FCC may cancel $16 billion wireless auction

Copyright 2002 The Chronicle Publishing Co.
The San Francisco Chronicle...09/12/2002
From LexisNexis

Yochi Dreazen
From The September 12, 2002 Edition Of CED Broadband Direct

In a move with large implications for the battered wireless industry, federal regulators will likely free major carriers of their obligation to pay the $16 billion they bid during a government auction of spectrum licenses, according to people familiar with the matter.

The Federal Communications Commission could release an order seeking public comment on different options for resolving the issue as early as today, these people said.

One of the proposals would allow the carriers to opt out of the auction, thus erasing their remaining debt to the government.

The move would follow months of intense pressure from carriers anxious to be freed of the full amount they bid during a controversial auction of spectrum licenses reclaimed from bankrupt NextWave Telecom Inc.

The results of that auction were thrown into disarray last year when a federal appeals court ordered the FCC to return the licenses to NextWave. The FCC appealed that decision, and the case will be heard by the Supreme Court next month.

The expected FCC move could boost the sagging fortunes of the nation's wireless industry, which has been plagued by accounting scandals, plunging stock prices and brutal price wars.

FCC spokeswoman Robin Pence declined to comment. Privately, though, officials at the agency said that the decision was driven by high-level concern about the battered condition of the wireless industry.

The FCC's move would have the most impact on Verizon Wireless, which successfully bid roughly $8 billion for numerous NextWave licenses. Taking the company off the hook for that debt could ignite some sort of deal with Sprint Corp., whose wireless division, Sprint PCS, uses the same technology as Verizon Wireless.

In May, Moody's Investors Service put Verizon and Verizon Wireless on review for a possible downgrade, citing, among other factors, the uncertainty surrounding the money bid for the NextWave spectrum licenses.

Some analysts estimate that the market value of those licenses, if rebid, would be roughly half of what they were at the original auction.