**Statement of**

**JOHN A. ROGOVIN**

**DEPUTY GENERAL COUNSEL**

#### FEDERAL COMMUNICATIONS COMMISSION

####  Before the 

**SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW**

**OF THE HOUSE COMMITTEE ON JUDICIARY**

#### On the

**NEXTWAVE SETTLEMENT LEGISLATION**

**Thursday December 6, 2001**

**10:00 a.m.**

**2141 Rayburn House Office Building**

## I.

## Introduction

## Good morning Mr. Chairman and Members of the Subcommittee. My name is John Rogovin, and I am Deputy General Counsel of the Federal Communications Commission.

## I appreciate this opportunity to appear before you today to report on the details of the Commission's efforts to reach a settlement in the *NextWave* matter. Last summer, Chairman Powell asked me to explore settlement of the *NextWave* case. After months of hard-fought, around-the-clock negotiations, I am pleased to report that the parties have reached an agreement that will conclude their long-running dispute.

## The agreement will bring substantial benefits to the American public. Of principal concern to the Commission is that the settlement will allow the immediate deployment of critical spectrum resources that have remain unused during five years of delay and litigation. Consumers throughout the United States will benefit from that outcome. In addition, the settlement will generate \$10 billion for the Treasury, nearly twice the amount that NextWave would pay if it keeps the licenses.

## 

## The settlement, however, cannot be implemented without legislation. This legislation is needed to permit the Commission to make payments to NextWave and to take other actions to effect the settlement. Because the settlement would bring the *NextWave* litigation to an end while ensuring substantial benefits for the public, we respectfully urge the Congress to approve the settlement by enacting the proposed legislation before Congress adjourns this year. 

**II.**

**Background**

In 1993, Congress authorized the FCC to award licenses for spectrum
through a system of \"competitive bidding,\" or auction. In 1996 and
1997, the Commission held initial auctions for C-Block and F-Block
personal communications services (PCS) licenses. At those auctions,
NextWave submitted the winning bid on 63 C-Block licenses and 27 F-Block
licenses, for a total of \$4.8 billion. NextWave deposited a \$500
million downpayment with the U.S. Government and agreed to pay the
balance (\$4.3 billion) over ten years at a favorable interest rate.

Each license granted to NextWave by the Commission was conditioned on
NextWave's full and timely payment of all its installments, and the
licenses made clear that failure to make such payment caused their
automatic cancellation. NextWave failed to pay its bid commitments,
instead filing for bankruptcy protection in 1998. NextWave filed to
reduce the value of its bids and later fought against license
cancellation during the course of its reorganization under Chapter 11 of
the Bankruptcy Code.

Over the next three years, the Commission, the United States, NextWave,
and others engaged in intensely fought litigation in numerous courts,
including the U.S. Bankruptcy Court, the U.S. Court of Appeals for the
Second Circuit, the U.S. Court of Appeals for the D.C. Circuit, and the
Supreme Court of the United States. The Second Circuit upheld the
Commission\'s regulatory requirement that there be full and timely
payment by NextWave for the licenses. The Second Circuit also held that
the Commission\'s decision to automatically cancel the NextWave licenses
and to re-auction them was not contrary to bankruptcy law. In January
2001, the Commission re-auctioned the spectrum previously licensed to
NextWave. In that re-auction (Auction No. 35), 21 wireless carriers bid
\$15.85 billion for the new licenses.

Meanwhile, NextWave had petitioned the D.C. Circuit for review of the
Commission\'s decision to cancel NextWave's licenses for failure to pay.
On June 22, 2001, the D.C. Circuit ruled that the automatic cancellation
of NextWave\'s licenses violated Section 525 of the Bankruptcy Code. The
Government has sought review of the D.C. Circuit\'s decision in the
Supreme Court. This matter is still pending.

\* \* \* \* \*

I recognize that many of you have a long-standing interest in this
matter, and some of you even joined an Amicus Brief in support of
NextWave during the D.C. Circuit stage of this litigation. While we may
disagree on the legal merits of the bankruptcy law question that was
before the D.C. Circuit, I believe we can agree that a speedy resolution
to this protracted litigation would benefit all of the parties involved,
as well as the general public interest.

It is this attempt at a resolution that brings me here before you today.
All of the parties to this matter, including NextWave, the Commission,
the United States, and the majority of the winning bidders in Auction 35
are seeking your assistance in finally putting this matter to a just
end. Specifically, we respectfully request that Congress pass
legislation approving and authorizing the settlement agreement. Let me
briefly describe below the settlement and why it is in the public
interest. I will then address the need for the proposed legislation.

