```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
THE SETTLEMENT BETWEEN THE U.S. GOVERNMENT AND NEXTWAVE TELECOM INC. TO 
                   RESOLVE DISPUTED SPECTRUM LICENSES

=======================================================================

                                HEARING

                               before the

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 11, 2001

                               __________

                           Serial No. 107-78

                               __________

       Printed for the use of the Committee on Energy and Commerce

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house
                                _______

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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida                  JOHN D. DINGELL, Michigan
JOE BARTON, Texas                           HENRY A. WAXMAN, California
FRED UPTON, Michigan                        EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida                      RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                       RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania            EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California                 FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                        SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma                     BART GORDON, Tennessee
RICHARD BURR, North Carolina                PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky                      BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                           ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia                    BART STUPAK, Michigan
BARBARA CUBIN, Wyoming                      ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois                      TOM SAWYER, Ohio
HEATHER WILSON, New Mexico                  ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona                    GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, Mississippi     KAREN McCARTHY, Missouri
VITO FOSSELLA, New York                     TED STRICKLAND, Ohio
ROY BLUNT, Missouri                         DIANA DeGETTE, Colorado
TOM DAVIS, Virginia                         THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee                        BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland            LOIS CAPPS, California
STEVE BUYER, Indiana                        MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California               CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire              JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
                                ______

          Subcommittee on Telecommunications and the Internet

                     FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida                  EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                           BART GORDON, Tennessee
CLIFF STEARNS, Florida                      BOBBY L. RUSH, Illinois
  Vice Chairman                             ANNA G. ESHOO, California
PAUL E. GILLMOR, Ohio                       ELIOT L. ENGEL, New York
CHRISTOPHER COX, California                 GENE GREEN, Texas
NATHAN DEAL, Georgia                        KAREN McCARTHY, Missouri
STEVE LARGENT, Oklahoma                     BILL LUTHER, Minnesota
BARBARA CUBIN, Wyoming                      BART STUPAK, Michigan
JOHN SHIMKUS, Illinois                      DIANA DeGETTE, Colorado
HEATHER WILSON, New Mexico                  JANE HARMAN, California
CHARLES ``CHIP'' PICKERING, Mississippi     RICK BOUCHER, Virginia
VITO FOSSELLA, New York                     SHERROD BROWN, Ohio
TOM DAVIS, Virginia                         TOM SAWYER, Ohio
ROY BLUNT, Missouri                         JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland              (Ex Officio)
LEE TERRY, Nebraska
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)

                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Cassou, Frank A., Executive Vice-President and General 
      Counsel, NextWave Telecom, Inc.............................    53
    Hunt, Joseph H., Counsel to the Deputy Attorney General, 
      United States Department of Justice........................    20
    Powell, Hon. Michael K., Chairman, Federal Communications 
      Commission.................................................    12
    Strigl, Dennis, Chief Executive Officer, Verizon Wireless....    48
    Winston, James L., Corporate Secretary, Urban Communicators..    60

                                 (iii)

  

THE SETTLEMENT BETWEEN THE U.S. GOVERNMENT AND NEXTWAVE TELECOM INC. TO 
                   RESOLVE DISPUTED SPECTRUM LICENSES

                              ----------                              

                       TUESDAY, DECEMBER 11, 2001

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3 p.m., in 
room 2123, Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Stearns, Shimkus, 
Ehrlich, Tauzin (ex officio), Markey, Gordon, Engel, Green, 
DeGette, Boucher, and Dingell (ex officio).
    Staff present: Howard Waltzman, majority counsel; Yong 
Choe, legislative clerk; Andy Levin, minority counsel; and 
Courtney Johnson, legislative clerk.
    Mr. Upton. Good afternoon everyone. The House itself does 
not expect any votes until 6:30. So, a number of members are 
coming back from their Districts, and I would entertain a 
motion now to ask for unanimous consent that all members of the 
subcommittee have an opportunity to include their opening 
statement as part of the record. And without objection, so 
ordered.
    Good afternoon. Why are we here today? In part because 
Congress is being asked to help clean up a judicial train wreck 
between bankruptcy policy and spectrum policy.
    Among other things, the train wreck has resulted in very 
valuable and scarce spectrum going unused for over 4 years, and 
the taxpayers have been starved out of the proceeds which 
either of the options of this spectrum should have yielded 
them.
    The D.C. Circuit Court says that bankruptcy law trumps all 
else, and thus the NextWave is entitled to keep its licenses 
while the subsequent action, Auction 35 winners, are out of 
luck.
    The Court's decision motivated the FCC, the Department of 
Justice, and the Auction 35 winners, to settle this dispute 
with NextWave in order to get the spectrum into productive use. 
Congress is now being asked to facilitate the settlement before 
the end of the month.
    Let me say at the outset that I am not happy about this, 
and about the way that this has all shaken out. I am not happy 
that NextWave gets $6 billion out of this, and ``b'' as in big, 
when it promised to pay $4.5 billion in the C-block auction, 
and thus far has only made $500 million in payments.
    I am not happy with the way the D.C. Circuit came down on 
this matter either. But the alternative would be to ignore the 
settlement, and roll the dice, and hurry up and wait, and hope 
that the Supreme Court not only takes the case, but also 
overturns the D.C. Circuit.
    So while it may not be pretty or handsome, the settlement 
is the best looking option that we have if we want to get the 
spectrum into productive use and improve our physical 
situation, because under the terms of the settlement the 
government will get $10 billion in a lump sum.
    Above all, we need to draw lessons from how we got into 
this morass and recognize what I once heard the distinguished 
ranking member of the full committee, Mr. Dingell, once say, 
there is no education, no value, in the second kick of a mule.
    So I am planning to introduce legislation which would 
prevent a similar judicial train wreck between the bankruptcy 
laws and the spectrum policy laws from ever happening again. 
Spectrum is too valuable of a national resource to let it lay 
fallow or the lawyers argue ad nauseam in court.
    And with that, that concludes my opening statement, and I 
will yield to my friend and colleague, the ranking member of 
the subcommittee, Mr. Markey. Perfect timing.
    Mr. Markey. I thank you, Mr. Chairman, although I would say 
that being introduced with the words ``ad nauseam'' immediately 
preceding my name is not exactly--but I am sure that it 
reflects a certain percentage of attitudes about me.
    I thank you, Mr. Chairman, for having this hearing, and 
this is an important subject for us because it basically 
captures the intersection of budget policy and 
telecommunications policy as they collide.
    The chief reasons that supporters give for endorsing the 
settlement are as follows. Number 1, it ends the legal 
wrangling. Number 2, it puts the spectrum in the market. Number 
3, it gives the government a financial boost of some $10 
billion.
    And, Number 4, it is better than any alternative, and so 
let me take each of these in-turn. First, the legal wrangling. 
I think a quick glance at the settlement document would 
indicate to anyone that the lawyers have approached the job of 
eliminating legal claims on the licenses, and limiting 
corporate liability in future lawsuits with particular 
industriousness.
    In fact, they have in all likelihood lawyered themselves 
out of time. If we are truly interested in ending legal 
wrangling, however, Congress should consider changes to the 
settlement.
    The brokered agreement still does not address what was 
ostensibly the root cause of all of the litigation in the first 
place. Namely, the authority of the FCC to cancel licenses, and 
extricate them from companies in default. That question still 
goes unresolved.
    Second, Congress should assess whether similarly situated 
companies should be part of the settlement, either as a matter 
of assuring legal finality, or as a matter of equity in public 
policymaking.
    There are similarly situated companies out there with 
similar claims still waiting a resolution, perhaps by this 
subcommittee, on an ongoing basis, not the role in my opinion 
for the Congress.
    Second, putting the spectrum put in the market. It is hard 
not to approach this argument without engaging in I told you to 
rhetoric. One wonders why this argument was not persuasive to 
the Commission in 1997, 1998, 1999, or 2000, when in that year 
NextWave agreed to pay everything that it owed, plus interest, 
along with an offer to provide special services in schools in 
their markets.
    Suffice it to say that we have waited 5 years to get the 
spectrum in the market, and whether it happens now or in a few 
months from now, is less important in my view than how it comes 
into the market.
    Third, is the fiscal policy argument, that the government 
stands to gain $10 billion. In the alchemy of Federal budget 
scoring, this number is totally illusory. This is another 
reason why I felt it wholly inappropriate from an institutional 
perspective for the FCC to become a fiscal policy advocate back 
to Congress, and its own oversight committee.
    The Commission should leave cooking the books on spectrum 
revenues and budget scoring to OMB. That's their job, and they 
are experts at it. Instead, it should root itself in fulfilling 
its statutory directives from Congress on these matters.
    The fact is that C-Block revenue has already been accounted 
for in previous and in current budgets. You can't tell so-
called money the roughly $500 million NextWave deposit. That 
was booked and counted some years ago.
    With respect to the rest of the money, OMB and CBO have 
been counting on all or part of it for years. As a matter of 
Congressional fiscal implications, the Congressional Budget 
Office already had an estimate for C-Block revenues this year.
    The CBO reached this number by splitting the difference on 
the relative outcomes if the government won its case or lost 
its case. In other words, if the government won, it would get 
the $16 billion from the bidders in Auction 35. If it lost, it 
would get approximately $6 billion from NextWave in principal, 
plus interest, and penalty payments.
    Splitting the difference, the CBO estimated C-Block revenue 
at $11 billion. Now, if we take the proposed settlement, with 
its $16 billion payment from the companies, and then subtract 
the $9.55 billion appropriation that Congress must make for 
NextWave's portion, that leaves a net gain of $6.45 billion.
    And compare that with the $11 billion that was already in 
Congressional budget estimates, and we arrive at a net 
shortfall of about $4.5 billion. So what is the fiscal 
implication of this settlement? Not a $10 billion gain at all.
    The cold truth is that if a settlement were introduced as 
is, and brought to the House floor, the CBO would score the 
bill as costing the government $4.5 billion. We can quibble 
about whether we believe this is an accurate representation of 
income and outlay, but that is the way the government counts 
it.
    Which brings us to the final argument, which is that this 
settlement may be unpalatable, but the alternatives are worse. 
One of the most troubling things about this settlement to me is 
that it represents the abandonment of any pretense of sound 
telecommunications policy in favor of a financial settlement, 
where the FCC intervenes to broker an agreement between 
potential licensees and where the overriding objective is 
seemingly about getting more money.
    A more suitable alternative might be one that better meets 
the objectives of Congressionally developed spectrum policy as 
articulated in Section 309(j) of the Telecommunications Act.
    Advocates for the deal have mentioned getting the spectrum 
into the market and recouping a portion of its value for the 
taxpayer. Yet, the statute also includes an equally important 
number of other goals, the promotion of economic opportunity 
and competition, the wide distribution of licenses and 
avoidance of excessive concentration of licenses, as well as 
the admonishment to avoid unjust enrichment in the methods 
employed to award uses of the resources.
    When you consider all of the statutory telecommunications 
policy objectives, of which Auction revenue is but one, it 
becomes clear that while the corporate interest is well 
represented in the agreement, the public interest has not yet 
been fully served.
    Congress would do well to further examine this settlement 
with more time next year. At that time, we could address issues 
more comprehensively, and also confront the lingering tension 
between communications law and bankruptcy law.
    Otherwise, Congress may have to act on every failed 
enterprise holding spectrum licenses into the foreseeable 
future. Mr. Chairman, I thank you, and you have indulged me 
with extra time in the opening statement. I yield back.
    Mr. Upton. Thank you. Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. And I, too, look 
forward to this hearing. This is a mess that we are trying to 
work our way through. A company, who puts up in essence a 
minimum investment, declares bankruptcy, and gets a fairly good 
rate of return on that amount of the investment that they went 
bankrupt on.
    Spectrum does have value, which we currently have a buyer 
willing to pay for, and there is the argument of the time value 
of money and the time value of resources. There is a need in 
our society, especially in this era, to create economic 
activity and job growth, and so there is another list to be 
added of the possible benefits.
    And in this downturn of the economy, if there is a way to 
use spectrum more rapidly and help create jobs, that is a 
benefit. So we have a lot to sort out here. I look forward to--
I guess we are going to have two panels, and I look forward to 
hearing from the first, and then the second, as we try to 
address this issue, and I yield back my time, Mr. Chairman.
    Mr. Upton. Thank you. The gentleman from Virginia, Mr. 
Boucher.
    Mr. Boucher. Thank you very much, Mr. Chairman. I want to 
welcome our witnesses this afternoon. In my view, Mr. Chairman, 
the NextWave settlement is broadly in the public interest, and 
I urge the committee to take such steps as may be necessary to 
give it full force and effect.
    The settlement serves the public interest in a number of 
ways. First, the government benefits. The U.S. Treasury will 
receive $10 billion, and that is fully $5 billion more than the 
government would have received based upon the initial price in 
the NextWave auction.
    So had it not been for the NextWave bankruptcy, and 
succeeding events, the government would have received $5 
billion less than it receives in the settlement. I would also 
note that if the agreement does not go into effect, the 
government faces a risk of having to return to the winning 
bidders in the re-auction $3.17 billion in downpayments which 
the government is presently holding.
    Second, the settlement benefits consumers of wireless 
services. The spectrum, which is the subject of this 
settlement, is currently unused. Upon approval of the 
settlement, this valuable spectrum can be put to immediate use 
to improve existing wireless services, and to hasten the 
arrival of advanced wireless services for voice, video, and 
data.
    There is presently an acute spectrum shortage, and an 
increased demand for wireless services. The freeing up of this 
new spectrum is eagerly awaited in order to benefit consumers 
and to satisfy this growing demand.
    Third, from the standpoint of the companies which purchased 
the spectrum in the reauction, the settlement resolves all of 
the legal issues and permits them to proceed with their 
business plans.
    The winning bidders in the re-auction have paid for the 
right to use the spectrum, and have a reasonable expectation of 
being able to use it. These 21 companies bid a total of $15.85 
billion for the NextWave spectrum, and were required to deposit 
20 percent of their winning bid amounts as downpayments at the 
time that their bids were accepted.
    And that was a total of $3.17 billion. That money is 
currently on deposit with the Federal Government, and the 
carriers are receiving no interest on the $3.17 billion of 
their funds that the government is presently holding.
    The carriers that were successful in the re-auction also 
reflect on their balance sheets a contingent liability for the 
remaining 80 percent of the auction price, which they will be 
committed to pay assuming that the auction is confirmed.
    This financial overhang from the re-auction substantially 
hinders the ability of these wireless carriers to build out 
their networks, to improve service quality and to invest in 
other promising opportunities. The settlement resolves all of 
these concerns as well.
    And, fourth, putting the spectrum into immediate use would 
provide an economic stimulus as carriers invest billions of 
dollars on the infrastructure necessary to offer wireless 
services.
    I will be interested to learn from our witnesses this 
afternoon the magnitude of the anticipated expenditure that 
would be required for this buildout in the event that the 
settlement is approved.
    Mr. Chairman, I think that the committee should take 
immediate steps to ensure that the settlement becomes 
effective. While some may wish that certain aspects of the 
NextWave bankruptcy and subsequent events would have proceeded 
differently, in today's circumstance the settlement represents 
the best opportunity to conclude this unfortunate chapter and 
realize for the various parties the benefits that I mentioned 
earlier. Thank you, Mr. Chairman. I look forward to today's 
witnesses.
    Mr. Upton. I yield to the chairman of the full committee, 
the gentleman from Louisiana, Mr. Tauzin.
    Chairman Tauzin. Thank you, Mr. Chairman. I want to thank 
you for holding this hearing today, and I particularly want to 
thank Chairman Powell for joining us, and for assisting us 
through this hopefully process where we can conclude with what 
has been an unnecessarily contentious and drawn out issue.
    For years, and as you know, Mr. Chairman, I have urged the 
former Chairman of the FCC to respect the fact that NextWave 
had a property right in this spectrum, and that having bid 
through the process by which these licenses were distributed, 
and having bid properly and then having been in bankruptcy 
court trying to work out their financial problems, that the FCC 
had no authority to relicense or to reauction these licenses.
    Nevertheless, the FCC determined to proceed with Auction 35 
and eventually the D.C. Court concluded as I thought they would 
that NextWave had a property right here. The FCC, nor any 
Federal Agency, could not simply cancel or take it away.
    So, here we are.
    We are in a situation where after all of these many, many, 
months, when in prior months and prior years the FCC could 
possibly have settled this in a way that respected the property 
rights of the parties, and at the same time put the spectrum to 
good use and perhaps collected the money that the government 
was owed, we are now at a point in time when we have another 
opportunity to do all those things in a settlement.
    I agree with you that this is not the prettiest nor the 
cleanest necessarily way, or the easiest way to resolve all 
these difficult issues, but it does put them all to rest. Mr. 
Boucher has put his finger on it. This gets the spectrum out 
for the American public to enjoy.
    This satisfies the government's obligation to collect its 
money and to plug a hole in a budget which needs to be plugged. 
And at the same time respects the property rights of the 
parties, which the D.C. Circuit Court has recognized.
    I think it is a win, win, win, and it puts to rest again--
and not necessarily the prettiest or easiest way--issues that 
should have been put to rest a long time ago. And I agree with 
you, Mr. Boucher, this settlement ought to be approved as 
rapidly as we can approve it, in whatever manner that we can 
approve it, and as quick as we can get it done.
    And I want to commend the Chairman of the FCC for his 
efforts in encouraging this settlement and for what I hope will 
be his strong support for Congress endorsing it and putting it 
behind us.
