FCC Denies NextWave’s Appeal from Death Row

The Federal Communications Commission
turned a deaf ear to defunct wireless service provider NextWave Telecom’s legal pleas to
reclaim 100 PCS licenses this week.

The FCC’s rejection of NextWave’s request to reconsider its earlier ruling
comes as no surprise, as the two entities have wrangled over the licenses
for more than a year.

NextWave vigorously fought the bankruptcy court decision ruling that the
spectrum was owned by the federal government, after the wireless provider
defaulted on payment for the licenses. Legal maneuvers abounded and
NextWave’s case moved through the judiciary hierarchy, culminating in a
decision rendered by the U.S. Second
Circuit Court of Appeals
in May.

The FCC maintained its argument that the Circuit Court of Appeals had ruled
and that NextWave could not claim the licenses as assets.

In a statement concerning NextWave’s final appeal to the FCC, the agency
said the automatic cancellation of licenses upon nonpayment is fully
consistent with the its congressional mandate.

“The full and timely payment condition is essential to the integrity of the
auction and licensing process,” the FCC said.

Commissioner Harold Furchtgott-Roth was the sole dissenter on the FCC’s
decision to take back NextWave’s licenses. In a statement about the ruling,
Furchtgott-Roth said the Commission should delay the re-auction of the
spectrum “until there is greater clarity about the legal fate of these
licenses.”

Four year’s ago NextWave bid that won the licenses totaled more than $4.74
billion, but the wireless provider only managed to cough up 10 percent of
the licensing fees before it landed in a New York bankruptcy court.

A battle rife with mudslinging ensued. NextWave accused the FCC of being in
cahoots with Nortel Networks Corp.
after the Commission refused NextWave’s offer to pay for the PCS licenses
through a deal with the larger wireless firm.

The FCC vehemently denied that it had formed a secret pact with Nortel,
explaining that the agency rejected payment for the
licenses from the bankrupt wireless provider because accepting payment
would undermine the integrity of its auction and licensing bureaucracy.

Like a bad plot from a made-for-TV movie, digital wireless giant Nextel Communications Inc. made a $8.3
billion hostile takeover bid for NextWave and its open wireless spectrum on
December 20, 1999.

Two days later, Nextel dropped its planned acquisition
of NextWave and revoked its filing with the Securities and Exchange Commission. Nextel
dropped its bid after it became apparent that the FCC could legally return
the open spectrum licenses to its auction process.

Nextel figured it had a better chance at winning the licenses from the FCC
auction program. But Nextel’s acquisition of the licenses is by no means
assured as competition for room to move heats up in the wireless arena.

Since the 1996 Telecom Act was passed, the FCC has been tasked with
auctioning off blocks of spectrum. The auctions have generated billions for
the federal government from wireless communications companies due to the
strong demand for limited spectrum.

Analysts anticipate that the FCC’s much delayed November license auction
will include NextWave’s former spectrum inventory. In additional to Nextel
and Nortel, the licenses are open to bids from SBC Communications, Verizon Communications,
Sprint PCS and other
major wireless players due last weeks FCC rule change.

Due to the high default rate by smaller wireless firms like NextWave, the
FCC adjusted the rules of the game to include larger bidders, while it
broke the spectrum down into smaller pieces. The Aug. 25 rules change
allows larger firms to fit under the spectrum cap and makes bids from
smaller firms financially feasible.

However, the actual effect of the policy shift may have is to drive the
competition and prices for licenses skyward, out of reach for smaller
players even as the bands are sold in smaller bits.

The forthcoming FCC spectrum auctions will be the grave marker of
NextWave’s legacy in the wireless arena. Unfortunately, it bears an
epitaph that is likely to be repeated by smaller wireless firms operating
in a cutthroat wire-free marketplace.

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