Wireless Spectrum Auctions

NextWave recently filed with the U.S. Bankruptcy Court, White Plains, N.Y., the terms of settlement agreements that entail it paying $1.25 million to NY Telecom and Eldorado Communications. The court approved the agreements last week. One agreement involved NY Telecom and Eldorado challenging NextWave’s compliance with its 5-year buildout requirements. After the Commission returned NextWave’s previously cancelled PCS licenses, the bankrupt carrier made initial construction filings for most of its C-block licenses. One issue raised during the proceeding was whether an earlier settlement agreement reached by the FCC, NextWave and the Jan. 2001 PCS re-auction winners gave NextWave additional time to meet certain construction requirements. NY Telecom argued NextWave missed its buildout deadlines. NextWave had argued that the clock stopped on its buildout requirements during the period when the FCC had cancelled its licenses and before the U.S. Appeals Court, D.C., ruled otherwise. During the period covered by the original FCC agreement, which expired Dec. 31, 2001, when Congress didn’t act, the clock had also stopped, NextWave argued. The FCC Wireless Bureau agreed with that interpretation last year (CD March 4/03 p1) and NY Telecom sought full FCC review. NextWave paid NY Telecom and Eldorado $1.23 million under the settlement terms for the tolling challenge. NY Telecom and Eldorado also settled with NextWave their challenge of a Feb. 13, 2004, FCC order authorizing NextWave to assign certain licenses to Cingular. In Sept. the Bankruptcy Court approved the NextWave-Cingular spectrum sale, contingent on FCC approval, which came in Feb. NY Telecom (NYT) had appealed that FCC decision to the U.S. Appeals Court, D.C. NextWave paid the firms $25,000 to settle that challenge. The Bankruptcy Court approved a NextWave filing that sought permission to settle the claims related to the Cingular license transfer. “Both NextWave and NYT have spent significantly more time and expense on litigation and other contested proceedings than either would have ever thought possible when their respective businesses were formed,” NextWave told the court. NextWave said it would continue to maximize the value of its assets for creditors. “However, where, as here, disputes that have been ongoing for several years in multiple forums can be resolved on a reasonable basis -- thereby avoiding further litigation and its attendant expense -- then it is in the best interest of the estates to achieve such resolution.” The agreements to settle pending matters involve all disputes and challenges between NYT and NextWave, the filing said. NY Telecom and Eldorado made separate filings at the FCC and the D.C. Circuit seeking dismissal of its challenges. For the settlement of disputes on the FCC challenge, the $25,000 that was part of the agreement represented the legal expenses NYT and Eldorado incurred pursuing the challenges.

Even if the FCC gives Nextel spectrum, at a price, at 1.9 GHz in a plan to mitigate public safety interference at 800 MHz, Nextel’s ability to use the spectrum is likely to be limited due to litigation, the Precursor Group said. In a note to investors last week, Legg Mason ranked the probability of a judicial challenge as “high” if the FCC gives Nextel exclusive use of spectrum at 1.9 GHz for a price instead of holding an auction. A staff item is now on circulation on the 8th floor that would retune incumbents at 800 MHz and give Nextel 10 MHz at 1.9 GHz for a price. Nextel also would pay for the costs of retuning public safety and private wireless incumbents at 800 MHz. “If, as we suspect, the FCC sells Nextel exclusive use of the higher- band spectrum instead of putting it up for auction, Nextel’s access to the spectrum is nonetheless likely to be limited due to high litigation risk,” the Precursor Group said. The FCC also is likely to hold Nextel responsible for funding the public safety transition in the short-term even if the carrier can’t access 1.9 GHz until the court appeal plays out in the long-term, the firm said. “The Bush Administration has made it clear to the FCC that this is an issue of first priority for homeland security,” Precursor said. “Nextel’s goal is not only to eliminate ongoing financial and technical responsibility for ‘curing’ interference its commercial operations cause to high priority public safety, but, more importantly, to increase the efficiency and footprint of its spectrum holdings at 800 MHz and 1.9 GHz.” Nextel has spectrum at 1.9 GHz in some southern rural markets acquired from bankrupt Nucentrix. But it needs the full 10 MHz nationwide to roll out its high data rate platform via the Flarion technology, the group said. Precursor said Nextel isn’t likely to be able to add to its 1.9 GHz holdings without paying a multi-billion dollar figure to the govt. “Precursor believes this FCC decision is ‘net’ bad news for Nextel, which is likely further compounded by the time delay and uncertainty of a judicial challenge.”

