NextWave Refuses To Hand Over Licenses

Despite a capital infusion of $1.6 billion in mid-December and a solid reorganization plan, NextWave Telecom Inc. may never recover the one asset central to its recovery from Chapter 11 protection - a block of wireless PCS spectrum auctioned off by the Federal Communications Commission in 1996 for $4.7 billion.

However, the company is digging in its heels and preparing to fight for the licenses if need be.

Last week, the FCC announced it had revoked NextWave's licenses and filed objections to NextWave's modified reorganization plan in the Bankruptcy Court. It also announced it would auction the licenses in a July 26 broadband PCS auction.

In a statement, FCC Chairman William Kennard said, "This spectrum has laid fallow for too long. Now it is time to act swiftly to auction this spectrum and put it to productive use for U.S. consumers."

Telecom analysts called the announcement a strong positive for high yield benchmark name Nextel Communications, which many industry-watchers believe does not have enough wireless spectrum to complete its long-term aggressive growth plans.

Nextel has been aggressively fighting for the spectrum since NextWave first filed for bankruptcy in July 1998. Most recently, Nextel lobbed in an $8.3 billion hostile bid for the spectrum, including $2.5 billion for NextWave's equity holders.

"We're still very interested in the licenses," said a Nextel spokeswoman.

Nextel's stock surged seven points on the news, and its high yield issues also traded up. Its zero-coupon/9.75% notes due 2004 were trading at 103.5 on Thursday at press time, and its 9.375% cash-pay coupon due 2009 was at 97.25.

As one Nextel official noted, "Our ability to pay the bonds has been so strong lately, they've been trading close to par."

NextWave, however, has not given up its fight for the spectrum.

Though company officials could not be reached directly for comment, in a statement released Thursday, NextWave said, "The actions taken by the FCC yesterday...are null and void under the bankruptcy laws...The FCC has violated the legal rights of NextWave and its creditors. The Commission's action forces the Company to take all legal steps necessary to protect its rights and those of the many people and companies who have invested in its licenses."

If NextWave's legal wrangling fails and the spectrum does go to public auction, Nextel's latest bid priced may be one indicator of what wireless players are willing to sacrifice for the licenses.

"The value is to the bidder what they can get out of it. That's hard to measure," said one industry source.

The rules and conditions surrounding the July auction and potential participants have not yet been decided. While the FCC must wait for public comment before making a decision, sources inside the agency have offered conflicting opinions on who will be allowed to bid for the wireless spectrum.

One FCC official hinted that the July auction would proceed under the same rules as the 1996 C-Block auction, so that only designated entities could participate so as to encourage small business participation.

But, in a written statement, FCC Commissioner Harold Furchgott-Roth said there was a lesson to be learned, and not repeated, from the 1996 C-Block auction. The decision to revoke NextWave's licenses, he said, "illustrates the legacy of lost opportunity that has dogged this spectrum block. Hopefully, future Commission policy will be informed by the lessons that C-Block history teaches."

If, indeed, the FCC does decide to change the rules governing the July auction, Nextel may have the chance to bid directly for the spectrum.

"It doesn't make a lot of sense to keep it as a designated-entities spectrum - just look at the history. Eighteen of these guys [winners of the 1996 C-Block] went bankrupt," said one Nextel insider. "The FCC hasn't even begun the process of taking public comments; it hasn't said what it would do. But everything we've thought would occur, has."

The Cellular Telecommunications Industry Association has already weighed in with similar sentiments.