NextWave faces next round

FCC could delay re-launch with new appeal

NextWave Telecom revealed last week that it has enough money to propel itself out of bankruptcy and build out a nationwide network, but the FCC's latest legal move could postpone NextWave's attempt at re-launching for the third time.

July 30 SPECIAL REPORT The NextWave Standoff

The FCC, with the U.S. Department of Justice, plans to appeal to the U.S. Supreme Court NextWave's recent appeals court win. That win returned the C and F Block licenses the commission revoked from NextWave and reauctioned to other carriers in January.

C Block tug-of-war May 1996 NextWave wins 63 C Block licenses for $4.74 billion June 1998 NextWave files Chapter 11 bankruptcy and initiates adversary proceeding against the FCC for fraudulent conveyance May 1999 Bankruptcy court rules in favor of NextWave; NextWave owes the FCC $1.023 billion June 1999 FCC appeals to the District Court July 1999 District Court affirms bankruptcy decision August 1999 FCC appeals to the U.S. Court of Appeals for the Second Circuit; court issues a stay pending appeal, postponing the confirmation of NextWave's reorganization plan until appeal is heard November 1999 Second Circuit reverses District Court's affirmation of the bankruptcy court's May ruling January 2000 FCC issues public notice declaring NextWave's licenses were canceled retroactively to January 1999 NextWave asks bankruptcy court to rule that the FCC's public notice violates the automatic stay imposed by the bankruptcy court Bankruptcy court rules in NextWave's favor NextWave, as a protective measure, also files with the U.S. Court of Appeals for the District of Columbia, charging the FCC violated bankruptcy rules June 2001 D.C. Circuit rules in NextWave's favor and orders FCC to reinstate NextWave's licenses August 2001 NextWave submits plan of reorganization to the bankruptcy court FCC files petition with D.C. Circuit to stay the mandate, pending the filing of a petition for writ of certiorari with the D.C. Circuit. FCC also indicates it is appealing to the U.S. Supreme Court Source: NextWave

The commission's move may be a long shot. The FCC first is trying to keep the U.S. Court of Appeals from enforcing its June order that requires the commission to return the licenses to NextWave before the Supreme Court accepts or rejects the case. Last week, the FCC filed a motion to postpone the appeals court's mandate, which the court is scheduled to issue Aug. 13.

“This does involve some pretty obvious tension between the rights of debtors under bankruptcy laws and the powers of the FCC under the Communications Act. The Supreme Court may feel it ought to take the case,” said Kelly Cameron, a former FCC attorney and partner with Washington, D. C., law firm Powell, Goldstein, Frazer and Murphy.

Convincing the appeals court to postpone its mandate could be critical to whether the Supreme Court decides to hear the case. NextWave would obtain ownership of the licenses, and the bankruptcy court could consummate NextWave's plan of reorganization before the Supreme Court studies the case.

The FCC also could find itself unable to challenge the NextWave decision as in a similar case involving bankrupt C Block player Metro PCS. The Supreme Court last month refused to hear the FCC's case because Metro PCS had substantially emerged from bankruptcy.

As of late last week, the FCC had not filed an objection with the bankruptcy court seeking to delay consummation of the reorganization plan. The FCC has until Sept. 22 to file for a hearing with the Supreme Court.

Many analysts believe the FCC is using the appeal as a tactic to bring NextWave to the bargaining table. If the Supreme Court takes the appeal, it may not decide the case for a year. Moreover, NextWave could file an additional appeal to resolve a question concerning due process, which the appeals court never addressed when it ruled in NextWave's favor in June.

NextWave has raised $3 billion in equity and is trying to firm up an additional $2.5 billion in credit facilities that will allow the company to resume payments to the FCC, pay creditors and build out its CDMA 1XRTT network.

“The question is, will the court allow that?” said Christopher Larsen, senior wireless analyst with Prudential Securities. “They have to show they have enough money to get up and running and $5.5 billion might be enough.”

Meanwhile, a number of wireless operators trying to reclaim the licenses they won at Auction 35 have approached NextWave with deals ranging from leasing the company's spectrum to buying pieces of NextWave's licenses, according to sources close to the companies.

Valley Communications, a designated entity and business partner with Verizon Wireless, recently offered NextWave $3 billion for portions of its 30 MHz licenses in big markets like New York and Los Angeles. NextWave could find a lucrative business in leasing and selling off pieces of its licenses, analysts noted.

“NextWave could sell off a couple of New York licenses and fund its entire buildout,” said Jason Bell, wireless analyst with SunTrust Robinson-Humphrey.