Statement of
Stephen M. Roberts
Eldorado Communications, LLC
Before
US House of Representatives
Committee on the Judiciary
Subcommittee on Commercial and
Administrative Law
Subcommittee on Courts, the Internet, and
Intellectual Property
December 6, 2001
Mr. Chairman and Members of the
Subcommittee:
My name is Stephen Roberts and I am Managing
Director of Eldorado Communications, LLC. I appreciate the opportunity to
appear in front of the committee today. We are a small business that
participated in the FCC’s Auction 5 of C block PCS licenses in 1996.
We strongly oppose the current form of the
“settlement” that has been entered into by the FCC, NextWave Communications,
Verizon Wireless, ATT Wireless and other large wireless companies.
The C block auction, Auction 5, held in 1996, was intended to benefit
small businesses, minorities, and businesses owned by women. NextWave bid a
total of $4.72 billion for its 63 licenses. We bid $5.8 million for our 3
licenses. All winning bidders put 10% down. As a result of NextWave’s
aggressive bidding, which drove license prices up, virtually no financing was
available for any C block winner for build out of the licenses. The FCC
recognized this and gave licensees three choices: (i) forfeit their down
payments and return the licenses; (ii) forfeit half the down payment and return
half the licenses; or (iii) keep the licenses and pay the full amount.
Eldorado, like most of the small companies - some 75-80 licensees - elected to
return the licenses.
NextWave owed a total of FCC $4.72 billion.
But rather than following the FCC’s rules, Nextwave just didn’t pay. When the
FCC sought to enforce payment or recapture the licenses, NextWave declared
bankruptcy. After five years of legal wrangling, in Auction 35, the FCC re-auctioned
the NextWave licenses to Verizon Wireless, Cingular, ATT Wireless and other
carriers, who bid a total of nearly $16 billion for the licenses. Subsequent to
the auction, a bankruptcy court ruled that the licenses in question were assets
of the bankrupt. The FCC and the Justice Department petitioned the US Supreme
Court for a Writ of Certiorari, which the Court has not yet ruled on. Despite
the pendency of the petition, the FCC began negotiations with NextWave and the
Auction 35 winners, excluding the Auction 5 winners and the public from the
process. Despite Eldorado’s request that secret negotiations be halted and the
process opened up to the public, the FCC, NextWave, and the Auction 35 winners
have reached a “settlement” among themselves and without any public
participation.
They have agreed that the FCC will “buy
back” from NextWave these defaulted licenses for $9.55 billion. ($3 billion
will be reserved for taxes). In other words, NextWave will receive $9.55
Billion for licenses it never paid for, never built out, and never operated.
Even after taxes, that leaves NextWave with a net $6.5 billion, about 14 times
the auction deposit that NextWave paid, which is its only investment in these
licenses.
So, the outcome of the settlement is: (i) a
$9.55 billion windfall for NextWave, the very party who violated the FCC’s
rules; (ii) the licenses are being transferred mostly to companies who were not
eligible to buy them in the original auction; and (iii) the small companies,
who were forced to turn in their licenses have lost their licenses, their
bidding deposits and they have lost the business opportunities Congress
intended them to have.
A detailed list of reasons the Nextwave
settlement is not in the public interest is attached as Exhibit A.
Prior to settling with NextWave, the FCC itself said: “It would be
unfair to permit a licensee that could not satisfy its bid to file for
bankruptcy, tying up the spectrum in the process, and then emerge from
bankruptcy at some later time and retain the licenses, while others that
complied with our rules lost their licenses.” The FCC has now compounded this
unfairness by excluding the companies harmed by NextWave from the settlement,
by turning its back on the Congress’ goal of bringing small businesses and
minority and women-owned companies into the telecommunications industry, and by
making no effort to restore the opportunities that were lost when these
companies turned in their licenses.
