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Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, DC 20554
In the Matter of )
)
Clarification of the Commission's Rules and )
Policies Pertaining to the Designated Entity )
Holding Period and Related Rules and Policies in )
Cases of Licensee Default and Bankruptcy )
To: The Commission
PETITION FOR EXPEDITED DECLARATORY RULING
Nextel Communications, Inc. ("Nextel"), by its attorneys, hereby
requests, pursuant to Section 1.2 of the Commission's Rules, 47 C.F.R. Section
1.2, that the Commission issue an expedited declaratory ruling to clarify: (1)
its policies pertaining to waiver of the designated entity holding period1 in
cases of C-Block and F-Block Personal Communications Service ("PCS") licensee
insolvency, financial distress and bankruptcy; (2) its policies concerning the
timing of compensation paid to creditors and equity holders in
bankruptcy-related hostile tender offers; and (3) the effect of a prior
licensee's status and conduct on designated entity licenses once a hostile
tender offer has been consummated. Issuance of such a declaratory ruling is in
the public interest because it will materially assist parties in their efforts
to resolve the bankruptcies plaguing the C-Block and F-Block industries(2) and
finally put the spectrum to use, consistent with
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1 47 C.F.R. sec.24.839(a).
2 See Pocket Communications, Inc. and DCR PCS, Inc., Case Nos. 97-5-4105-ESD and
97-5-4106-ESD (Bankr. D. Md.) (filed March 31, 1997); GWI PCS1, Inc. et al., No.
3:97-39676-SAF-11 (Bankr. N.D. Tex.) (filed Oct. 10, 1997); NextWave Personal
Communications, Inc., Case No. 98-B-21529 (Bankr. S.D. N.Y.) (filed June 8,
1998); Magnacom Wireless, L.L.C., Case No. 98-39048 (Bankr. W.D. Wash.) (filed
Oct. 28, 1998); Urban Communicators PCS Limited Partnership, Case No. 98-47996
(Bankr. S.D. N.Y.) (filed Nov. 5, 1998); Kansas Personal
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Congress' intention, codified in the Omnibus Budget Reconciliation Act of 1993,
that the public be compensated for spectrum auctioned and that there be
expeditious provision of competitive services.(3)
Prompt action is necessary in this case because the Commission's determination
will affect an anticipated hostile tender offer in which time is of the essence.
As described in more detail in Exhibit A to this Petition, Nextel has made a
proposal for resolution of the pending bankruptcy of NextWave Telecom Inc. and
its affiliates (collectively "NextWave") through a tender offer and intends to
submit the appropriate applications to the Commission in the near future.
Nextel's proposed resolution will, among other things, result in the Commission
and other third-party creditors receiving prompt payment in full of all of the
claims.(4) In addition, by aiding resolution of the NextWave bankruptcy and
other designated entity bankruptcies, issuance of a declaratory ruling will
advance the congressional intent to promote the rapid deployment of new wireless
services while ensuring that the public receives the value of wireless
spectrum.(5) Thus, prompt action is critical.
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Communications Services, Ltd., Case No. 99-21747 (filed July 19, 1999); Airadigm
Communications, Inc. d/b/a Wireless Communication PCS d/b/a Einstein PCS, Case
No. 99-33500 (Bankr. W.D. Wis.) (filed July 28, 1999); Personal Communications
Network, Inc., Case No. 99-20207 (filed Aug. 6, 1999).
(3) Pub. L. No. 103-66, Title VI, sec. 6002, 107 Stat. 312, 318 (1983) ("the
1993 Budget Act") (codified at 47 U.S.C. sec. 309(j)).
(4) See Letter from Paul Harner, Esq. to Deborah Schrier-Rape, Esq., David
Friedman, Esq. and Christopher Wright, Esq. (Dec. 21, 1999) (attached as Exhibit
A). Under the Nextel term sheet, Nextel will pay the outstanding principal owed
by NextWave, discounted for net present value to account for the full payment in
cash made by Nextel; accrued and unpaid interest; and other applicable unjust
enrichment under Section 1.2111(d) (bidding credit). However, Section 1.2111(b)
of the unjust enrichment rule does not apply in the circumstances of the Nextel
proposal.
(5) In the 1993 Budget Act, Congress changed the regulatory framework for the
Commercial Mobile Radio Service. The statutory plan that Congress adopted
plainly indicates its intention to
continued...
