News that Nextel Communications Inc. received government approval to pursue 95 personal communications services licenses held by bankrupt designated entity NextWave Telecom Inc. dumbfounded and angered several large carriers last week and put into question whether the Federal Communications Commission brokered a back-door deal with the enhanced specialized mobile radio operator.
It is an issue that may have far-reaching consequences for the FCC, consequences that could include congressional hearings on the issue, said sources close to the matter. The FCC and Nextel did not return repeated calls for comment by RCR’s press time.
Nextel announced last week it had reached an agreement with the U.S. Department of Justice and the FCC, receiving their endorsement to obtain spectrum entangled in NextWave’s bankruptcy proceedings. Nextel said it already has contacted representatives of NextWave’s creditors for a possible deal.
NextWave, however, is pursuing its own reorganization plans to offer PCS service.
NextWave claims Nextel failed to file its plan with the court and is prohibited by law from doing so or soliciting votes on any plan of reorganization that doesn’t have court-approved disclosure.
Late Friday, NextWave’s bankruptcy court granted a preliminary injunction against Nextel, banning it from contacting NextWave’s creditors without the court’s approval. Nextel must appear before the court Aug. 25 to show cause as to why a permanent injunction shouldn’t be issued against it.
It’s unclear what type of agreements Nextel reached with the government entities because the FCC and DOJ will not disclose them. But the agreements could violate the FCC’s own rules and procedures and the intent Congress has in giving small businesses a chance to compete in the mobile-phone industry.
“Nextel made an offer, and we did agree to it,” said Chris Watne, spokeswoman with the DOJ. “We said that we’d support a reorganization plan consistent with the terms presented in the term sheets.”
Late last week, carriers were asking why the FCC gave special consideration to Nextel-a company considered too large to qualify as a C-block license holder-and without soliciting any public comment on the issue. The FCC on two occasions has denied Nextel’s request to bid for C-block spectrum.
“If the FCC is signaling a change to the very specific rules for PCS C- and F-block license eligibility, then the FCC should change those rules for all large wireless carriers,” said Tom Murphy, director of media relations with Sprint PCS, the country’s largest pure-play PCS operator. “If the FCC plans to modify the eligibility criteria for the NextWave licenses, then Sprint PCS would also be interested in acquiring NextWave’s PCS licenses. Sprint PCS will pursue everything in its power to see that our interests are protected and that we have the opportunity to acquire additional spectrum should it become available to large carriers.”
“It’s vital that the FCC restore public confidence in explaining what happened and what procedures it went through,” said a spokesman with a large cellular carrier. “We’d like to see the commission clarify whether it’s no longer requiring its traditional eligibility criteria for the C-block spectrum. If they are lifting the criteria, then there is a strong public interest in opening up the process … It would be quite an incredible miscarriage if this was delivered just to Nextel.”
The FCC’s motive is puzzling to many industry insiders. The commission does not have much to gain financially in allowing Nextel to pursue NextWave’s licenses nor is it likely Nextel could build out the licenses before NextWave’s planned time frame.
The FCC has been frustrated that C-block licensees have run to bankruptcy courts for relief rather than working out payments with the commission. The FCC once found favor with the Clinton administration for raking in more than $7 billion in PCS auction bids, but now is finding itself on the losing end of a failed C-block auction process. The top three bidders in the C-block auction, including NextWave, have filed for bankruptcy, and all have received favorable rulings and significant discounts on license fees.
Today, NextWave’s licenses are under the jurisdiction of a federal bankruptcy court in New York as part of a bankruptcy proceeding NextWave initiated last year. A federal district court recently affirmed an earlier ruling that cut NextWave’s debt by $3 billion, requiring NextWave, which holds 95 basic trading area licenses covering 163 million pops, to pay the FCC $1 billion. Any agreement between Nextel and NextWave’s creditors is unlikely to give the commission more than $1 billion in license fees.
NextWave’s proposed plan for reorganization is scheduled for a confirmation hearing on Sept. 8 with the bankruptcy court. The plan is based on more than $750 million of new working capital investment and offers negotiated with various equipment vendors willing to provide up to $2 billion in initial network equipment purchases to build out a nationwide Internet Protocol, packet-switched, high-speed data and voice network, said NextWave in a press statement. If the bankruptcy court confirms the plan, NextWave said its licenses will be paid for in full. NextWave said its reselling strategy will allow a large number of new service providers to enter the market.
Nationwide operator Nextel hasn’t made clear what it would do with the spectrum or when it would build out the licenses, only saying in a press release it believes its “existing spectrum position is ample to meet the needs of its current business plan. Access to the NextWave spectrum would allow Nextel greater flexibility in its pursuit of new strategic initiatives and in the deployment of future generations of wireless and telecommunications services.”