    The sooner we can get this spectrum working for Americans, 
and settle these financial issues for the government and the 
parties, and for their property rights, the sooner we can put 
this ugly saga behind us.
    The bottom line is this spectrum has laid fallow for too 
long, and wireless carriers indeed suffer right now from a 
dearth of available spectrum. The American public is 
desperately in need of these new services frankly, and the 
sooner we can get it out the better.
    And I think that anyone who holds this up now is playing 
the same kind of politics that have held it up for too doggone 
long. And we ought to put it to rest rapidly, and we ought to 
approve this settlement, Mr. Chairman, any way we can. Thank 
you, Mr. Chairman.
    Mr. Upton. Thank you. The gentlemen from Tennessee, Mr. 
Gordon.
    Mr. Gordon. Thank you, Mr. Chairman. I think the issues 
have been well-outlined, and I am ready to hear the witnesses.
    Mr. Upton. Mr. Stearns.
    Mr. Stearns. Mr. Chairman, thank you. Joshua Hammond wrote 
a book called, The Servant Culture Forces to Define Who 
Americans Are, and it is sort of interesting that the first one 
was choice, but the second or the fifth one was ready, fire, 
aim.
    And we as Americans go out and do things, and then we come 
back later and try to adjust and fix it. Now, Mr. Chairman, 
what we see here obviously is an awful spectrum car pile up on 
the telecommunications highway to say the least.
    As a result valuable spectrum other wireless carriers need 
lay smoldering on the side of the road as this morass of 
litigation remains to be resolved. Now, none of us I think in 
this room--and I could be wrong--has actually read the ruling 
from the Appeals Court, which the FCC is--that said that they 
erred in repossessing the license.
    And we probably haven't read the District Court case either 
that ordered the licenses returned to the FCC. But thee is 
something very simple here. NextWave put a deposit down on a 
spectrum of $500 million, which was a very small amount of the 
$4.7 billion bid.
    So now if I put a small amount down on an automobile, I 
guess I own this car, and then you go out and repossess it, and 
when you go to repossess it, do you have to pay me a lot more 
money for that car when I only put a small downpayment?
    Now, what Mr. Boucher says is true, there is a lot of 
mitigating things here that the government ultimately is going 
to get more money back than if they just sit here and try to do 
this on a little sense, and I have made this problem very 
simple.
    But I think we are at the point now that there is people on 
this side of the House, and I sort of agree with the chairman 
and also Mr. Boucher, that this is probably a way out of this. 
Mr. Chairman, I understand that you will probably have 
legislation next year to make sure that his smoldering pile-up 
on the highway doesn't occur.
    And that is going to be cast net year, but there is people 
in the Senate who don't agree with what we are saying here, and 
they think that something should be done, because when you look 
at it from the outside as a taxpayer, there is a net here that 
they don't see, but ultimately the government is going to 
benefit.
    So I just stand here as someone who--again, the members 
have so much on their plate that we don't have the opportunity 
to read the appeals decision that ruled the FCC erred in 
repossessing the licenses and the whole idea of this.
    So we have to go with what appears to be a reasonable 
settlement to the best of the benefit for the government. And 
so, Mr. Chairman, I think the burden now rests on the 
government, and particularly the FCC and the Department of 
Justice, to demonstrate that this settlement is in the public 
interest.
    Because we don't have all the details, and we can work on 
just what we see as the outside. But we have a morass of 
litigation that has to be resolved, and as many members pointed 
out, this might be a solution that is palatable, but not fully 
understandable. And I yield back, Mr. Chairman.
    Mr. Upton. Thank you. I recognize the ranking member of the 
committee, Mr. Dingell, from the great State of Michigan.
    Mr. Dingell. It is a great State, Mr. Chairman, as you have 
so wisely said. Thank you, Mr. Chairman, for holding this 
hearing, and my thanks to the witnesses for appearing.
    The matter that we are addressing today is a highly complex 
one. Its roots go back many years, with much work by both the 
Federal Communications Commission, this committee, and other 
agencies of government.
    The FCC's past work on this matter has been significantly 
less than stellar. While the matter is complex, it is with the 
proper asking of questions reducible to I think an 
understandable whole, one in which we may come to intelligent 
judgments as to what should be done, and where it is that the 
public interest lies.
    And as this hearing goes forward, I will be asking some 
questions to try and figure out whether this matter is in the 
public interest. I noted with interest the comments of my 
friend, Mr. Stearns, and I want to commend him. This is 
something which does need to be resolved.
    But we want to make sure that this matter is resolved on 
terms which are acceptable to the public, and which are 
consistent with the public interest. We are faced now with a 
dilemma of how to proceed from here. I hope that we can make a 
rational and a deliberate judgment as to the proper course.
    Again, I repeat that those things will be greatly assisted 
by the proper questions being asked and the proper questions 
being answered. The judgment must be made I would note with 
full possession of all the facts, taking into consideration 
relevant matters of telecommunications law and policy within 
this committee's jurisdiction.
    Understandably, the parties have a desire to expedite this 
process, and I think I can say that I do not quarrel with their 
desire. To that end, I would note that Mr. Markey and I wrote 
the Commission late last week. We asked for some information in 
preparation for today's hearings, and Chairman Powell, I want 
to express my thanks to you and to your staff for the timely 
response. I know that it was no small task, and I want you to 
know that I appreciate your courtesy, and the completeness with 
which you responded.
    Although the letter to Chairman Powell was responded to, 
and its answer was responsive to our questions, I am still 
concerned that the Commission may yet be lacking critical 
information necessary to make an informed judgment on how that 
agency should proceed.
    And, of course, we look to the Commission to advise us so 
that we may make the necessary and proper judgments. And as 
tempting as it may be to legislate a quick fix, I would note 
that it may very well be unwise to do so under the 
circumstances before us, and with the amount of knowledge and 
understanding which we now possess.
    The Congress is being asked, and we have to be very clear 
on this, to authorize and appropriate $6 billion to a private 
party, and I am satisfied that there is not a single soul in 
this room that wouldn't love to have Congress appropriate $6 
billion to and for them.
    This is, however, I would note, an unprecedented exercise 
in my experience. Moreover, to legislate such a thing at 
lighting speed without a full and thoughtful investigation of 
whether the facts and circumstances warrant such remarkable 
treatment is indeed hasty and very truthfully ill-advised.
    Do we know precisely who will be receiving this windfall? 
NextWave, like many companies emerging from bankruptcy, may not 
be the same company it was when it was first issued the 
licenses that are in question.
    Indeed, it may be a totally different company. Its finances 
have been substantially restructured, and we have no assurances 
from the Commission that the company in fact continues to be a 
qualified license holder under the Commission's designated 
entity rules.
    We are not really sure we even know who the shareholders or 
officers are. In fact, these questions about NextWave's 
qualifications have been raised before the Commission at 
various times by various parties.
    But the agency has yet to determine whether or not those 
claims and those matters have merit. We are being asked now as 
a legislative body to disregard whether NextWave currently has 
a legal right to hold these licenses, and to codify a 
settlement that would dismiss these claims and deliver 6 
billion cash U.S. dollars.
    The parties are also asking us to abandon two key statutory 
mandates and perhaps more contained in the Commission's auction 
authority. One is the basic principle that expressly forbids 
the FCC from considering potential revenues generated from 
competitive bidding in making spectrum policy decisions.
    Yet, that is precisely the driver of the recommendations 
being made here today. This committee has consistently and 
steadfastly objected in the past on a bipartisan basis when the 
Budget Committee has insisted on abandoning these core 
principles, which they have done not infrequently, and often to 
their great distress and sorrow. And add to that of others of 
us here, too.
    We are also being asked to ignore the statutory mandate 
that small businesses, rural telephone companies, women-owned 
companies, be afforded an opportunity to compete in the 
broadcast PCS market along with the bigger players.
    Press reports indicate that most of the NextWave licenses 
will be consolidated among Verizon, Cingular, a partnership of 
SBC and Bell South, and AT&T. Now that would appear to be 
clearly inconsistent with the intentions that the Congress and 
this committee have expressed in the legislative pronouncements 
we have made when the FCC's auction authority was established.
    Mr. Chairman, I appreciate the hard work that has been done 
by the Commission, and I commend you for having these hearings. 
I think we have got to look at this very carefully, because if 
we don't, we might find that we have made a prodigious mistake, 
and we will have created quite a stink. I thank you.
    Mr. Upton. Thank you. The gentleman from Maryland, Mr. 
Ehrlich.
    Mr. Ehrlich. Thank you, Mr. Chairman. Chairman Powell, it 
is good to see you. I always enjoy your testimony and I do 
apologize in advance for having to leave in a few minutes.
    So I guess it is a little bit of a fairly unusual opening 
statement here. This is indeed a complex issue, and I want to 
make some observations I guess in the form of some questions, 
which I am sure that you will attend to in any event.
    But from my opening statement, I would like to leave some 
particular inquiries with you for your consideration. Mr. 
Chairman, let's say that Congress does not do a deal this year. 
What would be the effect on our goal to get spectrum in use, 
and get investment rolling, and get new services in place?
    Are we talking about a month delay, 2 months, 5 months, 
whatever? There is some speculation from the press, as you 
know, that we don't need legislation at all. Why can't the FCC 
settle this litigation, or settle this without any litigation?
    Third, there has been some discussion that NextWave or 
other companies have gained themselves to enrich themselves. In 
these negotiations did NextWave or the other companies in 
Auction 35 gain the system?
    Fourth, and last, there is a quote from a news service of 
December 6 attributed to you. ``I personally think getting $10 
billion today that I can put in the bank for that spectrum, 
versus the roughly $5 billion that I might be able to get from 
NextWave over a 10 year installment period was fiscally 
better.''
    Mr. Chairman, is that an accurate quote? If so, would you 
explain the logic behind it. What would happen if the Supreme 
Court denied cert after the strong decision at the D.C. Circuit 
Court level, would NextWave keep the license, and what would 
the government get?
    I suspect, Mr. Chairman, that your testimony will answer 
many of these questions in the course of it, and I appreciate 
your consideration, and I yield back.
    Mr. Upton. Thank you. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I want to thank you for 
holding this important hearing because of the timeliness of it, 
I think, and I want to begin by saying that like my colleagues, 
I am not comfortable with the NextWave settlement, and I am not 
necessarily opposed to it maybe like my colleague from Florida, 
Mr. Stearns.
    I don't know our options, but I can't get over the feeling 
that the American consumer loses, no matter what we do in 
trying to resolve this issue, and I also can't get over the 
fact that NextWave may be gaming the system, and hurting our 
consumers.
    I have never heard NextWave express their disappointment 
that they would not be billing their advanced third generation 
wireless network. Mostly, I have heard about the need for a 
financial settlement for the NextWave investors and a 
reallocation of the spectrum to the wireless industry.
    And what about my constituents who don't own a cell phone, 
and are thus deprived of their benefit for the deal through the 
financial settlement. They are getting a lot less than the $15 
plus billion on Auction 35.
    The $10 billion that they will receive is no small sum, but 
it still is less than was promised. And what if, Mr. Chairman, 
this deal doesn't go through by December 31? What will happen?
    In reading Chairman Powell's testimony, he certainly paints 
a glooming picture of our legal right to NextWave's spectrum. 
However, if Congress is not able to reach a deal for the 
industry imposed deadline, are there no other options to 
reclaim the American people's spectrum, and that is the bottom 
line. It is the American people's spectrum.
    For instance, I was told that there are several petitions 
sitting down at the FCC seeking to challenge the designated 
entity status of NextWave. If this settlement falls through, is 
the Commission going to act on these petitions.
    And in addition, I hope, Chairman Powell will expand on 
this during the questioning, on when did the clock start 
ticking for the NextWave to meet their build out requirements.
    Finally, Mr. Chairman, I want to know what steps the FCC 
has taken to ensure that this doesn't happen again, and if 
necessary, if we need to change the law in Congress on 
tightening the auction rules as we go forward, what else can be 
done.
    In closing, like I think all of us, particularly from 
Houston, I understand that we are on the Board of Directors of 
a corporation called The U.S. Government. And we have a 
judiciary relationship to the American people, who deserve the 
best deal possible for our stockholders, or our constituents.
    And I am not fully convinced that this is the best deal, 
and I yield back my time.
    Mr. Upton. Thank you. Ms. DeGette.
    Ms. DeGette. Mr. Chairman, like everyone else here, I am 
eager to hear the testimony, and to hear the rationale for this 
settlement, and so I don't want to delay the proceedings any 
further, and I will submit my opening statement for the record.
    Mr. Upton. Thank you. Mr. Engel.
    Mr. Engel. Thank you, Mr. Chairman. Thank you for calling 
this hearing on the NextWave settlement. This is quite frankly 
a cantankerous problem that was irritated more by numerous bad 
decisions in the past. Let me be clear that I truly believe 
that the FCC made a mistake when it recalled and reauctioned 
spectrum licenses prior to a final determination of the court's 
regarding NextWave's legal standing under bankruptcy.
    I understand the desire to put this spectrum to use, but I 
also am very concerned about any company or individuals rights 
to the legal protections of bankruptcy. As a result of the 
FCC's decision, numerous other parties were drawn into the 
mess.
    Other wireless companies, such as Verizon, participated in 
the reauction. Now, this was a tedious business decision, and 
they were aware of the pending litigation, but the business 
opportunity to expand their wireless networks could not be 
ignored.
    In the end, these other companies made the choice that not 
participating was a greater risk than participating. Some areas 
of the country, such as New York City where I am from, are 
experiencing rapid growth in cell phone use. These licenses are 
vital to continued growth and good service in New York City.
    Existing spectrum that is already in use is almost at 
maximum capacity. Thus, unused spectrum, such as that in 
NextWave's control, is just wasteful. That having been said, I 
find myself impressed with the settlement before us, and 
considering the numerous legal difficulties, multiple court 
challenges, and other things, this legal deal extricates us 
from one of the most complex legal quagmires I have ever 
witnessed in a very, very long time.
    It is evident that a great deal of hard work and thought 
went into this. Recently, it has come to my attention that 
there is now an outstanding question as to whether or not 
NextWave is legally entitled to hold the licenses.
    It has been suggested that NextWave may not qualify as its 
foreign ownership exceeds legal caps. However, instead of 
junking this whole deal, I would suggest that an escrow account 
be set up pending this determination.
    I hope that when Congress acts that it includes all 
companies that bid on spectrum licenses and then went into 
bankruptcy. Those other companies particular situations may not 
have been appropriate for the negotiation table with NextWave, 
but I believe the FCC should be pursuing agreements with them 
so that Congress can enact one bill to handle all of this.
    I would also like to note that the problems that we are 
seeking to solve today are the results of the previous FCC 
Chairman's decisions. Chairman Powell has worked hard on this 
settlement. However, in his written statement, he advises 
Congress to alter existing bankruptcy law to prevent future 
situations like this one before us.
    Instead, I believe that this subcommittee should be dealing 
with issues under its jurisdiction. We should be determining if 
the FCC needs to strengthen its financial reviews of bidders, 
or if legislation is needed to strengthen the FCC's authority 
in this area.
    I would hope that the Chairman is also able to discuss what 
the FCC has done on its own to prevent this from happening 
again, and I look forward to his testimony, and I think that 
this will be a very fascinating hearing, and I thank you.
    Mr. Upton. Thank you. That concludes opening statements. We 
are going to have two panels this afternoon. The first panel 
will be headed by the Chairman of the Federal Communications 
Commission, the Honorable Michael K. Powell, along with Mr. 
Joseph H. Hunt, Counsel to the Deputy Attorney General at the 
Department of Justice. Gentleman, welcome.
    Your statements are made a part of the record in their 
entirety, and if you could take about 5 minutes to sum things 
up, and we will start questions after that.
    Mr. Chairman, go ahead.

    STATEMENTS OF HON. MICHAEL K. POWELL, CHAIRMAN, FEDERAL 
 COMMUNICATIONS COMMISSION; AND JOSEPH H. HUNT, COUNSEL TO THE 
  DEPUTY ATTORNEY GENERAL, UNITED STATES DEPARTMENT OF JUSTICE

    Mr. Powell. Let me say at the outset that listening to the 
various opinions expressed during the opening comments, I can 
assure you that over the 6 month drawn out, tortuous 
negotiations, I have shared every single sentiment that I have 
heard here at one point or the other in the process.
    I am pleased and honored to have the opportunity to sit 
before you today and at least explain why I reached my 
professional opinion that on the public interest merits of the 
NextWave settlement, the American consumer does benefit.
    As I say in my testimony, I think sometimes in the morass 
of details that it might be important to just keep three simple 
questions at the forefront of your deliberation.
    First, it is important to consider what posture the 
government is actually in, as opposed to where one wishes we 
stood.
    If I had to do it over again, I personally would love to be 
in a different posture than that held by the D.C. Circuit, but 
under that ruling, and the mandate that was issued, NextWave 
has rightful claim to its licenses, and the Commission's 
reauction, with its glittering bids of $16 billion has been 
largely arguably nullified.
    The second question, given these circumstances, regrettable 
though they may be, we must ask does this settlement 
nonetheless salvage substantial benefits for the American 
taxpayer.
    The government concluded that it does, putting the licenses 
to work in recovering two-thirds of the proceeds it would have 
received had Auction 35 not been undermined by the court 
ruling.
    Third, even if the settlement is bitter to swallow, as I 
believe it is, we have to ask ourselves is there a better 
alternative. The government concluded that the only other 
alternative posed greater risks to the public's interests than 
did the settlement.
    And in my testimony today, I would like to elaborate on 
these points. I will only briefly note that Chairman Upton and 
Mr. Markey are correct--that this settlement does not solve the 
basic problem, which the Commission as always been concerned 
about--the clarity necessary to reconcile potentially 
conflicting legal regimes between bankruptcy and 
telecommunications policy.
