Wireless Spectrum Auctions

As part of proposed spectrum swap with public safety users, Nextel asked FCC to put rule changes in place in next 6 months, including assigning 10 MHz of mobile satellite spectrum to carrier. In White Paper submitted to FCC last week and made public Tues., Nextel cited critical spectrum needs that public safety community faced following Sept. 11 terrorist attacks. Public safety community, in turn, offered support, contingent on funds’ being provided to cover all implementation costs that such licensees would face. Nextel has pledged to provide up to $500 million for equipment retuning and other transition expenses. “The Nextel proposal is a major step in the right direction,” said Nov. 21 letter to FCC Chmn. Powell from Assn. of Public-Safety Communications Officials-International (APCO), International Assn. of Fire Chiefs, International Assn. of Chiefs of Police, others. Proposal would realign frequencies at 700, 800 and 900 MHz and 2.1 GHz and more than double public safety’s current allocation of 9.5 MHz of noncontiguous spectrum at 800 MHz (CD Nov 23 p1).

Justice Dept., ending what FCC Chmn. Powell called “a long and tortuous event,” signed settlement agreement Tues. on NextWave’s disputed PCS licenses. Final govt. signatures were affixed to settlement after Justice ratified agreement, which was unveiled earlier this month (CD Nov. 19 p3). Under settlement, which still faces ratification by Congress, U.S. govt. will receive $10 billion and NextWave will receive $5.85 billion after taxes. Company relinquishes its claim to licenses, which then can go to winners of FCC’s re-auction last Jan., including Verizon Wireless, Alaska Native Wireless, which has financial backing of AT&T Wireless, and Salmon PCS, which has financing from Cingular Wireless. In statement late Tues., Powell said that “regrettably,” U.S. Appeals Court, D.C., last summer had reversed FCC decision to cancel NextWave’s licenses for nonpayment, clearing the way for company to repay $4.7 billion owed to govt. for licenses. “This settlement offered a better alternative,” Powell said. “It reclaims the licenses and puts them in the hands of companies that can put them to use quickly for consumers.” Rather than nearly $5 billion that U.S. would have collected under D.C. Circuit ruling, “the American people will receive $10 billion,” he said. Noting that settlement required implementing legislation, Powell said he hoped Congress “turns to the matter promptly in order to put this matter behind us and to ensure a resolution that maximizes the public interest.” He said it would have been “preferable” to have carried results of reauction to completion and have kept nearly $16 billion in bids intact: “That option was extinguished by the court and I believe this settlement is the best outcome under the circumstances.” Justice Dept. said settlement also must be approved by U.S. Bankruptcy Court, White Plains, N.Y., which has been overseeing NextWave’s reorganization plan. DoJ said: “The settlement agreement ends years of litigation concerning the right to use wireless spectrum covered by the licenses previously issued to NextWave and it also avoids the prospect of years of additional litigation during which the wireless spectrum covered by the licenses could not be put to public use.” Agreement itself can’t be implemented until implementing legislation is in place and bankruptcy court provides approval, DoJ said. “In the meantime, the government’s petition for a writ of certiorari is pending before the Supreme Court,” it said.

Eldorado Communications, which had vied with NextWave for PCS licenses in 1996 C-block auction, said this week it opposed settlement on licenses reached by NextWave, major wireless carriers and U.S. govt. Eldorado contended that NextWave bid up prices, shrinking amount of spectrum that smaller carriers could afford. Earlier this month, Eldorado had filed emergency petition at FCC asking that agency halt “secret negotiations” with NextWave and carriers, saying they violated Administrative Procedure Act, FCC’s own rules, due process protections. “In opposing this settlement, we will pursue our rights before the FCC, in the Congress and in the courts,” Eldorado CEO Will Yandell said. On Fri., when FCC and carriers unveiled final settlement agreement, Eldorado filed Freedom of Information Act request at FCC asking for access to certain documents related to settlement discussions. Eldorado is seeking information on meetings, personal exchanges, letters and e-mails between carriers involved in settlement and FCC staff on NextWave licenses. Eldorado said it had returned licenses it won at auction to FCC, as did other companies, “at substantial cost.” NextWave instead had chosen to “renegotiate” purchase by declaring bankruptcy, Eldorado said.

At occasionally emotionally charged meeting of Public Safety National Coordination Committee (NCC) in Brooklyn Fri., public safety officials, including several who themselves had responded to attacks on World Trade Center and Pentagon, laid out for policymakers critical spectrum needs in wake of Sept. 11. At top of many lists was clearing analog TV incumbents from 700 MHz to make way for public safety users to operate in 24 MHz that FCC has set aside from them in that band. In first days following N.Y. attack, TV stations went off air after their equipment on top of World Trade Center was destroyed, said Peter Meade, chief of Nassau County, N.Y., Fire Dept. “I didn’t hear anybody saying, ‘I need Channel 2 back,'” Meade said. “But there are literally millions of people in the New York metropolitan area who cannot live and who will not live without an augmentation to the existing public safety communications channels. So television be damned.” Other key issues that surfaced repeatedly in day-long meeting included need for better interoperability between jurisdictions, for redundant wireless data network that could function during disasters and for more govt. funding. Several new proposals were put on table as well, including one by Nextel that was receiving kudos from public safety community and would relocate users in 700 MHz and 800 MHz bands for more efficient operations.

