March 23, 2000
The Honorable Bart Gordon
U.S. House of Representatives
2368 Rayburn House Office Building
Washington, D.C. 20515
Dear Congressman Gordon:
At your request, I am responding to full page ads NextWave Telecom has placed in the The Hill and Roll Call complaining that the Federal Communications Commission ("FCC") has cancelled its licenses for failure to make required installment payments. NextWave's various ads ask why the FCC would refuse a $4.3 billion payment from NextWave. There is a simple answer: to ensure the integrity of our licensing rules. As a regulatory agency, we have a responsibility to the American people to enforce our rules fairly and efficiently to ensure that one of our most valuable public assets - the airwaves - is used to serve the American consumer.
NextWave has filed a petition for reconsideration with the Commission, a petition for review in the D.C. Circuit, and is litigating the automatic license cancellation in the Second Circuit. Since these matters are in litigation or pending before the Commission, it would not be appropriate for me to comment on the merits. However, I can explain the reasoning behind the FCC's decision in early January to reject NextWave's last-minute offer to pay what it owes U.S. taxpayers.
By way of background, NextWave was awarded licenses to use publicly owned radio spectrum. In return, NextWave promised to pay the American people a total of $4.3 billion for those licenses in installments over a 10-year period. NextWave's licenses were conditioned on timely payment in full of all installment payments. The licenses stated explicitly that if an installment payment was missed, the licenses would "cancel automatically."
NextWave went into bankruptcy in 1998, never having made a single installment payment, and NextWave did not make any of the regular installment payments that came due while it was in bankruptcy. Moreover, NextWave failed to take steps to build out its network, and it has never provided any service to any customer. NextWave asked the bankruptcy court to cut more than $3.7 billion from its debt to the United States, but that attempt failed. The Court of Appeals for the Second Circuit ruled last December that NextWave could not modify its license obligations in bankruptcy, including the amount owed under the licenses. In addressing the status of NextWave's licenses, the Second Circuit stated that "[b]ecause of the ongoing litigation, the FCC has not yet sought to take any action vis-à-vis the Licenses" but that "it would be probably fair to assume that the FCC will seek to revoke the Licenses." In re NextWave Personal Communications, Inc, 200 F.3d 43, 59 n.15 (2d Cir. 1999).
It was only after the Second Circuit's decision that NextWave offered to cure its missed installment payments and pay off the outstanding balance. In fact, NextWave's offer came after another company had sought to acquire NextWave and its licenses for $8.3 billion, dwarfing the $4.3 billion in outstanding debt. In any event, the FCC rejected NextWave's offer on the ground that the licenses automatically cancelled pursuant to the express terms of the licenses and pursuant to the express provisions of the Commission's rules.
The FCC's position that NextWave's "C-block" licenses cancel automatically upon missing a payment deadline has been applied to all "C-block" PCS licensees that have missed payments. Indeed, on the same day that NextWave's payments were due (October 29, 1998), another C-block licensee also missed its payment deadline, and its licenses also automatically cancelled as a result.
NextWave's ads do not mention any of these facts. They fail to mention the lateness of NextWave's offer, the Second Circuit's decision, the express conditions on NextWave's licenses, and the FCC's consistent application of the same principles to other C-block licensees. Finally, and most importantly, NextWave's ads fail to mention that the legal issues surrounding the status of NextWave's licenses are pending before various courts, which will decide the status of NextWave's licenses under the applicable law. For your convenience, I am attaching a copy of our brief to the Second Circuit.
The long delays in the FCC's ability to reclaim the valuable licenses held by NextWave only serve to underscore the importance of enacting legislation similar to the kind adopted by the Senate last year. That legislation would have ensured that a declaration of bankruptcy can not inoculate a licensee from its payment obligations. Ensuring that debtors remain bound by the regulations governing their on-going operations is one of the most firmly established principles in bankruptcy. Such legislation would give to the FCC the same protection that now exists for many other federal agencies engaged in lending, including Department of Housing and Urban Development (HUD) and Department of Health and Human Services (HHS).
The FCC auctions thousands of valuable spectrum licenses for communications services each year. Auction winners must play by the rules and honor conditions placed on our licenses; otherwise, bidders will have no confidence in the FCC's auction authority, and the American consumer will be denied the benefits of the new services resulting from our successful auction policies. That is at the heart of the FCC's litigation position in this case.
I appreciate being given the opportunity to explain the Commission's views on this matter. Please do not hesitate to call upon me if I can be helpful in the future.
William E. Kennard