    No matter what one's position, we know at least now that 
the process of auctioning spectrum has a vulnerability 
associated with it, and at least we need to go forward with 
auctions understanding that that continues to be a risk.
    I won't elaborately discuss the posture of the case, but it 
is important to note that after this long and tortuous history 
that it did arrived before the United States Court of Appeals 
for the D.C. Circuit.
    That court held unequivocally that the Commission acted 
unlawfully when it tried to automatically cancel the licenses 
of NextWave, and issued a mandate that required that the 
NextWave licenses be in rightful possession of that party, and 
we were permitted only to conduct further proceedings not 
inconsistent with that ruling.
    Given those circumstances, the Department of Justice and 
the FCC decided, and indeed at certain critical moments--to 
consider the financial implications, and with the White House, 
in the form of the OMB, explored possible settlement of the 
case.
    The government had to find a way to recover the licenses, 
distribute them to many companies that had won them at 
reauctioning, and to secure as much of the reauction proceeds 
as possible.
    I assure you that this was no simple task. The talks went 
on for many months, and I was personally involved in the 
discussions and regularly kept my colleagues informed of the 
progress so that they would be prepared if Commission action 
was necessary to finalize any agreement.
    In the very late stages of the negotiations, thorny legal 
issues and questions of uncertainty made it clear that it would 
be very difficult to effectuate any settlement without 
legislative action.
    The parties reached mutually agreeable terms only late in 
November, and a proposal was almost immediately forwarded to 
Congress by the Attorney General for your consideration. The 
settlement agreement requires in its simplest form that the 
Auction 35 bidders pay the government nearly $16 billion that 
they bid in exchange for receiving the licenses auctioned in 
Auction 35.
    And to then the government keeps $10 billion in net 
proceeds, but by December 31, 2002 will pay NextWave 
approximately $5.8 billion in exchange for the complete release 
of its legal claims and the disputed licenses.
    As you know the settlement agreement is contingent upon the 
passage of legislation that includes draft legislation for 
Congress to consider. There are several reasons why we 
concluded that legislation was necessary to effectuate this 
settlement, and Mr. Ehrlich, this might help with some of your 
questions.
    First, the proposed legislation ensures that Congress has 
authorized a settlement, and the movement of funds necessary to 
implement it. I would note that the FCC has no checkbook from 
which it could pay NextWave to relinquish its licenses.
    Moreover, even if the Auction 35 winners paid the 
government first, it was unclear legally what they would be 
paying for, given the status of the auction, and that the 
government had no clear mechanism to turn around and transfer 
that money to NextWave.
    There simply is no authority resident in the Federal 
Communications Commission to draw on the Treasury in that 
manner. This Congressional action is required to empower the 
government to execute those complex terms.
    Finality was a second and critical factor in reaching the 
agreement. Both NextWave and Auction 35 winners were unwilling 
to participate without confidence that after having reached an 
agreement and foregone other opportunities, the agreement would 
not be overturned in court.
    The proposed legislation attempts to partially address 
these issues. It contains judicial review provisions patterned 
on other acts of Congress that provide for an expedited review 
limited to Constitutional claims.
    Any challenge to the legislation in the settlement 
agreement itself, or to actions taken by the Commission, would 
be funneled into a single Court of Appeals for review. This 
provides assurance that the public will receive the benefits of 
the settlement with minimal 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 by NextWave by the 
end of next year.
    Fourth, and finally, I would like to say a word about the 
December 31 clause in the settlement agreement. This is not, as 
some have maintained, an effort to jam the U.S. Congress into 
the agreement.
    Congress, of course, remains free to consider the deal as 
it sees fit, and modify the terms under its prerogatives. No 
private contract can limit the legislative power. The date 
merely reflects the fragility of the coalition and its 
interests.
    The Auction 35 winners need quick resolution in order to 
justify to their boards foregone alternatives in order to 
finance the purchase and to plan for the future. The bankruptcy 
proceeding continues to march forward and the parties each must 
maintain their positions there as well.
    And as we have noted, the Supreme Court case continues to 
move forward. The parties felt that after December 31 they were 
unwilling to promise to be a party to a settlement given these 
other exigencies.
    I merely ask that Congress keep those risks in mind as it 
deliberates over the legislation. We do recognize that the 
compressed period for analysis and recent discussions makes 
this task difficult for you, and for your staffs, and we 
appreciate the attention and care that has already been shown 
by Congress in considering the settlement in the legislation.
    I pledge my own personal assistance and that of my agency 
as you work through these difficult issues. Now to the gravamen 
of the whole settlement. This settlement is in the public 
interest in my judgment.
    Given the magnitude of it, in terms of money and its 
complexity, it is challenging to sort through the conflicting 
claims about its merit. But after a long and substantial 
examination, I believe that it is squarely in the public 
interest, just as the Attorney General and the White House have 
concluded, via OMB as well.
    I am convinced because at bottom after all the verbiage, 
the settlement satisfies three essential government objectives. 
First, it removes the licenses from a bankrupt bidder, and 
distributes them to companies that bid in the reauction who can 
put them to use almost immediately.
    Increasing spectrum in the market will partially help 
address the current spectrum shortage, improving quality of 
service, and providing capacity for new advanced services, such 
as third generation or so-called 3G.
    And I believe solidly that these are benefits to the 
consumer. Along that route, and aside, these licenses have been 
used once, and only once. They were used 3 months ago today on 
September 11, when wireless capacity forced a 300 percent 
increase in New York City for wireless telephone calls, and the 
congestion and complications in public service activity that 
resulted have been heavily noted.
    Ever since that tragic day the government has worked to try 
to provide access systems and other ways for public safety to 
take advantage of spectrum. The Federal Communications 
Commission issued special temporary authority to companies 
operating in New York City to deal with the crisis.
    That authority was to use these very NextWave licenses that 
had been encumbered for so many years. That is definitely in my 
opinion in the public interest. Second, it ends nearly 5 years 
of litigation, and it is an important point to note that this 
litigation likely would continue for several more years, 
leaving the spectrum laying fallow and the Treasury empty.
    Third, it gives the taxpayers $10 billion, double the 
amount of money that they stand to gain from NextWave, which 
would only have to pay $4.3 in installments over a several year 
period.
    This money flows to the U.S. Government at a time when the 
funds are sorely needed. And finally I think you always have to 
ask what really are the better alternatives to this settlement.
    The main reason to settle is that a settlement is 
preferable to the other alternative. If the Commission 
continued to litigate, and the Supreme Court declines to take 
the case, the decision of the Circuit will stand, of course, 
and NextWave likely will be the licensee.
    In that scenario, NextWave likely will elect to continue to 
pay for the spectrum over time at very advantageous interest 
rates pursuant to the installment program. NextWave could pay 
for the spectrum over 6 years at a rate of 6.5 percent for C-
Block licenses, and 6.25 for F-Block licenses.
    That would leave the Treasury with substantially less than 
$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 may not rule in the 
government's favor on the merits.
    In addition, and importantly, even if the Supreme Court 
does rule in favor of the government, it might very well remand 
the matter to the District of Columbia Circuit for further 
action on several legal issues that remain unsolved in the 
panel's decision.
    No matter what the outcome, litigation would likely mean 
many years of further delay of the Commission's ability to 
grant spectrum licenses for much needed wireless services for 
American consumers.
    I would note that the Commission first auctioned this 
spectrum in 1996 and 1997. Yet, it has never been used but that 
once. Even a favorable ruling from the high court might not 
arrive until late in 2003.
    And without a settlement, the valuable spectrum will remain 
fallow. Moreover, even if the government ultimately prevails in 
all litigation, there is uncertainly about the future value 
that bidders would place on the spectrum given fluctuations in 
the market.
    Several high bidders in Auction 35 have indicated that if a 
settlement does not go forward, and there is further 
litigation, they should be released from the obligations of 
Auction 35, and have their downpayments returned.
    They would argue, for example, that they should be entitled 
to the full return of the $3.2 billion that was mentioned 
earlier. It is uncertain at what price this spectrum would sell 
for at the conclusion of litigation.
    In conclusion, the Commission and the other parties to the 
NextWave case have negotiated long and hard to resolve a matter 
of critical importance to the American public. We have 
attempted to settle it in a way that protects the public 
interest, ensures that 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, and I look forward to answering your 
questions, any that you may have. Thank you.
    [The prepared statement of Hon. Michael K. Powell follows:]
    Prepared Statement of Hon. Michael K. Powell, Chairman, Federal 
                       Communications Commission
                            i. introduction
    Good afternoon, Mr. Chairman and Members of the Subcommittee. I am 
pleased to appear before you and offer my professional opinion on the 
public interest merits of the NextWave settlement, and the necessity of 
legislation to secure those benefits for the American consumer.
    As you consider this important matter, and its myriad provisions, I 
would respectfully suggest keeping three central points at the 
forefront of your deliberations:
    First, consider what posture the Government actually is in, as 
opposed to where we all with it stood. Under the court ruling, NextWave 
has a rightful claim to the licenses, and the Commission's re-auction--
with its glittering bids totaling $16 billion--has been nullified.
    Second, given these circumstances (regrettable though they may be), 
we must ask if this settlement nonetheless salvages substantial value 
for the American taxpayer. The Government concluded that it does, 
putting the licenses to work and recovering two-thirds of the proceeds 
it would have gotten, had Auction No. 35 not been undermined by the 
court ruling.
    Third, even if the settlement is slightly bitter to swallow, we 
must ask if there is a better alternative. The Government concluded 
that the only other alternative posed greater risks to the public's 
interest than did the settlement. In my testimony today, I will 
elaborate on these conclusions.
    And, finally, I respectfully request this Subcommittee and the 
Congress consider an important issue related to this case--settling 
with NextWave still leaves a gaping loop hole for anyone seeking to 
participate in an auction and then avoid the resulting government debt 
by declaring bankruptcy. Spectrum belongs to the public, and I believe 
that, even if we never provide for installment payments, it is 
important for Congress to make clear how spectrum auctions are to be 
treated under the U.S. Bankruptcy Code so that these cases never happen 
again. Although prospective protection for our auction program is not 
in the settlement legislation, now would be a good time to consider 
enacting language of this nature in order to provide certainty to all 
auction bidders, as well as to protect the auction process.
                      ii. the posture of the case
    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 down-payment 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 the licenses was not contrary to bankruptcy law. The 
court did allow that any administrative claims about the FCC's actions 
could be raised in the D.C. Circuit. Relying on the Second Circuit 
decision, 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.
    Unwilling to yield, NextWave 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, concluding that the Second Circuit opinion did not 
squarely consider this provision. The gravamen of the D.C. Circuit's 
decision was that NextWave was still in possession of the licenses, 
raising questions about our having re-auctioned the licenses in Auction 
No. 35. The Government has since sought review of this decision in the 
Supreme Court. This matter is still pending.
    Given these circumstances, the Department of Justice and the FCC 
began to explore a possible settlement of the case. The Government had 
to find a way to recover the licenses, distribute them to the many 
companies that had won them at the re-auction, and secure as much of 
the re-auction proceeds as possible. This was no simple task. The talks 
went on for many months. I was personally involved in the discussions 
and regularly kept my colleagues informed of the progress, so that they 
would be prepared if Commission action was necessary to finalize any 
agreement. In the late stages of the negotiations thorny legal issues 
and questions of uncertainty made it clear that it would be very 
difficult to effectuate any settlement without legislative action. The 
parties reached a mutually agreeable set of terms in late November, and 
a proposal was almost immediately forwarded to Congress by the Attorney 
General for your consideration.
    The settlement agreement requires that Auction No. 35 bidders pay 
the Government the $15.8 billion that they bid in exchange for 
receiving the licenses auctioned in Auction No. 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 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 effectuate the settlement.
    First, the proposed legislation ensures that Congress has 
authorized the settlement and the movement of funds necessary to 
implement it. The FCC has no checkbook from which it could pay NextWave 
to relinquish its licenses. Moreover, even if the Auction No. 35 
winners paid the Government first, it is unclear legally what they 
would be paying for (given the status of the auction), and the 
Government had no mechanism to turn around and transfer that money to 
NextWave. This congressional action is required to empower the 
Government to execute the settlement.
    Finality was a second and critical factor in reaching agreement. 
Both NextWave and the Auction No. 35 winners were unwilling to 
participate without confidence that after having reached agreement and 
foregone other opportunities, the agreement would not be overturned in 
court. The proposed legislation attempts to address these issues. It 
contains a judicial review provision, patterned on other Acts of 
Congress, that provides for expedited review, limited to constitutional 
claims. Any challenge to that 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 minimum 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 No. 35 receipts equal 
to the payments to be made to NextWave but no later than December 31, 
2002.
    Fourth and finally, I would like to say a word about the December 
31, 2001 clause in the settlement agreement. This is not, as some have 
maintained, an effort to jam the Congress into agreement. Congress, of 
course, remains free to consider the deal as it sees fit, and may 
modify the terms under its prerogatives. No private contract can limit 
the legislative power. The date merely reflects the fragility of the 
coalition and its interests. The Auction No. 35 winners need quick 
resolution in order to justify forgone alternatives, finance the 
purchase, and plan for the future. The bankruptcy proceeding continues 
to march forward and the parties each must take positions there. Also, 
the Supreme Court case continues to move forward. The parties felt that 
after December 31, 2001, they were unwilling to promise to be a party 
to settlement, given other exigencies. I merely ask Congress to keep 
those risks in mind as it deliberates over the legislation.
    We recognize that the compressed period for analysis and reasoned 
discussion makes this task difficult for you and your staff, and we 
appreciate the attention and care that has already been shown by 
Congress in considering this settlement and legislation.
         iii. the settlement proposal is in the public interest
    Given the magnitude of this settlement in terms of money and its 
complexity, it is challenging to sort through conflicting claims about 
its merits. I have concluded after long and substantial examination 
that this settlement is squarely in the public interest, as has the 
Attorney General and the White House. I am convinced because, at 
bottom, the settlement satisfies three essential Government objectives:

 First, it removes the licenses from a bankrupt bidder, and 
        distributes them to companies that bid in the re-auction, who 
        can put them to use almost immediately. Increasing spectrum in 
        the market will partially help address the current spectrum 
        shortage--improving quality of service and providing capacity 
        for new advanced services, such as Third Generation or so-
        called 3G.
 Second, it ends nearly five years of litigation that would 
        likely continue for several more years, leaving the spectrum 
        fallow and the treasury empty.
 Third, it gives the taxpayers $10 billion, double the amount 
        of money they stand to gain from NextWave ($4.3 billion, paid 
        in installments over 6 years). This money flows to the U.S. 
        Government at a time that the funds are sorely needed.
          iv. what are the better 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 percent for C-Block licenses and 6.25 percent 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, in 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 of the Commission's ability 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. Even a favorable ruling from High Court 
might not arrive until late in 2003. 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 No. 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 No. 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 this spectrum would sell for at the 
conclusion of the litigation.
                             v. conclusion
    The Commission and the other parties to the NextWave case have 
negotiated long and hard 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.

    Mr. Upton. Thank you.
    Mr. Hunt.

                   STATEMENT OF JOSEPH H. HUNT

    Mr. Hunt. Thank you Chairman Upton and members of the 
subcommittee. I appreciate the opportunity to provide a 
statement. The government's dispute with NextWave dates back to 
1996 and 1997, when the company was the high bidder at auctions 
held by the Federal Communications Commission for wireless 
telecommunications licenses.
    NextWave opted to pay its winning bids, totaling $4.86 
billion, in installments, but soon sought bankruptcy 
protection. After two trips to the United States Court of 
Appeals for the Second Circuit, which ruled for the government 
on bankruptcy law issues, the FCC reauctioned the disputed 
spectrum earlier this year in FCC Auction Number 35.
    Winning bids for that spectrum in Auction 35 totaled $15.85 
billion, more than three times the amount that NextWave had 
agreed to pay 5 years earlier. NextWave brought an action in 
the District of Columbia Circuit challenging the FCC's 
reauction of the spectrum.
    That court held that Section 525 of the Bankruptcy Code 
precluded the FCC's automatic cancellation of NextWave's 
licenses. Although the government has petitioned the Supreme 
Court for review of that decision, there can be no assurance 
that continued litigation will allow the government to put the 
spectrum to its most productive use or to recover the $15.8 
billion bid at Auction 35. Moreover, even if the government 
were ultimately successful in its pursuit of this litigation, 
victory could only come after years of additional delay.
    Extensive and complex negotiations, lasting more than 2 
months, culminated in a settlement agreement signed by the 
government, NextWave, and Auction 35 winning bidders 
representing more than $15.8 billion in bids. Under the 
settlement, NextWave will surrender the licenses in exchange 
for guarantee of payment from the United States. The FCC will 
then grant licenses to the Auction 35 winning bidders, who will 
pay the full amount of their winning bids.
    As the Attorney General explained in his letter to the 
Congressional leadership, the Department has concluded that the 
settlement is strongly in the public interest. It offers two 
tangible benefits to the American people.
    First, the settlement accomplishes by mutual agreement what 
lengthy and contentious litigation has been unable to achieve--
the award of spectrum to telecommunications companies that are 
most likely to use it promptly and efficiently, thereby making 
possible the expansion and improvement of widely used wireless 
telecommunications services.
    Second, it will bring substantial additional revenues to 
the United States Treasury. The settlement is designed to bring 
into the Treasury net payments in excess of $10 billion, 
resulting in a net benefit to the budget of approximately $4 
billion.
