Next Wave: Let's hope not

Last month I informed you that this space for the next few months was going to be occupied with a series of thoughts on why we live in dangerous times and why this year is going to be a watershed one for the industry. Given the ruling by the U.S. Supreme Court this past week on the F block spectrum possessed by bankrupt wireless carrier NextWave, those words now appear prescient.

A number of thoughts come to mind about this decision.

1. Was it a good one?

2. Is the outcome good for the industry and the country?

3. How did we get here, and can it be prevented from happening again?

First, the decision was a good one based on the law. Why FCC Chairman Michael Powell felt obligated to say that it brought "much needed certainty to an unsettled area of the law" is beyond me. An 8-1 decision against you doesn't smack of it being an unsettled area of the law.

Second, the outcome is a mixed bag for the industry and the country. It is great for the industry because the wireless carriers that participated in the re-auction are off the hook for $16 billion. It is hopefully great for the country because those same carriers who say they are financially constrained now have a lot of newfound money for doing things like allowing them and the people I wish to converse with to "hear me now." It is also miserable for the country because I feel that NextWave got away with something that is not in the spirit of American ideals of fair play. 

Third, what NextWave got away with was "gaming" the auction process. The FCC, as far as I can tell, has done nothing to protect the efficacy of the auction process as a result of this debacle, and they certainly have had time to improve the process.

It is the math in this instance that has me incensed. NextWave got some preliminary funding to participate in the auction, bid what at that time was a ludicrous amount for the spectrum being offered and the terms and conditions for those who were allowed to participate in the original auction (remember these were for the F block licenses), paid $500 million of the $4.8 billion it bid, and is being rewarded for having won the auction with a disingenuous bid for something that remains extremely valuable. I keep wondering how their actions in the auctions are any worse than WorldCom misstating its financials, which drove AT&T and Sprint into a pricing war that has ruined the long-distance business because they were casing a phantom.

From where I sit, what I am most incensed about is that seven years ago I was too dumb to put together a group, maybe with some of you readers, and just keep bidding on F block spectrum until we knocked everyone else out and got ourselves a national footprint, even though we had no intention of actually building a wireless network. 

Let's face it. What is a paltry $500 million payment on assets others were willing to plunk down $16 billion for? The way I see it, no matter what eventually happens with the NextWave assets, the people who were involved in the bidding will make a tidy profit and will probably never have to actually build a network. The big boys need the spectrum and have demonstrated a willingness to pay.

So here we sit. NextWave remains under the protection of the bankruptcy laws. There is no criminal proceeding against them for gaming the auction. The Supreme Court had to rightfully follow the stricture of the law, and it left them with the assets. And now, the FCC is gratified that this area of legal uncertainty has been cleared up so the spectrum can finally be put into use. What a country!

The thought does occur that maybe I did not miss the boat to cash in on this craziness after all. I am aware that many well-financed organizations read this column--how about we put together a consortium, negotiate with NextWave to buy all their assets in one fell swoop and then flip them by selling the piece parts to the big boys to fill out their footprints. Can anyone out there spell GOLD RUSH?

A lottery system for spectrum allocation may not have been perfect, but at least it was not quite as mischievous as the auctions. Unfortunately, with the government now at the feeding trough, to believe we are going back to the lottery days is obviously fanciful.  Plus, who needs for the country to wait more than 20 years for the deployment of an important technology just because it took the FCC that long to decide a process that created a cellular duopoly, which ended up being mostly owned by the big incumbent carriers. At a minimum, the FCC needs to take much better care in protecting the interests of all involved so this kind of behavior does not happen again.

Finally, the difference between the NextWave bid of $4.8 billion and the re-auction bids of $16 billion is substantial. Even assuming some appreciation in the value of the assets over the past seven years, the current status of the wireless industry leads me to believe that some place a little north of $4.8 billion and far south of $16 billion is the value of the NextWave licenses. This leaves those who won the re-auction with a wonderful opportunity to update their networks, fill in coverage, deploy Wi-Fi and devise Wi-Fi/wireless WAN roaming packages, etc. We can only hope that this will be the Next Wave.

Peter Bernstein is President of Infonautics Consulting Inc. He can be reached at pb111451@optonline.net.