Wholesale Channel: Five-Year Dispute Over PCS Licenses Likely to End

Posted: 11/2001

Wholesale Channel

Five-Year Dispute Over PCS Licenses Likely to End
Khali Henderson

In what could be the final chapter in the ongoing dispute over its ownership of certain PCS licenses, would-be carrier’s carrier NextWave Telecom Inc. was
negotiating a settlement with the Federal Communications Commission and the major wireless carriers that won those same licenses at reauction earlier this year, according to reports by Reuters Oct. 20.

Like the rest of NextWave’s five-year saga, the settlement negotiations have been anything but smooth. After weeks of negotiations between NextWave and the wireless carriers-Verizon Wireless, AT&T Wireless and VoiceStream Wireless Corp. resulted in a settlement proposal presented to the FCC mid-October, Reuters reports that initial terms of the deal have drawn criticism from officials at the Office of Management and Budget (OMB). The OMB is concerned that by allowing Verizon to pay its $8 billion portion of the settlement in two parts, there is sure loss of accrued interest and risk that the carrier may not be able to make its second payment, the wire service reported.

Under the settlement terms, the major wireless carriers would pay $16 billion to retain the licenses, which NextWave won in 1996 but were repossessed and reauctioned by the FCC after the carrier failed to make payments. Investors in NextWave, which was due in bankruptcy court Oct. 22, would end up with $5 billion for giving up claim to the licenses, leaving $11 billion to the federal government.

At press time, protracted settlement negotiations forced the FCC to meet an Oct. 20 deadline to appeal this summer’s U.S. Appeals Court ruling that the FCC had wrongfully seized the NextWave’s licenses after defaulting on payments because the carrier had filed for bankruptcy protection.

Reuters quoted FCC Chairman Michael Powell as saying that efforts to settle the case out of court would be ongoing, however.

That NextWave entered talks at all is a turnabout. The carrier had gone on record just weeks earlier as refusing to consider a settlement, saying such a proposal is an “unfounded effort to stop a competitor from entering the marketplace.”

In August, five wireless carriers had urged the FCC to settle with NextWave by paying off the carrier and forgiving its auction liabilities in exchange for leaving the re-auctioned licenses in the hands of the winners of Auction No. 35.

Following NextWave’s staunch refusal, three reauction winners asked the FCC to audit NextWave’s eligibility to hold it licenses, challenging its merits on the grounds of foreign ownership, its status as a designated entity in the original auction and its ability to make future license payments.

In the midst of the spectrum battle, NextWave filed on Aug. 6 a plan of reorganization with the U.S. Bankruptcy Court for the Southern District of New York, providing total financing of approximately $5 billion. The company was granted a deferment of its hearing due to the talks, but at press time was expect to appear on Oct. 22.

Neither the temporary delay in the hearing nor the discussions have affected NextWave’s preparations to proceed with its reorganization, the company said in an Oct. 1 press statement. At a hearing Oct. 1 in federal court in White Plains, N.Y., for example, the court approved the retention of UBS Warburg as the company’s financial advisor and approved the $2.5 billion UBS credit facility.

Should the settlement go through, analysts are concerned that it concentrates more spectrum in the hands of large carriers. NextWave originally obtained its spectrum by participating in the so-called entrepreneurs’ or “C” block auctions.

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