    The settlement is a genuine compromise that recognizes the 
enormous demand for this spectrum, and recovers for the public 
most of the value the spectrum represents to the winning 
bidders at Auction 35.
    The Attorney General has submitted a draft bill that 
provides statutory authority to proceed with the settlement. 
The bill provides the guarantee of payment that is required 
before NextWave will relinquish its claims to the licenses. It 
also specifies that Auction 35 should be implemented, with 
payment terms as modified under the settlement agreement.
    The bill establishes a limited and expedited structure for 
judicial review of challenges to the settlement, which is 
designed to ensure that any challenge is resolved by the courts 
as quickly as possible. Three kinds of challenges are 
permitted--litigation concerning approval of the settlement 
under the Bankruptcy Code, constitutional challenges to the 
FCC's approval of the settlement, and constitutional challenges 
to the implementing legislation.
    To ensure that the litigation concludes quickly, thereby 
providing the timely access to clean licenses required by the 
Auction 35 bidders and timely public access to additional 
spectrum, parties will be held to strict guidelines for 
initiating judicial proceedings and courts will be called upon 
to expedite their review, to the extent practicable.
    The settlement requires enactment of legislation before it 
can go forward. The Department of Justice strongly urges the 
committee, and the Congress as a whole, to take the steps 
necessary to realize these benefits. We are mindful of the 
difficulties that Congress faces when asked to enact proposed 
legislation before December 31, 2001. But the parties decision 
to select that date was not entered into lightly. Quick 
legislative action is necessary in order to conclude all 
related litigation and ensure the availability of the spectrum 
to the American consumers by the end of 2002.
    The importance of the deadline for legislative action also 
reflects the pendency of petition for writs of certiorari 
before the Supreme Court.
    We appreciate the care and seriousness with which this 
subcommittee and the Congress have undertaken to review and 
consider the proposed legislation. Chairman Upton, that 
concludes my prepared statement. I appreciate this opportunity 
to answer any questions that you may have.
    [The prepared statement of Joseph H. Hunt follows:]
Prepared Statement of Joseph H. (``Jody'') Hunt, Counsel to the Deputy 
         Attorney General, United States Department of Justice
    Thank you Chairman Upton, as well as the Members of the 
Subcommittee, for allowing me to provide a statement concerning the 
settlement agreement reached by the government, NextWave, and the 
Auction 35 participants. That agreement offers an opportunity for the 
government to end years of hard-fought litigation on terms that will 
benefit the American public by providing for prompt deployment of 
valuable telecommunications spectrum and adding billions of dollars to 
the United States Treasury.
    The government's dispute with NextWave dates back to 1996 and 1997, 
when the company was the high bidder at auctions held by the Federal 
Communications Commission (FCC) for wireless telecommunications 
licenses. NextWave opted to pay its winning bids, totaling $4.86 
billion, in installments, but soon sought bankruptcy protection. The 
United States Court of Appeals for the Second Circuit agreed with the 
government that NextWave could not keep the licenses while paying less 
than the winning bid amount, and also held that the bankruptcy court 
could not thwart the operation of the FCC's automatic-cancellation 
rule, under which the licenses dissolved upon failure to make timely 
payments. Following the Second Circuit's rulings, the FCC re-auctioned 
the disputed spectrum earlier this year in FCC Auction No. 35. Winning 
bids for that spectrum in Auction 35 totaled $15.85 billion, more than 
three times the amount that NextWave had agreed to pay five years 
earlier.
    NextWave brought an action in the District of Columbia Circuit 
challenging the FCC's automatic cancellation of the licenses and re-
auction of the spectrum. That court held that section 525 of the 
Bankruptcy Code precluded the FCC's automatic cancellation of 
NextWave's licenses. The government has petitioned the Supreme Court 
for further review of that decision. Even if the Supreme Court grants 
review and rules for the government, there remain other issues to be 
litigated before the D.C. Circuit and the FCC on remand. Thus, there is 
no assurance that continued litigation would allow the government to 
put the spectrum to its most productive use or to recover the $15.85 
billion bid at Auction 35. If the government does not prevail before 
the Supreme Court or on remand, NextWave would retain the licenses, and 
the United States might (depending on the treatment of interest and 
penalties) receive only $4.86 billion for this spectrum. Moreover, even 
if the government were ultimately successful in its pursuit of this 
litigation, success would likely come after years of additional delay 
in deployment of the spectrum in the face of continuing increases in 
consumer demand for wireless telecommunications services.
    Recognizing these disadvantages of continued litigation, the 
government entered into settlement discussions with NextWave and the 
Auction 35 winning bidders. The government pursued settlement as an 
opportunity to provide for the prompt transfer of valuable, unused 
spectrum to the Auction 35 Winning Bidders, whose bids provided strong 
evidence of their ability to put it to the highest and best use, and to 
increase the amount of money flowing into the Treasury by several 
billion dollars over what the government might otherwise receive.
    Extensive and complex negotiations, lasting more than two months, 
culminated in a settlement agreement signed by the government, NextWave 
and Auction 35 winning bidders representing more than $15.8 billion in 
bids. Under the settlement, NextWave will surrender the licenses in 
exchange for a guarantee of payment from the United States. The FCC 
will then grant licenses to the Auction 35 winning bidders, who will 
pay the full amount of their winning bids--approximately $15.85 
billion. In exchange for NextWave's relinquishment of its claims to the 
licenses, and after payment of taxes and other amounts to the 
government required by the settlement, NextWave will receive 
approximately $5.82 billion (net of corporate taxes on the 
transaction).
    As the Attorney General explained in his letter submitting the 
draft bill to the Congressional leadership, the Department of Justice 
has concluded that ``the settlement is strongly in the public 
interest.'' This is a good settlement; it offers two tangible benefits 
to the American people. First, it accomplishes by consensual 
arrangement what lengthy and contentious litigation has been unable to 
achieve--the award of spectrum to telecommunications companies that are 
most likely to use it promptly and efficiently, thereby making possible 
the expansion and improvement of widely used wireless 
telecommunications services.
    Second, it will bring substantial additional revenues to the United 
States Treasury. The settlement is designed to bring into the Treasury 
net payments in excess of $10 billion, after accounting for the payment 
to NextWave. The Office of Management and Budget advises that these 
payments will result in a net benefit to the budget (above the current 
baseline) of approximately $4 billion. The public is far better off 
with such an agreed resolution than it would be if we continued to 
pursue judicial relief, especially given the uncertain prospects of 
success and the delay associated even with a favorable outcome to the 
litigation. The settlement is a compromise that recognizes the enormous 
demand for this spectrum and recovers for the public most of the value 
the spectrum represents to the winning bidders at Auction 35.
    The settlement requires implementing legislation before it can go 
forward. The Attorney General has submitted a draft bill that provides 
statutory authority to proceed with the settlement. The settlement 
specifies that Auction 35 should be implemented, with payment terms as 
modified under the settlement agreement. By appropriating funds to 
guarantee payment, the bill enables NextWave to relinquish its claims 
to the licenses, which is a prerequisite to the FCC's issuance of those 
licenses to the winning bidders at Auction 35. The bill also 
establishes a limited and expedited structure for judicial review of 
challenges to the settlement, enabling the spectrum to be put to use 
expeditiously and bringing an end to this protracted litigation.
    The judicial review provisions of the bill are designed to ensure 
that any challenge to the settlement is presented to and resolved by 
the courts as quickly as possible. Three kinds of challenges are 
permitted--litigation concerning approval of the settlement under the 
Bankruptcy Code, constitutional challenges to the FCC's approval of the 
settlement, and constitutional challenges to the implementing 
legislation. To ensure consistency and to promote judicial efficiency, 
the D.C. Circuit will have exclusive jurisdiction to hear any such 
challenge. Although the bill requires expedited treatment, it leaves 
the court to set its own schedule, subject to an instruction that the 
court act ``with a view to'' deciding the case within a certain period 
of time ``if practicable.'' Similar provisions seeking quick action are 
also provided for rehearing and certiorari review.
    The bill provides ample opportunity for judicial resolution of 
genuine legal disputes about the settlement. As in any bankruptcy case, 
settlement must be approved by a bankruptcy court or district court. 
NextWave has filed its motion for approval with the Bankruptcy Court 
for the Southern District of New York, and the bankruptcy rules provide 
for a period of notice during which any objections may be brought 
before the court. If the bankruptcy court grants NextWave's motion for 
approval, any objecting party may appeal that decision. The D.C. 
Circuit, which is familiar with the case, will have exclusive 
jurisdiction to hear any challenge to the constitutionality of the 
settlement or the legislation.
    The bill precludes nonconstitutional challenges to the FCC's 
implementation of Auction 35 pursuant to the terms of the settlement 
and the legislation. Congress's express approval of the settlement 
would eliminate potentially time-consuming litigation. Similarly, 
because of the importance of putting this valuable spectrum to use as 
quickly as possible, the bill precludes courts from entering an 
interlocutory order enjoining an Auction 35 licensee from using the 
spectrum before the expedited review process has reached finality. 
Legal disputes that would not affect the implementation of the 
settlement--such as questions about the qualifications of a winning 
bidder--are not subject to the provisions for expedited treatment and 
can proceed in the normal course. The judicial review provisions of the 
bill permit bankruptcy challenges that are otherwise authorized under 
current law.
    We believe that the bill is constitutional in all its particulars, 
and that there are no other judicial obstacles to full implementation 
of the settlement. The settlement nevertheless addresses the 
consequences of an adverse ruling. If a final court order prevents 
NextWave from surrendering the licenses, the settlement will not go 
forward. If a final order bars the FCC from implementing Auction 35, 
the government will again hold valuable wireless spectrum and could 
offer it in a future auction as appropriate.
    I want to emphasize that the Department of Justice, after careful 
consideration, has concluded that this settlement of the NextWave 
litigation offers significant benefits to the American public. Because 
the settlement requires enactment of legislation before it can go 
forward, the Department strongly urges the Committee, and the Congress 
as a whole, to take the steps necessary to realize these benefits. We 
are mindful of the difficulties Congress faces when asked to enact 
proposed legislation before December 31, 2001. But the December 31, 
2001 date is a necessary component of this carefully negotiated 
settlement; the parties' decision to select that date was not entered 
into lightly. All parties, including the United States, need to bring 
an end to the wrangling over these licenses and put the spectrum to 
good use. Legislation is necessary by December 31, 2001, in order to 
conclude all related litigation and ensure the availability of the 
spectrum to the American consumers by December 31, 2002. The December 
31, 2001 date for enactment also reflects the pendency of petitions for 
writs of certiorari before the Supreme Court, an important component of 
the time pressures that were considered.
    The parties have said that they are willing to settle this case on 
the terms set forth in the agreement, but only if the legislation can 
be enacted by December 31, 2001. If the implementing legislation is not 
enacted, we will return to litigation in which our prospects are 
uncertain and the path to success a long and costly one. Only if 
Congress enacts the implementing legislation and keeps this settlement 
agreement in place are the American people certain to realize promptly 
both the improvements in wireless telecommunications services and the 
addition of several billion dollars to the Treasury. We appreciate the 
care and seriousness with which this subcommittee and others in 
Congress have undertaken to review and consider the proposed 
legislation. After careful analysis, we have concluded that the 
settlement is in the public interest. We hope that you will agree.
    Chairman Upton, that concludes my prepared statement. I very much 
appreciate this opportunity to present the Department of Justice's 
views on this important issue, and I would be pleased to respond to any 
questions you may have.

    Mr. Upton. Thank you both. We are going to proceed with 
questions from members using the 5 minute rule, and I will 
yield first to the chairman of the full committee, Mr. Tauzin 
for 5 minutes.
    Chairman Tauzin. Thank you, Mr. Chairman. I think it is 
important to put this whole matter in a bit of perspective 
here. Congress, as you know, Mr. Chairman, determined to move 
away from various forms of spectrum allocation including all 
sorts of lotteries, and other forms of distribution of 
licensing in favor of this auction.
    And Congress had a choice. We could have passed a law that 
said to the FCC that when you auction off spectrum from now on, 
cash on the barrel head. We could have said that. That would 
have limited the potential of people coming to these auctions 
to only those folks who had the avail cash on the barrel head, 
and who could come forward with enough financing in advance of 
the auction to pay for the purchase as soon as the auction was 
concluded.
    That is the way that a lot of auctions are conducted in 
this country. You can't do it on credit. We decided instead to 
permit auctions on credit, and to allow people to come into the 
auction process to bid for spectrum, and to put down a small 
amount as a downpayment, with the understanding that they would 
pay the rest of the auction bid over time.
    In effect, we decided to provide for government financing, 
time to go out and do the financing behind the auction bids in 
an attempt to keep the auction processes as open as possible to 
as many Americans as possible.
    I thought that was probably a good idea. But let's put a 
few other things in perspective, too. When these C-Block 
auctions occurred back in 1996 and 1997, and the parties like 
NextWave showed up and bid, and in this case $4.86 billion for 
these licenses, and they did so under a credit system, they did 
so based upon the financing arrangements that they could 
reasonably assume would be available for them to pay for these 
licenses over the time allowed under the auction process.
    But then you see that the government did something else, 
too, about that time. Congress tried to find money for its 
budget problems, and authorized more spectrum sales, and so the 
government was forced to provide additional spectrum auctions 
and additional sales.
    Some would argue that the speed in which Congress and the 
FCC went out and auctioned additional spectrum had several 
deleterious effects upon the C-Block auctions. First of all, it 
diminished the value of those licenses as we put more spectrum 
out into the public domain, and therefore made each bid on 
spectrum less valuable.
    Second, it may have severely undercut the capacity of 
groups like NextWave to go out and do their financing as the 
value of their asset, the spectrum they had bid in, made have 
been diminished by the government action.
    I mean, what I am saying is that we may have contributed to 
the failure of this process because budgeteers were making the 
decision about spectrum auctions instead of communication 
policy experts.
    Because budgeteers were driving the FCC to produce more and 
more dollars out of spectrum sales at a time when budgeteers 
wanted to balance the budget. There were many on this committee 
arguing to the Budget Committee that you are going too fast, 
and you are going to force auctions in which we are not going 
to get any money.
    And guess what. There was an auction that occurred--and I 
forget the name of it, but we got one dollar, I think, for a 
successful bid in that subsequent auction. So when we think 
about responsibility here, let's put a little bit on ourselves.
    Congress, yielding to the demands of the Budget Committee 
for more and more money for spectrum auctions, may have messed 
up, bundled this process of credit auctions under which 
NextWave and other bidders on the C-Block auction went forward.
    But once NextWave successfully bid in its spectrum, I 
believe the Circuit Court was correct. It acquired a property 
right in that spectrum, and now the Circuit Court has said so.
    And despite all the claims of the FCC that they had a right 
to pull that spectrum back and sell it to anybody that they 
wanted to, the Court said, wait a minute, you can't just do 
that. You auctioned this off to NextWave, and they bid it in, 
and they put their money down.
    And they even came back when the value of that spectrum 
began going up in the marketplace again, and they came back and 
said we will pay you ever dime that we owe you, plus. We will 
give you a bonus if you take your money now and settle with us.
    And the government said, no, we want the spectrum back 
because we think we can sell it for a higher price, and that is 
what the government tried to do. And the Circuit Court 
basically said you can't do that in America. You just can't 
take somebody's property because you want to sell it for a 
higher price than you sold it to them.
    And the Circuit Court said no to the government, that you 
can't do that. NextWave has a property rights interest. That 
being the case, we have got to resolve this thing now. And what 
we have before us, I think, Mr. Chairman, is the recognition.
    And indeed as Chairman Powell has told us, that under the 
circumstances we now find ourselves with NextWave having a 
property right in this spectrum, with the spectrum being worth 
a lot more today than it was when NextWave bid it in initially.
    But remembering that it was worth a lot less when NextWave 
was trying to put its finances together before it had to 
declare bankruptcy. Remembering that we may have contributed to 
that situation by rushing out too much spectrum in auctions 
that I think ill-considered, ill-timed, and not in all respects 
conducted properly.
    The bottom line is that we now find ourselves with a 
situation where the government can now not only recoup its full 
$4.86 billion, but a great deal more. And the folks who came in 
and bid at this auction that the government set up trying to 
resell this spectrum, are now prepared to put up that money and 
to put this spectrum to use, and NextWave will be respected in 
its property rights.
    Now, I don't know how you can settle this thing any other 
way that would be fairer, and would be consistent with public 
policy considerations, and constitutional rights of the 
parties.
    And at the same time get this spectrum out the way that we 
intended in 1996 and 1997 to the users in America who 
desperately want to use it. I don't know how you would do it 
any other way, except through protracted and extensive more 
litigation, all of which could have been avoided in the first 
place if Congress and the FCC hadn't made a bunch of bad 
decisions back then.
    Now, I think we have some complicity in this. I think we 
are partially to blame for the mess that has been created. I 
think we all have to extricate ourselves from it the best way 
we can, and I think, Mr. Chairman, that you put your finger on 
it.
    This is literally the best that we can do in the public 
interest to settle this mess, recognizing property rights like 
the D.C. Court did. And at the same time recouping for the 
government its money due, and more importantly getting the 
spectrum out to folks in America who should have been enjoying 
it since 1996.
    Now, if I am wrong in any of that, I wish, Mr. Chairman, 
that you would correct me in whatever time remains. Then, Mr. 
Chairman, I yield back.
    Mr. Upton. The gentlemen's time has expired. The gentleman 
from Massachusetts, Mr. Markey.
    Mr. Markey. I followed it completely, Mr. Chairman, and I 
thought you did a good job laying out all of the competing 
considerations that have to be factored into this decision.
