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FCC Ready to Act on Wireless Licenses

Telecom: Sources say the agency may allow some carriers to opt out of bids as the court battle with NextWave continues.

September 12, 2002|From Reuters

Communications regulators are considering letting mobile telephone companies opt out of a $15.9-billion sale of wireless licenses still mired in a lengthy court battle, people familiar with the situation said Wednesday.

The Federal Communications Commission may propose allowing carriers including Verizon Wireless Inc. and Deutsche Telekom's T-MobileUSA to opt out of the bids made last year--and a decision could come soon, the sources said.

The agency auctioned the licenses to the carriers in January 2001 for a record $15.9 billion, but an appeals court five months later ruled that the licenses belonged to NextWave Telecom Inc., which is in bankruptcy proceedings.

Carriers have gone to Congress and beseeched the FCC to allow them to withdraw from the auction without penalty because of the unexpected lengthy legal wrangling and the financial overhang the auction is putting on them because they have not obtained the licenses for use. Allowing the companies to back out could remove the massive financial overhang, freeing cash for them to expand and improve services.

Sources said the commission also could propose canceling the obligations outright or seek public comment on what to do about the carriers' desire to pull out, though these are less likely scenarios.

FCC officials declined to comment, as did representatives of the carriers.

Since late last year, the wireless industry has seen a slowdown in customer growth and an increase in competition after years of double-digit gains. Fears about the industry have been exacerbated by bad corporate news and concerns about heavy debt loads.

Hawthorne, N.Y.-based NextWave in 1996 bid $4.74 billion for dozens of licenses, but entered bankruptcy protection in 1998 after paying the FCC only $500 million. It has vigorously fought in court to keep the licenses.

The FCC tried to repossess the licenses from NextWave because the company failed to pay for them on time. The case is pending at the Supreme Court but even if NextWave were to lose there, the company has indicated, it would go back to the appeals court to challenge other parts of the case.

While the litigation is pending, the FCC agreed to give back $2.8 billion in down payments to the carriers but refused to eliminate the obligation that they must acquire the licenses should the court rule in favor of the FCC.

The agency held 3% of the total amount bid, or about $500 million, which would be the penalty assessed if the carriers were to withdraw their winning bids.

Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group, bid about $8.5 billion for scores of licenses while a partner of AT&T Wireless Services Inc., Alaska Native Wireless, bid $2.7 billion for 28 licenses.

When Verizon received its deposit back earlier this year, it used the $1.5 billion to repay debt.

T-MobileUSA, formerly known as VoiceStream, and its partner bid $777 million for 19 licenses and a partner of Cingular Wireless bid $2.15 billion for 30 licenses, among other bids.

Congressional lawmakers were considering legislation that would release the carriers from the obligations to acquire the licenses.

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