Public TV has to come up with creative ways now to benefit from an early return of the analog spectrum because a “window of opportunity” is closing, the PBS board was told Tues. The Assn. of Public TV Stations (APTS) is working on the details of a proposal for PTV stations to embrace a hard date for analog switch off in return for the creation of a public broadcasting trust fund from the proceeds of the spectrum auction. “If we can do this, we have to find creative ways to do it now… and to benefit we have to make sure that we get something considerable out of that,” Norman Ornstein said in a legislative update to the board. He said Sen. Hollings (D-S.C.) would soon introduce a bill that “puts into play this notion of early spectrum return” for a public broadcasting trust fund. Ornstein, an American Enterprise Institute resident scholar representing Md. PTV, said based on recent spectrum auctions, the analog spectrum controlled by PTV was worth $70 billion. Former FCC Chief Economist Thomas Hazlett had estimated that based on the social value of wireless phone services, the TV band was worth more than $500 billion at $300 million a station, he said. But these figures are all speculative, he cautioned. The Media Bureau plan that would expedite return of the analog spectrum is provoking a lot of serious discussion on Capitol Hill and at the FCC, he said. The Dept. of Homeland Security is also interested in public TV’s analog return plans, he said. In a “lengthy” meeting with Secy. Tom Ridge last month, Ornstein said he had told him that PTV’s plan would help solve the Dept.’s problem of getting spectrum for public safety and security uses: “We are also working on partnerships on homeland security and public safety.” PBS Pres. Pat Mitchell, who has been advocating a different funding model for PTV, said APTS and PBS were exploring “this window of opportunity that now exists about a new funding model for public broadcasting.” She said Ridge “really appreciated” the opportunity to work with public TV on homeland security issues. She said Powell told her at a meeting to discuss PTV’s analog switch off plan that “we have only a small window of opportunity here. It is getting shorter. We want to help you guys to figure out how to use it best.” Much was made at the board meeting of the changed attitudes of lawmakers at a recent hearing on CPB appropriations by the House Labor-HHS Appropriations Subcommittee. Mitchell characterized it as the “most positive, upbeat” hearing. Ornstein said that unlike in the past, when “we had taken flak from members… especially on issues of bias,” the hearing turned out to be “extraordinarily positive.” Part of the reason, he said, was the heat the commercial broadcasters were taking over indecency. He said public broadcasters could benefit from this ruckus -- but they must ensure that they had no wardrobe malfunction of their own.

Groups ranging from citizens advocates to wireless companies told NTIA they would like more-efficient spectrum management, but many drew the line at consolidating that function in one place, such as the White House. Reflecting the controversial nature of the Bush Administration’s inquiry into spectrum management improvements, a think tank defended a report it presented last fall against critics who argued the report would place all spectrum regulation under one person. Meanwhile, several other commenters said they were as concerned about improved management as they were about who was responsible for it.

TIA urged the Senate leadership to consider the spectrum reallocation trust fund legislation that has languished in the Senate. In a letter to Senate Majority Leader Frist (R- Tenn.) and Minority Leader Daschle (D-S.D.), TIA said the bill “is of critical importance to the future of the radio spectrum and the wireless communications industry as a whole because it will produce greater certainty in the market and accelerate the innovation and introduction of new services. The bill ensures that eligible federal entities, particularly the Defense Dept., operating in the spectrum bands identified for reallocation to private sector users are properly compensated for the costs associated with their relocation. The Senate Commerce Committee passed HR-1320, which also passed the House last year. However, Sen. Sununu (R-N.H.) added controversial language that benefited Northpoint Technologies. The bill lay fallow since its late-June approval by the Senate Committee. (CD June 27 p1) TIA officials said the Northpoint language must be removed, which shouldn’t be as much of a problem since the spectrum that Northpoint sought has already been auctioned. “The passage of this legislation is a must before the end of the 108th Congress,” TIA Pres. Matthew Flanigan said.

