US govt agency offers help to wireless auction bidders

The US Federal Communications Commission (FCC) has released a proposal that would free wireless carriers in the US of their...

The US Federal Communications Commission (FCC) has released a proposal that would free wireless carriers in the US of their obligation to pay $16bn (£10.3bn) if they bid in a spectrum auction that has been tied up in court for more than a year.

The proposal would allow carriers, including Verizon Wireless and the US arm of T-Mobile to opt out of bids placed in January 2001 when the FCC re-auctioned spectrum licences originally bought by NextWave Telecom, which later filed for bankruptcy protection.

The status of the bids fell into limbo when the FCC's re-auction was nullified in June 2001, and the FCC was ordered to return the licences to NextWave. A settlement calling for the bankrupt wireless operator to transfer the licences to the winning bidders in the re-auction fell apart last year. Since then, all parties have been waiting for the US Supreme Court to rule on the matter.

The court is scheduled 8 October to hear a key issue in the case regarding the effectiveness of the FCC's automatic cancellation rules with respect to NextWave's licences.

About half of the obligations in question belong to Verizon Wireless, Verizon Communications' joint venture with Vodafone Group, which bid $8.7bn (£5.6bn) for the orphaned spectrum. A Supreme Court ruling against the carriers could have a huge impact because they are liable to pay their bids within 10 days of the ruling, said David Hoover, an analyst with US investor research firm Precursor Group.

In the case of Verizon, the company has credit lines of $8bn set aside to cover the liability while the case was going through the courts. This credit is not being used for anything else, including network buildout, equipment upgrades and possible acquisitions, and the government realises that absolving the companies could help the wireless industry.

"Post-WorldCom, the sector is not doing particularly well and [the US government] is trying to come up with some ways to kick-start the sector," Hoover said.

The FCC proposal released yesterday would allow a comment period lasting through until 11 October on letting the companies free themselves from obligations to pay the money to the government. The FCC, which already gave back billions of dollars in down payments to the bidders, has so far refused to free the carriers from their obligation to pay the remainder of their bids if the government were to regain the NextWave spectrum.

The wireless companies haven not lost interest in the spectrum, a source close to the situation said, but they believed they could acquire the spectrum more cheaply in the future. The market value of the spectrum is roughly half of the $16bn bid last year.

If the FCC allows the wireless companies to abandon their bids, the move could boost for the US wireless industry, which has been battered by plunging stock prices, brutal pricing wars and continued investor scepticism about growth prospects.

Tom Wheeler, president and chief executive officer of the Cellular Telecommunications & Internet Association, said relieving the industry's $16bn obligation would provide much-needed relief.

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