WASHINGTON-It went down to the wire, but when all was said and done, the personal communications service licenses won at auction by bankrupt NextWave Telecom Inc. escaped the machinations of balancing the federal budget.
White House budget negotiators continually tried to convince the congressional leadership that taking back the licenses and re-auctioning them would give the American taxpayers the true worth of the licenses rather than the value placed on them by a federal bankruptcy judge in New York. The Clinton administration won allies on the Senate, but the House leadership refused to budge.
During negotiations, House Majority Leader Richard Armey (R-Texas) said the House would not allow the government to take back and re-auction the licenses because to do so would allow the Federal Communications Commission to get out of the consequences of its role in the NextWave bankruptcy.
“The court decided that the FCC made a fraudulent conveyance [when it awarded NextWave’s licenses]. This is a country that lives by the rule of the law … every reiteration relieves the federal government of the consequences of its judicial decision. I don’t think you can do that,” Armey said when explaining his opposition to the various proposals to take back and re-auction the licenses.
When Judge Adlai Hardin reduced the value of NextWave’s licenses from $4.7 billion to $1 billion, he did so because he said the FCC erred when it transferred the licenses. The action, Hardin said, was a fraudulent conveyance.
The Department of Justice and the FCC have appealed Hardin’s decision to the U.S. Court of Appeals for the Second Circuit. Oral argument was heard earlier this month.
The FCC consistently has said the fraudulent-conveyance ruling impairs the integrity of its auction process. Last week, an FCC official who refused to be identified reacted to Armey’s statement. “How about the bidders living by the consequences of their actions? This is the government-made-me-do-it defense. I would like some of these bidders to take responsibility for the failure of their own business plans.”
History lessons
Watching the process leading up to the final budget agreement was akin to watching a baseball game that goes into extra innings and each inning ends in a tie because as one team scores, so does the other.
But while baseball games usually are finished at the end of a day, the process of using-or not using-C-block licenses to balance the budget started more than a year ago.
At that time, language was included in the budget that would have allowed bankrupt operators to participate in the re-auction of C-block licenses using all previous down payments and installment payments as bidding credits. The amendment was removed by the Senate, but Sen. John McCain (R-Ariz.), chairman of the Senate Commerce Committee, later attached language allowing the FCC to take back and re-auction licenses from bankrupt operators. The FCC has pushed the provision since 1997. Eventually, Armey pulled the language from the bill just as it was being sent to President Clinton for his signature.
As the bankruptcy case moved into court, the legislative process has slowed. When the FCC lost the first round, it convinced Sen. Judd Gregg (R-N.H.), the chairman of the Senate commerce, justice, state and judiciary Appropriations subcommittee, to include the McCain 1998 language in its original version of the commerce appropriations bill, which funds the FCC.
Similar language was not included in the House version of the bill and a conference committee of the House and Senate rejected the provision after Rep. Harold Rogers (R-Ky.) nixed the idea. “The House has been rather unanimous in our opposition. At this point in time we are locked in our position,” Rogers said.
President Clinton vetoed that bill, in part citing the lack of bankruptcy language.
As the budget roller coaster rolled on, the provision was consistently put in and taken out in negotiations. On Nov. 10, events took a different turn when the White House presented a new proposal.
In addition to upping the value of the licenses from $500 million to $3.5 billion, the language set out criteria about who could participate in a re-auction of the licenses. The wireless industry thought the criteria tilted the scales toward Nextel Communications Inc., which has been trying to secure NextWave’s licenses to expand its broadband wireless plans.
The Cellular Telecommunications Industry Association fought back with various proposals, all of which would take back NextWave’s licenses but also would lift the spectrum cap to allow CTIA members to participate in an auction.
The Personal Communications Industry Association, which represents start-up PCS companies and opposes lifting the spectrum cap, joined the fray to battle any language that allowed the government to take back NextWave’s licenses.
“Using spectrum auctions as a last-minute budget gimmick is terrible policy. It makes a mockery of all of the reassurances we have gotten on Capitol Hill that members of Congress care about creating long-term spectrum policy that benefits the American people,” said PCIA President Jay Kitchen.
CTIA consistently said it would rather have no language included in the federal budget. Still, the association continued to push for language that would lift the spectrum cap and allow big carriers to go after the licenses.
“We are extremely pleased that there was no language in the budget agreement that dealt with the spectrum issue. This is highly preferable instead of having language that was a unique sort of sweetheart deal for the one company. Congress decided not to make telecom policy in the budget agreement,” said Steven K. Berry, CTIA senior vice president for congressional affairs.
PCIA, which has members with C-block licenses, also was concerned that small businesses-the intended beneficiaries of the C-block auction-would be left out of any re-auction of the NextWave spectrum.
“Under the proposals we’ve seen, small businesses are effectively denied any opportunity to compete for the spectrum. The legislative proposals would remove the small-business provisions associated with those licenses, require a dramatically accelerated auction, and specify a minimum of $3.5 billion or $4 billion in auction proceeds. There simply is no way that small players can put together the financing needed to participate under these conditions,” Kitchen said.
NextWave declined to comment on what appeared to be a victory for the carrier.
