May 31, 1996 12:00 PM,

They gambledand lost

Jason Meyers

When the C block personal communication services auction ended last month, observers speculated that licensees faced a mighty challenge in financing network equipment, staffing up and building out. Some of them didn't make it quite that far.

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The Federal Communications Commission announced late last week that, beginning July 3, it will re-auction 18 licenses for which 5% down payments were not made by the May 15 deadline. BDPCS, a unit of QuestCom and the fourth-highest bidder in the auction, defaulted on payments for 17 licenses, while National Telecom PCS defaulted on one.

Both entities point to extenuating circumstances—or misunderstandings—as reasons for non-payment. BDPCS was banking on a loan that fell through and was close to garnering the support to make its payment, but the FCC denied its appeal for an extension last week, said Bob Kyle, the company's chairman and chief executive officer.

"We just about had everything together," Kyle said. "I'm extremely disappointed in the FCC's actions." National Telecom PCS, the high bidder for the American Samoa license, was unaware at press time that the FCC had made a final decision regarding the fate of its license. The company insisted that, based on its upfront payments to the FCC and charges that were levied for withdrawn bids, the commission made an error in determining that National Telecom defaulted on payment.

"We're going to appeal it because they're wrong—they miscalculated," said Jack Robinson, president of National Telecom.

One industry analyst said many other C block licensees have highly speculative business plans that rely on unsecured financial backing.

"There were several bidders that went into the auction with the belief that once they got the licenses they could raise the money," said Jonathan Foxman, director of strategic and business planning at BIA Consulting. "It's hard for me to envision an investor giving money to some of these companies. I think we're going to see many more defaults because some of the business plans are so unreasonable."