### III.

### The Settlement Agreement and Legislative Proposal

The settlement agreement requires that Auction 35 bidders pay the
government \$15.8 billion that they bid in exchange for receiving the
licenses auctioned in Auction 35. The government will then keep \$10
billion in net proceeds and will guarantee by December 31, 2002 to pay
\$5.8 billion net to NextWave in exchange for its complete release of
all claims to the disputed licenses.

The principal benefit of the settlement is that it allows the Commission
to grant licenses to companies that will rapidly use them to provide
wireless telecommunications services. This fulfills the congressional
mandate in the Communications Act to deploy spectrum as expeditiously as
possible, without undue regulatory or judicial delay. Moreover, it
allows the Commission to grant licenses to the very bidders who place
the highest value on those licenses. In the absence of a settlement,
there is considerable uncertainty about when the spectrum will be put to
productive use in the service of the American public.

Congress also has charged the Commission with obtaining value for public
use of the spectrum through the auction program. This settlement will do
just that. The settlement will provide payments to the United States of
more than \$10 billion -- approximately twice what the Treasury would
have received had NextWave retained the licenses and more than the
government is likely to collect.

The settlement agreement is contingent upon the passage of legislation,
and it includes draft legislation for Congress to consider. There are
several reasons why this legislation is necessary to effect the
settlement.

First, the proposed legislation ensures that Congress has approved and
authorized the settlement in all respects. This congressional action is
required to ensure that the Commission is acting fully within its
authority. It provides, for example, necessary budgetary and
appropriations authority to the Commission to make payments to NextWave.

Second, the proposed legislation contains a judicial review provision,
patterned on other Acts of Congress, that provides for expedited review,
limited to constitutional claims. Any challenge to the legislation, the
settlement agreement itself, or to actions taken by the Commission would
be funneled into one court of appeals (the D.C. Circuit) and would be on
a fast track for review. This provides assurance that the American
public will receive the benefits of the settlement with a minimum of
additional litigation delay.

Third, the legislation provides the guarantee necessary for NextWave to
relinquish its claims on the licenses. In return, NextWave will be paid
once the Government receives Auction 35 receipts equal to the payments
to be made to NextWave but no later than December 31, 2002.

Finally, we are mindful that we have asked much of Congress \-- to pass
legislation codifying the settlement by the end of the year. We
recognize that the compressed period for analysis and reasoned
discussion makes this task difficult for you and your staffs, and we
appreciate the attention and care that has already been shown by
Congress in considering the settlement and legislation. As you may know,
the final settlement agreement was completed and signed by the
Government only on November 26, 2001, after a lengthy and complex
negotiation period.

**V.**

## Alternatives to Settlement

The main reason to settle is that settlement is preferable to the
alternatives. If the Commission continues to litigate and the Supreme
Court declines to take the case, the decision of the D.C. Circuit will
stand and NextWave will be the licensee. In that scenario, NextWave
likely would elect to continue to pay for the spectrum over time at
advantageous interest rates. Pursuant to the installment payment
program, NextWave could pay for the spectrum over six years at a rate of
6.5 % for C-Block licenses and

6.25 % for the F-Block licenses. That would leave the Treasury with
substantially less than the \$10 billion in revenues that would be
generated by the settlement.

Even if the Supreme Court grants the Government\'s petition for
certiorari, the Court might not rule in the Government\'s favor on the
merits. In addition, even if the Supreme Court rules in favor of the
Government, it might remand the matter to the D.C. Circuit for further
action on several legal issues left unresolved in the panel's initial
decision -- any of which could result in NextWave remaining the
licensee.

No matter what the outcome, litigation would likely mean years of
further delay in the ability of the Commission to grant spectrum
licenses for much-needed wireless services for American consumers. The
Commission first auctioned this spectrum in 1996 and 1997, yet the
spectrum has never been used. Without a settlement, valuable spectrum
may well remain fallow at a time when our economy and the consumer need
it most.

Moreover, even if the Government ultimately prevailed in all litigation,
there is uncertainty about the future value bidders would place on the
spectrum given fluctuations in the marketplace. Several high bidders in
Auction 35 have indicated that if the settlement does not go forward and
there is further litigation, they should be released from the
obligations of Auction 35. They would argue, for example, that they
should be entitled to the return of the \$3.2 billion in deposits held
in non-interest-bearing accounts by the Government. It is uncertain at
what price the spectrum would sell for at the conclusion of that
litigation.

**V.**

**Conclusion**

The Commission and the other parties to the *NextWave* case have worked
long and hard at the negotiating table to resolve a matter of critical
importance to the American public. We have attempted to settle this
matter in a way that protects the public interest, ensures that the
spectrum is put to prompt use, and guarantees that the American people
receive fair value for the spectrum. I would like to thank the
Subcommittee for this opportunity to provide information on the NextWave
settlement. I look forward to answering any questions you may have.