    You know, on spectrum policy, Congress is schizophrenic. 
There is no question about it. Sometimes we say to the 
Commission to auction it off. Other times we say give it free 
to the broadcasters, and other times we say forego auctions, 
because there is some other public interest consideration.
    We make various decisions here based upon what we believe 
to be the best balance of policies to compete out in the 
marketplace, but also to serve the public interest, and that's 
what Section 309(j)(3) talks about, and not just insuring the 
maximum amount of revenue comes in, but all these other values 
as well.
    And I know that we are all talking about money here, but we 
are talking about a lot of other very important things, too, 
that have to be put out here on the table. Now, Mr. Dingell and 
I gave you kind of a homework assignment on short notice.
    And we very much appreciate, Mr. Chairman, your very rapid 
response to some very complex questions. And in the answers, 
you told Mr. Dingell and I that the FCC has not taken action on 
petitions questioning the eligibility of NextWave, the whole C-
Block licenses. That is the Verizon Voice Stream petition.
    You say that there is no investigation that was performed 
because the licensees and licenses were subject to litigation. 
And you stipulate that the Commission has conducted no 
extensive review of NextWave's ownership structure since its 
original 1997 license grants.
    And we could go on here, but from my perspective, we have 
got urban communicators sitting out here. They will be on the 
next panel. They are kind of the remainder men of this story 
line, with an unresolved ending for them and for others who are 
similarly situated.
    I don't think that Congress has a policymaker can or should 
allow that to happen. I think we need to quite clearly 
articulate what the policy is going to be, and not just for the 
largest bidder, but also for every other bidder, just out of a 
sense of fairness, equity.
    Now, that is what we were structuring here, and one of the 
questions that I have, and I pose it to you, Mr. Chairman, as a 
potential alternative, is if our goal is to get the spectrum 
out into the market soon, what if the FCC simply ceased 
litigation, and accepted that NextWave is the licensee as Mr. 
Tauzin just said.
    And then mandate that it fully filled out its wireless 
infrastructure, and compete against the incumbents using the 
wholesale strategy that it said was going to be its marketplace 
strategy.
    And recognizing the fact that the CBO scoring of $10 
billion is completely illusory. They are going to score this 
whole thing as a loss, and so that there is only a marginal 
difference of opinion.
    At least that way we would get a competing network built 
out there, and would add more competition to the marketplace, 
and would fulfill the requirements of Section 309(j)(3), that 
we provide the consumer with those additional choices.
    Why isn't that a better alternative since the competing 
bidders who slot to get into this market, the Alaska media 
wireless, and Salmon wireless, were told by the FCC that they 
were bidding on something that was very speculative.
    And in fact, NextWave might wind up as the legal owner of 
the spectrum, and so they already know that, the new bidders, 
the people that sent it up to $16 billion or whatever it was.
    So why don't we just go that route, Mr. Chairman. Why isn't 
that a better route, and then at some point in the future if 
they want to see it they can sell it, but at least we will have 
ensured the integrity of the process; that is, in terms of 
the--well, of course, that is impossible completely in this 
situation.
    But at least we will have a new competitor out in the 
marketplace consistent with what NextWave promised initially 
when they bid for this spectrum.
    Mr. Powell. Sure, I will take my best shot. It is an 
alternative, and certainly one that the Commission considered 
would be before it if this settlement was not codified. First, 
as to why not. It is by far not a certainty or a finality, or a 
conclusion.
    For example, there are many, many continuing regulatory 
proceedings that would have to be revived in the context of 
NextWave's qualification as a licensee that remain pending.
    The Commission would have to spend a significant amount of 
time considering and evaluating those petitions and 
considerations. If they led to disqualification, it would 
require another substantial period in which they would be 
designated for a hearing and evaluated, and arguably continue 
in litigation and upon appeal.
    And at least one set of answers is that it would not be a 
final settlement of the litigation aspects, because they would 
go on for quite a bit longer. Another point that I would like 
to make is about an additional competitor.
    Certainly there would be additional an competitor, but as 
you noted, their model was to be a carrier's carrier, which is 
to provide capacity to other carriers. They would not as a 
consequence be a retail alternative competitor for consumers.
    And compare that to the fact that in Auction 35 the list of 
companies that stand to win licenses and put them to use are 
not all existing companies that are already providing 
competitive choices.
    Many of them would be new competitive entrants in 
particular markets, including some small and new 
entrepreneurial entrants, and so many of them would be 
providing service that I would argue even more new competitive 
choice for consumers than the default of just simply awarding 
to them a single company which might provide modest competitive 
benefits, but not retail competitive benefits.
    Mr. Markey. I think I understand what you are saying. It is 
very speculative what would come in if we auctioned this 
spectrum again 5 years from now, or NextWave sold it 5 years 
from now, and what would be the benefit of NextWave's strategy 
in the marketplace, as opposed to some other smaller company.
    Although that I think that we all pretty much have a good 
idea that some of the companies that are players in this 
auction actually want to add this spectrum to already existing 
services.
    I think that is what Verizon and SPC are all about in this, 
and that is quite different than adding a new competitor. We 
know that as well, and I think you should stipulate that in 
your testimony. That's also part of this.
    But what I am saying to you is that if you remove that 
direction, that at least NextWave then would have fulfilled its 
obligations. It would have built out. The option process would 
have had some approximation of having fulfilled what its 
original intent was, although it was a long and winding road.
    And I think to a certain extent that is a very strong 
signal to send to companies that might look at this as kind of 
an opportunity to move in, bid for spectrum, and sit on it, and 
never build out, and not even have the proper financing 
perhaps, but they own it now, and not see the consumer with a 
competitive company out in the marketplace.
    And all I would say is that this hearing helps to kind of 
frame some of the other alternatives that might be out there in 
looking at a way of resolving the issue. Thank you.
    Mr. Upton. Thank you. Mr. Chairman, you asked in your 
opening statement, you asked the question is there a better 
alternative, and as we all listened to the opening statements 
on both sides, I think we all lament that there is probably not 
a better alternative than what is on the table before us.
    I think that a lot of us see the writing that is on the 
wall, and we also see the calendar and the clock ticking to 
December 31, and we also know that there is probably a very 
limited number of legislative days, perhaps until only the end 
of this week, before this session of Congress wraps up until 
next year, though there is a chance that we will be in next 
week.
    What do you think would happen if for some reason we don't 
see a legislative fix or a legislative agreement before we 
break in the next couple of days? What is your prediction as to 
what will happen?
    Will we wait for the courts to step in and perhaps before 
the Supreme Court, or do we see everybody walk away, or do we 
see the candle relit for another 90 days? What is your 
prediction as to what would happen?
    Mr. Powell. I think that it is difficult to predict, but I 
think a lot would have to do with whether there was a 
perception that a result was coming.
    Mr. Upton. I mean, I think everybody knows that we are 
pretty close, maybe.
    Mr. Powell. I think that each of the major sets of parties 
would make judgments about how likely and how soon they thought 
a possible resolution was coming. It is important to review 
what I think the window of opportunity is and why after this 
date there are these exigencies.
    First of all, the government. We have sought certiorari, 
and that case continues to progress. At some point the 
government transitions from being a party to a settlement, and 
it has to put on its Supreme Court litigating fighting hat, and 
that is a role that it has to play.
    And as the months go by, it increasingly gets closer to its 
obligation to serve that role. If you take the Auction 35 
winners, they certainly did take spectrum at option fully aware 
of the risks.
    But those risks have come true, and they are busy trying to 
justify to boards and shareholders why they continue to be 
under the potential government obligation for significant 
amounts of money, foregoing other opportunities to make network 
modifications and upgrades.
    And they have been willing to participate in the 
discussions and resolution of those under the anticipation that 
if it really comes through in a sufficiently timely way that it 
will be worth it.
    But when it starts dragging on in time, I think there are 
serious questions whether many of the Auction 35 winners would 
be willing to be a participant in settlement and might very 
much prefer to simply have it go down, and seek other 
alternatives for their needs.
    And by the way, they do so with full knowledge that one day 
this spectrum, if framed by the government as a public asset 
will be sold again. And perhaps at better values than what it 
was sold at the present auction.
    So I think they are a fragile part of the settlement, and 
you can ask Mr. Strigl and Verizon their judgment when they 
come up in the second panel. And then I think it is important 
that the other part of the window exigency was that the 
bankruptcy proceedings march on.
    NextWave as a bankrupt party is in that proceeding, and has 
milestones to meet with the Court. That Court is willing to 
entertain possible settlements that restore creditors, but at 
some point that process continues to advance and mature.
    So those are the factors that result in the frugality and 
what will happen will be an individual judgment of each of 
those parties. As a formal matter under the settlement, after 
that date, none of those parties is legally bound to terms and 
conditions, and each would enjoy a new individual judgment as 
to whether to proceed at all.
    Mr. Upton. So the bottom line would be that it would be 
pretty hard to put Humpty-Dumpty back together again?
    Mr. Powell. There will be a lot of pieces, yes.
    Mr. Upton. Does the full Commission need to approve the 
settlement, or do you have that authority as Chairman? What is 
your sense?
    Mr. Powell. I think that the important point is that this 
is the settlement of the litigation, and not an administrative 
or Commission act. It is one in which the Department of 
Justice, as the counselor to the Federal Communications 
Commission, plays a principal role.
    And indeed it is important to note that this settlement 
really was an opportunity for the Commission and the government 
to put the parties together and to try and find terms and 
conditions under which they could reach mutual agreement.
    It was clear that that could not be done by the Commission 
under its own authority, such as questions about how to move 
the money. And so in essence it is a proposal to Congress to 
embrace the legislative terms.
    Under Section 5(a) of the Communications Act, it firmly 
vests in the Chairman of the Federal Communications Commission 
the special right to propose legislation and to work with other 
government agencies in the resolution of disputes and that is 
the provision on which I acted.
    Mr. Upton. All right. Mr. Hunt, do you have a comment with 
regard to the first question that I gave to Chairman Powell? 
What happens if the clock runs out?
    Mr. Hunt. Well, I agree with the Chairman's comments. I 
might only add that having sat through more than 2 months of 
negotiations with all of these parties, and with 40 or 50 
lawyers every day and every night, I would not begin to predict 
the likelihood of being able to put humpty-dumpty back together 
again once the date passes.
    But everything that the chairman stated was accurate--and 
reasons why we were driven to the time constraints that we were 
driven to with respect to this agreement.
    Mr. Upton. Thank you. Mr. Boucher.
    Mr. Boucher. I would like to take just a moment to inquire 
as to the necessity of Congress acting in this matter. We have 
an agreement before us which has been signed by the 
stakeholding parties. Why can't that agreement simply be put 
into effect on its own? Why does Congress have to do anything?
    Mr. Powell. Let me take a stab at that, and then offer Mr. 
Hunt an opportunity on the part of the Administration as well. 
The first issue that became complicated was literally the 
simple mechanisms for moving money.
    As I alluded to in my opening testimony, you have a company 
that under the ruling of the court is in rightful possession of 
the licenses, and basically in order to disgorge them they need 
to be paid.
    No one at the Federal Communications Commission, as I said, 
has a checkbook or the kind of authority necessary to draw on 
the funds of the United States Treasury. And so that was one 
set of problems and difficulties.
    Moreover, even though there is potentially money due to the 
U.S. Government which would cover the costs of disgorging 
NextWave of the licenses, it was clear to us that: one, there 
was a legal issue as to what it would be received for if, for 
example, Auction 35 is not in legal effect, which is at least 
questionable under the D.C. Circuit ruling.
    And you just don't take money from the U.S. Government for 
any reason, and then even if we could find a way to do that, it 
was clear that nobody had the ability to then reissue those 
funds to NextWave in the context of a settlement.
    So first and foremost because of the merry-go-round of 
money that is necessary--we felt had to have the kinds of 
authorization of the institution empowered to make 
appropriations. The second set of issues, at least from my 
perspective, is that there is a host of thorny legal matters as 
a consequence of the D.C. Circuit's decision that would raise 
legal risks and vulnerabilities to any settlement without the 
blessing of Congress. Because of the ruling of the D.C. Circuit 
if the licenses automatically canceled when we sold them, we in 
essence didn't really have them to sell.
    While we thought we had arguments that could justify our 
redistributing them to the Auction 35 winners, the auction 
winners and NextWave themselves were particularly uncomfortable 
with committing to these settlements if there were a host of 
risks and vulnerabilities that would be ultimately overturned 
like an apple cart because of these odd legal postures.
    So since it was necessary to get appropriation authority, 
it was thought that the settlement of that finality would be 
equally meritorious. I am confident that we explored many ways 
that we could have done it without Congressional intervention 
and came to the conclusion that we didn't feel comfortable that 
we could.
    Mr. Boucher. Well, I would assume that on the first point 
that an appropriation meets your needs. And that potentially 
might be easier to obtain than taking legislation ab initio 
through the entire Congressional process.
    I am not confident of that, but perhaps it would be. On the 
second point, I am a little bit perplexed about who would have 
standing to challenge the agreement. You have suggested that 
there is some legal uncertainties.
    Are you saying that you are concerned that some party not a 
signatory to the agreement might go to court and challenge its 
terms, and demonstrate to the Court that it has standing even 
to be there in order to do that?
    I have some real doubts about that. In the alternative, are 
you saying that you need direct statutory authority to issue 
these licenses now to the companies that prevailed in the 
second auction, or do you think that you have sufficient 
authority to do that?
    Mr. Powell. First of all, candidly, we have learned in this 
litigation that nothing is beyond the realm of possibility that 
could upset an otherwise valid decision.
    But, yes, I think that there was some concern that there 
could be standing and challenges by parties who were not part 
of the settlement. Indeed, we have already seen some companies, 
and some testified before the Judiciary Subcommittee just the 
other day, raising questions and concerns about the settlement 
when they had yielded in the auction, or had otherwise complied 
with the rules and provisions of the auction rules.
    So those were concerns, and I should say that you might ask 
that again in the next panel. I think the concerns were very, 
very serious to the private parties more than to the 
government.
    We believe that while risky, we thought that there were 
some challenges and responses that we would have to such 
claims. But nonetheless there were very significant commitments 
being made here.
    And again given that there was going to be this need for 
the money movement, there was a desire to have that done as 
well, and maybe Justice has a better view on it.
    Mr. Boucher. I will take your advice and propound that 
question to our next set of witnesses. Let me finally ask one 
other question. NextWave was obviously the largest winning 
bidder in your initial C-Block auction.
    But there were also some other winning bidders in that 
first C-Block auction that like NextWave declared bankruptcy, 
and declared bankruptcy at a time when they had those licenses.
    We are probably going to be hearing shortly from one of 
those other companies, a company called Urban Communications. 
Let me ask you if there are any other companies that are 
precisely similarly situated to NextWave, meaning that they 
declared bankruptcy, and the Commission has now received a 
court order requiring a reinstatement of the license to that 
bankrupt entity. Is there any other companies situated that 
way?
    Mr. Powell. There are, and I would ask Justice to add to 
this as well, but to my knowledge--and we need to verify this--
there is only one company similarly situated to NextWave in 
near identity, and that is Urban Comm.
    There are other companies to which there are issues 
associated with automatic cancellation that at some point have 
to be resolved as well. They are not necessarily companies 
whose licenses found their way back into the Auction 35 morass.
    But there are companies in which the Commission has 
positions that they automatically canceled, and had to be 
reconsidered. I would also caution that because of some of the 
complexities of Federal Court litigation there is probably at 
least a host of legal issues about other Circuits considering 
matters in different parts of the country in which some of 
these companies reside.
    And the government continues to be careful in the position 
that it takes with respect to remaining litigation.
    Mr. Boucher. Mr. Chairman, may I have unanimous consent for 
1 additional minute?
    Mr. Upton. Hearing no objections----
    Mr. Boucher. Chairman Powell, is there anything in this 
settlement that prejudices the rights of Urban Communications 
or another company that might be similarly situated to 
NextWave?
    I mean, they still have the full range of opportunities 
available to them that the law provides, even if this 
settlement is approved, do they not? So, I mean, do you see any 
way that this settlement might actually cause harm to such a 
company?
    Mr. Powell. I don't think it causes harm, although I am 
more than understanding of the concerns of that company 
particularly, and the fact that they are sort of similarly 
situated, and see the opportunity to settle their growing 
concerns.
    Our position by the way is that we have never been opposed 
to that, and we have always maintained that we are relatively 
open to settlement discussions with Urban Comm as well. Indeed 
our only position has been that we wanted to first resolve the 
NextWave litigation, which had different exigencies associated 
with it, and different financial obligations associated with 
it.
    We needed some understanding of what parameters we would 
really be able to operate in, in continued settlement 
discussions, but that is what we tried to convey both to that 
company and in our own deliberations.
    And I think we have already in fact began to consider some 
options with respect to that particular party, and I think that 
there still is a realistic possibility that it could be settled 
with the government as well.
    Mr. Boucher. Thank you, Mr. Chairman.
    Mr. Upton. Okay. The Chair will recognize Mr. Dingell for 5 
minutes.
    Mr. Dingell. Mr. Chairman, thank you. First, Mr. Powell, 
thank you for your assistance to Mr. Markey and me. Second of 
all, I would note that the Bureau ordered NextWave to come into 
compliance with the foreign ownership rules within a set time. 
But that the full Commission neither ruled nor evaluated 
whether NextWave later complied with the order; is that 
correct?
    Mr. Powell. That is largely correct, yes.
    Mr. Dingell. Okay. Now, Mr. Chairman, I would note that the 
Commission has made no final determination with regard to 
whether the claims have any merit, referring to the matters 
with regard to NextWave's qualifications; is that correct?