FCC Chmn. Powell told Rep. Fossella (R-N.Y.) whether Nextel benefits from contiguous spectrum at the upper end of 800 MHz “depends on a number of variables.” Fossella joined 22 other House members who wrote to Powell recently urging him not to give Nextel spectrum outside the 800 MHz band without an auction under Sec. 309(j) of the Communications Act (CD March 5 p1). Since then, a staff draft item has begun circulating on the 8th floor proposing a plan that would reconfigure spectrum at 800 MHz and give Nextel 10 MHz at 1.9 GHz, but at a price (CD March 11 p1). The point of the plan is to mitigate interference public safety users encounter at 800 MHz. Fossella’s letter had posed questions to Powell about how to mitigate public safety interference, raising concerns about Nextel getting spectrum outside an auction. Powell’s response, sent this week, said Nextel’s iDEN technology “would not benefit by operating in contiguous spectrum: it is a system designed specifically to operate in noncontiguous spectrum.” Powell said that “were Nextel to elect to abandon this technology and change to a technology that requires contiguous spectrum, we would need to assess the cost of the conversion against the benefit gained thereby.” On fitting an auction into a plan to fix interference at 800 MHz, Powell told Fossella that the obligation to auction spectrum comes up in the context of mutually exclusive applications: “The Commission, when the public interest so dictates, may employ ‘engineering solutions, negotiation, threshold qualifications, service regulations and other means to avoid mutual exclusivity.'” The FCC will weigh this and “issue a decision within the bounds of its statutory authority,” he said. Because of public safety implications, the FCC plans to “resolve this matter as expeditiously as possible,” he said. Meanwhile, wireless companies and the United Telecom Council (UTC) ratcheted up pressure on Capitol Hill Wed., voicing concerns at a briefing about the item under consideration on the 8th floor. Fossella said he stood “shoulder-to-shoulder with public safety in my support of rebanding the 800 MHz spectrum and enhancing the communications systems of law enforcement, fire departments and others.” While he said he supported that part of the consensus plan, he shared concerns with some states that the plan has “major flaws.” Fossella said his big concern was that the plan backed by Nextel, the Assn. of Public Safety Communications Officials and others, didn’t provide enough money for public safety retuning at 800 MHz. In an FCC filing this week CTIA criticized parts of recent Nextel presentations before the FCC, charging the numbers don’t “add up.” Nextel has said that under the consensus plan it would receive spectrum at 1.9 GHz worth $3.33 billion, but that it would make $5.4 billion in spectrum and cash contributions to make the plan work. CTIA argued, “Nextel’s encumbered, non-contiguous non-nationwide spectrum (on a per MHz-pop basis) is worth over 60% more” than “relatively unencumbered spectrum” at 1.9 GHz. At the briefing, Cingular Vp-Federal Relations Brian Fontes cited language in a 1990 waiver the FCC granted to Nextel’s predecessor company that made the company responsible for any interference experienced by public safety systems. The FCC has an obligation to resolve such interference cases, he said: “In large part, where has the FCC been? I think quite frankly they have failed to remedy the problem early on.” Among concerns raised at the briefing by Fontes and others was how the value of spectrum that would be part of a rebanding plan could be determined outside an auction. Meanwhile, UTC, CTIA, the American Gas Assn., the National Rural Electric Cooperative Assn. and 3 other groups wrote President Bush Wed. raising concerns about the consensus plan. They told Bush the plan would allow Nextel “to ’swap’ its patchwork set of channels, enabling it to gain clear and contiguous spectrum nationwide in the 800 MHz band plus 10 MHz of bonus spectrum at 1.9 GHz.” They asked Bush to back an alternative to the consensus plan that “will better serve our nation’s interests.”

