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The Federal Communications Commission is widely expected to settle its dispute with NextWave Telecom Inc. over wireless licenses, but an agreement likely will take months as the agency hammers out several legal and political obstacles to a deal. “There will be a settlement, but it is going to get really hairy,” said Harvey Liu, a wireless analyst with CIBC World Markets. “NextWave will have to dance with the FCC in the end.” The U.S. Circuit Court of Appeals for the District of Columbia ruled last week that the FCC erred in canceling the wireless licenses held by NextWave, a Hawthorne, N.Y., telecom that filed for Chapter 11 bankruptcy protection in 1998. The FCC auctioned the licenses in January to AT&T Wireless Group, Cingular Communications Inc. and Verizon Wireless, and the surprise decision puts the agency in the position of having sold the same licenses to different groups. Last week’s decision clears the way for the company to emerge from bankruptcy and get on with building its network, the company said. NextWave officials have said they plan to use the licenses to set up a wholesale wireless network. That means they would lease use of their network to big wireless carriers, rather than try to sell service to consumers themselves. “NextWave has been ready, willing and able for several years now to pay its debts to the FCC and other creditors in full, deploy state of the art wireless facilities and offer the public new competitive services,” NextWave chairman Allen Salmasi said in a statement Friday. The FCC is considering appealing Friday’s ruling. Assuming it stands, however, NextWave would have to pay a total of only $4.7 billion for the licenses. In January, those same licenses fetched almost $15.9 billion. Some analysts have said AT&T, Cingular and Verizon would be better off letting NextWave have the licenses. That would put an end to criticism they paid too much for the licenses. And with NextWave planning to roll out wholesale wireless services, they might end up getting access to the licenses anyway, said George Reed-Dellinger, an analyst with research firm Washington Analysis. But others see plenty of problems with that idea. NextWave will have only about $100 million in capital after it pays debts and emerges from bankruptcy. That is not nearly enough to build a third-generation or 3G mobile telecom network, analysts say. And even if NextWave could raise the capital to build a network, it would have to recoup its costs by charging higher wholesale prices. The savings to AT&T, Cingular and Verizon from leasing rather than buying would be minimal, said Eugene Signorini, a wireless analyst with The Yankee Group in Boston. For the money, wireless companies would prefer to own the licenses themselves. These same factors are likely to lead the FCC to settle with NextWave, observers say. The agency has a mandate to ensure that wireless spectrum is put to use, and it will not stand by while NextWave’s licenses lie fallow. Most likely, the FCC will pay Nextwave and its investors and transfer the licenses to January’s winning bidders, according to observers. That seemingly simple solution is fraught with complications, however. First, the FCC does not actually have the money from the auction. The winning bidders were only required to pay 20 percent up front, and those funds went to the U.S. Treasury, not the FCC. Under the law, proceeds are to go into government revenues, and the FCC is barred from using cash for a settlement without an act of Congress. Another possible solution is giving NextWave some sort of bidding credit for future wireless auctions. That would be within the FCC’s power, and NextWave might be able to turn a credit into cash by selling it to a third party. The problem with that plan is no one knows for sure when the next auction will be held or what parts of the electromagnetic spectrum will be up for sale. With so few options, the FCC may be forced to appeal last week’s decision to the Supreme Court, said Brett Tarnutzer, a wireless analyst at Wallman Strategic Consulting. An appeal might delay a resolution, he added, but a clear victory for the FCC — in which the top court overturned the appellate court decision and affirmed the agency’s right to cancel the licenses — might be necessary to end this case.

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