Paul Clark  
December 12, 2001
Powell’s ‘Slightly Bitter’ NextWave Deal

Michael Powell, chairman of the Federal Communications Commission, yesterday laid a settlement in the NextWave Telecom spectrum imbroglio at the feet of the House Telecom Subcommittee.

They received it with all the joy of a cat owner being presented with a dead vole.

“Congress is being asked to clean up a judicial train wreck between bankruptcy policy and spectrum policy,” said Fred Upton (R-Mich.), chairman of the subcommittee.

Those of you who have been following the NextWave furball understand it. To those of you who haven’t, it’s almost impossible to explain at less than Manhattan-phonebook length, but I’ll try to give you the Reader’s Digest version.

In 1996 and ’97, the FCC held auctions for C- and F-Block PCS licenses. NextWave won 63 C-Block licenses and 27 F-Block licenses on bids of $4.8 billion. Under the Kennard commission’s lenient easy-installment plan, which apparently sneered at details like credit checks, however, it paid down only $500 million of that sum. NextWave never paid any more, filing for bankruptcy in 1998.

That’s when all hell broke loose. The FCC cancelled NextWave’s licenses, NextWave challenged in court, in an explosion of litigation that eventually drew in the bankruptcy court, the U.S. Courts of Appeal for the second and D.C. circuits and the Supreme Court. The Second Circuit said the FCC had the right to repossess and re-auction the spectrum, which it did in January, when 21 carriers bid $15.85 billion for the spectrum licenses.

Happy ending? Not quite. In June, the D.C. Circuit said that the spectrum repossession violated bankruptcy law — which provides that debtors be allowed to redress violations in payment amounts and frequency, and which the FCC had obviously not considered before creating the easy-credit payment plan for wireless carriers. Therefore, the January auctions are invalid, unless the Supremes sing a different tune than the D.C. Circuit.

That means that 21 carriers are added to the list of entities ready, willing and able to sue anything that moves, including the FCC, NextWave, Johnny Cash and the Swedish Bikini Team, and NextWave has 21 potential new targets.

That’s a lot of exposition for a column, but it’s the least I could give you for what follows to, well … not make sense, exactly, because sense is not a concept recognized by legislators or the courts — but at least maintain a kind of internally coherent insanity.

Here’s what we, in the news “profession” call the “nut graf” — the paragraph that explains what the deal is:

A deal there is — the deal Powell outlined for the legislators. The January bidders will pay the $15.85 billion they promised, the government will keep $10 billion, but will pay NextWave, by the end of 2002, $5.8 billion to bug off — in legal terms, for “its complete release of all claims to the disputed licenses.”

But wait, you’re saying; NextWave has invented the most brilliant investment scheme since the dot-com bubble burst. NextWave paid $500 million, on which it gets a return of $5.8 billion. A pretty good return on investment, from where I sit. To put it in human terms, NextWave would get the equivalent of $300,000 for having a $20,000 car (properly) repossessed.

Rep. Gene Green (D-Texas) described NextWave’s part in the deal as “gaming the system,” and Upton said, “I’m not happy that NextWave is getting $6 billion out of this.”

Ah, but that’s the legal system for you, which is as much about expediency as about justice. The legislators griped about that injustice, but none of them seemed to have much of an idea what to do about it. The fact that Powell even had a deal is astonishing — the whole mess was dumped on his lap by his predecessor, despite dire warnings in advance from Powell and fellow FCC Republican Harold Furchtgott-Roth. That Powell dove into the lion’s den and salvaged a deal is no mean feat.

The irony, of course, is that the spectrum mess was prompted by a very Republican instinct — that of having government act like a business, despite the fact that, as of even date, it’s apparently quite unqualified to do so.

This deal offered for a limited time only!!!

Putting more pressure on Congress, Powell said that the deal, as agreed to by all the parties, is good only until Dec 31. It’s a Christmas special — after New Year’s, it turns into a pumpkin, and all the parties jump into their legal briefs.

All of this left the legislators’ heads spinning. Some of them seemed to have only the fuzziest idea of what was going on. Rep. John Shimkus (R-Ill.) said he hadn’t even read the D.C. Circuit’s opinion. Fer chrissakes, even I’ve read it, and you can, too, here.

Nobody, understandably, was particularly proud of the deal, including Powell, who described it as “slightly bitter to swallow.” Some legislators were less charitable.

But the deal is, after all, a deal. It will allow the freeing up of a large amount of desperately needed spectrum that, Powell revealed yesterday, has only been used once — under a special FCC waiver to relieve congestion among New York City-area wireless carriers after Sept. 11.

Focusing on the need for the spectrum, rather than the two-days-past-date-of-sale-milk taste of the deal, several subcommittee members, and full Commerce Committee Chairman Billy Tauzin (R-La.), supported the deal, as did Jody Hunt, counsel to the deputy attorney general.

The deal is a “win-win-win,” said Tauzin. “Anyone who holds this up now is playing the same politics that have held it up for too doggone long.”

It’s important to remember what the deal doesn’t do, however; it doesn’t resolve the conflict between bankruptcy law and telecom policy, a conflict created by Congress, aided and abetted by the FCC. Upton is promising a bill next session to avoid similar train wrecks in the future.

And it may not end the issue — several entities are considering challenging whether the reorganized NextWave even qualifies to license spectrum — which could throw the deal into shambles.

It’s an ugly deal, ironic even by the standards of Washington. But a deal’s a deal, and we’re not likely to see a better. Congress should pay off NextWave, give the spectrum to the recent bidders — and make sure, if regulatory agencies decide to go into business in the future, they understand the rudiments of the laws governing business.

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