    Mr. Powell. That's correct.
    Mr. Dingell. Mr. Chairman, has the Commission undertaken 
any formal investigation with regard to the claims?
    Mr. Powell. Those claims, the recent ones filed in July, 
are pending, and there have been no formal actions taken yet.
    Mr. Dingell. Are the questions of the validity of those 
claims important or unimportant?
    Mr. Powell. They are important, but they are potentially 
mooted if NextWave is never a licensee.
    Mr. Dingell. But they are important in determining whether 
or not there is compliance with the law, and with the public 
interest; is that right?
    Mr. Powell. Yes. But it is important to note that the 
qualifications are requirements of a license holder, and in 
many ways what has complicated those issues is that if NextWave 
gives up licenses and does not stand as a holder of licenses, 
there aren't qualifications for it to meet.
    Mr. Dingell. But what you are really saying is it only 
becomes irrelevant if we bless the settlement; is that right?
    Mr. Powell. That's absolutely correct.
    Mr. Dingell. So if we do not, those questions remain then 
to be important; is that right?
    Mr. Powell. That's right.
    Mr. Dingell. Now, Mr. Chairman, is it fair to say that 
there is some reasonable basis to believe that NextWave may not 
be entitled to the reinstatement of its licenses?
    Mr. Powell. We don't have any reasonable basis to make that 
opinion one way or the other at this point, no.
    Mr. Dingell. So you can't tell us yes and you can't tell us 
no?
    Mr. Powell. That's correct.
    Mr. Dingell. Thank you, Mr. Chairman. Now what would happen 
to these outstanding claims if the settlement is approved by 
the Congress? They are mooted are they not?
    Mr. Powell. Yes, sir, they would be mooted.
    Mr. Dingell. I note that NextWave filed a second plan of 
reorganization with the bankruptcy court in August of this 
year, and that the Commission, through its lawyers at the 
Department of Justice, objected to that plan. Can you tell us 
what was the basis for the Commission's objections?
    Mr. Powell. I will ask the Department of Justice to comment 
on that as well. My recollection is that we reserved the right 
to continue to consider the qualifications of the licensees 
under the second reorganization plan, rather than endorse it as 
proposed.
    Mr. Dingell. That tends to comport with my understanding, 
and the way that I understand it is this, and tell me if I am 
incorrect. Among other things, there is an outstanding claim 
against NextWave's qualifications; is that right?
    Mr. Powell. I'm sorry, Mr. Dingell?
    Mr. Dingell. Amongst other things, there are outstanding 
claims against NextWave's qualifications; is that right?
    Mr. Powell. That's correct.
    Mr. Dingell. And that the Commission has reserved the right 
to reevaluate NextWave's status as a licensee in the light of 
the proposed reorganization plan and its effect on the 
company's financial structure?
    Mr. Powell. Yes, it would be obligated to do so.
    Mr. Dingell. I think that is generally what you said. Now, 
the second point that we are discussing, the need for the 
Commission to evaluate NextWave's status as a licensee, has 
that been completed?
    Mr. Powell. No it would have to be revived if NextWave 
ultimately became the licensee.
    Mr. Dingell. All right. Is it fair to say that NextWave's 
current financial structure is substantially different than 
when the licenses were originally issued?
    Mr. Powell. I am not certain. It is my understanding that 
it is, but maybe those who participated in bankruptcy court 
might more fully know.
    Mr. Dingell. Maybe with all respect I could say, Mr. 
Chairman, that I think that the FCC does not know; is that 
correct?
    Mr. Powell. The FCC, as you have noted, has not taken a 
comprehensive auditoring or investigation of the structure that 
would allow it to conclude one way or the other.
    Mr. Dingell. And that was the next point that I was going 
to make. The Commission has not evaluated NextWave's 
qualifications since 1997, and there is also evidence of a 
tremendous amount of investment pouring in to NextWave at this 
time, is there not?
    Mr. Powell. Clearly, if public press reports are to be 
believed on what we know from the bankruptcy, they have secured 
additional financing.
    Mr. Dingell. And it would appear that that should be 
considered on a fully diluted basis according to the rules of 
the FCC which require that kind of consideration; is that 
right?
    Mr. Powell. I believe so, but I would have to check on 
that.
    Mr. Dingell. If you want to add to that, Mr. Chairman, I 
would ask that the record remain open for that particular 
point. And I would note that this would then reduce the control 
group's authority and potentially violate designated entity 
rules if that occurs; is that correct?
    Mr. Powell. We do have rules, and as you have noted, they 
would have to be examined carefully to determine whether the 
structure complied with our rules, yes.
    Mr. Dingell. Now, I would note, Mr. Chairman, that all of 
these questions are being begged by the consideration of these 
proposals before the committee. Now, Mr. Chairman, just a 
couple of more questions.
    When designated entities' licenses are transferred or 
assigned, the Commission would normally evaluate how the 
financial proceeds would be distributed to the investors; isn't 
that correct?
    Mr. Powell. Yes, the FCC would have to assure itself that 
the party was making a transfer that complied with our rules, 
yes.
    Mr. Dingell. And again, Mr. Chairman, that has not yet been 
done?
    Mr. Powell. No, it has not been done, and under the terms 
of the settlement it would not constitute a transfer from one 
company to the other, and that would not trigger it.
    Mr. Dingell. But that would only be under the terms of the 
settlement as approved, and would in fact constitute a 
significant change in the rules of the Commission?
    Mr. Powell. If NextWave ever had perfected an interest in 
the licenses and made an effort to transfer or sell them to 
other parties, it would trigger the consideration of those 
rules.
    Mr. Dingell. Now, Mr. Chairman, I would note that the 
Commission, I think, has not evaluated how the $6 billion 
distribution of this case would be distributed as between 
NextWave's control group, and the non-control group of 
investors, because the FCC indicates that this is not necessary 
because NextWave is technically relinquishing its licenses 
under the settlement, and there is therefore--and I quote--no 
transfer or assignment; is that correct?
    Mr. Powell. Yes, sir.
    Mr. Dingell. So from a policy standpoint, let's address 
this question. Should the fact that there is no technical 
transfer or assignment in this case, and that the government is 
paying NextWave instead of a private party cutting the check, 
changed the underlying importance of ensuring that the 
distribution is proper from a designated entity's standpoint?
    And I believe that the answer to that question is probably 
no; is that correct?
    Mr. Powell. The policies are still important, but the 
technicalities are more than technicalities. They are important 
as to whether they are threshold obligations that trigger the 
rule.
    Mr. Dingell. Thank you, Mr. Chairman. Mr. Chairman, you 
have been very gracious. Thank you.
    Mr. Upton. Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman, and Chairman Powell. 
Again, two quick points. I know that as much as we have the 
debate about the current issue we are looking at public policy 
on how to correct this so that we do not fall back into this 
trap again.
    And I know that many government agencies at a lot of 
different levels do not always accept the highest bid, because 
in the contractual arrangements there are criteria by which 
companies are to meet, and so the one that meets the best 
criteria with another determination on the price sometimes are 
allowed to win the bid.
    And to me this is where I think this was probably a failure 
of more specific legal language. And that is just an opening 
premise. You mentioned in your testimony that it is important 
for Congress to make clear how spectrum auctions are to be 
treated under the U.S. Bankruptcy Code so that these cases 
never happen again.
    What would be your recommendations, Chairman Powell, in 
this regard? How would you like us to assist, and maybe 
legislatively, or what changes do you see in the rulemaking 
process to fix this?
    Mr. Powell. I believe that to a large degree the Commission 
has taken whatever additional options that are available to it 
without additional consideration by the legislature.
    There is tension between the specific provision that the 
D.C. Circuit cited for its decision and the expectations that 
we have about auctions. These are two important legal regimes, 
and I think that they are intense if what we hope is that 
future auctions would proceed with certainly without the risk 
that the public spectrum could be pulled out of the marketplace 
and essentially warehoused through a long and lengthy 
bankruptcy proceeding.
    The Commission for the last several years has indeed warned 
of this concern, and it has nonetheless come to fruition and 
has a number of times offered its expert advice in proposing 
legislation, prospective legislation, and particularly that 
would help with that tension in this situation.
    And I think we would be more than willing and a partner in 
efforts by this committee or other appropriate committees in 
considering those issues.
    Mr. Shimkus. And if I can be so bold to talk to the 
chairman, I think that is probably what we will be looking at 
doing sometime in the spring of next year. That's all the 
questions that I have, Mr. Chairman, and I yield back.
    Mr. Upton. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, what 
would be the impacts if the wireless carriers did not get this 
section of the spectrum?
    Mr. Powell. Well, it is difficult to say given that there 
are many, many markets being served, and the impact would 
likely vary fairly significantly across markets. But needless 
to say, we have all read the articles and have an understanding 
and appreciation about what a premium is being placed on 
spectrum these days and whether there are debates about third 
generation wireless spectrum, the importance of 911, and any 
911 services. By the way there is a growing body of consumers 
who are deeply frustrated with the quality of service and call 
completion.
    Many of those issues are capacity issues; constraint about 
the spectrum that will ensure quality. I would submit that 
those are as important as competition, but I think that this is 
a significant amount of spectrum as evidenced by the value that 
was placed on it at reauction.
    And if it continued to not be available, and to be used in 
the market, I think that the impact would be significant, and I 
think it would grow. I think that each year it would become 
even more pronounced in a way that consumers would see.
    Mr. Green. Well, again, you would see a deterioration of 
service, but there wouldn't be any problem with the current 
delivery of it. You are just talking about the increase in 
growth that we need and for the industry to continue----
    Mr. Powell. I don't have the statistics at hand, but 
wireless subscription and minutes of use continue to grow at an 
extraordinary rate. One might argue in certain markets already 
capacity constraints, tower site issues, are preventing the 
service reaching the level of quality that some consumers want, 
expect, and demand.
    And that is even before you start discussing many of the 
new and exciting services that we hope to see deployed by 
carriers that will require variations in their spectrum. Now, 
that said, it is a little difficult to over-generalize from 
carrier to carrier, from market to market.
    But in general those are the circumstances that we see in 
the wireless market.
    Mr. Green. If Congress doesn't act on the settlement and 
the Supreme Court rules in favor of NextWave, will NextWave's 
designated entity status then come under review by the FCC?
    Mr. Powell. It is my belief that we would have to resolve 
pending petitions on those issues, yes.
    Mr. Green. And in the buildout requirements, for NextWave 
required to meet the condition of attaining their licenses, 
what were the buildout requirements for them? Do you recall?
    Mr. Powell. Yes, I believe the build-out requirements were 
that major milestones would have been basically a month from 
now, but given as you understand the sort of mess and 
complexity of this particular issue, if NextWave were awarded 
licenses, we fully expect that they would file and demand 
relief in terms of the buildout requirement given the 
incumbrance of the spectrum during the period in which we 
litigated.
    I can't speak to what the outcome would be, but it would be 
a Commission decision. That is a month away, and nobody has any 
expectation that if the Supreme Court ruled for the licensee 
were tomorrow that they would be built out to their 
requirements by January.
    Mr. Green. Mr. Chairman, on an unrelated action, I noticed 
that the First Circuit Court recently ruled that Echo Star and 
Direct TV, which we had a hearing on last week, must comply 
with carry one-carry all requirements achievement. Can you say 
that they might be able to comply with this by January 1, 2002?
    Mr. Powell. Congressman, candidly, I just don't know. I 
have only just recently seen the decision and have not read it 
fully, and don't fully understand yet what the requirements 
that the Court held are. So I would be happy to talk with you 
about it further later when I have a better understanding.
    Mr. Green. Okay. I appreciate that. Thank you, Mr. 
Chairman. Oh, I would be glad to yield to the ranking member.
    Mr. Markey. And it would only be to ask for unanimous 
consent, Mr. Chairman, that the questions and the answers to 
the document which Mr. Dingell and I sent to the Chairman last 
week be put in the record.
    Mr. Upton. Without objection.
    [The information referred to follows:]

                  Federal Communications Commission
                                     Office of the Chairman
                                                  December 10, 2001
The Honorable Edward J. Markey
Ranking Member
Subcommittee on Telecommunications and the Internet
Committee on Energy and Commerce
United States House of Representatives
2108 Rayburn House Office Building
Washington, D.C. 20515
    Dear Congressman Markey: Thank you for your letter of December 6, 
2001, regarding the NextWave settlement and companion legislation. 
Enclosed are my responses to each of the questions that you posed.
    I trust this is responsive to your request, and I look forward to 
discussing this important matter with you at the December 11th hearing.
            Sincerely,
                                          Michael K. Powell
                                                           Chairman
enclosure
               Responses to NextWave Settlement Questions
    Question 1. How much money will NextWave receive as a result of the 
proposed settlement, before and after Federal income taxes? Does 
NextWave now or has it ever provided a commercial mobile service using 
the licenses obtained in Auction 5? Please explain applicable 
Commission rules relating to: a) the required holding period for 
licenses assigned to a designated entity; b) the build-out requirements 
for such licenses; c) avoidance of unjust enrichment associated with 
early transfer or assignment of such licenses; and d) to whom such 
early transfer or assignment normally would be permitted.
    Response: The settlement provides that, in exchange for NextWave's 
relinquishment of the licenses, the government will net $10.031 billion 
from the sale of licenses in Auction No. 35 covering the same spectrum 
previously licensed to NextWave, and NextWave will receive an initial 
cash payment of $6.498 billion; however, NextWave's net payment from 
the government, after adjustments for amounts held by the government 
and other payments by NextWave, is $5.819 billion. The transaction is 
explained in greater detail in the attached schedule at Tab 1, which 
explains how the overall appropriation of $9.55 billion reduces to the 
net payment. NextWave has never provided commercial mobile services to 
the public using the licenses obtained in Auction Nos. 5, 10, and 11.
(a) Required Holding Period
    Original C and F block licensees that won licenses at Auction Nos. 
5, 10, and 11, generally are not permitted during the first five years 
from the date of their initial license grant to assign or transfer 
control of their licenses won in closed bidding to entities other than 
those that satisfy the entrepreneur block eligibility rules. 47 C.F.R. 
Sec. 24.839(a)(1). However, under an exception, entrepreneur block 
licensees are permitted to assign or transfer control of C and F block 
licenses won in closed bidding to any entity during the first five 
years following the date of initial license grant, provided that the 
five-year construction build-out requirement has been satisfied. 47 
C.F.R. Sec. 24.839(a)(6).
(b) Build-Out Requirements
    The PCS rules require that a licensee of a 30 Mhz block must serve 
the area covered by its license with a signal level sufficient to 
provide adequate service to at least one-third of the population in 
that area within five years of being licensed and least two-thirds of 
the population in the area within 10 years of being licensed. 47 C.F.R. 
Sec. 24.203 (a). A licensee of a 10 MHz or a 15 MHz block must serve 
the area covered by its license with a signal level sufficient to 
provide adequate service to at least one-quarter of the population in 
that area within five years of being licensed, or make a showing of 
substantial service in their licensed area within five years of being 
licensed. 47 C.F.R. Sec. 24.203(b).
(c) Unjust Enrichment
    Ordinarily, if a C or F block licensee that used a bidding credit 
assigns or transfers its license within the first five years after the 
initial license grant date to an entity that does not qualify for a 
bidding credit, or as favorable a bidding credit, the licensee is 
subject to an unjust enrichment payment. Specifically, under the 
Commission's rules, a licensee that utilizes a bidding credit and that, 
during the initial term, seeks to assign or transfer control of a 
license to an entity that does not meet the eligibility criteria for a 
bidding credit, will be required to reimburse the U.S. government for 
the amount of the bidding credit plus interest. 47 C.F.R. 
Sec. 1.2111(d). A licensee that utilizes a bidding credit, and that, 
during the initial term, seeks to assign or transfer control of a 
license to an entity that is eligible for a lower bidding credit, will 
be required to reimburse the U.S. government for the difference between 
the bidding credit obtained by the assigning party and the bidding 
credit for which the acquiring party would qualify, plus interest. 47 
C.F.R. Sec. 1.2111(d).
    Similarly, a licensee that utilizes installment payment financing 
and seeks to assign or transfer control of its license to an entity 
that does not qualify for installment payments will be required to make 
full payment of the remaining unpaid principal and any unpaid interest 
accrued through the date of assignment or transfer. 47 C.F.R. 
Sec. 1.2111(c). A licensee that utilizes installment payment financing 
and seeks to assign or transfer control of its license to an entity 
that qualifies for a less favorable installment payment plan will be 
required to adjust its payment plan to the reflect the new eligibility 
status. 47 C.F.R. Sec. 1.2111(c).
    For licenses won in Auction No. 5 or 10, where virtually all 
bidders were given the same bidding credit, no bidding credit unjust 
enrichment payment is required upon transfer of a license to an 
entrepreneur that is not a small business within the first five years 
after the date of the initial license grant, even if the transferor or 
assignor has not yet satisfied its initial construction benchmark 
requirement. Amendment of the Commission's Rules Regarding Installment 
Payment Financing for Personal Communications Services (PCS) Licensees, 
WT Docket No. 97-82, Sixth Report and Order and Order on 
Reconsideration, 15 FCC Red 16266, 16291 at n.156 (2000).
(d) Eligible Licensees Or Transferees
    For permissible transfers and assignments, the transferor or 
assignor would not be required to make unjust enrichment payments upon 
early transfer or assignment to the following entities: a transferee/
assignee that qualifies for the same or greater level of bidding 
credits; a transferee/assignee that meets the eligibility standards for 
the same or more favorable installment payments; and a transferee/
assignee of a license from Auction No. 5 or 10 that is an entrepreneur 
and not a small business. See 47 C.F.R. Sec. 1.2111(c), (d); Amendment 
of the Commission's Rules Regarding Installment Payment Financing for 
Personal Communications Services (PCS) Licensees, WT Docket No. 97-82, 
Sixth Report and Order and Order on Reconsideration, 15 FCC Rcd 16266, 
16291 at n.156 (2000).
