NEXTWAVE CLOSER TO REGAINING LICENSES, BUT NEXT STEPS ARE UNCLEAR
NextWave moved step closer to winning back its cancelled PCS licenses from FCC last week as U.S. Appeals Court, D.C., turned down Commission’s request for stay. FCC filed motion earlier this month asking that D.C. Circuit’s remand order in NextWave case be stayed pending U.S. Supreme Court review. Remand mandate involved Appeals Court ruling that focused on intersection of bankruptcy law and Communications Act, overturning FCC decision to cancel bankrupt carrier’s licenses for nonpayment. But 3-judge panel of Appeals Court denied stay late Thurs., citing stipulation by NextWave that it wouldn’t make its plan of reorganization effective until Supreme Court issued final decision. FCC officials didn’t comment on whether Commission would appeal denial of stay to Supreme Court. In cases involving D.C. Circuit, Chief Justice William Rehnquist is assigned to hear appeals. Larger administrative questions was how FCC would proceed if rejection of stay were affirmed, particularly because petitions challenging NextWave’s eligibility to hold licenses were pending.
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Denial of stay was issued by Judges David Sentelle, David Tatel and Merrick Garland. They said in brief order that to obtain stay, FCC had to show that petition would present “substantial question” and that there was good cause for stay. “The FCC has not demonstrated that the petition would present a substantial question,” they said. But they also noted that NextWave had said in recent filing at D.C. Circuit that it would make plan of reorganization contingent on Supreme Court’s making final decision on issues that FCC planned to present in petition for certiorari Sept. 20. Because of that caveat, judges said, “the FCC cannot demonstrate that any substantial harm would result from the continuation of the bankruptcy proceedings during the limited pendency of the certiorari petition.” Order directed that remand mandate be issued Aug. 30.
“We're very pleased that the decision of the Court of Appeals in June will now be allowed to take effect, restoring the licenses to NextWave and freeing us to continue our buildout and our bankruptcy reorganization, both of which we are attempting to complete,” NextWave Deputy Gen. Counsel Michael Wack said.
Rejection of FCC’s stay request was characterized as “tactical setback” for Commission in Legg Mason research note issued Fri. Note said one factor driving stay request had been FCC fear that case before Supreme Court could run into equitable mootness problems if NextWave were able to first reclaim licenses and finalize reorganization plan. Legg Mason said: “We believe the Supreme Court is likely to deny cert, but the FCC’s chances are not trivial, probably about 25%.” If Commission filed for high court review by Sept. 20 as planned, Supreme Court would be expected to decide whether to hear case in late Nov. or early Dec., Legg Mason said. If review were granted, final decision could be out by next June. Legg Mason also said 5 of top PCS bidders in Jan. re-auction of C-block licenses, most of which had belonged to NextWave, had urged govt. to reach settlement on carrier’s licenses. Talks would start at $4 to $5 billion in repayment to NextWave, with payment of balance of $15.4 billion in Jan. “It seems pretty clear in the current environment, however, that that amount is insufficient to convince NextWave to settle because corporate and capital gains taxes would likely reduce the payment to its shareholders to somewhere in the $2 billion neighborhood,” Legg Mason said.
Unclear late Fri. was whether FCC would appeal rejection of stay request. If remand remained in place while petition for Supreme Court review was pending, it also was unclear what immediate steps FCC could take to comply with mandate, several sources said. One complicating factor is that Alaska Native Wireless, Verizon Wireless and VoiceStream have challenged eligibility of NextWave to regain PCS licenses (CD July 20 p2). Carriers, all winners in Jan. re-auction, have raised questions about NextWave’s compliance with foreign ownership issue and its designated entity status, issues that bankrupt carrier rejected in recent FCC filing. Another uncertainty is that remand mandate was fairly vague, industry source said. It overturns license cancellation and requires FCC to correct its past decision, but doesn’t say specifically what remedy should be or establish time line, source said. One possibility, another industry source said, is that FCC would take up eligibility issues raised in petition before releasing order on license return. However, several sources stressed that as of Fri., exact course of action Commission was likely to take wasn’t clear.
“Technically, to comply with the mandate, they [FCC] have to undo the action that was the subject of the lawsuit that the ruling resolved,” said Paul Glenchur, Washington analyst with Schwab Capital Markets. He said precisely how FCC would address remand mandate was tough call, particularly because issues such as foreign ownership were raised when NextWave had licenses in hand: “It’s not clear. There may be some concern as to whether an extended regulatory proceeding would appear to be a delay in complying with the court’s mandate.” Under such scenario, Commission could run risk of NextWave’s filing mandamus petition at D.C. Circuit.