NextWave questions leave carriers in limbo

Wireless carriers want their money back for down payments made to the FCC for wireless spectrum held by NextWave Telecom, but their refund request doesn't mean they have abandoned hopes that Congress will pass legislation enacting a proposed settlement that would resolve the controversy.

None of the parties are bound by the settlement — stipulating after-tax payout of $5.85 billion to NextWave and $10 billion to the U.S. government — because Congress did not approve the measure by the Dec. 31 deadline stipulated in the accord. Without the settlement, legal entanglements would prevent the FCC from awarding the spectrum to winners of the January 2001 auction for years, if at all.

As a result, winning carriers petitioned the FCC to return more than $3.1 billion in down payments on the NextWave spectrum by the commission's Jan. 18 meeting. The government has held the money in an interest-free account for several months, costing the carriers more than $140 million in potential interest earnings during the period, according to the petition. The biggest loser is Verizon Wireless, which made a $1.7 billion deposit on its $8.4 billion spectrum bill.

Despite the petition, wireless carriers still want Congress to pass legislation enacting the settlement — something analysts believe is more likely when lawmakers consider the undesirable alternatives for all parties involved.

“In the end, I still think this [settlement] is going to get through Congress, because the downsides of not doing the deal are so great for everyone,” said Rudy Baca, wireless analyst for the Precursor Group.

Without the settlement, January auction winners will not get airwaves needed to offer advanced services, while NextWave investors will lose the $5.85 billion windfall — and must pay for the spectrum and the cost of building out a network. The government would receive only $4.75 billion for the spectrum from NextWave, less than half the amount promised in the settlement.

Perhaps more important, the absence of a settlement could wreak havoc on the U.S. government's already-muddled plans to auction spectrum. No unencumbered spectrum is scheduled to be auctioned during the next two years, so government officials face the prospect of stagnating the U.S. wireless industry's growth and failing to generate any revenue from potentially lucrative auctions during this period.

The settlement was reached after an appeals court ruled last spring that the FCC erred in reclaiming the spectrum from NextWave for nonpayment after the wireless company filed for bankruptcy. The Supreme Court is expected to decide during the next month whether to hear an appeal of the case.

If the Supreme Court hears the case, no decision will be reached for at least another year, with further litigation on related matters expected after that. If the Supreme Court doesn't hear the case, NextWave would have clear rights to the spectrum, but the FCC could block any attempt to resell the airwaves until NextWave pays for the spectrum and fulfills network-buildout requirements.

Unless Congress approves the settlement, wireless carriers will be forced to look elsewhere for spectrum. The oft-delayed 700 MHz spectrum is scheduled for June, but it's questionable whether wireless carriers are willing to pay incumbent broadcasters to vacate the airwaves. Another option is consolidation, something analysts have been anticipating since the FCC decided to abolish the spectrum cap at the end of this year.