YOU ARE AT:Archived ArticlesEX PCS PLAYER BLAIMS LOST LICENSES ON U S WEST

EX PCS PLAYER BLAIMS LOST LICENSES ON U S WEST

BDPCS Inc. last week filed a lawsuit in a Colorado court against U S West Inc., claiming U S West’s last-minute refusal to loan the former C-block auction winner $37 million last year for a down payment required by the Federal Communications Commission led to the company’s downfall.

BDPCS, a wholly owned subsidiary of BDPCS Holdings Inc. (formerly known as Questcom Inc.) doing business as Best Digital, was forced to give up the 17 personal communications services licenses it purchased at auction for $873.7 million because it could not meet its down-payment requirement. Damages include a $67 million fine imposed by the FCC for the company’s failure to pay and losses arising from the ruined value of BDPCS’s business. Wall Street bankers had estimated the value of the company at more than $1 billion, based on the value of the licenses and BDPCS’s anticipated revenues, said the complaint.

The company alleges in Boulder County District Court that Englewood, Colo.-based U S West last year reneged on its commitment to provide BDPCS with temporary financing for the down payment nine business days before the payment was due. As a result, BDPCS said it was unable to find alternative financing. In its complaint, BDPCS asserted U S West intentionally interfered with BDPCS’s contractual obligation to the FCC, broke its promise to provide temporary financing, was fraudulent in its dealings with BDPCS and breached a fiduciary duty owed to BDPCS.

“We adamantly deny any wrong-doing as alleged in the lawsuit brought today by Best Digital,” said U S West in a written statement. “In particular, we deny the claim that U S West had a fiduciary responsibility for Best Digital’s financial obligations. We did not and do not.”

According to the complaint, the two companies signed a cost-sharing contract in October 1995 under which U S West agreed to build PCS infrastructure for BDPCS’s network. U S West also assured BDPCS that its existing agreement with AirTouch Communications Inc., which called for the two cellular companies to merge their domestic cellular operations, did not pose a conflict of interest with AirTouch and that it would renegotiate the contract with BDPCS if a conflict of interest arose, said the complaint. BDPCS had won licenses within U S West’s 14-state regions, and the company’s services would have competed directly with the existing cellular services already being provided under the AirTouch agreement.

BDPCS said U S West also agreed to provide a bridge loan to assist the company in making the FCC’s required down payment. The company intended to pay back the loan after completing an initial public offering that was to take place while it was waiting on its C-block license applications. BDPCS said it presented the plan to the FCC with U S West’s full knowledge and approval.

In addition, the complaint alleges that on May 1, 1996, BDPCS had discussions with Nomura Securities Inc. and Apollo Investments along with other companies to secure more financing. Nomura and Apollo proposed financing plans, but U S West insisted that BDPCS not go forward with financing from Apollo and rely on U S West to provide the necessary funds for the FCC’s down payment, said the complaint. BDPCS said it told Apollo that it no longer needed Apollo’s financing.

According to BDPCS, U S West pulled out of the deal the next day, saying it was no longer willing or able to provide BDPCS with a bridge loan. Its reasoning, said the complaint, was that a “new lawyer” had reviewed the AirTouch agreement and concluded that it stopped U S West from making any loan to BDPCS. Top officers at U S West also had been involved in the decision and decided not to proceed with the bridge financing. Finally, in light of U S West’s interpretation of the AirTouch agreement, the matter was considered closed and BDPCS was to find financing elsewhere, said the complaint. The payment was due on May 15.

Because of the short time frame and new assurances demanded by other financial institutions and equipment manufacturers courted by BDPCS, the company petitioned the FCC for a 30-day extension to meet the down-payment obligation. It told the commission that U S West had pulled out of the deal.

U S West responded to the petition by sending a letter to FCC Chairman Reed Hundt contesting BDPCS’s description of the events. While admitting its financial involvement with BDPCS during the course of the auction, Solomon Trujillo, president and chief executive officer of U S West Communications, said in a May 17, 1996, letter that “USWC never had any obligation to fund any of BDPC’s down-payment obligations to the FCC … BDPCS may have continued to view USWC as a potential source of funding, but BDPCS was repeatedly told that any such funding would be subject to negotiation.”

Trujillo also wrote that while senior U S West management decided not to approve a loan to BDPCS, the company “continued to provide support, even through the afternoon of May 15, to assist BDPCS in finding such institutional funding, using USWC’s contacts in the financial community, and explaining and confirming USWC’s commitment to the provision of wireless network assistance for BDPCS.” The FCC rejected BDPCS’s petition for an extension, and the company lost its licenses.

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