Hitting a wall

The FCC may have to decide whether Leap Wireless gets to keep many of its C Block PCS licenses if the company can't meet its FCC-mandated buildout deadlines that come up this fall.

Leap has asked the commission to extend the amount of time it has to build CDMA service in 38 PCS markets. Most of the markets it purchased from bankrupt Pocket Communications and CenturyTel.

Under FCC rules, Leap has five years from the original license grant date to provide adequate service to at least one-third of the population within its licensed area or forfeit the licenses. Time is against Leap, though, because it acquired many of the licenses only recently, and the original license holders had not begun any buildout initiatives. Leap is now asking the FCC for one- and two-year buildout extensions as it runs into the deadlines that begin in November.

‘The difficulty of the aftermarket is that you have to operate under the original buildout schedule.’
— Dan Pegg, Leap Wireless

“Ours is a situation where we had hoped to acquire a number of licenses in Auction 35. We were forced to continue buying things in the secondary market,” said Dan Pegg, senior vice president of public affairs for Leap. “The difficulty of the aftermarket is that you have to operate under the original buildout schedule. If we want to buy a number of licenses, we run the risk of having to go to the FCC for extensions.”

PCS buildout requirements

	Five years*	10 years*
30 MHz licenses	Wireless signal level must cover at least one-third of the licensed population	Wireless signal level must cover at least two-thirds of the licensed population
10 and 15 MHz licenses	Wireless signal level must cover at least one-fourth of the licensed population	N/A
*From date of license grant		Sources: Merrill Lynch and FCC data

A number of PCS C Block licensees may be lining up for similar waivers as they hit buildout problems in light of the slowing economy. Technology companies — especially smaller ones like the C Blockers — have found it increasingly difficult to raise capital to construct networks. C Blockers Alpine PCS and Summit Wireless submitted comments to the FCC requesting future waiver requests or a blanket waiver to allow an additional one year for all carriers subject to upcoming deadlines, which will begin between September 2001 and August 2002 for many.

Another large C Block licensee, NorthCoast, has launched just one market in Cleveland, Ohio. It has some 18 licenses in the Midwest and East Coast, including New York, that will hit buildout deadlines beginning next spring, according to Merrill Lynch. To date, the commission has granted just two PCS licensees extensions of their buildout requirements, and each of those cases presented a narrow set of circumstances involving one or two licenses. Both Verizon Wireless and Cingular Wireless oppose Leap's request, believing Leap has failed to show a compelling reason why massive buildout waivers are warranted.

Phillip Malet, partner with the Washington, D.C., law firm Steptoe & Johnson, said the FCC may grant some type of buildout relief to weary C Blockers as long as they stay current with their license payments and show progress toward offering service in their markets.

“The financial markets haven't helped recently,” Malet said. “In other services, the commission has much more of a relaxed view on buildout requirements.”

Indeed, the FCC dropped the five-year buildout rule in the 219 MHz band and doesn't hold Wireless Communications Services or local multipoint distribution service licensees to a five-year deadline. But the commission also has canceled licenses before. In June 2000, the FCC canceled fixed satellite assignments because players failed to begin construction by May 1998.

“While the details are different relative to the PCS licenses and the associated five-year buildout requirement, we think that the satellite case demonstrates the FCC's willingness to reclaim authorizations under certain circumstances,” said Merrill Lynch analysts in a recent report.

Pegg said if the FCC denies its request, Leap can choose to deploy single cell sites with boomers to extend service in markets where it has yet to launch service, meeting the letter of the law. Or Leap can build out service as rapidly as possible and turn in the remaining licenses to the FCC.

“We don't like doing business that way,” Pegg said. “We want to enter the market doing the job right.”

An FCC spokesman could not give guidance on when the FCC will decide on the issue, which is complicated by the changing make-up of the commission.