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Nextel asks the Commission to confirm three aspects of its policies
relating to designated entities in bankruptcy when an offeror initiates an
unsolicited, or "hostile," tender offer pursuant to the Commission's Tender
Offer Policy Statement to resolve the bankruptcy.(6) First, confirmation is
requested that, when a C-Block or F-Block licensee is in bankruptcy, the
Commission will grant waivers of the designated entity qualification
requirements to allow licenses to be transferred to a non-designated entity that
otherwise is qualified to hold the licenses under the Commission's rules if the
non-designated entity pays the Commission the full debt amount owed by the
designated entity (including interest) plus any applicable unjust enrichment
payments.(7) Second, confirmation also is requested that creditors and equity
holders may receive compensation upon the transfer of licenses from a designated
entity to a trustee acting pursuant to the Tender Offer Policy Statement but
prior to the approval of the transfer of the licenses from the trustee to a
permanent licensee, just as in the case of an hostile tender offer for a
corporation not in bankruptcy. Finally, Nextel asks the Commission to confirm
that, when a non-designated entity seeks to acquire designated entity licenses
out of bankruptcy through a hostile tender offer, the Commission will not
exercise its power to revoke those licenses pursuant
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promote an economically vibrant and competitive nationwide market for commercial
mobile radio services. In addition to providing more spectrum and authority to
assign the spectrum rapidly through auctions, Congress also expressed its
preference for rapid deployment of wireless technologies. See Interconnection
Local Exchange Carriers and Commercial Mobile Radio Service Providers, Notice of
Proposed Rulemaking, 11 FCC Rcd 5020, 5064 (1996); see also 47 U.S.C. sec.
309(j)(3)(A) (directing that the Commission shall seek to promote the
"development and rapid deployment of new technologies, products, and services
for the benefit of the public, including those residing in rural areas, without
administrative or judicial delays").
(6) Tender Offers and Proxy Contests, 59 Rad. Reg. 2d (P & F) 1536 (1986) (the
"Tender Offer Policy Statement").
(7) See supra footnote 4.
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to any conditions on the initial license arising in connection with the
designated entity's eligibility or other qualifications.
I. ISSUANCE OF AN EXPEDITED DECLARATORY RULING IS IN THE PUBLIC INTEREST.
As described above, Nextel intends to commence tender offers to purchase
the equity and debt of NextWave and thereby acquire control of the PCS licenses
held by NextWave. The tender offers have not been solicited by NextWave, which
of course has resisted Nextel's proposals to resolve the NextWave bankruptcy
cases, and as such would be conducted pursuant to the Tender Offer Policy
Statement. This Petition has been filed to clarify Commission policies and
permit the tender offers to proceed promptly in accordance with established
Commission procedure. Nextel therefore asks the Commission to clarify the
applicability of its policies in light of the purposes of the tender offer
process.
Nextel does not, however, ask the Commission to issue a declaratory
ruling particular to Nextel. Rather, Nextel seeks a general declaratory ruling
that would apply to Nextel or any other entity that may similarly seek to
acquire NextWave by way of a competing tender offer or other transaction.
Indeed, the requested declaratory ruling would apply to all eight of the current
C-Block and F-Block bankruptcies. Nextel therefore requests expeditious
Commission action on this Petition so that Nextel and others who might seek to
acquire control of the PCS licenses held by the NextWave debtor or the other
C-Block and F-Block entities that are in bankruptcy will have a common
understanding of the Commission's intended approach to these issues.
As explained below, issuance of the requested declaratory ruling is in
the public interest because it will resolve genuine uncertainties regarding the
regulatory treatment of designated
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entity licenses subject to bankruptcy proceedings.(8) Declaratory rulings also
lie when the facts are essentially undisputed and the governing law is plain.(9)
Nextel is not asking the Commission to rule on a specific request to waive its
designated entity rules here. Rather, Nextel asks the Commission to confirm and
clarify its policies in cases of C-Block and F-Block designated entity licensee
default and bankruptcy. Expedited treatment is necessary because these issues
arise in the context of an unsolicited, or "hostile" tender offer, when time is
of the essence.
II. COMMISSION POLICY CONTEMPLATES WAIVER OF THE DESIGNATED ENTITY RULES
IN CIRCUMSTANCES OF C-BLOCK AND F-BLOCK FINANCIAL DISTRESS.
