcy Code couldn’t “trump” regulatory purview of FCC to condition licenses on timely payment. “This case is about an entity that entered an FCC auction knowing full well it would have to pay the price if it won and then simply did not pay -- hiding instead behind the bankruptcy laws,” opponents said. Meanwhile, speaking at Comnet Conference & Expo in Washington Thurs., Verizon Wireless CEO Dennis Strigl, said one reason carrier praised FCC decision Wed. to postpone 700 MHz auction until Sept. was that by then court was expected to have ruled on NextWave case. By time Aug. filing date comes around for auction, “we should know the answer to that litigation,” he said. Verizon Wireless was by far largest winner of licenses in just- completed PCS auction, for which most of spectrum up for bid came from cancelled NextWave licenses. Results of auction are conditioned on outcome of litigation, so if NextWave ultimately prevails in court, it would win back licenses that were up for auction.
Heeding requests of some wireless carriers, FCC’s Wireless Bureau Wed. pushed back start date of 700 MHz auction to Sept. 12 from March 6. “Under the current circumstances, the bureau believes that a brief delay is warranted to provide additional time for bidder preparation and planning and for reasons of auction administration,” it said. Agency had been working against Feb. 2 filing deadline for bidders to file short-form applications to participate in 700 MHz auction.
Not surprisingly, AT&T posted significant loss Mon. as it continued to face falling prices in long distance business and dealt with expenses in its broadband unit involving acquisition of MediaOne and impact of its investment in Excite@Home. Despite sharp decline, AT&T’s results were within analysts’ expectations for beleaguered company that’s in midst of restructuring itself. Bright spot was 39% revenue growth in company’s wireless unit, which it plans to spin off this year.
Lehman Bros. said Verizon Wireless paid average of $70.09 per pop for 113 licenses it bought in FCC’s C-block auction for $8.8 billion (CD Jan 29 p1). Research note said it was “very interesting” that company with “one of the strongest spectrum positions” before auction was most aggressive bidder. Strong stance Verizon Wireless took to acquire spectrum could be due to “bullishness” of venture partner Vodafone when it came to spectrum acquisitions, analysts said. Lehman said AT&T Wireless, investor in designated entity Alaska Native Wireless, focused on 30 markets where it needed to bolster spectrum position as it looked toward 3rd generation build-out. By adding 10 MHz in N.Y.C. and L.A., Lehman said, AT&T Wireless reached FCC’s 45 MHz spectrum cap in each of those markets through previous holdings of 10 MHz PCS license and 25 MHz cellular block.
FCC’s closely watched C- and F-block auction closed Fri., raising $16.9 billion, of which more than half will be paid by Verizon Wireless. Verizon and designated entities that have ties to Cingular and AT&T Wireless accounted for 83% of net revenue in auction of 422 licenses that started Dec. 12. Verizon filled in spectrum gaps in critical N.Y.C. market. It bid $8.78 billion for 113 licenses, nearly $4.1 billion of that for two 10 MHz licenses in N.Y. Revenue from auction surpassed lower end analyst expectations of $11 billion and surpassed record of $9.6 billion raised in 1996 C-block auction. Industry observers said Fri. they expected some large carriers’ financial arrangements with designated entities would draw challenges after bidders filed more detailed information with FCC on ownership structures. More broadly, several sources said they expected close of auction to refocus attention on wireless spectrum cap.
Request by Verizon Wireless last week that FCC postpone 700 MHz auction received broader wireless industry backing Wed., with submission of comments by Cellular Telecommunications & Internet Assn. (CTIA) supporting postponement. CTIA reiterated arguments made by Verizon that delay until Sept. 6 was warranted, in part to allow enough separation between current PCS auction and start of 700 MHz bidding. CTIA also cited factors such as additional time needed by bidders to prepare for first FCC auction that would use combinatorial bidding. “Conducting the auction under the existing uncertainty would devalue the 700 MHz spectrum and increase the likelihood that the American public would not realize the full economic and public benefits of a 700 MHz auction,” CTIA said.
Nextel is buying 900 MHz Specialized Mobile Radio (SMR) spectrum from Arch Wireless for $175 million plus agreement to invest $75 million in preferred stock. Nextel, which dropped out of FCC’s C-block PCS auction in recent weeks as prices climbed, said it planned to advance $250 million in loans to newly created Arch subsidiary that would hold 900 MHz licenses until transfers were approved, which Nextel expects will be finalized in 6 months. Nextel Pres. Timothy Donahue said agreement would give company 20 MHz of SMR spectrum in 800 and 900 MHz bands in 52 of top 100 markets. Arch Chmn. Edward Baker said decision to sell SMR spectrum was result of company’s upgrade of its 2-way network, which is designed to increase capacity. As result, SMR licenses would be redundant to its spectrum requirements, he said. Arch has 5 narrowband-PCS licenses. Separately, Fitch assigned B+ rating to Nextel’s $1.25 billion senior note offering. Fitch said rating reflected company’s “strong operating performance,” improving credit measures, strong liquidity position. Fitch said those positive factors were “somewhat offset by an increasingly competitive wireless industry and uncertainty with respect to Nextel’s possible participation in the upcoming 700 MHz auction.”