To our knowledge, no bidders from the
original C block auction who returned their licenses were involved in this
settlement, nor did the FCC seek public comment on the issues presented by the
negotiations. The FCC still has maintained a secret process. In order to shed
some light on the process, Eldorado filed a Petition for Emergency Relief on
November 7, 2001 (see Exhibit B), asking the FCC to:
(a) halt
all private meetings and negotiations of the Commission and its staff with
representatives of NextWave and others;
(b) provide
for immediate access of Eldorado, all persons similarly situated, and the
public to complete information in the possession of the Commission regarding
negotiations reportedly now in progress;
(c) provide
public notice and initiate an open proceeding for the consideration of any
disposition of the NextWave licenses and consideration of the circumstances
surrounding the frustration of Congressional and Commission public policy
objectives in reserving the C Block licenses for small business and other
designated entities; and
(d) bring
all Commission activities regarding the NextWave licenses into conformity with
the requirements of the Administrative Procedures Act, the Commission’s own
rules and regulations, the U.S. Constitution, and other applicable law and
regulations.
The dominant characteristic of the NextWave
settlement is the parties’ desire for extraordinary speed in approving the
settlement, while shielding it from public scrutiny and preventing review by an
independent body.
Despite five years of delay, NextWave and
the others now have decided that Congress must approve the settlement by
December 31, 2001, at a time when Congress is dealing with critical national
security, financial stimulus, and government budgetary issues. Proposed
legislation is being presented to Congress on a take-it-or-leave-it basis.
Furthermore, NextWave’s preferred approach is to have no review by the
telecommunications and judiciary committees of the House or Senate. Rather,
they want a fast-track appropriations process, perhaps bringing their bill
directly to the floor in the form of an appropriations rider.
If your committee does not carefully review
this settlement, it is unlikely that the FCC or the courts would or could do
so. The FCC, as a key participant in the settlement, is not a disinterested
arbiter capable of determining the public interest.
And what of the Courts? Under the NextWave
legislation, the “settlement” is effectively protected from judicial challenge.
· Interested
parties will not have an opportunity to oppose the settlement agreement in any
forum unless the FCC solicits comments concerning the agreement.
· Even if the FCC solicits comments, once it
approves the settlement its decision will be non-reviewable, except on
constitutional grounds. No court will have the authority to invalidate an FCC
order approving the settlement even though that order is arbitrary, capricious,
or even contrary to law.
· After an unusually short time, it will be
impossible to file even constitutional challenges to the legislation and the
settlement. On the 11th day after the effective date of the legislation, no
court will have the authority to invalidate the legislation, even if it is
unconstitutional. On the 11th day after the FCC issues an order
approving the settlement, no court will have the authority to reverse the
order, even if the FCC has acted unconstitutionally.
· And opponents of the settlement will be
discouraged from seeking their day in court. The legislation warns that persons
who file actions that are not commenced within the 10-day periods described
above or that are found to lack “substantial justification” are subject to
significant sanctions.
We urge this Subcommittee to look closely at this settlement, from both
a legal and a fairness standpoint. If any legislation is passed, it should
restore the opportunities that were lost when Eldorado and similar companies
turned in their licenses. This can be done by requiring the FCC to (i) return
the forfeited down payments of winning Auction 5 small businesses; (ii),
reimburse their actual and opportunity costs of participation in Auction 5 from
the proceeds of any settlement; and (iii) compensate them for their lost
opportunities by providing them with substantial bidding credits for use in
future spectrum auctions.
As you consider your positions on this settlement and the legislation, I
ask that you measure your positions against three basic American principles:
(i) fairness -- the fairness evident in Congress’s original purpose with
respect to these wireless licenses-to give small business, women and minorities
the opportunity to participate in the business of the communications
revolution, and
(ii) fairness - the fairness of the FCC to not penalize parties like
Eldorado who played by the FCC’s own rules while while those who broke the
FCC’s rules are rewarded; and
(iii) fairness - the fairness guaranteed by equal access of all citizens
to the administrative processes of our Government, and to the Courts of our
Land when those processes fail them.
It is an honor to appear before this Subcommittee, and I thank you for
the invitation.
