The fallout from the C-block debacle continued last week as Wisconsin-based C-blocker Airadigm Communications filed for chapter 11 protection at the U.S. Bankruptcy Court in Madison, Wis.
Meanwhile, C-block winner NextWave Personal Communications Inc. was handed a favorable ruling in its own bankruptcy proceeding.
Airadigm has been one of the more successful C-block licensees. The company was the first C-block licensee to launch service in March 1997, and since then Airadigm has continued to build out its licensed service area in Wisconsin and parts of Iowa. The company’s subscriber base totals 13,000.
Many C-block licensees never got off the ground after several had difficulty securing financing. Hundreds of licenses were returned to the Federal Communications Commission last year and re-auctioned at reduced prices, while two of the biggest winners in the original C-block auction-NextWave and General Wireless Inc.-landed in bankruptcy court.
“The investment community sees the debt associated with these license costs that are four to 14 times higher than those set by the courts or the re-auction as placing Airadigm at a competitive disadvantage,” said Bob Schulze, an Airadigm spokesman. “We are now enlisting the court’s aid through this filing to reduce the stated value of our licenses and bring them in line with current market value.
“If that is accomplished, we firmly believe our likelihood of securing additional capital is excellent,” he said.
Schulze said Airadigm ran into problems after it completed the first phase of its buildout and tried to secure financing for the second phase. Potential creditors told the company it was carrying too much debt, said Schulze.
The company’s total cost for its licenses was $73 million, of which it still owes $63 million.
Schulze, who was with Airadigm during the original auction process, said he still thinks the company’s bids were prudent, but they assumed the ground rules would stay the same.
“It’s like we started out on a football field and ended up on a hockey rink with no skates,” Schulze said.
Schulze said the reorganization should have no impact on day-to-day operations. Prior to the bankruptcy filing, the company eliminated about 12 positions that were primarily related to buildout.
Airadigm has made arrangements with its two primary creditors-the Oneida Tribe of Indians of Wisconsin and L.M. Ericsson-to reduce its debt obligation to them. The FCC is Airadigm’s remaining creditor.
The company retained turnaround specialist Bob Galle to serve as interim chief executive officer of the company. George Benson, Airadigm’s previous CEO, retired July 13. Schulze said Benson’s resignation was unrelated to last week’s bankruptcy filing.
Galle has been involved in six company reorganizations outside of the wireless industry, said Schulze. His average length of stay at those companies was 14 months, however, he is optimistic that having two creditors on the company’s side will help speed the process, said Schulze.
NextWave
Calling the auction of C-block personal communications services licenses a disaster, federal Judge Charles L. Brieant has ruled in favor of NextWave Personal Communications Inc. in its fight with the FCC regarding the value of PCS licenses.
The FCC had appealed NextWave’s favorable bankruptcy ruling, claiming it would destroy the integrity of the FCC’s auction process, but Brieant rejected this argument.
“The integrity and reliability of the C-block auction is not undermined by an avoidance remedy; it was undermined by the fact that 90 percent of the winning bidders are now bankrupt and/or paying an outrageously inflated price. The FCC has not since run another auction like the C-block auction,” Brieant said.
In addition to calling the C-block auction a disaster, Brieant also said participants in the auction who did not win licenses were fortunate. “Those who bid but did not win are lucky, not hurt. They had the opportunity to bid at the D-, E- and F-block auctions and receive equivalent licenses for a fraction of the price NextWave is paying, even after the decision reducing its obligation. And if they had won the bid at the C-block auction, it is likely they would be in bankruptcy right now,” he said.
The FCC is reviewing Brieant’s decision, said Christopher J. Wright, FCC general counsel.
Any decision on appealing the decision would be made in conjunction with the Department of Justice, said Ari Fitzgerald, wireless legal adviser to FCC Chairman William Kennard.