NextWave negotiations finally ended with announcement Fri. by FCC Chmn. Powell that settlement had been reached for company to surrender all its C- and F-block licenses. He said NextWave’s licenses would go to wireless carriers that won them in re-auction and “the American taxpayer will receive $10 billion, more than twice the amount than would have been received had NextWave kept the licenses in accordance with recent court rulings.”

Spectrum, direly needed for rescue operations following Sept. 11 terrorist attacks, was unavailable due to misallocation of bands intended for public safety, wireless analysts said at New America Foundation forum Thurs. on “The Great Airwaves Robbery.” Only about 20% of wireless calls attempted on Sept. 11 in N.Y.C. and 40% in Washington were completed, CTIA Pres. Tom Wheeler said. “The nature of wireless communication transformed on Sept. 11,” he said, citing 400% increase in cellphone usage in N.Y. after attacks. “We built a system based on spectrum levels that expected wireless to only be an ancillary service,” and not broad alternative form of communication it has become, he said.

Telecom equipment vendors at UBS Warburg Global Telecom Conference in N.Y. Wed. stressed extent to which they were reacting to reduced spending by service providers and altered buying patterns in face of sagging demand. “The best-laid plans will be slowed,” Tellabs CEO Richard Notebaert said. “Physical deployments or expenditures will not perhaps go as quickly as people thought 6 months ago.” Like several other top executives at 3-day conference, Notebaert, former Ameritech chmn.-CEO, said carriers still would invest in networks because broadband demand remained. But while network investments will continue, “I think it will go a little slower than some startups led people to believe,” he said. Several wireless equipment manufacturers were bullish on prospects that mobile data finally would take off, with emphasis on target marketing to niche user segments and technology that pushed content to consumers. Ericsson Investor Relations Vp Gary Pinkham said company expected international market for mobile systems to be flat to down 10% in 2002, although he added: “We think we are in a position to grow faster than the market overall.”

AT&T Chmn. Michael Armstrong said Tues. that while expected Sec. 271 entry of Bell companies into long distance in virtually every state next year would have state-by-state impact on AT&T’s long distance revenue, he saw signs of hope that states were beginning to pay attention to economically viable resale rates for local exchange service. “If PUCs and the FCC begin to pay attention to the economic viability of the local exchange, this pattern [of no competition] is going to change,” Armstrong told UBS Warburg Global Telecom Conference in N.Y. While executives of Verizon, SBC and AT&T all reiterated their stances on what they said needed to change in regulation of local loop access and state price caps on LECs, questions on regulatory impact on company revenue took on immediacy as IXCs and Bell companies prepared for more widespread RBOC long distance entry next year. Verizon Co-CEO Ivan Seidenberg spoke out against govt. competitive access policies that he said created “irrational” competition by flooding market with competitors who weren’t facilities-based. “The government would be smart to get out of the way, to stop controlling our prices,” Seidenberg said. “Having 2 or 3 rational competitors in a market is good. I like that,” he said. “Now we have 2 or 3 rational players and 7 or 8 irrational players.”

Verizon Wireless said Fri. it plans to hold its long- awaited IPO in mid-2002, according to SEC filing. It also disclosed that last March it had received letter of inquiry on behalf of 22 state Attorneys Gens. seeking information on advertising and marketing of several products and services and information on billing practices. Carrier said it had provided documents and other requested information. “We cannot predict whether this inquiry will continue and, if it does, what impact, if any, it may have on our business practices or results of operations,” company said. Reuters reported Fri. that Sprint PCS had received similar inquiry and was providing information. Amended registration statement, which is first time that Verizon Wireless has updated its prospectus for IPO since it was filed in Aug. 2000, describes risks typical in such filings. Filing came as Verizon and other carriers were in homestretch of negotiations with govt. and NextWave over latter’s PCS licenses. Verizon Wireless had won thsy spectrum in Jan. re- auction before U.S. Appeals Court, D.C., overturned results in summer. “If we are not awarded all of the spectrum licenses we won in the auction, we will need additional spectrum in some of our most densely populated markets to meet anticipated demand within the next 3 years,” filing said. “The acquisition of the 1900 MHz spectrum, while it would help us to meet our shorter term spectrum needs, would still leave a longer term capacity risk.” Earlier plans for Verizon’s IPO had entailed its raising nearly $5 billion.

Sen. Wyden (D-Ore.) called on the FCC Fri. to undertake comprehensive spectrum reform toward more market-based policies, echoing theme at day-long American Enterprise Institute (AEI)-Brookings conference that focused on how to make U.S. spectrum policy more flexible. “The FCC has taken some baby steps in the direction of spectrum markets,” Wyden said, noting that if reform proceeded on “band-by-band basis, we'll be at this for a long time.” NTIA Dir. Nancy Victory said she would hold summit early next year to solicit “out- of-the-box ideas” on spectrum management policy. Among issues conference focused on were continued need for existing auction process, how to expand secondary markets for spectrum, how FCC could encourage innovation and new wireless technology and how to define spectrum rights without limiting technology that could be used. Victory also provided assurances that “the rumors of 3G’s death are greatly exaggerated,” although she acknowledged attacks of Sept. 11 had impact on process: “Nonetheless, work is proceeding.”