Congress granted the Commission authority to auction wireless spectrum
as part of the 1993 Budget Act.(10) Congress directed the Commission to adopt
auction rules that would provide for the rapid deployment of new services, for
payment to the public for the value of the spectrum and for dissemination of the
licenses to a wide variety of applicants, including small businesses.(11) The
Commission sought to facilitate widespread license dissemination by auctioning
certain PCS spectrum to small or "designated entity" businesses that could
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(8) See Administrative Procedure Act, 5 U.S.C. sec. 554(e) ("The agency, with
like effect as in the case of other orders, and in its sound discretion, may
issue a declaratory order to terminate a controversy or remove uncertainty.");
see also British Caledonian Airways, Ltd. v. CAB, 584 F.2d 982, 993-94 (D.C.
Cir. 1978).
(9) See, e.g., Access Charge Reform; Price Cap Performance Review for Local
Exchange Carriers; Interexchange Carrier Purchases of Switched Access Services
Offered by Competitive Local Exchange Carriers; Petition of U S West
Communications, Inc. for Forbearance from Regulation as a Dominant Carrier in
the Phoenix, Arizona MSA, Fifth Report and Order and Further Notice of Proposed
Rulemaking, FCC 99-206, CC Docket No. 96-262, CC Docket No. 94-1, CCB/CPD File
No. 98-63, CC Docket No. 98-157, at P. 187 (rel. Aug. 27, 1999) (citing American
Network, Inc. Petition for Declaratory Ruling Concerning Backbilling of Access
Charges, Memorandum Opinion and Order, 4 FCC Rcd 550, 551 (1989), recon. denied,
4 FCC Rcd 8798 (1989) ("The presence or absence of factual disputes is a
significant factor in deciding whether a declaratory ruling is an appropriate
method for resolving a controversy.").
(10) Pub. L. No. 103-66, 107 Stat. 312 (1993).
(11) 47 U.S.C. sec. 309(j)(3).
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demonstrate that their gross revenues and total assets were below set
levels.(12) These auctions provided small business designated entities with
bidding credits and below-market, government-sponsored financing.(13) In return
for these benefits, the Commission limited the ability of designated entity
licensees to transfer their licenses to non-designated entities for a period of
five years.(14) Notwithstanding this limitation, however, the Commission
established "unjust enrichment" provisions that state how designated entity
benefits will be repaid when designated entity licenses are transferred to a
non-designated entity within the five-year holding period.(15) Thus, by their
very structure, the Commission's rules contemplate waiver of the designated
entity five-year holding period if the unjust enrichment payments are made.
The Commission recognized that small businesses with limited financial
resources would need substantial outside financing to build and operate PCS
networks and compete in the capital-intensive wireless industry. Indeed,
following the C-Block and F-Block auctions, the principal assets, and perhaps
the only valuable assets, of many designated entities were their licenses.
Furthermore, the Commission has a first-priority security interest in those
assets and substantial regulatory power over them, including the power to cancel
the licenses for non-payment.(16)
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(12) 47 C.F.R. sec. 24.709.
(13) 47 C.F.R. sections. 24.711 and 24.712.
(14) 47 C.F.R. sec. 24.839(a).
(15) See 47 C.F.R. sec. 1.2111.
(16) The Commission has asserted in the C-Block bankruptcy cases that PCS
licenses subject to installment payments are conditioned on the "full and timely
payment of all monies due" and that if the licensee defaults on its installment
payments, the licenses automatically cancel. See, e.g., NextWave Personal
Communications, Inc. et al., FCC's Supplemental Memorandum of Law Regarding
Remedy, 98-B-21529 (ASH), Chapter 11 Adv. Pro. 98-5178A (Bankr. S.D. N.Y.)
(filed May 24, 1999) at 4-5. A licensee that has been in bankruptcy for any
length of time and, consequently, has been unable to make the required payments
absent the leave of the bankruptcy court thus will necessarily be in breach of
the condition.
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These factors, taken together with the risks of the mobile services industry and
the Government's first priority claim, caused lenders to seek, and the
Commission to give, assurances concerning lender rights in cases of licensee
financial distress or bankruptcy.
