No Spectrum, No Deal: Court Puts NextWave Future InDoubt

Posted: 02/2000

No Spectrum, No Deal: Court Puts NextWave Future In
Doubt
By Ken Branson

What had appeared originally as a boost for financially strapped NextWave Telecom Inc.
(www.nextwavetel.com) has turned into a bust.

NextWave Telecom’s problems began after it paid too much for 30 MHz spectrum. The price
tag led the company to seek shelter under Chapter 11 of the Bankruptcy Law. It believed it
was about to receive some financial help, when Global Crossing Ltd. (www.globalcrossing.com) and Liberty Media
Corporation (www.libertymedia.com), Pacific
Capital Group, Inc., Los Angeles, and Texas Pacific Group, Ft. Worth, Texas, announced
they would invest $1.6 billion between them (Liberty Media investing $300 million) for
equity in NextWave. Global Crossing was to become the "preferred provider of back
haul, long distance backbone, web hosting and other communications services" to
NextWave.

The plans fell apart on Dec. 22, when Second Circuit United States Court ruled NextWave
was obligated to pay the $4.74 billion it bid for 63 "C Block" PCS licenses back
in May 1996.

NextWave–and, it appears, Global Crossing and the other potential financial
backers–had assumed from lower court rulings that the licenses were worth only about
$1.04 billion. Asked if her company still was interested in the project, Vivian Carr,
Liberty Media’s vice president of investor relations, says, "I don’t think so,
because there wouldn’t be much point in it if there is no spectrum."

Global Crossing officials did not return repeated phone calls asking for comment.

Earlier, Nextel Communica-tions Inc. (www.nextel.com)
had offered to pay more than $8.3 billion in a hostile takeover bid for
NextWave–including $5.3 billion to the FCC for the licenses, $500,000 for NextWave’s
creditors and $2.5 billion in stock to NextWave shareholders. After the Second Circuit
issued its opinion, Nextel withdrew its offer.

NextWave was formed in 1995 to wholesale wireless high-speed Internet access and voice
communications services for the consumer and business markets nationwide. The company
boasted financing from Qualcomm Inc. (www.qualcomm.com)
and Sony Corp. (www.sony.com). NextWave also drew three
of its original top executives from Qual-comm–chairman and CEO Allen Salmasi, the former
head of Qualcomm’s telecom business; James Madsen, senior vice president; and Richard
Kornfeld, a vice president. NextWave was such an aggressive bidder, that some competitors
charged it with being a stalking horse for Qualcomm, a charge Salmasi always denied.

When the FCC conducted "D," "E" and "F" block auctions
later in the summer, and the high bids were lower than the winning bids for the
"C" block auctions, the winning "C" bidders found it difficult to
finance what they had bid. They protested, first to the FCC, which modified the winners’
obligations somewhat–allowing them to keep as many licenses as they could pay for if they
converted most of their 10 percent down payments to prepayments on those licenses–but
NextWave continued to fight. It filed for bankruptcy in June 1998 and filed suit against
the FCC in U.S. Bankruptcy Court.

NextWave won in the lower courts. The FCC appealed, and now the appeals court has ruled
against NextWave, which sends the case back to the Bankruptcy Court.

NextWave officials could not be reached for comment at press time. A statement issued
after the order says: "Although we had hoped for an affirmation of the District
Court’s decisions, nevertheless, consistent with the opinion received, we are fully
positioned to work closely with the Federal Communic-ations Com-mission [FCC] to implement
a market-based solution that results in the immediate assumption of the full amount of the
original debt obligation, immediate payment of all accrued interest and principal to date
while presenting a plan to the FCC and the bankruptcy court that is fully compliant with
the FCC rules."

The statement also says that NextWave "has assembled a world-class team–comprised
of strategic partners, financial institutions and highly qualified vendors–to deploy one
of the first of the third-generation, IP-based packet switched wireless networks in the
world and put the licenses into productive use in the very near-term."

Without spectrum licenses, it isn’t clear how that will happen.