Default portendsC block calamities

Speculative bidding on wireless licenses and overconfidence in the ability to raise funds on Wall Street are coming back to haunt the C block personal communication services market.

Evidence of that came last week when prominent C block hopeful Pocket Communications sought temporary debt protection from a federal court. The filing came one day after the Federal Communications Commission suspended its March 31 deadline for all C block license payments so that it could consider an alternative payment schedule and a reassignment of collection responsibilities.

The events left the industry wondering whether the wireless market's harsh realities would prove too much for the entrepreneurial C block enclave. All the license holders are burdened with massive debt, no revenue and a disinterested stock market that has led them to rely heavily on private investment.

Pocket voluntarily filed Chapter 11 with the U.S. Bankruptcy Court for the District of Maryland to protect itself from a group of Asian investors trying to seize Pocket's assets after the company defaulted on a loan payment, said Kevin Inda, a vice president at Pocket.

"There was language in the contract that would have allowed them to take control," Inda said.

Under Chapter 11 protection, Pocket will try to raise more funds through private investment. "This was more of a strategic maneuver than anything else," Inda said.

The FCC's suspension of payment obligations came partly in response to a petition filed by Pocket, NextWave Telecommunications and five other C block license holders asking for annual rather than quarterly payment schedules. The FCC is also considering giving up the job of collecting license payments to another federal agency.

One analyst said Pocket's strategy was to alert the FCC that if it doesn't revamp the payment structure, the government risks losing billions of dollars in revenue.

"They're trying to send a message to the FCC that the conditions for payment are onerous and that the C block players are disadvantaged," said Mark Lowenstein, vice president of wireless research at The Yankee Group. "The FCC did not do a lot of its own business case analysis-it was primarily concerned with raising money.

Despite its inclusion in the petition, NextWave said that its backing is secure and it will be able to continue making payments quarterly if the FCC maintains the current schedule. The company believes its wholesale approach to PCS and its investors distinguish it from other C block companies.

"There's too much of a tendency to paint the entire C block with the same brush," said Jennifer Walsh, director of industry affairs at NextWave.