Monday, October 18, 2004 - The Progress & Freedom Foundation Blog

The Middlemen Win

The FCC has denied several petitions seeking a rulemaking or a waiver of the designated entity (or DE) rules in an upcoming auction of so-called "C Block" PCS licenses in January. These licenses were returned to the Commission in a settlement following the now-infamous NextWave bankruptcy.

As I explained in a previous posting and argued in reply comments filed at the FCC, the DE set asides create a perverse set of incentives by creating a layer of "middlemen" who obtain valuable spectrum licenses, meet their first construction benchmark, and then (if they don't go bankrupt first) flip the spectrum to larger regional or national carriers for a hefty profit. By keeping this spectrum out of the hands of those firms who value it the most, the rules make little sense where, as here, the market for wireless services is predominantly national in scope. But according to the FCC's Order, these and other arguments for opening a rulemaking are insufficient to force further delay and a reexamination of existing rules. Score it a 10-8 round for the Commission.

In related news, today's Communications Daily analyzes a rumored deal between Verizon Wireless and DE licensee NextWave, whereby VZ Wireless would pay up to $3 billion for 20 MHz of spectrum in New York. That's nearly half of Qwest's market capitalization. And, best that I can figure, between NextWave's initial down payment for its licenses and its settlement payment to the FCC after filing for bankrupty and years of litigation, NextWave paid out $1.6 billion. NextWave already has sold remaining licenses to Cingular, Verizon and Metro PCS in the past year for around $2.4 billion. The Comm Daily report mentions that NextWave shares were trading at $6.15 in over-the-counter trading last Friday, up over one dollar for the week.

Car dealers have nothing on these guys. Last month, an illuminating article in the The Washington Post noted that, due to bankruptcy protection, NextWave "has networks up and running in 26 markets but has never served a single paying customer." NextWave's founder is pictured standing in front of a courthouse grinning from ear-to-ear. I would be, too.

posted by @ 9:35 PM | The FCC , Wireless