WASHINGTON-Some see the eventual fate of license winners in the 1996 personal communications services C-block auctions as one of strategy and planning; others see it as the Federal Communications Commission treating everyone the same in a way that negatively hurts everyone.
Which views are expressed depends on whether a licensee was able to get up and running or whether it has gone into bankruptcy.
Licensees that have rolled with the punches and are now either offering service or preparing to offer service say it was proper planning four years ago that lead to this “winning” result today.
Our philosophy was “here is a hole we need to fill in with spectrum and [this is] what we were willing to pay for it. We had a budget,” said David Macarelli, president of Virginia operations for CFW Communications Co.
“It is a case of bidding with a mind of actually having to pay for it and then [still] have the resources to build out,” agreed James J. Healy, president of Cook Inlet VoiceStream PCS.
Licensees that tried to obtain financing in a market that says the value of the licenses is much less than what they bid believe the FCC’s actions have made a bad situation worse, throwing them into the column of “losers.”
“I say they misled us in the first place. They made it so we couldn’t get financing because of the re-auction. The re-auction was less than $1 per pop for the same area. They sure pulled the wool over our eyes,” said Bertha Coffin, president and general manager of Kansas PCS.
To some, Coffin’s story seems especially sad; to others what she is experiencing is the price of doing business.
Wireless was the next best thing, Coffin believed, so she used her experience in running the Council Grove Telephone Co., which she inherited when her husband died in 1978, to bid on PCS C-block licenses.
In the end, she won three licenses in rural Kansas. For the most part, she has been unable to find suitable financing arrangements even though she sold off Council Grove Telephone in order to make some of the installment payments. Eventually, she filed for bankruptcy.
The re-auction to which Coffin refers occurred last year just as she was trying to arrange financing to make the next installment payment to the FCC.
“It’s terrible on people like me. NextWave [Telecom Inc.] can afford billions [in litigation costs], but I can’t even get thousands” to make my payments, said Coffin.
At first, the federal government, through the Department of Justice, worked with her and her attorneys in an attempt to set an appropriate value for the licenses. The company did not claim fraudulent conveyance, as had some of the bigger defunct companies, but rather said the FCC’s secured claim was only for the amount that the licenses were worth today. The difference between that amount and what KPCS bid would be considered an unsecured claim. This is pretty normal in bankruptcy proceedings, said Benjamin Mann, KPCS bankruptcy counsel.
KPCS “did not claim fraudulent conveyance. Those claims clearly exist. We made a conscious decision not to attack them directly,” said Mann.
But, everything changed mid-stream when the U.S. Court of Appeals for the Second Circuit said bankruptcy law could not be used in the licensing and regulating of spectrum governed by communications law.
The government, seeing this as a victory, decided to enforce its no payment rule. According to the government, if an installment payment is not made, the license automatically cancels even if the license is in bankruptcy.
This stance was news to KPCS. “Never once did the FCC raise with us that you don’t have the licenses,” said Mann.
At RCR’s press time, the FCC is expected this week to issue a public notice that will include in the July 26 scheduled re-auction of PCS C- and F-block licenses the licenses of most, if not all, of the bankrupt C-blockers.
In addition to KPCS, Airadigm Communications Inc., DCR PCS Inc. (now known as Pocket Communications Inc.), General Wireless Inc. (now Metro PCS), MagnaCom Wireless, L.L.C, Personal Communications Network Inc. and Urban Communicators PCS have filed for bankruptcy.
For a variety of reasons, it is unclear whether all of the licenses will be added to the auction block. For example, while it appears that KPCS will be joined by UrbanComm because it is in the same appeals circuit as NextWave, Metro PCS’s bankruptcy case is currently before the U.S. Court of Appeals for the Fifth Circuit. It would seem unlikely that these licenses could be canceled when they are at the same point in the legal process as the NextWave licenses.
It is important to note that KPCS is in neither the Second nor the Fifth Circuit. It is in the Tenth Circuit so eventually a third appeals court could rule on the C-block bankruptcy saga.
While these companies were struggling, others had actually begun building out and serving customers.
Wireless2000 bought one license in Kentucky for $2.2 million as Third Kentucky Cellular. It later gave 15 megahertz back during the election but since it also won an F-block license for the same market, it has 25 megahertz in that market. It currently has approximately 250 customers.
Another one-license winner, CFW Communications, bought a license for Charlottesville, Va., in the C-block auction as part of an overall plan to offer PCS service to western parts of Virginia. Originally, CFW began by buying a portion of PrimeCo Personal Communications L.P. licenses for the Richmond/Norfolk area. When it realized that Charlottesville, Va., was not included, it set up a plan to buy this in the C-block auction.
Cook Inlet/VoiceStream also developed a plan, said Healy. While it wanted licenses for Seattle, the price was bid too high so it dropped out, he said. The company did eventually win licenses for Tulsa, Okla., and Spokane and Port Angeles, Wash.
Another ingredient for successful C-blockers appears to be alliances or partnerships.
“Clearly the goal was to have the DEs establish relationships … clearly there were entities who tried to create large mega-corporations and that wasn’t the intent,” said Healy.
Cook Inlet has an alliance with VoiceStream and CFW Communications Co. said that a key to its success has been partnerships.
The C-block saga is tortured and long but the short version is that the pursuant to congressional direction, the FCC set up a program where designated entities-small businesses and selected others-could bid on a portion of the spectrum being created for PCS.
This auction occurred after the auctions for the A- and B-blocks where spectrum was highly valued by companies with deep pockets. According to most accounts, based on these bids, most participants in the C-block auction overbid for licenses. When the FCC continued to auction spectrum for the D-, E-and F-blocks, the market became flooded, the prices paid were much less and the bottom fell out financially for the C-blockers.
In a proceeding that lasted almost a year, the FCC first froze payments and then developed a restructuring program where licensees could select one of four options including resuming payments, elect amnesty, prepayment or disaggregation. These elections were made on June 8, 1998.
Instead of choosing an election, the largest C-blocker, NextWave Telecom Inc., filed for bankruptcy. This bankruptcy litigation eventually led to the Second Circuit’s ruling on Dec. 22. On Jan. 12, the FCC said NextWave’s licenses had canceled and that a re-auction would be held on July 26. NextWave is appealing this action to the FCC, the Second Circuit and the U.S. Court of Appeals for the D.C. Circuit.
RCR Researcher Melodye Bush contributed to this report.