    Question 2. Please state which rules, if any, described in your 
answers to questions 1 (a), (b), (c), and (d) would need to be waived 
by the Commission to effectuate the settlement agreement proposed by 
the parties. What statutory provisions, if any, would need to be 
amended by Congress?
    Response: None of the rules described above would need to be waived 
by the Commission to effectuate the Settlement Agreement because 
NextWave, pursuant to the settlement, is not transferring its licenses. 
Rather, it is agreeing to relinquish any claims to the licenses.
    There are several reasons why this legislation is necessary to 
effectuate 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 minimum 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 No. 35 receipts equal to the 
payments to be made to NextWave no later than December 31, 2002.
    Question 3. For each Auction 35 winner participating in the 
settlement, please state whether such winner qualifies for designated 
entity status under current Commission rules. Has the Commission 
conducted any pre- or post-auction audits to validate these 
qualifications? Under the settlement, what can the Commission do if it 
subsequently finds, or is made of aware of, information that parties to 
the settlement are in violation of the designated entity rules or other 
Commission rules with respect to qualifying for such licenses?
    Response: To date, the FCC's Wireless Telecommunications Bureau has 
qualified all Auction No. 35 winning bidders claiming designated entity 
status under the Commission's rules, with the exception of four 
applicants. The Bureau engaged in post-auction review of long-form 
applications submitted by the winning bidders and, in some cases, has 
consulted with winning bidders to review additional documentation 
clarifying representations made in the long-form applications. Two of 
the remaining bidders (Alaska Native Wireless, L.L.C. and DCC PCS, 
Inc.) seeking to qualify as designated entities had their applications 
contested on the grounds that they do not qualify. These applications 
are restricted under the Commission's ex parte rules. 47 C.F.R. 
Sec. 1.1208; see also Petition to Deny filed against DCC PCS by Raymond 
J. Quianzon, Jennifer Dine Wagner of Fletcher, Heald, & Hildreth, 
P.L.C., counsel for TPS Utilicom (March 9, 2001); Petition to Deny 
filed against Alaska Native Wireless, L.L.C. by Raymond J. Quianzon, 
Jennifer Dine Wagner of Fletcher, Heald, & Hildreth, P.L.C., counsel 
for TPS Utilicom (March 9, 2001).
    The Bureau is carefully reviewing the applications of the four 
remaining bidders--Alaska Native Wireless, L.L.C.; DCC PCS, Inc.; 3DL 
Wireless, LLC; and SVC BidCo, L.P.--to determine whether they qualify 
as designated entities. Should the FCC later determine, after licenses 
are granted, that a licensee either misrepresented or altered its 
designated entity status in a manner inconsistent with the Commission's 
rules that licensee would be subject to enforcement action, which could 
potentially include revocation of its licenses.
    Question 4. The settlement agreement permits certain participating 
Auction 35 winners, at their discretion, to withdraw all their bids for 
Auction 35 licenses without penalty and receive a refund of all monies 
paid to the Government. In the past, has the Commission ever allowed 
winning auction bidders to cancel their bids and, if so, under what 
circumstances? Were these bidders permitted a full refund of monies 
paid? If not, what is the policy justification for this disparate 
treatment?
    Response: As a general matter, a winning bidder that cancels its 
bids is subject to default penalties under the Commission's Rules. 
Under the proposed legislation, and because of the unique circumstances 
of Auction No. 35, refunds are available to a small group of auction 
winners who bid less than $10 million so long as they surrender their 
rights to the C and F block licenses in question. This is because of 
the length of time between the auction and the award of the licenses, 
which creates a particular hardship, on these small bidders who are 
having increasing difficulty in accessing the financial markets. The 
Wireless Telecommunications Bureau did notify bidders in a Public 
Notice in advance of Auction No. 35 that their participation was 
subject to the outcome of the litigation, and that monies would be 
returned at the conclusion of the litigation if the government lost. 
The settlement effectively gives a choice to smaller bidders: sign up 
for the settlement and, pledge to pay the amount owed from Auction No. 
35 at a future date in exchange for license grant, or walk away from 
the transaction now in exchange for return of all deposits.
    It should be noted that as part of the C block restructuring 
process, the Commission permitted licensees that had acquired licenses 
in Auction Nos. 5 and 10 to return their licenses, or portions of their 
licenses, in exchange for debt relief. Under four restructuring 
options, licensees were permitted to return their licenses or portions 
of their licenses (i.e., disaggregated licenses) while money on deposit 
was either forfeited or a portion applied toward the purchase of other 
licenses in Auction No. 22 (the C block re-auction that followed 
restructuring). See Amendment of the Commission's Rules Regarding 
Installment Payment Financing for Personal Communications Services 
(PCS) Licensees, NW Docket No. 97-82, Second Report and Order and 
Further Notice of proposed Rule Making, 12 FCC Red 16436 (1997); see 
also Amendment of the Commission's Rules Regarding Installment Payment 
Financing for Personal Communications Services (PCS) Licensees, WT 
Docket No. 97-82, Order on Reconsideration of the Second Report and 
Order, 13 FCC Red 8345 (1998).
    Question 5. What action, if any, has the Commission taken on the 
Alaska Native Wireless-Verizon-Voicestream petition filed July 19, 
2001, to initiate an investigation and audit regarding the eligibility 
of NextWave to hold C- and F-Block licenses?
    Response: The Wireless Telecommunications Bureau has taken no 
action on the Alaska Native Wireless-Verizon-Voicestream petition 
pending the outcome of the NextWave litigation and the proposed 
settlement.
    Question 6. If the Commission has conducted an investigation or 
audit of the matters raised in the above petition, what specific 
findings has it made? If no investigation or audit has been performed, 
please explain why not.
    Response: To date, the Wireless Telecommunications Bureau has not 
conducted an investigation or entered specific findings with respect to 
the issues raised in the Alaska Native Wireless-Verizon-Voicestream 
petition. No investigation has been performed because the rights to the 
licenses claimed by NextWave have been--and, until certain conditions 
of the Settlement Agreement are satisfied, will continue to be--the 
subject of pending litigation.
    Question 7. Is the Commission satisfied that NextWave is currently 
a qualified licensee under the agency's (a) designated entity, and (b) 
foreign ownership rules? Please explain the basis for each conclusion. 
Have any pre- or post-auction audits been performed to validate such 
conclusions?
    Response: At the close of the original C block auction in. 1996, 
NextWave's applications were contested on the basis that the company 
did not qualify as a designated entity and that it violated foreign 
ownership limitations under the Communications Act. The FCC's Wireless 
Telecommunications Bureau undertook an extensive review of NextWave's 
business structure for purposes of determining whether they were 
qualified to hold C and F block licenses. The Bureau found that 
NextWave qualified as an entrepreneur. However, it also found that the 
company exceeded permissible foreign ownership thresholds. The Bureau 
later granted NextWave its licenses on the condition that it 
restructure to comply with foreign ownership requirements consistent 
with the Communications Act and the Commission's rules.
    The Wireless Telecommunications Bureau based its original license 
grant on an extensive examination of NextWave's ownership structure. 
The original license grant was appealed with a proposed settlement 
later filed. This is the Antigone-Devco challenge referred to in 
Question 12 below. These matters have remained pending due to the 
dispute with the government concerning the claim to NextWave's 
licenses. (See answer to Question 12 below.) The Commission has 
conducted no extensive review of NextWave's ownership structure since 
its original 1997 license grants.
    Question 8. Has the Commission evaluated NextWave's proposed 
financial structure contained in its Second Plan of Reorganization 
dated August 6, 2001, to determine whether the company would qualify as 
a designated entity under the agency's rules if such plan were adopted? 
If so, what conclusions has the Commission drawn? If no evaluation has 
been performed, or no conclusions were drawn from such an evaluation, 
please explain why not.
    Response: The Department of Justice, on behalf of the Commission, 
filed objections to NextWave's Second Plan of Reorganization in which, 
inter alia, the government reserved to the Commission the jurisdiction 
to evaluate NextWave's status as a licensee in light of that Plan, 
noting the pending requests before the Commission seeking review of 
NextWave's qualifications. (See answers to Questions 5-6, 11-12.) 
Because the settlement process has to date superseded pursuit of the 
Second Amended Plan, the Commission has not evaluated whether and to 
what extent NextWave qualifies as a designated entity under the Second 
Plan.
    Question 9. Has the Commission evaluated how the proceeds of the 
settlement payable to NextWave would be distributed between its control 
group and non-control group investors? Would such a distribution comply 
with Commission rules and precedents relating to licenses issued 
pursuant to Section 309(j) of the Communications Act and subsequently 
transferred or assigned? Would such a financial distribution comply 
with special Commission rules, if any, relating to licenses transferred 
or assigned by designated entities?
    Response: The Commission will have no occasion to evaluate how 
proceeds of the Settlement will be distributed to NextWave. The 
Settlement Agreement requires that NextWave relinquish its claim on the 
licenses; therefore, there is no transfer or assignment by NextWave of 
the licenses. If there were such a transfer or assignment, the 
Commission would apply its rules regarding such transfers by a 
designated entity.
    Question 10. Does the Commission believe that the instructions of 
the D.C. Circuit remand ``for proceedings not inconsistent with this 
opinion'' preclude the agency from further consideration of whether 
NextWave is a qualified licensee under other applicable Commission 
rules? If not, has the Commission undertaken any further proceedings 
for this purpose?
    Response: No. On August 31, 2001, the FCC's Wireless 
Telecommunications Bureau released a Public Notice announcing that it 
would update its licensing records in order to comply with the D.C. 
Circuit's mandate. The Public Notice emphasized that the United States 
and the FCC intended to appeal the D.C. Circuits decision to the 
Supreme Court, and that the status of ongoing regulatory proceedings 
concerning the licenses in question was not affected by the mandate. 
The Public Notice specifically explained that the pending regulatory 
proceedings could affect the status of the subject licenses. Those 
proceedings remain before the Commission pending implementation of the 
settlement.
    Question 11. Does the Commission have any reasonable basis to 
believe that NextWave may not be entitled to reinstatement of its 
licenses (other than the arguments forming the basis for its petition 
for writ of certiorari to the U.S. Supreme Court)? If so, please 
explain.
    Response: Though the Wireless Telecommunications Bureau has 
reviewed challenges to NextWave's eligibility (see Question 7 supra), 
the full Commission has never ruled on the merits of any of the 
objections to NextWave's original license grants. Also, more recently, 
petitions have been filed with the Commission challenging NextWave's 
eligibility to hold C and F block licenses.\1\ The Petitions allege 
that NextWave is in violation of the agency's designated entity and 
foreign ownership rules. The proceeding initiated by the petitions has 
been deemed restricted under the Commissions ex parte rules. 
Accordingly, the agency is prohibited from commenting on the merits of 
the proceeding. As stated previously, these matters would be withdrawn 
in conjunction with the settlement.
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    \1\ See Petition to Initiate an Investigation and Audit Regarding 
the Eligibility of NextWave Personal Communications, Inc. and NextWave 
Power Partners Inc. to Hold C and F Block licenses, filed by Alaska 
Native Wireless, L.L.C., Verizon Wireless, Voicestream Wireless 
Corporation, dated July 19, 2001; Petition for Reconsideration, filed 
by Alaska Native Wireless, L.L.C. and Voicestream Wireless Corporation, 
dated October 12, 2001; Petition to Deny Reinstatement of Licenses 
filed by Alaska Native Wireless, L.L.C., and Voicestream Wireless 
Corporation, dated August, 30, 2001.
---------------------------------------------------------------------------
    Question 12. Why has the Commission failed to rule upon the merits 
of the Antigone-Devco petition originally filed on March 17, 1997, or 
upon the subsequent request of the parties to withdraw it on June 1, 
1998?
    Response: Not too long after the Commission received the Antigone-
Devco petition (and the subsequent request for settlement) the 
government was engaged in complex bankruptcy litigation with NextWave 
raising substantial issues regarding the impact of the bankruptcy 
proceedings on the licenses that had been granted to NextWave. The 
Commission acknowledged the pending Antigone-Devco challenge and 
settlement when it explained its basis for canceling NextWave's 
licenses in its 2000 Order, and determined the matters were moot 
without reaching their merits. See Public Notice DA 00-49, Auction of C 
and F Block Broadband PCS Licenses, NextWave Personal Communications, 
Inc. and NextWave Power Partners Inc., Petition for Reconsideration; In 
re Settlement. Request Pursuant to DA 99-745 For Various Broadband PCS 
C Block Licenses, File Nos. 00341CWL96, et. al., Order on 
Reconsideration, 15 FCC Red 17500 (2000). In light of the D.C. Circuit 
ruling, the status of these pleadings is in question, but in any event, 
these matters would be resolved by implementation the settlement.
    Question 13. One of the recipients of frequencies to be 
relinquished under the proposed settlement is Voicestream Wireless, 
which is effectively owned by Deutsche Telekom. What is the current 
level of German government ownership of Deutsche Telekom?
    Response: Based on FCC records, the German government currently 
owns approximately 43 percent of Deutsche Telekom, which has indirect 
ownership of Voicestream Wireless. See Form 602, filed by Powertel, 
Inc. November 30, 2001.
    Question 14. In its 5th Report and Order (1994), the Commission 
adopted rules to fulfill Congress's mandate to ensure that small 
businesses, rural telephone companies, and businesses owned by 
minorities and women were given the opportunity to participate in the 
provision of broadband PCS. Please explain whether, and specifically, 
how, the settlement proposed by the parties meets this objective.
    Response: The Settlement Agreement affirms the results of Auction 
No. 35, which was conducted under the Commission's rules as modified in 
August of 2000. Thus, licenses will be assigned to the parties who 
would have received them had Auction No. 35 never been challenged. Of 
the 35 winning bidders in Auction No. 35, 32 were entrepreneurs. 83 
percent of the winning bidders were small or very small businesses, 9 
percent of the winning bidders claimed to be minority-owned businesses 
and 3 percent of the winning bidders claimed to be women-owned 
businesses. (Some of these entities fall into more than one category.)
    Section 309(j) of the Communications Act directs the Commission to 
disseminate licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and businesses owned by 
minorities and women. Rules originally adopted in 1994 to fulfill 
Congress' mandate to encourage auction participation by small entities 
have been modified over the years to comply with the Supreme Court's 
decision in Adarand Constructors v. Pena through the Commission's 
normal rulemaking procedures. Most recently, in August 2000, the 
Commission released the C/F Block Sixth Report and Order, in which it 
changed its C and F block eligibility rules. Specifically, with respect 
to Auction No. 35, the Commission determined it would be appropriate to 
continue to set aside certain C block licenses for entrepreneurs. These 
licenses were made available through ``closed'' bidding. In addition, 
the Commission permitted other licenses to be acquired by both 
entrepreneurs and non-entrepreneurs through ``open'' bidding. The 
Commission also retained bidding credits to enhance auction 
participation by small businesses seeking to acquire ``open'' licenses. 
See Amendment of the Commission's Rules Regarding Installment Payment 
Financing for Personal Communications Services (PCS) Licenses, WT 
Docket No. 97-82, Sixth Report and Order and Order on Reconsideration, 
15 FCC Rcd 16266 (2000). Section 309(j) of the Communications Act 
accords the Commission wide latitude in determining how to achieve the 
stated objectives. Section 309(j) does not mandate the use of set-
asides, or any other particular method, to promote the participation of 
small businesses in spectrum auctions. With the exception of C and F 
block spectrum, the Commission has conducted all of its auctions 
without set-asides. Currently, the Commission decides for each service 
whether to offer bidding credits to enhance small business auction 
participation.
    Question 15. The settlement agreement reflects a decision by the 
Commission to limit its negotiations to NextWave and participating 
Auction 35 winners. Specifically, and as to each of them, please 
describe what legal claims of Verizon Wireless or any other party to 
the settlement (a) were pending at the time the Commission began 
negotiations with them, and (b) are pending now. Please give all 
relevant details for each party, including date of filing, stated basis 
for the claim, and status on the day negotiations began and status 
today.
    Response: Schedules C1 and C2 of the Settlement Agreement provide 
the requested information, and are attached for your review at Tab 2. 
Schedule C1 is a list of pending matters relating to the Antigone-Devco 
petition. Schedule C2 is a list of regulatory filings relating to the 
Alaska Native Wireless-Verizon-Voicestream petitions. These matters 
were pending during the negotiations; however, no member of the FCC's 
Office of General Counsel and Department of Justice negotiation team 
directly oversees these matters, which are handled in the Wireless 
Telecommunications Bureau.
    Question 16. Did the Auction 35 rules contain any provisions to 
protect the Government from potential claims by Auction 35 winners? If 
so, please state these provisions. If not, why not?
    Response: Yes. In a Public Notice released prior to Auction No. 35, 
the FCC's Wireless Telecommunications Bureau notified potential bidders 
that they were responsible for performing their own due diligence with 
respect to licenses available in the auction. Specifically, the Bureau 
made the following unequivocal statement defining a bidder's obligation 
to keep abreast of matters affecting any licenses:
        Potential bidders and interested parties should be aware that 
        various proceedings that may relate to the licenses available 
        in Auction No. 35 may be pending or subject to further 
        administrative review before the Commission, including, for 
        example, waiver requests, petitions for reconsideration, and 
        applications for review. In addition, certain judicial 
        proceedings that may relate to the licenses available in 
        Auction No. 35 are pending or may be subject to further review. 