Significantly, in response to concerns voiced by financial institutions
about the potentially untenable situation lenders could face if an auction
winner later encountered severe financial difficulties, the Commission offered
guidance on how it would treat auction winners that defaulted on their
obligations to lenders and other commercial creditors. A chief concern of
lenders was whether a default effectively would deny them any recovery because
the potential purchasers of the licenses in a bankruptcy or foreclosure
proceeding would be limited to other designated entities during the five-year
holding period.(17) In response to this concern, the Commission ruled that
transfers of C-Block and F-Block licenses would be permitted to non-designated
entities during the restricted five-year holding period in situations of
licensee financial distress. Specifically, consistent with its rules, the
Commission stated:
While the FCC's rules generally prohibit transfers of
entrepreneurs' block licenses during the first three years of the
license term and allow transfers during the fourth and fifth
years of the license term only to persons or entities that meet
the eligibility criteria set forth in Section 24.709 of the
Commission's rules, licensees may request a waiver of such rules
in cases of bankruptcy, foreclosure or financial distress. Upon a
showing, supported by an affidavit, that the licensee is in
bankruptcy, foreclosure or financial distress (as defined above),
it is likely that the Commission will grant a waiver of the
transfer restrictions. . . .
Under the above described circumstances, if a license is
transferred to an entity that would not qualify for installment
payments or bidding credits or that would qualify for less
favorable installment
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(17) 47 C.F.R. sec. 24.839(a); Implementation of Section 309(j) of the
Communications Act Competitive Bidding, Fifth Report and Order, 9 FCC Rcd. 5532
5588-89 (1994).
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payments or bidding credits, the unjust enrichment
provisions . . . of the Commission's rules would apply.(18)
This policy was reaffirmed nearly two years later in connection with the FCC's
review of its general auction rules:
While certain FCC rules contain restrictions on the transfer of
licenses acquired through the use of designated entity provisions
for the statutory purposes of assuring license dissemination
among a wide variety of applicants including designated entities,
licensees may request a waiver of such rules. For example, upon a
showing, supported by an affidavit, that the licensee is in
financial distress, the Commission will consider granting a
waiver of the transfer restrictions provided that such
transaction is otherwise in the public interest. Under these
circumstances, if a license is transferred to an entity that
would not qualify for designated entity provisions, or that would
qualify for less favorable designated entity provisions, the
unjust enrichment provisions set forth in Section 1.2111 of the
Commission's rules or service-specific rules would apply.(19)
Consistent with these findings, the Commission did not, by either rule or
policy, otherwise limit the range of approaches available under applicable law
to resolve a C- Block or F-Block licensee bankruptcy, so long as those
alternatives acknowledge the Commission's right to approve transfers of control
and assignments of license. To the contrary, the Commission stated that "[o]ur
rules and policies are designed to promote private market solutions to capital
problems (i.e., licensees and lenders working together toward a satisfactory
resolution). . . ."(20) The Commission thus left to the market place (e.g.,
tender offers) and federal bankruptcy law
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(18) Wireless Telecommunications Bureau Staff Responds to Questions About the
Broadband PCS C Block Auction, Public Notice, 78 Rad. Reg. 2d (P & F) 727 (1995)
("1995 Q&A").
(19) Amendment of Part 1 of the Commission's Rules - Competitive Bidding
Proceeding, Order, Memorandum Opinion and Order and Notice of Proposed Rule
Making, 12 FCC Rcd 5686, 5695-96 (1997).
(20) Id. at 5694.
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(e.g., in accordance with an approved plan of reorganization) the issue of how
and when the equity and creditor constituencies of a C-Block or F-Block licensee
will be paid.
III. CONFIRMATION OF THE COMMISSION'S POLICIES WILL PROMOTE THE PUBLIC
INTEREST.
In the interest of presenting an alternative to protracted litigation of
pending C-Block and F-Block bankruptcies in general and to the NextWave
bankruptcy in particular, Nextel hereby asks the Commission to clarify its
policies relating to designated entity financial distress. Nextel requests
rulings in two specific areas: waivers of the designated entity ownership rules
and treatment of creditors and equity holders in bankruptcy-related tender
offers conducted under the Tender Offer Policy Statement.
A. THE COMMISSION SHOULD REAFFIRM THAT IT WILL WAIVE THE DESIGNATED
ENTITY OWNERSHIP RULES IN CONNECTION WITH RESOLUTIONS OF
BANKRUPTCY PROCEEDINGS.