Public safety organizations wrote to Rep. Fossella (R- N.Y.) on Tues., taking issue with concerns he and 22 other House members raised about the “consensus plan” for addressing interference at 800 MHz (CD Feb 27 p1). The bipartisan group of lawmakers urged FCC Chmn. Powell not to give Nextel spectrum outside the 800 MHz band without conducting an auction under Sec. 309(j) of the Communications Act. After that letter, a staff proposal began circulating on the 8th floor that would have Nextel pay for incumbent retuning at 800 MHz and the difference between that and the value of 10 MHz at 1.9 GHz. The Assn. of Public Safety Communications Officials, National Sheriffs’ Assn., International Assn. of Chiefs of Police, and International Assn. of Fire Chiefs told Fossella they disagreed with some of the “basic elements” of the lawmakers’ letter. For the past 2 years, “the commercial wireless industry, led by Verizon and Cingular, have approached the resolution of the interference experienced by the public safety community as a competitive matter without regard to the need to cure the interference being experienced by public safety,” the groups said: “Until now, they have continuously and vigorously opposed any form of rebanding -- which would not impact their operations -- in favor of after-the-fact remediation, akin to the arcade game of shooting the weasel as it moves from hole to hole.” The “consensus plan” is backed by these public safety groups, Nextel, PCIA and others. In the letter to Fossella, APCO and the 3 other groups said that 2 years ago they explored the possibility of an 800 MHz “in-band” realignment scheme. They said that among the reasons this plan wasn’t pursued was that a “green field” is needed to accommodate operations while relocation is happening. Meanwhile, Nextel told the FCC in an ex parte filing this week that it would make $4 billion in contributions, including realignment costs for public safety and private wireless carriers, under the consensus plan. Nextel recently argued at the FCC that it would make all-inclusive contributions under the consensus plan of $5.4 billion, while the spectrum it would receive at 1.9 GHz is worth $3.5 billion (CD March 8 p8). Verizon Wireless has argued at the FCC that this spectrum should be valued at $5.3 billion. In its latest filing, Nextel told the FCC that its internal rebanding costs under the consensus plan would be $400 million. It estimated the 4 MHz it would contribute under the plan at 900 MHz at $800 million, while it said another 4 MHz at 700 MHz is worth $346 million.

Salmon PCS, which has financial backing from Cingular Wireless, said the FCC Wireless Bureau has indicated it couldn’t pursue a spectrum leasing arrangement under current rules without jeopardizing its designated entity (DE) status. Salmon outlined for the FCC earlier this year a spectrum manager leasing agreement it was exploring with Cingular that would involve most of Salmon’s 45 markets. But at the time, Salmon told the FCC it needed to clarify how those new secondary market rules applied to DEs. Salmon had told the Commission its primary business would shift from wholesale or retail operations to leasing under a spectrum manager lease. The FCC last year adopted spectrum leasing rules to remove barriers stemming from a 40-year-old case that had been interpreted to mean that licensees must keep tight hands-on control of leased property. The rules covered spectrum manager leasing, in which parties could enter agreements without FCC approval beforehand as long as the licensee keeps de jure control of the license and de facto control of the leased spectrum. Salmon said conflicting language in the order created uncertainty on whether a DE could enter into a lease agreement with a company not eligible as a DE. “The Bureau has indicated that Salmon cannot pursue the arrangement it seeks unless the Commission changes the leasing rules on reconsideration or pursuant to the further notice of proposed rulemaking,” Salmon said in last week’s filing. Salmon argued DE licensees are essentially barred from “benefiting from the FCC’s secondary markets policy absent reconsideration or further rule changes. This directly contradicts the stated goal in the secondary markets proceeding of providing additional flexibility to licensees, including DEs.” Salmon said that it and other DE winners in the NextWave re-auction are at crucial stages of development and need an answer soon on whether leasing is an option.

An FCC staff proposal on how to correct public safety interference at 800 MHz -- now circulating on the 8th floor - - would give Nextel some, but not all, of what it has sought on rebanding. The proposal covers 800 MHz and 1.9 GHz, but not blocks at 700 and 900 MHz that were part of the “consensus plan” backed by Nextel and others, a source familiar with the draft item said. Under the draft, Nextel would pay for incumbent retuning at 800 MHz and would pay the difference between that and the value of 10 MHz at 1.9 GHz. But exactly how high that final price tag would be wasn’t clear Wed.

The Wireless Communications Assn. (WCA) urged the FCC to reconsider service rules for advanced wireless services (AWS), saying Multipoint Distribution Service (MDS) licensees aren’t adequately protected from interference. WCA raised concern that for the first time, the order suggests that AWS operations, such as 3G, can be deployed at 2110-2155 MHz before relocation of neighboring MDS stations is complete.