EXHIBIT
A
The NextWave Settlement Is Not In The Public Interest
I. Overview
· The Federal Communications Commission, Verizon
Wireless, and others have agreed to a “settlement” of matters related to
certain wireless communications licenses won by NextWave Communications in the
FCC’s Auction 5, held in 1996. The auction was intended to benefit small
businesses, minorities, and businesses owned by women.
· NextWave bid up the value of the licenses,
eventually winning 63 licenses for a total value of $4.72 billion and like all
other bidders, made a downpayment of 10%, or $472 million. As a result of the
high prices bid by Nextwave, no additional financing was available for C block
owners to construct the licenses. The FCC recognized this and proposed a
program whereby bidders could (i) forfeit their down payment and return the
licenses purchased; (ii) forfeit half the down payment and return half their
licenses ; or (iii) keep the licenses and pay the full amount bid in the
auction. The majority of successful bidders - estimated at between 75 and 80
bidders - elected to return the licenses. NextWave, however, failed to pay the
FCC for its licenses and then declared bankruptcy..
· The FCC rejected NextWave’s efforts to keep its
licenses by using the bankruptcy ploy and re-auctioned the NextWave licenses.
Verizon Wireless, Cingular, ATT Wireless and other carriers won the licenses at
the January 2001 re-auction (Auction 35) by bidding a total of nearly $16
billion. NextWave, however, prevailed upon one federal court of appeals to
protect the NextWave licenses as “assets” of the bankrupt, rather than as
assets of the public, and the court ordered the FCC to return the licenses to
NextWave. Another Federal Circuit Court disagreed, and the FCC appropriately
sought US Supreme Court review - in a petition for certiorari that is still
pending, and that, for some reason, the FCC has now determined to abandon.
· NextWave, the FCC, other federal agencies, and the
carriers who won the re-auctioned licenses have now agreed to a “settlement”
that will entitle NextWave to $9.55 billion from the federal treasury, with the
IRS moving $3.052 of that sum from one pocket to another as an “advance tax
payment” from NextWave, which will leave NextWave with $6.5 billion. Under this
“settlement”, the big carriers will pay the government $10 Billion, instead of
$16 billion the same parties bid for the same licenses during their re-auction
(Auction 35). And the carriers will get the licenses - at a $6 Billion
discount. No provision has been made for the small businesses or minority and
women-owned enterprises who participated in the NextWave tainted auction,
followed the FCC’s rules, and lost money and business opportunities as a direct
result of NextWave’s gaming of the auction process.
· Prior to settling with NextWave, the FCC itself
said:
“Some of the licensees that complied with our
orders actually forfeited their licenses because they could not ultimately meet
their bid obligations. It would be unfair to permit a licensee that could not
satisfy its bid to file for bankruptcy, tying up the spectrum in the process,
and then emerge from bankruptcy at some later time and retain the licenses,
while others that complied with our rules lost their licenses. “
FCC Order of Reconsideration 15 FCC Rcd 17500 at
17514 (September 2000).
· The FCC has now compounded this unfairness by
excluding the companies harmed by NextWave from the settlement, by turning its
back on the goal of bringing small businesses and minority and women-owned
companies into the telecommunications industry, and by making no effort to
restore the opportunities that were lost when these companies turned in their
licenses.
II. The proposed settlement is unfair to the
small businesses and minority and women-owned companies who were supposed to
benefit from the auction that nextwave tainted.
· These companies lost hundreds of millions of
dollars when they forfeited their bidding deposits and incurred the significant
costs of participating in Auction 5, including the costs of engineering,
financing, and consultants.
· In January 2001, however, the biggest players in
the wireless business bid almost $16 billion for NextWave’s $4.72 billion worth
of licenses. This suggests that Auction 5 licenses today are worth more than
three times what they were worth five years ago. The companies that followed
the FCC rules turned in their licenses and lost the value of the licenses they
could have retained -- had they, like Nextwave, only violated the FCC’s rules.