First, Nextel respectfully asks the Commission to issue a declaratory
ruling confirming and clarifying that, in cases of bankruptcy, the Commission
routinely will waive its designated entity eligibility requirements and allow
licenses to be transferred to a non-designated entity that is otherwise
qualified to hold the licenses under the Commission's rules if the
non-designated entity agrees to pay in full the designated entity's unpaid claim
and associated interest payments, and any appropriate unjust enrichment payments
upon grant of the long-form transfer.(21) While Nextel believes that the
Commission has plainly stated its intention to waive the designated entity
five-year holding period rule in cases of designated entity financial distress,
the Commission's commitment to this policy remains untested because to date no
such waiver has
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(21) Any transfer of control application would of course be subject to the
Commission's long-form application procedures, public notice and comment, and
would permit petitions to deny on the issues of the whether the applicant is
qualified and whether the transfer is in the public interest.
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ever been requested or granted. Prompt reaffirmation of the Commission's intent
to waive these rules is particularly important because it will reduce any
potential uncertainty regarding Nextel's or any other party's tender offer for
NextWave debt and equity.
Absent this clarification, non-designated entities will be hindered in
their ability to propose alternative solutions to on-going and future bankruptcy
proceedings involving C-Block and F-Block entities and thus put long-fallow
spectrum to use because of the uncertainty about the Commission's policy towards
waiver of the designated entity five-year holding period rule. The Commission
should, therefore, promptly reaffirm its intention to grant waivers of this rule
in cases of C-Block or F-Block bankruptcy when full payment of the designated
entities' unpaid claims and associated interest payments, and any applicable
unjust enrichment payment, is offered to the Commission.
B. THE COMMISSION SHOULD CONFIRM THAT PAYMENTS TO CREDITORS UNDER A
TENDER OFFER CONDUCTED UNDER THE TENDER POLICY STATEMENT MAY BE
MADE PRIOR TO GRANT OF A LONG-FORM APPLICATION.
Another significant factor impeding the resolution of some pending
C-Block and F-Block bankruptcy proceedings is the perception that,
notwithstanding the Commission's policy of deferring to federal bankruptcy law
and the results of marketplace negotiations and notwithstanding thirteen years
that the Tender Offer Policy Statement has been in effect, the Commission has
never ruled on the timing of payment to interested parties in a bankruptcy
involving a C- Block or F-Block licensee in the context of a tender offer
covered by the Tender Offer Policy Statement.(22) Thus, the Commission should
clarify that no such bar to payment prior to grant of the long-form application
exists.
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(22) For the purposes of this Petition, Nextel uses the term "interested
parties" to mean secured creditors, unsecured creditors and equity holders.
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This clarification is important because the timing and certainty of
payment is the chief issue for the parties in a bankruptcy proceeding. Because
of the complexity of negotiations in a bankruptcy proceeding, parties that have
agreed to an initial plan of reorganization may hesitate to depart from it, even
when the plan becomes highly unlikely to be effectuated, if otherwise promising
alternatives are perceived as involving delay or legal uncertainty. In addition,
interested parties generally expect to be paid when the bankruptcy court process
is complete. Meeting these expectations is particularly problematic in any
context that would require that their anticipated payments be contingent upon
the processing and grant of a long-form license transfer application.
Consequently, the prospect of resolving certain of the major C-Block and F-Block
bankruptcies would be materially enhanced if the Commission would confirm that,
from a regulatory standpoint, there is no restriction under Commission rules
that would preclude the interested parties in a bankruptcy proceeding involving
a licensee from receiving payment immediately upon the grant of a short-form
application pursuant to a tender offer covered by the Tender Offer Policy
Statement but prior to the Commission's approval of the proposed assignee or
transferee of the licenses.
Immediate payment to interested parties would not infringe upon the
Commission's statutory prerogative to approve the transferee of the licenses.
Indeed, it is the only result consistent with the Tender Offer Policy Statement,
which provides for payment to shareholders at the completion of the first step
of the tender offer process, when shares are transferred to a trustee.(23) The
trustee then holds the licenses pending the Commission's action on the long-form
application. If the Commission should deny the application and disapprove the
proposed license
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(23) Tender Offer Policy Statement, 59 Rad. Reg. 2d (P & F) at 1562-63.
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holder, the trustee would be required to pursue an alternative disposition of
the stock for submission to the Commission. Therefore, the Commission should
confirm that the payment to creditors and other interested parties in a tender
offer for a bankrupt licensee may occur when the trust acquires the shares.
Finally, because Congress has required the Commission to use auctions in
the future to award virtually all new spectrum,(24) the Commission must promote
policies designed to uphold and preserve the auction process. If the Commission
wants to protect its auction process, it is in the public interest to confirm
that interested parties in bankruptcy proceedings involving Commission auction
participants have the same rights available as interested parties in tender
offers that do not involve bankrupt licensees.
