Another Try for a Piece of the Airwaves

By John Dunbar
Associated Press
Thursday, August 24, 2006

The last time a company run by Allen B. Salmasi was a top bidder in a government airwaves auction, it took eight years and the Supreme Court to unravel the mess that followed.

Now he's back.

Salmasi controls AWS Wireless Inc., one of the leading bidders in the current airwaves auction.

The auction is expected to raise up to $15 billion and increase by half the amount of spectrum available to the mobile wireless industry. The expansion is large enough to create new competitors, improve service for existing customers and allow for new features such as streaming video.

In 1996, Salmasi was chairman and chief executive of NextWave Telecom Inc. when the company bid a record $4.74 billion to buy the rights to 95 spectrum licenses. It was a large enough chunk of the public airwaves to provide coverage for nearly 94 million potential cellphone users.

But the company couldn't make its payments, and it filed for bankruptcy protection. The Federal Communications Commission repossessed the licenses and re-auctioned them for about $16 billion. NextWave claimed that its bankruptcy protected the company's hold on the licenses, and eventually, the Supreme Court agreed.

In 2004, NextWave and the FCC reached a settlement, ending the dispute and freeing the extraordinarily valuable spectrum from purgatory. A year later, the company emerged from bankruptcy protection.

The impact of the dispute on consumers was considerable, said J.H. Snider, research director of the Wireless Future Program at the New America Foundation, a nonpartisan public policy institute.

"It took productive spectrum out of use," he said. "It would be like nobody could go to the beach for a decade because the government couldn't make it available to the public."

By keeping the spectrum off the market, it kept prices for existing service high and quality low.

During the dispute, Salmasi and NextWave's backers enlisted the aid of some Washington heavyweights, including Haley Barbour, now governor of Mississippi, whose lobbying firm was paid more than $1 million by Bay Harbour Management LC, one of NextWave's chief backers. NextWave was represented by former solicitor general Theodore B. Olson in its federal appeals case.

At one point, the company nearly succeeded in persuading Congress to pass a law that would settle the matter.

For the FCC, it was an embarrassing episode that spanned three chairmen and cost taxpayers dearly in time spent by government lawyers on the case.

"You could put so many different kinds of price tags on it," said Blair Levin, who was chief of staff for FCC Chairman Reed E. Hundt in the controversy's early days. It wasn't so much the cost to the Treasury, he said, "but the cost to the economy."

Despite the epic dispute, Salmasi never gave up his dream.

This year, through AWS Wireless, he sought permission to bid in the latest spectrum auction. AWS put up a $142.8 million deposit to qualify, ninth-highest among applicants.

In the application, AWS Executive Vice President Frank A. Cassou promised that the company had never defaulted on any "non-tax debt owed to any federal agency." Despite all the ties to the old NextWave and all the familiar names (including Cassou's, who was NextWave's executive vice president and general counsel during the dispute), AWS swore it was not connected to the old company.

AWS is "not affiliated with and has no ties of control with NextWave Personal Communications Inc., NextWave Power Partners Inc. and NextWave Telecom Inc. Those companies were sold to Verizon Wireless in 2005," the company said in its application to bid.

It goes on to explain that Salmasi owns 28.8 percent of AWS Wireless and that his current company, NextWave Wireless LLC, holds a "100 percent indirect ownership interest in AWS Wireless Inc."

Two messages left at NextWave's Connecticut offices were not returned, nor was a call to the company's marketing vice president in San Diego.

In regulatory filings with the FCC and the Securities and Exchange Commission, the company states that it has the financial backing it needs and a forward-looking business plan that takes advantage of the latest wireless technology.

The FCC issued a statement saying AWS was able to bid because it filed its application and submitted its upfront payments "in a timely manner." The agency also says any winning bidder must also submit a longer application in which "ownership interests are further reviewed and its eligibility to hold a particular license is decided."

Since the NextWave debacle, the agency has changed some of its rules. It has ended the practice of allowing bidders to pay for its licenses in installments. In addition, the agency requires that "winning bids be fully paid within weeks of the close of the auction."

"The government can't act both as regulator and creditor," explained Levin, who is now a telecommunications industry analyst for Stifel, Nicolaus & Co.

Meanwhile, the current auction, which was predicted by the Congressional Budget Office to raise $10 billion to $15 billion, can already be deemed a success.

On Monday, through 35 rounds, bids had exceeded $12.5 billion -- including $83 million from AWS Wireless.