· These companies also have lost the business
opportunities inherent in mobile telephony, the fastest growing part of the
telecommunications market. It is obvious that the carriers who are taking over
the NextWave licenses anticipate substantial operating profits and that
NextWave has been well compensated for tying up those licenses. The companies
that complied with FCC rules and turned in their licenses, however, gave up the
business opportunities that the carriers will now enjoy. They will not be
compensated for those lost opportunities at any level, let alone the windfall
level that NextWave will achieve.
· The loss of licenses, the costs of auction
participation, and the opportunity costs suffered by the Auction 5 winners who
were forced to return their licenses amount to billions of dollars. One only
has to look at the more than $9.55 billion that the government will pay to
Nextwave in this settlement in order to understand the magnitude.
III. The
settlement takes $6.5 billion from the U.S. Treasury and gives it to a company
that has never provided a minute’s worth of telephone service and puts
additional licenses into the hands of carriers who already dominate the
wireless business.
· NextWave has not constructed facilities and has not
provided mobile telephone service to the public. In short, NextWave has met
none of the requirements that the FCC imposed upon all Auction 5 winners,
indeed upon all auction winners. Without NextWave’s construction and operation
of their enormous Auction 5 holdings, small business Auction 5 winners
confronted a reduced demand for service from potential customers, the drying up
of their financing, and the inability to dispose of their licenses profitably.
As a result of their participation in Auction 5 gone awry, they will enjoy no
benefit from the “settlement, no opportunity to benefit as Congress intended.
Not so NextWave.
· Not so the carriers.The big carriers who will now
end up with the NextWave licenses. They are the dominant players in the mobile
telephone business and the antithesis of kinds of companies that were intended
to benefit from Auction 5. The top three wireless carriers in the U.S. have
over 58 percent of the total number of wireless subscribers in the country.
These carriers are the big winners in the scramble for NextWave licenses. Verizon
Wireless, the biggest winner, already has more than 26 million subscribers and
has a service “footprint” covering more than 90 percent of the U.S. population,
49 of the top 50 and 97 of the top 100 U.S. markets. Verizon Wireless’ parent,
Verizon Communications Inc., is the largest phone company in the U. S..
Cingular Wireless, another big winner in the NextWave scramble, has 20.5
million subscribers, while AT&T Wireless has 17 million subscribers.
IV The dominant characteristic of the NextWave
settlement is the parties’ desire for extraordinary speed in approving the
settlement, while shielding it from public scrutiny and preventing review by an
independent body. What’s the rush, what are they afraid of?
· Despite five years of delay and administrative and
judicial wrangling, the FCC and the settling parties now have decided that time
is so much of the essence that the “settlement” must be approved by Congress by
December 31, 2001, even though Congress is in the midst of critical national
security, financial stimulus, and government budgetary issues.
· The reason given for such unprecedented haste is
the need to provide mobile telephone service to the public. But, when
constructed, these mobile systems will be the third or fourth to offer service
in their respective markets and will be added to the already bulging bag of
radio systems operated by Verizon Wireless, Cingular, and ATT Wireless.
· The settlement was negotiated in secret in
violation of the letter and the spirit of the Government in the Sunshine Act,
the Administrative Procedures Act, and the Communications Act, as well as
Congress’s intention to provide for participation of small business, minorities
and women in the wireless build-out. It is unclear at this time whether the FCC
ever will provide an adequate forum for public comment on the settlement terms.
In any event, FCC approval of the settlement is a foregone conclusion, because
the FCC was a key participant in the settlement and is now hardly a
disinterested arbiter capable of determining the public interest.
· Nor will the Courts be able to provide meaningful
independent review or relief. NextWave and the others propose to clip the
judiciary’s wings. There must be no court review of the legality of the
settlement. In addition to codifying NextWave’s lightning fast raid on the
Treasury, the legislation that accompanies the settlement would prevent such
review. Only the Circuit Court of Appeal for the District of Columbia Circuit
could review FCC action on the settlement, but that Court would have no power
to issue a stay, and its review would be limited only to constitutional issues.
