NEW YORK-The U.S. Bankruptcy Court for the Southern District of New York handed NextWave Personal Communications Inc. a big victory May 13, cutting its C-block license bid obligation to $1.023 billion from $4.744 billion.
“The court has provided a market-based solution upon which NextWave can reorganize and emerge from bankruptcy,” said Michael Wack of Hawthorne, N.Y.-based NextWave.
“The ruling opens the way for successful implementation of NextWave’s carrier’s carrier strategy, providing consumers and resellers access to a wide range of innovative services in the wireless marketplace,” Wack added.
Adlai S. Hardin Jr., the presiding judge, concurred with NextWave’s contention that the value of the personal communications services licenses it won in the Federal Communications Commission auction in May 1996 had declined substantially by February 1997, when NextWave received them from the FCC. NextWave will retain ownership of the licenses it won.
Judge Hardin also agreed substantially with NextWave in calculating what the licenses are worth, taking into consideration both cost and market value, as opposed to an income-based model. The latter, which is closer to the FCC’s position in the case, estimates an asset according to the present value of potential cash flow that a fully financed and operational company could generate by using the asset, in this case, the spectrum licenses.
“Ninety-four percent of C-block licenses are currently not in operation. Licenses constituting approximately 80 percent of the net prices bid at the C-block auction are tied up in bankruptcies or have been returned to the FCC,” Judge Hardin said.
“The fair market value of spectrum was extremely volatile and sensitive to scarcity of supply … No C-block licensees have been able to raise public financing based upon the amounts bid at the C-block auction.”
The FCC had no comment on the action, since a final decision regarding the remedy has not been rendered, said Meribeth McCarrick, a spokeswoman for the FCC’s Wireless Telecommunications Bureau.
Notably, it has been a year since another large C-block bid winner, General Wireless Inc., received a bankruptcy court’s permission to pay just $166 million for its $1.06 billion auction bid for those auctioned licenses. So far, GWI still has been unable to tap the public capital markets for financing, according to a New York investment banker who spoke on condition of anonymity.
“If the FCC appeals, the legal overhang will make it difficult for someone to finance them,” he said, referring to NextWave.
Cynthia M. Motz, a wireless telecommunications services analyst for Credit Suisse First Boston, New York, said she views all the C-block players as champions of a lost cause.
“Nextel seems to think if it keeps fighting, it will prevail. Meanwhile, the wireless industry keeps marching on, and I don’t think the C-block players have a whole lot of hope,” Motz said.
However, there is another, more optimistic school of thought among some market researchers.
“We’re not just looking at another traditional voice cellular carrier because the wireless market is not defined that way anymore,” said Pete Peterson, a wireless communications analyst for Volpe Brown Whelan & Co., San Francisco.
“It looks like spectrum will be used in multiple ways across multiple bands … to develop connectivity and shared media over wireless.”
Within this developing tableau, MCI WorldCom Inc. comes to mind in association with NextWave. As it geared up for the C-block auction bidding, a major component of NextWave’s early carrier’s carrier business plan was a commitment from MCI to bulk buy airtime from the fledgling company once NextWave built its network.
“Think about telecommunications as a giant, high-stakes chess match. NextWave has had a few key pieces knocked off board, and it isn’t necessarily a winner yet, but the game isn’t over,” said Ira Brodsky, president of Datacomm Research, St. Louis.
“Both Sprint and AT&T have massive PCS holdings, and MCI (WorldCom) is in search of a wireless opportunity. This may be an opportunity for MCI and NextWave to get together … (not only for) mobile wireless (but also for) competitive local exchange, data and third-generation wireless.”
Jerome Fowlkes, a former FCC official involved with the C-block auctions, said he believes NextWave will find it difficult to get financing because it is tough to emerge from the stigma associated with bankruptcy and the C-block auctions. Nevertheless, NextWave still is desirable in two key respects, said Fowlkes, who is director of telecommunications consulting for BIA Consulting, Chantilly, Va.
“MCI really is the largest carrier without a wireless presence, and this gives it an opportunity to get major markets at a fraction of the cost,” he said.
“NextWave’s strategy of being a carrier’s carrier still is viable. PCS resale doesn’t really exist yet, and there would be a lot of interest in this from resellers.”
Heather Forsgren Weaver of RCR’s Washington Bureau contributed to this report.