FCC ruling on 700 MHz spectrum auction (CD Jan 24 p6) will “demonstrate to shareholders the value of the television spectrum,” Pax TV said. Chmn. Lowell Paxson said new rules would allow market to determine adequate compensation for broadcasters to vacate spectrum early. He said company, which owns 18 TV stations in band, plans to “take a leadership position and set the tone for negotiations with the wireless telecom winners in the upcoming auction in an effort to speed the transition to digital television and monetize the value of our spectrum.”
Spectrum availability and how wireless technology can help bridge digital divide will dominate wireless policy arena this year, CTIA Pres. Thomas Wheeler said at press lunch Tues. He said CTIA was “very hopeful” FCC would address industry concerns on spectrum cap. CTIA has been urging agency to lift 45 MHz cap for all but rural markets, where ceiling is 55 MHz. Wheeler pointed out that in past FCC orders that dealt with cap, newly named Chmn. Powell had questioned why existing ceiling should remain intact. Lifting it would provide “interim relief” while 3rd-generation policy debates continued on whether and how to free additional spectrum for advanced mobile services, he said. Lifting cap “will buy you the 18 months that you need to get to the tough decisions,” he said, referring to 3G. Wheeler stressed prominent role Japan and European countries have taken in wireless Internet, in part by govt. policies that have made spectrum available and issued licenses. “God bless the Clinton Administration for starting the spectrum policy review process,” Wheeler said of 3G. “But they couldn’t bring it to fruition. And it now falls to the Bush Administration to deal with the really hard parts and make decisions.” Wheeler praised NTIA proposal last week on reimbursement for federal agencies that must relocate from existing spectrum (CD Jan 18 p2). NTIA outlined changes on how private sector could reimburse agencies, including possible relocations connected to 3G decisions involving military spectrum. “It might just be the underlying key point so far to be raised in breaking whatever gridlock there might be in creating access to spectrum,” Wheeler said. As for Verizon Wireless’s request to FCC last week that agency delay 700 MHz auction beyond March 6, he said he still was making calls to members on group’s position. (Comments are due Jan. 24). “Their concern is not an illegitimate concern,” Wheeler said of request to push back bidding for at least 2 months but preferably until Sept. 6. “You have to be in a position where you can work out bidding alliances, structures and trading spectrum and all these kinds of things to get you set for the next auction. But you are prohibited, because there’s an ongoing auction, from doing those very things.” In other policy areas, Wheeler said he hoped agency would address outstanding issues such as calling-party-pays and reciprocal compensation and privacy, including CTIA’s Nov. petition that proposed privacy principles covering mobile location-based services. He said he was hopeful FCC would move on privacy issues, although he said there was intra-agency debate on whether it belonged in Common Carrier or Wireless bureaus.
FCC opted against adopting cost-sharing rules, cost caps or recovery guidelines to help clear incumbent analog broadcasters from Ch. 59-69 spectrum set for auction March 6. Such measures, on which agency sought comment last year, are “not necessary or appropriate at this time,” Commission said. Decision, made last week and released Tues., “leaves cost-sharing arrangements to voluntary negotiations among new wireless licensees,” agency said. Commission also left implementation of secondary auction process for band-clearing rights to “private, voluntary efforts.” FCC earlier had sought comment on whether govt. or private sector should oversee secondary auction. Decision expands on rebuttable presumption in earlier Commission action. Initial policy provided that under specified circumstances, voluntary arrangements for incumbents to exit spectrum ahead of Dec. 31, 2006, DTV transition would be in public interest. Presumption applies to agreements between 700 MHz wireless licenses and incumbent broadcasters. Now, FCC has expanded that to 3-way agreements, allowing Ch. 59-69 incumbents to relocate to lower band TV channels, which in turn would be cleared voluntarily by incumbents in lower band. Without providing details, Commission said it provided guidance on interference issues that could arise from proposal to relocate broadcaster to channel below Ch. 59. Agency also adopted changes to streamline review of regulatory requests needed to put private band-clearing agreements into force. Report and order received approval of all commissioners, with exception of Comr. Tristani, who approved in part and dissented in part. In separate statement, Tristani reiterated earlier concerns over rebuttable presumption, saying band-clearing proposals needed case-by-case review. She said her earlier concerns extended to 3-way channel swaps. “Although the Commission’s action purports to facilitate the DTV transition with only a temporary loss of service for today’s viewers of over-the-air television, I fear it will do neither,” she wrote. “Moreover, 3-way swaps may result in loss of service not only for viewers of channels 59-69, but in the core spectrum as well.” In statement that was longer than agency’s news release on order, Tristani said she was concerned about impact on overall DTV transition. “Nothing in today’s decision requires a broadcaster to give up its analog operations in favor of digital-only service,” she said. Instead, broadcaster could operate in analog format on digital channel allotment under 3-way swap. Citing “negligible penetration” of DTV sets, Tristani said that made it likely broadcaster would choose to continue analog operations on its only channel “and ‘free ride’ on the efforts of other broadcasters to complete the digital transition.” She also objected to majority’s treatment of so-called lone-holdouts, or single incumbent broadcaster who refuses to leave spectrum block that otherwise is cleared of UHF operators. She said decision didn’t express view on mandatory relocation, but said FCC would revisit matter if needed. Tristani stressed that such action would contravene statutory mandates.