Throughout even the limited review provided, both the Court of Appeals and the
US Supreme Court would be required to clear their dockets to deal with this
case above all others, and do so on an expedited basis. Anyone who would even
dare to seek court review without “substantial justification” is threatened
with sanctions.
· NextWave’s and the carriers’ approach to Congress
stresses the need for speed and the desire to avoid review. The proposed
legislation is presented to Congress on a take-it-or-leave-it basis and there
would be no review by the telecommunications and judiciary committees of the
House or Senate. NextWave’s and the carriers want a fast-track appropriations
process perhaps bringing their bill directly to the floor in the form of an
appropriations “rider.”
The
entire course of this “settlement” leaves a bitter taste in one’s mouth - a
taste of unfairness == an unfairness born of public business done in private;
of denial of Congressional purpose, and denial of lawful and Constitutional
process.
Before the
FEDERAL COMMUNICATIONS
COMMISSION
Washington, D.C. 20554
In the Matter of
Disposition Of Certain C
Block Wireless )
Communications Licenses Held By NextWave )
Personal Communications, Inc. Or Its Affiliates )
Eldorado Communications,
LLC (“Eldorado”), by its attorneys, hereby files the following Petition for
Emergency Relief (the “Petition”). Eldorado participated in FCC Auction No. 5,
where it secured certain C Block wireless communications licenses. Eldorado had
to return those licenses to the Commission, at substantial cost, as the result
of the disruptive bidding strategies and post-award defaults of Nextwave
Personal Communications, Inc. and its affiliates (“Nextwave”).
If, as reported in the
press, the Commission continues to participate in the settlement of the
on-going dispute with NextWave and the companies who were the high bidders for
the recaptured NextWave licenses at Auction 35, the injury to Eldorado and
others will be compounded. In order to avoid irreparable harm to Eldorado and
similarly situated companies, the Commission must establish a fair and open
public process for the disposition of the NextWave licenses and cease to
foreclose access to and participation in that process by Eldorado and other
interested parties.
Summary
As discussed more fully
below, Eldorado petitions the Commission to:
(e) halt all private meetings and negotiations of the Commission and
its staff with representatives of NextWave and others;
(f) provide for immediate access of Eldorado, all persons similarly
situated, and the public to complete information in the possession of the
Commission regarding negotiations reportedly now in progress;
(g) provide public notice and initiate an open proceeding for the
consideration of any disposition of the NextWave licenses and consideration of
the circumstances surrounding the frustration of Congressional and Commission
public policy objectives in reserving the C Block licenses for small business
and other designated entities; and
(h) bring all Commission activities regarding the NextWave licenses
into conformity with the requirements of the Administrative Procedures Act, the
Commission’s own rules and regulations, the U.S. Constitution, and other
applicable law and regulations.
Discussion
Generally reliable trade press recently have
reported that the Commission and its staff, representatives of NextWave,
Verizon Communications, and others are presently engaged in private
negotiations whose objectives appear to be the disposition of licenses to use
certain C Block wireless communications frequencies originally and
conditionally awarded to NextWave as the result of Auction No. 5. These
licenses were reserved for Commission-defined entrepreneurs, small businesses,
and other designated entities, in order to implement the Congressional policy
to “ …[avoid] excessive concentration of licenses and [disseminate] licenses
among a wide variety of applicants, including small businesses, rural telephone
companies, and businesses owned by minorities and women….” 47 USC 309(j)(3)(B).
Petitioner, relying on the integrity of the
Commission’s auction process and the fair administration of the auction rules,
won certain C Block licenses by participation in Auction No. 5 and paid the
required deposits on them. When, in substantial part as the result of
NextWave’s high-bidding strategies and the consequent wave of investor
reluctance to fund construction, the financial viability of licensed PCS
operations was jeopardized, the Commission offered C Block licensees three
options: return their licenses and avoid further obligations; pay half the
successful bid for lesser capacity than auctioned; or pay in full. Petitioner
was forced by market circumstances to return its licenses.