IV. CERTAINTY REGARDING THE LICENSES IS ESSENTIAL FOR ALTERNATIVE
BANKRUPTCY PROPOSALS TO SUCCEED.
Few, if any, of the bankrupt C-Block and F-Block entities have
substantial assets beyond their PCS licenses. Nextel therefore asks the
Commission to confirm that, notwithstanding the payment conditions on the
licenses or any questions regarding the designated entity or other
qualifications of the transferor, the Commission will not exercise its power to
revoke licenses when a non-designated entity seeks to acquire designated entity
licenses from bankruptcy through a tender offer under the Commission's Tender
Offer Policy Statement. The Commission's long-standing policies on tender offers
support explicit acknowledgement of this policy, which already is implicit in
the Commission's prior decisions.
As described above, Nextel proposes to make tender offers under the
Tender Offer Policy Statement for debt and equity of NextWave, a licensee
currently in Chapter 11 bankruptcy.
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(24) 47 U.S.C. sec. 309(j)(1).
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Under the Commission's tender offer procedures, Nextel plans to acquire the
NextWave debt and equity, place the NextWave stock in an independent trust and
pay the creditors and equity holders prior to the Commission's action on
Nextel's "long-form" application for consent to the transfer of the stock from
the trustee. The question of how the Commission would deal with any prior or
existing transgressions of NextWave that come before it after the trustee or
Nextel assume control is thus a major concern for Nextel.
There currently is no proceeding pending before the Commission
adjudicating NextWave's basic qualifications to hold its licenses, other than
those matters raised in the pending petition for reconsideration of the initial
grant of the NextWave licenses; a settlement agreement is pending before the
Commission that would resolve the reconsideration proceeding in NextWave's
favor.(25) Furthermore, neither the Commission nor any court thus far has made
any finding against NextWave that questions its basic qualifications to hold a
license.
In broadcast licensing, the Commission has followed a general policy of
declining to approve proposed assignments of licenses or transfers of control
when the qualifications of the assignor or the transferor are at issue before
the Commission.(26) That policy, however, is not required by the Communications
Act.(27) Even when licensee misconduct is actively being
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(25) See Application of Nextwave Personal Communications, Inc., Settlement
Request Pursuant to DA-745 (filed April 29, 1999).
(26) Jefferson Radio Co. v. FCC, 340 F.2d 781 (D.C. Cir. 1964).
(27) While Section 310(d) of the Communications Act applies to all transfers of
licenses for radio facilities in all services, the provision does not mandate
that the Commission treat all radio transfers in the same manner. The section,
by its terms, simply provides that the Commission review the proposed transfer
to determine whether it will serve the public interest and to evaluate the
transferee under the standards set forth in Section 308 of the Act, which
mandates review of applicants' qualifications. Sections 310(d) and 308 do not
contain a specific requirement for Commission review of the qualifications of
the licensee or transferor.
continued...
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considered by the Commission in pending proceedings, the policy has been subject
to many exceptions. The Commission has recognized exceptions when other public
policy goals outweigh the benefits of pursuing a transferor's prior conduct in
passing upon a transfer application, specifically including bankruptcy.(28)
Tender offers conducted under the Tender Offer Policy Statement for the
equity and debt of a licensee in bankruptcy present a compelling instance for
the Commission to recognize formally that it will not pursue instances of
licensee conduct once control of the licensee has shifted to the independent
trustee or to the offeror or alternative transferee. Under the procedures the
Commission adopted in the Tender Offer Policy Statement,(29) it would normally
not consider license condition compliance or the qualifications of the target
licensee and its shareholders in any event until after the shares have been
purchased and placed in the trust. At that point, however, the former
shareholders would not be affected by subsequent Commission determinations
because they already would have received the promised consideration for their
shares. In fact, the Commission specifically found that invocation of its
authority to require
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"The policy of permitting petitions against sellers was created by the
Commission, which can modify or even abolish that policy, provided it explains
why it now believes that the public interest would be better served by doing
so." S. Sewell, Hostile Tender Offers for Companies Holding Licenses Issued by
the Federal Communications Commission, 49 FED. COM. L.J. 167, 191 (1996).
