NextWave Wins Latest Ruling Over Wireless Licenses
In a ruling that could slow the roll-out of the next generation of mobile phones, an appeals court Friday revoked the sale of $17 billion in airwaves to 21 wireless carriers and ordered them returned to bankrupt NextWave Telecom Inc.
The reversal is a blow to Verizon Wireless Inc. and 20 other wireless carriers that had intended to use the slices of spectrum to improve their voice service and offer faster wireless data service.
It is bad news for the Bush administration, which stands to lose most of the $17 billion from its budget surplus.
The decision also is a defeat for the Federal Communications Commission, which fought a high-stakes battle to wrest the airwaves from NextWave after the company failed to make payments toward the $4.74 billion it bid for 63 wireless licenses in 1996.
For Hawthorne, N.Y.-based NextWave, the court’s ruling was sweet vindication after years of fighting in courts and Congress against the FCC and a throng of competitors anxious to get hold of the company’s valuable spectrum.
The company, which started network construction in several markets before funding ran out in 1998, said it intended to pay its debts to the FCC and creditors and resume building its nationwide network.
Appeals Court Judge David Tatel, writing for a three-judge panel of the federal appeals court for the District of Columbia, held that the FCC’s repossession of NextWave’s licenses broke clear-cut federal bankruptcy rules.
The rules, Tatel wrote, bar a government agency from repossessing a bankrupt company’s license “solely because such bankrupt or debtor . . . has not paid a debt that is dischargeable” under bankruptcy law.
The FCC, which regulates the communications industry, declined to comment on its next step, saying it was reviewing the decision. It could seek a ruling by the full appeals court or the Supreme Court.
A spokeswoman for the Office of Management and Budget said she expected the FCC to try to reach a settlement with NextWave or to appeal to the Supreme Court. The $17 billion in disputed licenses, said spokeswoman Amy Call, “would have an impact even on a $1.8-trillion federal budget.”
If the two sides wind up at the negotiating table, industry sources say the FCC might offer NextWave cash bidding credits in a future auction in return for letting the re-auction results stand.
Those 21 companies bid $17 billion--a record for a federal auction--for segments of the spectrum in 195 wireless markets nationwide. NextWave had sought to block the re-auction, arguing that it would become moot if the company prevailed in the ongoing legal case.
Former FCC Chairman William Kennard, who led the FCC’s contentious battle with NextWave before leaving office in January, said the case “cries out for a settlement.”
Before pushing ahead with the re-auction, Kennard had tried to negotiate a deal to allow Nextel Communications Inc. to buy the disputed spectrum--a plan that was scrapped when word leaked out and other carriers wanted in on the bidding. Kennard now serves on Nextel’s board of directors.
NextWave founder and Chairman Allen Salmasi said in a prepared statement that the company has been “ready, willing and able for several years now to pay its debts to the FCC and other creditors in full, deploy state-of-the-art wireless facilities, and offer the public new competitive services.”
NextWave, after first trying to win a reduction in the spectrum prices, said in December 1999 that it had enough financial backing to pay the FCC in full. Instead, the FCC took back the spectrum and later auctioned it off for sharply higher prices.
Michael Wack, NextWave’s deputy general counsel, said the company planned to pick up where it left off and does not intend to negotiate a settlement with the FCC. “You settle before the case, not after you win it,” he said.
NextWave’s good fortune could be a huge blow to Verizon and wireless start-ups backed by Cingular Wireless, AT&T; Wireless Group and other companies that were the winning bidders in January’s auction. Those companies have been scrambling to serve an exploding wireless market that’s signing up more than 1,200 new customers a day and straining current cellular phone capacity.
The prospect of Verizon and others losing their airwaves and facing NextWave as a national competitor to boot sent nervous investors fleeing from wireless stocks.
Shares of Verizon Communications Inc., which owns the nation’s largest mobile-phone company with Vodafone Group, fell 65 cents to close at $52.55. AT&T; Wireless fell 19 cents to close at $16.20.
“If this decision stands, it’s an extraordinary windfall for Next-Wave and an extraordinary loss for consumers and taxpayers,” said Scott Blake Harris, a Washington communications lawyer who formerly headed the FCC’s international bureau. “There is going to be at least another year of delay before anyone knows who is going to be able to use” these airwaves.
NextWave officials dispute that. Wack said the company had plenty of interested investors, plenty of equipment companies offering low prices and a solid game plan to present consumers with the fastest, most-advanced digital network in the country.
