WASHINGTON-The saga of the NextWave Telecom Inc. bankruptcy, like a hurricane in the ocean, kept churning last week as a variety of activities here and in New York had players of all sizes scrambling to keep up.
On the business front, the company’s unsecured creditors’ committee unsuccessfully sought an end to the exclusivity arrangement.
On the regulatory front, William Kennard, chairman of the Federal Communications Commission, responded to a letter from Thomas Wheeler, president of the Cellular Telecommunications Industry Association, and Wheeler responded back.
On the legal front, the government and NextWave each filed briefs in the appeals case.
On the legislative front, a powerful congressman requested more information from Nextel Communications Inc. and the Department of Justice about a deal the government made with Nextel allowing it to buy NextWave’s personal communications services licenses.
Creditors Committee
The Committee of Unsecured Creditors last week urged Judge Adlai S. Hardin Jr. to lift the exclusivity period on the bankruptcy proceedings, which would allow it to negotiate a better reorganization plan than the one presented by NextWave. These negotiations presumably would include Nextel and the FCC.
Hardin refused, according to a spokesman for NextWave, preserving the status quo.
Hardin “rejected the idea of terminating exclusivity automatically, even if an agreement is reached between the Official Committee of Unsecured Creditors and the FCC or any other third party,” said a NextWave spokesman.
Kennard, Wheeler exchange letters
“I want to assure you that a fair and open process for handling NextWave’s defaulted licenses prevails at the FCC,” Kennard told Wheeler in a Sept. 14 letter.
“At the heart of the matter are two issues: a fair and open process, and equal regulatory treatment. Your letter gives assurances that `a fair and open process for handling NextWave’s defaulted licenses prevails at the FCC” but does not seem to address the equal treatment for all issue,” Wheeler responded in a Sept. 16 letter.
These two passages show the tenor of the debate raging in official Washington as the wireless industry tries to get its arms around the deal announced by Nextel on Aug. 10.
The FCC is convinced the deal with Nextel would maintain the integrity of the auction process while Wheeler is concerned the Nextel deal would have a negative impact on the integrity of the auction process.
“An important part of the integrity of the FCC’s auction and licensing process is the effect on that process of the [FCC’s] agreeing in advance to support a single proposal, and to accord one party financial accommodations if its proposal is ultimately not the best one available. The [FCC] at least appears to have already made its public interest decisions, a fact that, real or not, could color future decisions,” Wheeler said.
It was unclear why Kennard chose to respond to Wheeler when other entities, including SBC Communications Inc. and Vodafone AirTouch plc, also sent letters before Wheeler.
Additionally, Kennard’s letter represents the first on-the-record response since Nextel announced the deal.
A comment from an FCC spokeswoman, who refused to be identified, reiterated that it would be a “fair and open bidding process” and said the FCC “will respond to the other letters as appropriate either verbally or in writing.”
The FCC has refused to explain why FCC General Counsel Christopher Wright signed the Nextel letter, which included a bankruptcy term sheet that gives Nextel either the right to buy the licenses or a termination fee if the FCC chooses another buyer. There have been many verbal inquiries by industry and the press, all to no avail. At one point, the FCC said there was a court-imposed gag order, but that was later found to be false.
Appeals litigation
Briefs were filed last week with the U.S. Court of Appeals for the Second Circuit as the two parties engaged in the same debate of asking a judicial body to determine whether bankruptcy or communications law is supreme. This debate has been played out on numerous occasions in which PCS licenses have been held by companies declaring bankruptcy.
The FCC consistently argues that bankrupt firms owe money to the government for defaulting on their loans.
The licensees counter that if a bankruptcy court rules that the licenses, or assets, were given fraudulently, then the amount due to the FCC is substantially less than originally bid. This ruling of fraudulent conveyance has prevailed in both the NextWave and General Wireless Inc. (now known as Metro PCS Inc.) bankruptcies.
Without exception, including the Pocket Communications Inc. bankruptcy (which did not argue fraudulent conveyance) bankruptcy judges have ruled that bankruptcy law trumps communications law.
This is the first time an appeals court has agreed to hear the case.
Bliley letters
Not wanting to rely on only Kennard’s side of the story, the chairman of the House Commerce Committee, Rep. Thomas Bliley (R-Va.), sent inquiries to Attorney General Janet Reno and Daniel F. Akerson, chairman of the board and chief executive officer of Nextel.
Nextel’s price for NextWave’s 95 personal communications service licenses would be $2.1 billion, which is substantially more than a bankruptcy judge in New York said the licenses were worth but far less than NextWave bid in 1996.
Currently, only small businesses are allowed to hold C- and F-block licenses. Nextel previously attempted to be granted designated-entity status to participate in C-block auctions but was rebuffed by the FCC.
The C- and F-blocks were set aside by the FCC for small businesses to comply with congressional wishes that small businesses be given access to PCS spectrum.
Essentially, Bliley seems to be looking for information as to how the deal between Nextel and the FCC became a reality.
Responses are due Oct. 1.
Additionally, the wireless industry will be waiting to see how Kennard responds to a letter from Bliley. Kennard’s response is due next week.
The amount of detail Kennard will include in his response came into question last week as Kennard answered Bliley on another matter. Bliley had asked the FCC chairman to answer a series of questions related to the SBC/Ameritech Corp. merger.
Instead of answering, Kennard said, “I am also concerned that requests of this nature unduly burden the [FCC], which is facing an unprecedented number of major mergers and other important matters requiring its attention under the Communications Act. Particularly for a small agency like the FCC, complying with such requests at the same time that the agency is trying to conduct and complete its review of this and other mergers could significantly delay the FCC’s ability to act on this and other pending mergers and to carry out its statutory responsibilities under the Communications Act.”
What Congress and Bliley do with the answers to the Kennard, Reno and Akerson letters could be significant because there is language in the Senate version of the FCC spending bill that would allow the FCC to take back licenses in bankruptcy. The language was not included in the House version after Bliley and others protested. The issue will be debated in a conference committee between the House and Senate.
