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NEXTWAVE CHOOSES BANKRUPTCY

WASHINGTON-Notwithstanding the Federal Communications Commission’s consistent call for Congress to pass legislation to protect FCC licenses from being held up by auction bidders in bankruptcy proceedings, it became apparent last week that such legislation is not on a fast track on Capitol Hill.

The issue is timely because the largest of the C-block personal communications services winners, NextWave Telecom Inc., June 8 joined Pocket Communications Inc. and General Wireless Inc. in seeking bankruptcy protection.

NextWave owes the FCC $4.2 billion for 63 C-block PCS licenses. It is unlikely the FCC-coveted bankruptcy legislation could be passed this year since there are few legislative days left before Congress leaves for the 1998 election season.

FCC Chairman William Kennard issued two statements last week urging Congress to pass the bankruptcy legislation. However, instead of pressing Congress to pass the legislation either on its own or as an amendment to another piece of legislation, the FCC has been engaging in “casual informal discussions with House and Senate Commerce Committee staff,” said Mark Rubin, a spokesman from the FCC’s Office of Legislative and Intergovernmental Affairs.

The informal efforts may have been successful with Senate Commerce Committee staff, who agreed that “in light of FCC working out the details on auctions and the lower court’s bad decision on C-block bankruptcy, it is time for Congress to look at remedial bankruptcy legislation.”

It is unclear, however, whether the committee staff has convinced the members of the Senate Commerce Committee. Sen. Conrad Burns (R-Mont.), chairman of the communications subcommittee, told reporters FCC licenses are property and that a “takings issue” could arise if the FCC’s proposal is passed as legislation. “You sold [the licenses] for auction and you got cash money, that changes the legality [of the situation],” Burns said.

The House seems less certain. Ken Johnson, a spokesman for Rep. Billy Tauzin (R-La.), chairman of the House telecommunications subcommittee, said Congress spent a great deal of time trying to work out the C-Block problems last year and bankruptcy protection legislation would not happen this year.

The FCC’s proposal calls for amending the Communications Act. This avenue, rather than amending the bankruptcy code, was taken to keep the congressional jurisdiction within the Commerce committees of both houses. Such a proposal could miss a key opportunity to amend during Senate consideration of bankruptcy legislation passed last week by the House of Representatives. The FCC is consulting with congressional staff to see if an amendment to the bankruptcy-reform legislation is a viable option, Rubin said.

The NextWave bankruptcy filing was not surprising since the company lost its bid June 5 in the U.S. Court of Appeals for the District of Columbia to stay the C-block election. The bankruptcy case filed in the Southern District of New York in White Plains, N.Y., seeks similar remedies as awarded to GWI by Texas Bankruptcy Judge Stephen A. Felsenthal. Judge Felsenthal ruled GWI licenses were worth only $166 million. The ruling meant GWI only had to pay the FCC an additional $58 million to receive the licenses, for which it bid more than $1 billion.

In NextWave’s case, the company said that by delaying the award of the licenses, it received damaged goods. The FCC reduced the value of its licenses by not making them available until after the D-, E- and F-block auctions were completed. NextWave spokesman Mike Regan said the contract between government and his company was broken. NextWave is asking the court to lower the price of NextWave’s licenses or to cancel the licenses and refund its $474 million deposit. Additionally, NextWave is seeking $3 billion in damages.

Kennard was not amused by NextWave’s lawsuit. “NextWave now seeks judicial permission to break the deal it made when it bid on the licenses,” Kennard said in a statement.

As NextWave was filing for bankruptcy, other C-block license owners were slated to submit their choices for debt restructuring offered by the FCC. The elections were due by the close of business on June 8, but the FCC has yet to release the results of the electronic elections. The FCC hopes to provide these results within two weeks. The delay is to give FCC staff time to analyze the results.

Pocket participated in the elections, opting to disaggregate and purchase some of its licenses with the credit system established by the FCC. The markets Pocket chose to disaggregate include Las Vegas, Omaha, New Orleans and Toledo, Ohio. The Pocket plan would be to sell off the licenses and pay off creditors, said Daniel C. Riker, Pocket founder.

Unlike the other C-block licensees participating in last week’s election, Pocket’s election was conditional and cannot become effective unless one of three things occur:

1) Pocket breaks off negotiations with the FCC and the Department of Justice;

2) the loan from the debtors-in-possession, Ericsson Inc., Siemens Telecom Networks, Masa Telecom Inc. and Pacific Eagle Investments Ltd., is not extended; or

3) If the negotiations do not result in a settlement before Sept. 30, the FCC general counsel could elect to accept Pocket’s election.

The Pocket bankruptcy court proceeding plodded along last week with two filings submitted to the court to restructure the company. One plan, filed by the DiP lenders would create a new company, NewGSM Co., to operate Global System for Mobile communications service in Chicago and Dallas and return the rest of Pocket’s licenses for re-auction.

The second plan, submitted by National Telecom, separates the DCR bankruptcy case from the Pocket bankruptcy case. DCR is a wholly owned subsidiary of Pocket and up to this point, both bankruptcy cases had been combined. NatTel targeted DCR because “DCR has the fraudulent conveyance claim against the FCC,” said Jack Robinson, NatTel president. “Pocket means nothing to me. Everyone has assumed the two cases must remain connected but that is a fatal assumption,” Robinson added.

There is some question whether NatTel has the right to offer a restructuring plan, said Kenneth W. Irvin, an attorney for Siemens. “There are a lot of questions about Mr. Robinson’s plan … only creditors can propose a plan,” Irvin said. Robinson claims he is creditor because he has a litigation claim against DCR.

The NatTel plan calls for paying $300 million in cash in return for extinguishing the FCC’s $1.3 billion debt claim related to the DCR licenses. The $300 million would be distributed as follows: $235 million to the FCC, $40 million to settle NatTel’s $1 billion antitrust lawsuit against DCR, $14.4 million to pay DCR’s two unsecured creditors-Ericsson and LCC International, $5.4 million to repay the DiP loan, and $600,000 for other fees and expenses related to the bankruptcy case.

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