WASHINGTON-Last Thursday was a bad day for bankrupt personal communications services operator NextWave Telecom Inc. Not only did a federal appeals court deny its petition for rehearing but a United States senator took the opportunity of a Senate Budget Committee hearing to skewer the company.
Additionally, the U.S. Court of Appeals for the Second Circuit said the Federal Communications Commission could move forward with its plans to re-auction NextWave’s 90 PCS licenses.
“The [bankruptcy judge’s order] is stayed … insofar as that order prevents the FCC from taking steps in anticipation of the auction of C- and F-block licenses presently planned for July 26, 2000, including the possible re-auction of the licenses at issue between NextWave and the FCC,” said the Second Circuit.
The FCC said the decision was a “big win for the American public.”
NextWave said it was disappointed but that the development was “a positive event because it will accelerate consideration of some important issues in our proceeding.”
The Second Circuit’s decision was prompted by a move earlier this week by the federal government to leap-frog the district court and ask the Second Circuit to take control of the NextWave bankruptcy litigation. The move was necessary, the government said, because “the bankruptcy court has therefore chilled FCC action on important regulatory matters extending beyond the confines of this case” when it stayed any action with regard to the re-auction of NextWave’s licenses.
The FCC announced on Jan. 12 that it was canceling NextWave’s C- and F-block licenses and would re-auction them. The FCC based its actions on a Dec. 22 opinion from the Second Circuit saying bankruptcy law could not be used in the licensing and regulating of spectrum governed by communications law. Bankruptcy Judge Adlai S. Hardin Jr. said the move to re-auction the licenses amounted to “self-help repossession by ambush.”
The Second Circuit has now given each of the parties, including Judge Hardin, the opportunity to explain the status of NextWave’s licenses. If necessary, oral argument on this issue will be heard in March. The FCC and NextWave disagree whether the PCS licenses are assets frozen by the bankruptcy automatic stay.
The loss at the Second Circuit came mere hours after Sen. Judd Gregg (R-N.H.) took the opportunity of a Senate Budget Committee hearing to say that NextWave’s act of going to bankruptcy court was hurting American taxpayers.
“I am concerned whether the taxpayers are going to end up holding the bag here … The taxpayers own the spectrum and there is no way the taxpayers should get shortchanged in this process,” Gregg said.
Gregg also attempted to inject the resolved issue of NextWave’s ownership structure. At first, FCC Chairman William Kennard implied there was still a cloud at the FCC over NextWave’s ownership structure but later retracted that after being prompted by staff.
NextWave’s offer to pay its entire debt was also criticized by Gregg who noted that NextWave’s original bid of $4.7 billion was still less than Nextel Communications Inc.’s $8.3 billion hostile takeover bid.
“Just so we understand … this company is now asking that the taxpayers take a $7 billion hit … I understand that the company came forward and offered to pay the full bid [but that] would again leave taxpayers losing out on $4 billion in assets,” Gregg said.
Gregg’s strident anti-NextWave line of questions came despite an opening plea from Budget Committee Chairman Pete V. Domenici (R-N.M.). to not discuss spectrum that was in litigation.
After Gregg’s first round of questions, Domenici reminded the hearing audience that NextWave was appearing on the next panel but Gregg left before NextWave testified and none of the remaining senators-including Domenici-chose to give Raymond P. Dolan, NextWave chief operating officer, the opportunity to give the company’s point of view.
In his testimony, Kennard tried to stay away from the specifics of the NextWave case, instead taking the opportunity to urge the Senate to again pass legislation that would protect spectrum licenses from bankruptcy in the future.
“I hope that Congress will consider confirming the principles recognized by the Second Circuit by adopting legislation consistent with the proposal approved last year,” Kennard said in his prepared testimony.
Last year, the Senate passed legislation that would have allowed the government to take back licenses from bankrupt operators but the House of Representatives refused to accept the language as part of the FCC spending bill, so it died.
Kennard’s advocacy of such legislation is notable because, unlike past years, it was not included in the budget proposal sent on Feb. 7 to Capitol Hill. It is unclear exactly why it was omitted from this year’s budget and a response from the Office of Management and Budget was not available.