NextWave won a large number of licenses by bidding
what, in light of the then-prevailing market, were extraordinarily high sums.
Later, NextWave said it was unable to meet its obligations timely to pay the
fees for its licenses and sought relief from the Commission on the rescheduling
of those fees. Thereafter, and notwithstanding such rescheduling NextWave
failed to make timely payments and, pursuant to the terms of the auction and
the conditional grant, the licenses were cancelled. The Commission placed the
licenses on the auction block a second time and they were re-auctioned in
Auction No. 35.
Meanwhile, NextWave sought and achieved protection
under Chapter 11 of the U.S. Bankruptcy Code, including protection of its
claimed assets, the cancelled licenses. A bankruptcy judge ruled the NextWave
licenses could not be cancelled because they were protected under Chapter 11.
The United States Circuit Court of Appeals for the District of Columbia
Circuit, acting on a NextWave appeal from the Commission’s cancellation of the
licenses, held the licenses protected by the bankruptcy laws and ordered the
Commission to return the NextWave licenses to active status, even though
NextWave still had not made the required payments. The Commission has
petitioned the United States Supreme Court for a Writ of Certiorari, seeking
the reversal of the DC Circuit’s decision and order.
Now, according to press reports, the Commission is
preparing to compound further the damage to Eldorado, others similarly
situated, and the public by negotiating, behind closed doors, a “settlement”
with a few “affected parties” and a chosen few prospective buyers, which would
result in:
· An unfair gain of billions of dollars by NextWave,
which subverted the auction process by running up the bidding without an
ability to make good on its exaggerated winning bids.
· A loss of billions of dollars to the U.S. Treasury,
owing to the difference in the present market value of the subject licenses and
the sums actually to be paid to the government for them.
· A material loss of confidence in the fairness and
integrity of the FCC’s auction procedures and its administration of conditional
license grants in the public interest.
· The loss to Eldorado and others of moneys already
paid as deposits for C Block licenses, and the loss of future income
opportunity, of companies such as Eldorado, who played by the rules and
suffered severe financial loss as a result.
Accordingly, due process requires that the
Commission call an immediate halt to its participation in the so-called
settlement being pursued by NextWave and the large carriers that were high
bidders for the recaptured NextWave licenses and open a public notice and
comment or comparable proceeding regarding this matter.
Emergency
Relief Requested
Petitioner urgently
requests that the Commission:
1. halt all private meetings and negotiations of the Commission and
its staff with representatives of NextWave and others interested in the
disposition of the NextWave licenses (including without limitation, entities
commonly referred to as Verizon Wireless, VoiceStream Wireless, and Alaska
Native Wireless);
2. provide for immediate access of Eldorado, all persons similarly
situated, and the public to complete information in the possession of the
Commission regarding negotiations reportedly now in progress between and among
Commission personnel, NextWave, Verizon Communications and its affiliates, and
any other persons with whom any of them have met to discuss the disposition of
the NextWave licenses;
3. open a public proceeding for the consideration and public comment
upon any disposition of the NextWave licenses; and the terms and conditions
under which such disposition may be made, to include consideration of the
circumstances surrounding the frustration of Congressional and Commission
public policy objectives in reserving the C Block licenses for small business
and other designated entities; and
4. otherwise, to bring all Commission activities regarding the
NextWave licenses into conformity with requirements of the Administrative
Procedures Act, the Commission’s own rules and regulations, the U.S.
Constitution, and other applicable law and regulations.
Conclusion
Eldorado urges the
Commission to grant the emergency relief requested above and thereafter act
upon a schedule that permits full public comment and careful deliberation of
all issues related to the NextWave licenses.
Respectfully
submitted,
/s/Henry Goldberg
Henry
Goldberg
Thomas
G. Gherardi, P.C
Goldberg,
Godles, Wiener & Wright
1229 19th Street, NW
Washington, DC 20036
(202) 429-4900
November 7, 2001