The government’s conditional grant of personal communications services licenses to NextWave Telecom Inc., despite finding the startup wireless firm in violation of foreign ownership limits, raises questions about process and policy in the high-stakes auction environment that has transformed the Federal Communications Commission into the Clinton administration’s cash cow.
Does big money now drive wireless policy? Did it drive the NextWave ruling? Is the FCC conflicted and compromised by a money-making licensing structure that makes it both regulator and creditor?
“There was no indication that NextWave was acting in bad faith,” said Michele Farquhar, chief of the FCC’s Wireless Telecommunications Bureau.
Farquhar, defending her action, cited flexibility governing PCS-cellular cross ownership and the 1995 FCC decision to let Fox TV network-nearly 100 percent foreign-owned and headed by media mogul Rupert Murdoch-retain its ownership structure because it furthered the public interest.
Asked whether she is worried the NextWave ruling will set a precedent that invites other bidders to ratchet up foreign solicitations on the belief that it can be cured later, Farquhar said she hoped not. But she added, “We haven’t forfeited any rights to look into enforcement.”
“This decision doesn’t open the floodgates (to abuses), this does away with the floodgates,” said Robyn Nietert, attorney for Antigone Communications Ltd. and PCS Devco Inc. Nietert said the two firms were unfairly squeezed out of C-block PCS markets by free-wheeling NextWave bidding, made possible by illegal foreign capital.
Nietert contends the auction’s outcome might have been very different if not for the glut of foreign funds that helped bankroll NextWave and that forced various bidders-including GO Communications Inc., U.S. Airwaves Inc. and other experienced telecom players-to drop out when bidding got too pricey.
David Furth, head of the commercial wireless division of the Wireless Bureau and chief architect of the NextWave ruling, put NextWave’s foreign ownership at between 30 to 35 percent.
Under current law, there is a 25 percent foreign ownership cap. But that could be liberalized this year. NextWave said that what some counted as equity was really debt.
Farquhar decided to give NextWave six months to restructure its financing, three months less than what NextWave asked for.
Yet, BDPCS Inc., National Telecom PCS Inc. and other bidders that experienced supposedly temporary financial problems and asked for leniency were turned away.
At the critical Dec. 27 meeting between FCC officials and representatives from NextWave, Antigone and PCS Devco, Farquhar and FCC officials informed NextWave of its finding. A news release was issued Jan. 3. The full text of the decision could be published in a few weeks.
That NextWave came out of nowhere to dominate last year’s C-block PCS auction, pledging nearly $5 billion for 63 digital pocket phone permits that could make it a national wireless power, is testament to its political, business and fund-raising savvy.
It is also a textbook case on how Washington’s revolving door works to enable former policymakers to parlay expertise and influence into successful commercial enterprises regulated by the very agencies they left.
The political firepower comes from NextWave Vice Chairwoman Janice Obuchowski and her friends and family; the business acumen and wealth from entrepreneur Allen Salmasi, chairman of NextWave.
Obuchowski is a former FCC regulator who also served as the Bush-appointed head of the National Telecommunications and Information Administration.
NextWave certainly is a big part of the much-ballyhooed FCC auction program, accounting for almost a quarter of the $20 billion take in the three years since Congress first authorized competitive bidding.
So when Antigone and PCS Devco protested last summer that NextWave exceeded the 25 percent foreign-ownership cap, owing to strong South Korean backing, and skewed the small business auction as a result, the FCC faced a dilemma.
The stakes were high for both the FCC and NextWave.
Dismissing the 63 contested license applications would have had two obvious repercussions. It would have doomed NextWave and forced the U.S. Treasury to forgo $5 billion. Despite success in the first C-block PCS reauction, it is highly unlikely the FCC could have generated as much money if NextWave’s licenses were reauctioned on the theory that NextWave overpaid in light of prices paid for A- and B-block franchises and prices bid today in the waning D-, E- and F-block auctions.
Indirectly, NextWave’s demise could have been devastating for PCS on Wall Street and hurt commercial development of Code Division Multiple Access technology.
The huge amount of money involved was no small matter. The auction program has been the crown jewel of FCC Chairman Reed Hundt’s rocky regime, earning him kudos from the Democratic Clinton White House that appointed him as well as headlines galore.
Perhaps, for that reason, Philip Verveer-a former Justice Department antitrust lawyer and undergraduate classmate of Bill Clinton at Georgetown University who now represents the cellular industry and other communications clients-chose to appeal directly to Hundt on behalf of NextWave when it was clear the initial call on NextWave belonged to Farquhar.
Asked why Verveer urged prompt action on NextWave’s applications in a Dec. 10 letter to Hundt, bypassing Farquhar, NextWave spokeswoman Jennifer Walsh said it could help NextWave “to the extent the chairman could influence the decision.”
Verveer is counsel to the Cellular Telecommunications Industry Association and heads a federal advisory committee on future public safety communications requirements. His name has surfaced in connection with Commerce Department lobbying insofar as his success in winning Cellular Communications Inc. Chairman William Ginsberg, a Clinton campaign booster, a place on the U.S. trade delegation to India in 1995.
Verveer’s wife, Melanne, is an aide to First Lady Hillary Rodham Clinton.
To the extent Hundt or any of the other three commissioners weighed in on the bureau ruling raises a question of whether the full commission has already prejudged the matter.
As it stands, the bureau’s order can be reviewed first by the commission and then by the D.C. federal appeals court. Nietert said her clients are weighing their options.
Walsh said Verveer was retained in November, about the time NextWave began to show signs of panicking over meeting financial obligations due last week. On Nov. 18, according to Farquhar, NextWave’s Obuchowski called her to complain about the wireless bureau’s lengthy questionnaire on foreign ownership sent to NextWave the previous week. Obuchowski, Farquhar said, warned her that NextWave planned to contact Hundt and FCC General Counsel William Kennard later that day to reiterate the firm’s concerns.
NextWave made good on its word and violated FCC ex parte lobbying rules a second time the same day.
In a brief phone conversation with Kennard and Special Counsel Peter Tenhula, according to Kennard, NextWave attorney Riley Temple and Michael Regan, former House Commerce Committee counsel who joined NextWave after passage of the 1996 telecom act last year, again criticized the bureau regarding the questionnaire and went on to emphasize how important swift action on NextWave’s applications was to its financing plans.
Communications between private parties and commission employees in restricted proceedings generally are limited to status reports.
Riley and Regan are members of a Washington, D.C., law firm comprised of ex-telecom policymakers and headed by Albert Halprin, Obuchowski’s husband and former chief of the FCC’s Common Carrier Bureau under ex-FCC chairman Mark Fowler.
Thomas Gutierrez, another prominent communications lawyer with an FCC wireless background, has also been brought in to assist Ne
xtWave.
