NextWave Re-auction: Fair Game or a Blow to Competition? - Government Activity

Telecommunications, March, 2000 by Sean Buckley

WASHINGTON, D.C.--This summer, the FCC is scheduled to auction PCS licenses in the C and F Band in 103 markets across the country. Or are they? The licenses, won by NextWave Telecom in a 1996 auction, have lain fallow since 1998, when NextWave declared bankruptcy. The FCC tried to reclaim the licenses in January, even after NextWave offered a good-faith payment of $4.3 billion to pay off its looming debt.

The US Bankruptcy Court, however, quickly blocked the re-auction, calling the FCC's move "self-help repossession by ambush." The U.S. Second Circuit Court of Appeals has since overturned the Bankruptcy Court decision.

By freeing up the licenses, which the FCC values at $1.02 billion, into the public domain, the commission argues that newcomers will have fair access to the spectrum. Many see this argument as questionable, especially since national players such as Leap Wireless, SBC Communications, and Nextel have shown interest in the licenses.

"The FCC's decision hurts competition," said Dave Berendt, director of the Yankee Group's Wireless and Mobile Communications Group. "Unless the FCC sets up preferences for small businesses, there is no way that any new player will be able to afford to pay for ownership of any segment of the licenses. Even if new players try to get into the bidding, they will have to get funding from the big guys, whereas with NextWave you already have a new player."

Industry associations, however, support the ruling. Both the Personal Communications Industry Association (PCIA) and the Cellular Telecommunications Industry Association (CTIA) see the decision as a way to ensure that new players get a fair chance to compete in the market. With the decision to keep the eligibility rules for the spectrum the same, meaning the auction is only open to small and new companies, they feel the commission is promoting the spirit of fair competition in a market that has been largely dominated by companies that continue to grow larger via blockbuster acquisitions.

Jay Kitchen, president of the PCIA, said, "There simply is no public policy reason to change license eligibility standards that were created so that new companies could establish a foothold in the PCS market. These standards have been major catalyst in providing consumers true choice of service options."

"Reclaiming NextWave's licenses is pro-competition and pro-consumer. Chairman Kennard has it right when he said that this spectrum has laid fallow for too long," said Tim Wheeler, president and CEO of the CTIA.

The frequencies in question cover 103 PCS markets, including major cities throughout the United States.