WASHINGTON-In a stunning turnabout, the Justice Department and the Federal Communications Commission late last week terminated negotiations with Pocket Communications Inc. debtors and called for the return of all but a few of the 46 personal communications services licenses for which Pocket pledged $1.4 billion in 1996 in the C-block auction.
The action sets the stage for possible fireworks at a Pocket bankruptcy hearing scheduled this Thursday in Baltimore.
Indeed, Pocket debtors filed a Pocket reorganization plan on Oct. 22 and expect to challenge the FCC and Justice.
“The DIP Lenders, together with Cook Inlet Region Inc., VoiceStream Wireless Corp. and Omnipoint Corp…disagree with the contentions set forth in the Department of Justice letter of Oct. 22,” said Kenneth Irvin, a lawyer for DIP lenders.
The decision, revealed in Oct. 22 letters from Justice’s Lloyd Randolph and FCC General Counsel Christopher Wright, is a potentially devastating blow to Pocket Debtors in Procession lenders: L.M. Ericsson, Masa Telecom Inc., Pacific Eagle Investments Ltd. and Siemens Telecom Network.
The move, which took many by surprise, came on the heels of the GOP-led Congress’s eleventh-hour move to kill a bankruptcy provision that the FCC and White House wanted included in the fiscal 1999 omnibus spending bill passed by Congress and signed by President Clinton last Wednesday. The now-defunct measure would have enabled the FCC to retrieve licenses from bankrupt wireless firms.
The bankruptcy provision, which House Majority Leader Dick Armey (R-Texas) demanded be pulled from the spending bill last Monday evening, would have doomed bankruptcy reorganizations of the three top C-block PCS license bidders-Pocket, Nextwave Telecom Inc. ($4.2 billion) and General Wireless Inc. ($1.4 billion). All told, the three firms-all involved to varying degrees in bankruptcy proceedings-accounted for $6.6 billion of the $10.2 billion bid in the C-block auction. The U.S. Treasury is not expected to collect anything close to that total.
The FCC-DOJ plan calls for a suspended election, made by Pocket founder Daniel C. Riker on June 8, to become effective at midnight Oct. 30. This election allows the FCC to take back licenses Riker chose to give back to the FCC either by amnesty or disaggregation.
Riker remains in control of 15 megahertz of 11 licenses in such places as Las Vegas, Battle Creek, Mich., New Orleans and Omaha, Neb. Riker is expected to sell these licenses to pay off Pocket debts.
According to one source close to situation, the outcome also could be disastrous to the development of Global System for Mobile communications systems in the United States if carriers wedded to competing Code Division Multiple Access and Time Division Multiple Access technologies successfully bid on the Chicago and Dallas markets that the DIP lendors had expected to buildout as GSM but which will now be re-auctioned.
“Pocket’s sole concern is doing what’s best for the estate and the creditors,” said Lynn Charytan, a lawyer for Pocket. “I’m not sure everyone will agree on with whether this is the best for the estate,” added Charytan.
It is unclear what triggered the dramatic change in events. One theory is the Justice and FCC became angry at a recent proposal by Pocket DIP lenders. Another is that the FCC became impatient with Pocket, having watched GWI emerge from bankruptcy without having to pay back most of the $1.4 billion owed to the U.S. government and having barely lost its quest to win congressional approval of the bankruptcy provision.
“Spectrum belongs to the American public. We should not allow valuable spectrum to be tied up for years in bankruptcy litigation,” said FCC Chairman Bill Kennard.
“If these auction winners remain able to use the bankruptcy code to avoid the amount they promised to pay the American government and keep the licenses out of productive use, then consumers lose on both ends,” Kennard added.
“American taxpayers should not have to bear the risk when entrepreneurs try to back out of their promises to the government.”