(28) See, e.g., Application of Cathryn Murphy, Decision, 42 F.C.C.2d 346 (1973)
(transferor seriously ill); Application of Second Thursday Corp., Memorandum
Opinion and Order, 25 F.C.C.2d 112 (1970) (bankrupt licensee effects sale for
benefit of creditors while assuring alleged wrongdoers will derive no benefit);
Application of Stereo Broadcasters, Inc., Memorandum Opinion and Order, 74
F.C.C.2d 543 (1979), aff'd, Stereo Broadcasters v. FCC, 652 F.2d 1026 (D.C. Cir.
1981) (distress sale policy); Teleprompter Cable Systems, Inc., Memorandum
Opinion and Order 40 F.C.C.2d 1027 (1973) (licensee moves swiftly to purge
itself of wrongdoers); Mutual Radio of Chicago, Inc., 55 Rad. Reg. 2d (P & F)
1577 (1984), Martin Trigona v. FCC, D.C. Cir. No. 84-1229 (assignor's alleged
misconduct is non-broadcast related and licensee's broadcast record is
exemplary).
(29) Tender Offer Policy Statement, 59 Rad. Reg. 2d (P & F)1552-84.
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rescission of a tender following consummation would contravene policies
underlying federal law.(30) Rather, the Commission provided that, if the
transfer to the offeror should be denied, the trustee would be permitted to seek
third-party purchasers for the tendered shares.(31) This remedy is the only
available alternative under the Tender Offer Policy Statement, regardless of the
reason a long-form application is denied. Moreover, the Commission has never
asserted authority to examine prior transferor conduct in passing upon
applications for transfer from the trust to the offeror and could reasonably
conclude that the need to avoid frustration of the purposes of the Williams Act
warrants dispensing with this review.
In sum, the requested declaratory order would merely make explicit the
conclusion that Commission policy already compels. By removing uncertainty as to
this point, the Commission would serve the public interest by facilitating the
resolution of complex bankruptcy proceedings, placing fallow spectrum in the
hands of parties willing and able to construct and offer service, avoiding
needless impediments to the application of the Williams Act to corporations
holding Commission licenses and, in the case of offers for licensees with
defaulted installment payment obligations, returning money to the public
treasury that might otherwise be lost.
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(30) Id. at 1565, 1567.
(31) Id. at 1583.
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V. CONCLUSION.
Prompt resolution of bankruptcies involving designated entity PCS
licenses is in the public interest. The public interest is not served when
assets and FCC licenses lie fallow. The Commission should therefore confirm its
earlier pronouncements that, in cases of designated entity licensee bankruptcy,
it will waive the designated entity requirements to allow the licenses at issue
to be transferred to a non-designated entity if debts to the Commission,
including applicable unjust enrichment payments, are made. The Commission also
should provide certainty to creditors and other interested parties in tender
offer proceedings for the debt and equity of designated entities in bankruptcy
that they can receive prompt payment upon the consummation of the tender offer
and the purchase of the shares. The Commission also should provide certainty to
those who propose to acquire the designated entity licenses that the Commission
will not later attempt to revoke those licenses based either on a condition of
the licenses or on the designated entity or other qualifications of the
transferee. As shown above,
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these conclusions are congruent with Commission precedent and policies and will
serve the public interest by putting the spectrum to use. For these reasons,
Nextel respectfully requests that the Commission expeditiously issue a
declaratory ruling consistent with this Petition.
Respectfully submitted,
NEXTEL COMMUNICATIONS, INC.
By:
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Leonard J. Kennedy
John S. Logan
Christina H. Burrow
DOW, LOHNES & ALBERTSON, PLLC
1200 New Hampshire Ave., N.W.
Suite 800
Washington, D.C. 20036
(202) 776-2000
By:
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Timothy B. Dyk
JONES, DAY, REAVIS & POGUE
51 Louisiana Avenue, N.W.
Washington, D.C. 20001-2113
(202) 879-3939
Paul E. Harner
JONES, DAY, REAVIS & POGUE 1900
Huntington Center 41 South High
Street Columbus, Ohio 43215
Its Attorneys
December 21, 1999
-17-
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Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, DC 20554
In the Matter of )
)
Clarification of the Commission's Rules and )
Policies Pertaining to the Designated Entity )
Holding Period and Related Rules and Policies in )
Cases of Licensee Default and Bankruptcy )
To: The Commission
PETITION FOR EXPEDITED DECLARATORY RULING
NEXTEL COMMUNICATIONS, INC.
