FCC/NextWave Deal to Free Up Spectrum

NextWave Telecom took a major step toward emerging from bankruptcy Tuesday by agreeing to return large portions of spectrum it won in a controversial 1996 Federal Communications Commission (FCC) auction.

The Hawthorne, N.Y., company agreed to return spectrum covering the equivalent of 155 10 MHz licenses in 60 markets where it is licensed to provide digital cellular service.

NextWave will also pay the FCC at least $386 million in cash, or the equivalent in additional returned licenses. The company already paid $500 million for some of the licenses it won in 1996 and will pay another $714 million to the FCC from NextWave’s $1.4 billion sale of spectrum license rights to Cingular Wireless.

Terms of the today’s deal require the approval of the bankruptcy court. NextWave believes the deal will be approved and the company will emerge from bankruptcy after September.

According to the FCC, the proposed deal would make available the “vast majority” of the spectrum that had been tied up in litigation since NextWave declared bankruptcy in 1998. The FCC is expected to auction the spectrum to wireless bidders anxious to gain more airwaves for advanced wireless services.

“After eight long years, we can finally end the litigation and begin the innovation. This landmark agreement takes valuable spectrum resources out of the courts and will put it in the hands of consumers who can finally use it,” FCC Chairman Michael Powell said late Tuesday in a statement.

While NextWave is surrendering more than 75 percent of the licenses it originally bid on, it retains quality frequency in key markets such as New York. According to analysts at Legg Mason, the value of the licenses retained by NextWave is worth least one-third of the company’s original spectrum.

“By returning some spectrum to the government instead of trying to sell it all to the industry, we believe NextWave not only reduces market and regulatory uncertainty, but also cuts its auction debt, potential capital gains and tax obligations to the government,” the Legg Mason report opines.

NextWave declared bankruptcy after defaulting on $4.7 billion due on spectrum wireless licenses awarded to the company by the FCC in 1996. The FCC revoked NextWave’s spectrum rights, arguing that the company had paid only a fraction of what it promised, and re-auctioned the rights to companies including Verizon and VoiceStream.

But NextWave sued, contending that U.S. bankruptcy laws protected the company from the FCC license revocation. The dispute reached the Supreme Court in January 2003, with the court ruling that the FCC had improperly seized more than 200 wireless licenses from NextWave. The FCC was forced to refund the $16 billion in proceeds from the sale of NextWave’s licenses.

By August of 2003, NextWave announced the deal with Cingular Wireless, the joint venture of BellSouth Corp. and SBC . The FCC objected, claiming NextWave was unfairly profiting from a bankruptcy proceeding. In February, the FCC agreed it was ultimately in the public interest to allow the license sale to Cingular since the prospect of continuing litigation over the matter would only result in substantial delays of collecting any revenue.