Leonard J. Kennedy
John S. Logan
Christina H. Burrow
DOW, LOHNES & ALBERTSON, PLLC
1200 New Hampshire Ave., N.W.
Suite 800
Washington, D.C. 20036
(202) 776-2000
Timothy B. Dyk
JONES, DAY, REAVIS & POGUE
51 Louisiana Avenue, N.W.
Washington, D.C. 20001-2113
(202) 879-3939
Paul E. Harner
JONES, DAY, REAVIS & POGUE
1900 Huntington Center
41 South High Street
Columbus, Ohio 43215
Its Attorneys
December 21, 1999
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SUMMARY
This Petition seeks a declaratory ruling concerning three issues that
affect the status of broadband PCS licenses in bankruptcy proceedings. While the
determinations Nextel requests are consonant with existing Commission rules and
policies, there is uncertainty among creditors in bankruptcy regarding these
matters which, we believe, has to date frustrated prompt resolution of
designated entity bankruptcy proceedings even in cases, like that involving the
NextWave debtors, where a proposal has been made that would both fairly
compensate the Commission and other parties in interest and ensure the prompt
build-out and utilization of wireless spectrum. A declaratory ruling will
eliminate this uncertainty. Nextel seeks expedited action on this Petition in
light of its intention to initiate a hostile tender offer for the debt and
equity of NextWave, which is now in bankruptcy proceedings.
First, the Commission should confirm that, as a routine matter, it will
waive the designated entity requirements to allow licenses held by a designated
entity to be transferred to a non-designated entity as the result of bankruptcy
proceedings. The Commission has reached this conclusion on two separate
occasions and should reaffirm its previous determinations.
Second, the Commission should confirm that, just as would be the case
for a corporation not in bankruptcy, there is no bar in the context of tender
offers under the Tender Offer Policy Statement to compensating interested
parties in a bankruptcy proceeding before a long-form transfer of control
application has been approved by the Commission. The ability to obtain the
agreed-to compensation is critical to resolution of bankruptcy proceedings and
does not affect the Commission's ability to review any proposed transfer.
Third, the Commission should determine that, when licenses are being
transferred from a designated entity to a non-designated entity as a result of a
hostile tender offer in a bankruptcy
ii
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proceeding, the Commission will not seek to sanction the new licensee on the
basis of the previous licensee's actions. Such a ruling would be consistent with
policies encouraging prompt use of assigned spectrum and would greatly reduce
the risks associated with bankruptcy proceedings involving hostile tender
offers.
Prompt resolution of this request is particularly important because much
of the C-Block and F-Block spectrum is now subject to bankruptcy proceedings.
The uncertainty faced by creditors and other interested parties will result in
additional delays in achieving fair resolutions of those proceedings, as well as
additional litigation that could further impede the construction and operation
of C-Block and F-Block PCS systems that would finally put the spectrum to use.
Indeed, the large amount of spectrum currently lying fallow directly thwarts
Congress' directive for prompt utilization of this valuable resource. Swift
action on this Petition will eliminate the uncertainty and, consequently, speed
the ultimate resolution of those proceedings, to the benefit of all participants
and the public interest. In particular, prompt Commission issuance of a
declaratory ruling will address concerns that parties interested in the NextWave
bankruptcy may have regarding Nextel's proposed tender offer. Thus, expedited
action is warranted.
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EXHIBIT A
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TABLE OF CONTENTS
PAGE
SUMMARY.................................................................................... ii
I. ISSUANCE OF AN EXPEDITED DECLARATORY RULING IS IN THE PUBLIC INTEREST.............. 4
II. COMMISSION POLICY CONTEMPLATES WAIVER OF THE DESIGNATED ENTITY RULES IN
CIRCUMSTANCES OF C-BLOCK AND F-BLOCK FINANCIAL DISTRESS............................ 5
III. CONFIRMATION OF THE COMMISSION'S POLICIES WILL PROMOTE THE PUBLIC INTEREST......... 9
A. The Commission Should Reaffirm that it Will Waive the Designated Entity
Ownership Rules in Connection with Resolutions of Bankruptcy
Proceedings................................................................ 9
B. The Commission Should Confirm that Payments to Creditors Under a Tender
Offer Conducted Under the Tender Policy Statement May Be Made Prior to
Grant of a Long-Form Application........................................... 10
IV. CERTAINTY REGARDING THE LICENSES IS ESSENTIAL FOR ALTERNATIVE BANKRUPTCY
PROPOSALS TO SUCCEED.............................................................. 12
V. CONCLUSION........................................................................ 16
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