        Resolution of these matters could have an effect on the 
        availability of spectrum included in Auction No. 35 and the 
        auction is subject to such matters. Some of these matters 
        (whether before the Commission or the courts) may not be 
        resolved by the time of the auction. The Commission will 
        continue to act on matters before it, but it makes no 
        representations as to the resolution of judicial proceedings. 
        Potential bidders are solely responsible for identifying 
        associated risks, and investigating and evaluating the degree 
        to which such matters may affect their ability to bid on or 
        otherwise acquire licenses in Auction No. 35.
    The Bureau's Public Notice also clarified that the Commission would 
``return the payments made by winning bidders of licenses in Auction 
No. 35 in the event that such bidders are subsequently required to 
surrender licenses won to prior applicants or license holders as a 
result of final determinations reached in pending proceedings.'' The 
Public Notice stated that the Commission would not pay interest on the 
returned payments, as it lacked legal authority to do so. Finally, the 
Public Notice made clear that winning bidders of licenses subject to 
pending proceedings were still required to meet the normal payment and 
construction schedules established by the Commission.
    Question 17. You have described the settlement as ``a resolution 
that maximizes the public interest.'' We, too, support a public 
interest resolution of this matter and are curious as to what public 
interest conditions the Commission sought to obtain in the settlement 
agreement with the parties. Does the settlement agreement include any 
conditions on the companies that will receive relinquished frequencies 
that such companies will expedite their deployment of E-911 safety 
technology, commit to the rapid deployment of digital capability to 
geographic areas within their licensed markets,currently still 
predominantly utilizing analog technology, commit to grant free or 
discounted service to educational institutions, or commit to anything 
else that could be characterized as activity that ``maximizes the 
public interest''?
    Response: All licensees are expected to comply with the 
Commission's rules and any public interest obligations that flow from 
our regulations. Auction No. 35 winners are treated no differently in 
this regard. The overriding public interest benefit of the settlement, 
however, is that it enables the disputed NextWave spectrum to be put to 
use after years of hard-fought, legal wrangling, Section 309(j) of the 
Communications Act asks the Commission to balance such considerations 
when it calls for the rapid deployment of spectrum, and when it 
recognizes that the American public should receive a fair portion of 
the value of spectrum. 47 U.S.C. Sec. 309(j)(3). The time has come to 
put the NextWave spectrum to productive use for the American consumer, 
or run the risk that these licenses will further uncertainty while the 
litigation continues. These licenses include some of the largest 
markets in the United States, where spectrum is in high demand for new 
and innovative uses such as Third Generation (3G) wireless. The 
settlement paves the way for the spectrum to be put into the hands of 
Auction No. 35 participants, who clearly value the licenses the most, 
consistent with 309(j). In addition, the U.S. taxpayer will benefit by 
receiving approximately $10 billion for the disputed spectrum, nearly 
twice the original 1996 bids for the licenses. Also, contrary to the 
way licenses were granted to NextWave, monies will be paid in full by 
the Auction No. 35 winners, without installment payments, which 
significantly reduces the risk of default to the U.S. government.
    Question 18. Did the Commission request any such public interest 
commitments from parties receiving the NextWave frequencies?
    Response: The Commission did not impose any additional public 
interest obligations, other than those that are expected from all 
licensees, as a condition of settlement.

    Chairman Tauzin. Reserving the right to object, I simply 
want to indicate for the record that Mr. Dingell and Mr. Markey 
discussed with me the process by which this letter was sent to 
Mr. Powell.
    And I encouraged them to send it, and encouraged obviously 
that we get all these answers on the record so that we might 
have a full record on this matter as we go forward, and I want 
to thank Mr. Markey and Mr. Dingell for their efforts here.
    Mr. Markey. Thank you, Mr. Chairman.
    Chairman Tauzin. And I do not object, Mr. Chairman.
    Mr. Green. I yield back my time, Mr. Chairman.
    Mr. Upton. The gentleman's time has expired. Ms. DeGette.
    Ms. DeGette. Thank you, Mr. Chairman. Following up on 
Congressman Boucher's question, Mr. Hunt. He asked you the 
question if you will recall why do you need Congressional 
approval of this agreement, and you talked about several 
things.
    Unfortunately, since this has happened quickly, I have not 
had time to personally review the proposed settlement 
agreement, and I would like to know if one of the reasons that 
you feel that you need Congressional approval is because of the 
provisions regarding filing lawsuits, and other types of legal 
action that you referred to in your opening statement. And if 
so, if you could expand on that a little bit.
    Mr. Hunt. Certainly. Yes, that is one of the reasons that 
we believe that this legislation is necessary, not only for the 
appropriation. And I might just add parenthetically that I 
didn't have an opportunity to mention that the Judgment Fund, 
which is ordinarily used in settling litigation, would not be 
available in this case to guarantee the payment to NextWave. 
And that is why the appropriation aspect is necessary.
    Ms. DeGette. Okay. If you could answer my question because 
I only get 5 minutes.
    Mr. Hunt. Certainly. Yes, we think the expedited judicial 
review provisions are a necessary component here, because one 
of the goals that we have is to get the spectrum into public 
use as expeditiously as possible.
    Ms. DeGette. And who would those expedited court deadlines 
apply to, Mr. Hunt?
    Mr. Hunt. Those expedited court deadlines have several 
components. One is expedited provisions for courts themselves 
in making determinations on any litigation that is filed with 
respect to this settlement. There is no mandatory deadline 
where Congress is saying to a court----
    Ms. DeGette. I was going to say that I don't think that 
would go over too well with the Court.
    Mr. Hunt. Well, it has actually happened in a number of 
Congressional enactments where there have been such 
circumstances. And, in fact, as recently as last year the 
Supreme Court upheld a determination in Miller v. French that 
said that any challenges brought to prison conditions pursuant 
to the Prison Litigation Reform Act----
    Ms. DeGette. Okay. You know what? Let me ask the Chairman a 
couple of questions.
    Mr. Hunt. Sure.
    Ms. DeGette. Mr. Chairman, you talked a little bit about 
the requirements for buildout, and I am wondering what the 
specific effect of the bankruptcy filing by NextWave would have 
on any requirements.
    You talked a little bit about the timetable earlier in 
response to Mr. Green's question. I am wondering if the 
bankruptcy filing would have any bearing on that?
    Mr. Powell. I think the short answer is that it would, 
because it would at least give the company an argument that as 
a consequence of the bankruptcy proceeding and the uncertainty 
and overhang associated with those positions being resolved in 
bankruptcy, it has not been able to fully comply as a growing 
concern with its buildout obligations. And NextWave would 
arguably argue that it should have relief on the buildout 
requirements.
    Ms. DeGette. And what would the effect of recent increases 
in capital to the company that we have been seeing about in 
press accounts have on their argument, vis-a-vis the 
bankruptcy?
    Mr. Powell. It is hard for me to judge. I don't appreciate 
the full range of additional capital that you are referring to. 
Money alone won't get a network built, and to meet the 
aggressive buildout requirements as I mentioned before, 
including milestones that are just a month away, I think it 
couldn't realistically be obtained no matter how much money 
there was available.
    Ms. DeGette. Thank you. Now, Mr. Chairman, you had talked 
previously about the need to release this spectrum for use by 
the public, and I am wondering if you can talk to me more 
specifically about how Congress and Congressional approval by 
December 31 of this year would help expedite that? What would 
be the practical effect of releasing that spectrum?
    Mr. Powell. The practical effect is that in the auction 
that we held earlier, Auction 35, there are a number of 
companies who are prepared to take the spectrum they won and 
put it into use in their networks, in essence, right away.
    And so by settling the case, and terminating the 
litigation, shifting the licenses to those companies, they 
would be deployed in networks and available to consumers 
relatively soon, probably beginning in the next few months, and 
over the next 6 months we would begin to see the benefits of 
that spectrum.
    Ms. DeGette. And what would happen if Congress didn't 
approve this settlement agreement by the end of the year, in 
terms of the release of that spectrum to others?
    Mr. Powell. I think at a minimum it would not find its way 
to public use for a significantly longer period of time, 
largely because I think there would be any number of continuing 
litigation and regulatory issues that would hold up the 
perfection of any licenses for a much more serious period of 
time.
    Ms. DeGette. Thank you, and thank you, Mr. Chairman.
    Mr. Upton. Mr. Engel.
    Mr. Engel. Thank you, Mr. Chairman. Chairman Powell, can 
you help me understand when--and first of all, greetings. And 
can you help me understand when evaluating a bid does the FCC 
consider the ability of a company to actually pay for the 
license?
    Mr. Powell. We don't have an extensive examination of 
financial wherewithal. We have a requirement for a substantial 
amount of up-front payments when a bidder prevails in order to 
demonstrate financial viability to proceed with the perfection 
of the license.
    Mr. Engel. So does the FCC consult with investment managers 
at all who might provide an indication that a bid may be far 
more than what a license is worth, and therefore, logically the 
necessary capital to build out would be difficult to obtain?
    Mr. Powell. No, we don't do that. It would be very 
difficult, given that the licenses are auctioned through a 
pretty elaborate dynamic and gaming system, and the way that we 
try to protect against lack of viability is in the context of 
the rules that govern the auctions.
    If a company ultimately bids and wins a bid, and then 
subsequently has difficulty with the service and obligations, 
then that is treated as a potential default and enforcement 
remediation--as opposed to an unending examination of financial 
resources, which I think we have concluded would be 
extraordinarily difficult to examine given the resources that 
we have.
    Mr. Engel. In view of what has happened, do you think that 
policy might change? I mean, what can we do as a committee to 
help you with this?
    Mr. Powell. Well, I think that we cured the thing that I 
think was most responsible for that, which is installment 
payments. Regrettably, I think that installment payments were 
initiated for good purposes, which was the desire to have 
smaller companies, companies with more difficult financial 
situations, to be able to pay over time to the U.S. Government 
so that they didn't have the shock of up front and immediate 
payments.
    Regrettably what that did is lead to some overbidding and 
the possibility of default, and regrettably it is part of what 
had the Courts perceive us as a creditor, as opposed to a 
government regulator.
    We since have stopped using installment payments, in the 
context of auctions, and while there is no requireent of 
demonstrated financial wherewithal before even entering the 
auction, you are required to pay fairly quickly--I think even 
within 10 days of the closure of the auction--substantial 
amounts of money in furtherance of your obligation.
    Mr. Engel. If you could rebid the spectrum when it is not 
used would that be helpful at all?
    Mr. Powell. It is helpful and we can in many ways, and that 
is what we were endeavoring to do here, which is to reclaim the 
right to do just that. And normally we have been able to do 
that. We have done that pretty consistently when spectrum isn't 
used or benchmarks are failed.
    This situation is quite complicated and similarly unique 
because what we did is have a bidder run to the bankruptcy 
court for protections that were held to bar us from being able 
to do it.
    Mr. Engel. I know that in your testimony that you mentioned 
amending the bankruptcy law. That is obviously something that 
this committee--that is not within this committee's 
jurisdiction.
    What specifically could we do that is in our jurisdiction 
to ensure or to make it a little easier for you, and ensure 
that this kind of thing does not really happen again?
    Mr. Powell. Well, Congressman, as I had mentioned earlier, 
on a number of occasions the Commission has tried to advise 
what the possibilities of prospective legislation might look 
like, and I would be happy to provide you examples of that.
    In many ways I would reserve an answer, because I think we 
would love to consider and work with what the possibilities of 
that are. We have taken what we think are the prudent steps 
within our authority to protect against it.
    We have yet to see whether that is sufficient protection, 
but I do believe that we do have this continuing risk. It could 
be addressed either through--potentially either through 
Communications Act changes, or bankruptcy code interpretations.
    In many ways I yield to Congress' wisdom as to what the 
best way to maximize its interests as to those two things are.
    Mr. Engel. Well, thank you, Mr. Chairman. Thank you.
    Mr. Upton. Mr. Chairman, thank you very much.
    Mr. Powell. And thank you.
    Mr. Upton. That was very good testimony, and I look forward 
to working with you obviously in the future and we appreciate 
your time this afternoon.
    Mr. Powell. Thank you, sir.
    Mr. Upton. We will get prepared for Panel Number 2; Mr. 
Denny Strigl, CEO of Verizon Wireless; Mr. Frank Cassou, 
Executive VP and General Counsel of NextWave Telecom; and Mr. 
Jim Winston, Corporate Secretary of Urban Communicators. If you 
would take your place at the table.
    Your testimony has been made part of the record in its 
entirety, and we will continue to proceed as we did with the 
first panel. If you would take no more than 5 minutes for your 
opening statements, that would be terrific.
    And, Mr. Strigl, we will start with you. Thank you.

 STATEMENTS OF DENNIS STRIGL, CHIEF EXECUTIVE OFFICER, VERIZON 
WIRELESS; FRANK A. CASSOU, EXECUTIVE VICE-PRESIDENT AND GENERAL 
    COUNSEL, NEXTWAVE TELECOM, INC.; AND JAMES L. WINSTON, 
            CORPORATE SECRETARY, URBAN COMMUNICATORS

    Mr. Strigl. Thank you very much, Mr. Chairman. And members 
of the committee, thank you very much for holding this hearing 
today. I am concerned that much of the recent discussion of the 
NextWave settlement has focused on lobbyists, on lawyers, and 
investors.
    And the big picture for the wireless industry and our 
economy I think has been somewhat missing from the dialog. I am 
not a lobbyist, and I am not a lawyer, or a self-interested 
investor.
    I am a wireless network operator who has come before this 
subcommittee for actually the third time in 18 months to talk 
about the critical need for more radio spectrum. Radio 
spectrum, of course, being the life blood of the growing 
wireless communications business.
    In many ways, I am here today, Mr. Chairman, and committee 
members, to deliver the same message. I believe that the 
legislation proposed by the Administration is strongly in the 
public interest.
    Why? First, the proposed legislation ends 5 years of legal 
controversies that have prevented this spectrum from being put 
into use. Continuing the legal fight in my opinion is not at 
all productive.
    Even assuming that the FCC could win every legal battle 
going forward, renewed litigation in the Supreme Court and the 
D.C. Circuit Court would take at least as you have heard 2 or 3 
more years.
    Second, the proposed legislation will benefit customers and 
this is because the additional spectrum is needed by carriers 
to introduce new wireless services in new markets and to 
fortify existing systems that are currently approaching 
capacity limits in the major markets across the United States.
    And we would also use this spectrum to roll out high speed 
wireless data services. Third, the proposed legislation will 
stimulate investment and it will create jobs. Verizon Wireless 
will invest billions of dollars over the next 5 to 7 years for 
infrastructure and for additional network capacity to use the 
NextWave spectrum.
    Assuming other auction winners make proportionate similar 
investments, the settlement will yield a substantial stimulus 
to the economy. The wireless carriers, equipment manufacturers, 
and others involved in building out infrastructure will create 
thousands of good paying jobs across this country.
    And then the proposed legislation produces net receipts of 
$10 billion for the U.S. Treasury in fiscal year 2002. Without 
the settlement and the authorizing legislation, the licenses 
would create few receipts this year under NextWave's 
installment payments.
    And U.S. taxpayers would lose the benefit of the much 
higher prices that prevailed earlier in the year when the 
auctions were concluded. The effect for fiscal year 2002 would 
actually be a negative outflow of funds if we do not have the 
legislation, because without the settlement the Treasury would 
have to immediately refund more than $3 billion of deposits to 
the Auction 35 winners.
    There has been a suggestion that Congress should not act on 
the proposed legislation because there may be bankruptcy 
related or other problems affecting past or future auctions. I 
urge the subcommittee to take advantage of the solution at 
hand.
    This settlement, and the authorizing legislation, can avoid 
several more years of legal limbo for these licenses and the 
licenses of course could be put into effect immediately for the 
use of the American public.
    Putting to use almost $16 billion worth of spectrum across 
40 States now rather than later, I would say is a pretty good 
days work. And on a separate track with respect to the problem 
presented by bankruptcies in the future and spectrum auctions, 
Verizon Wireless will happily work with Congress in crafting a 
solution.
    The legal context for this settlement in the authorizing 
legislation are detailed in the attachment to the testimony 
that I am submitting today, but more than 5 years have now 
elapsed since the FCC's original auctions awarding the NextWave 
licenses.
    And absent a settlement the litigation could continue for 
another 2 or 3 years, or even longer, because it is now 
doubtful that the Supreme Court could hear the case at all in 
this term.
    Facing that prospect, the FCC, the Department of Justice, 
NextWave, and winners of the Auction 35 licenses, are anxious 
to bring certainty, and the uncertainty of prolonged litigation 
actually is a major problem for businesses and for consumers 
alike.
    The settlement agreement is the product of lengthy and 
intensive negotiations among many public and private parties 
whose interests it affects. The parties attempted to negotiate 
a settlement that did not require authorizing legislation.
    But in the end the only structure to which the parties 
could find common ground does require the legislation that you 
now find before you. To achieve its objectives in a timely way, 
the proposed legislation includes specific instructions to the 
courts to dispose promptly of any judicial challenges to the 
settlements, or to the legislation itself.
    Those instructions are warranted to put behind us 5 years 
in which this spectrum has laid fallow. Those provisions are 
fully respectful of the independence of the judiciary, and have 
ample precedent in prior legislation.
    In summary, I urge the subcommittee to do everything it can 
to move this legislation through Congress before the end of the 
year. It is the best result for the industry, and we believe 
for the economy.
    To that end, I appreciate the subcommittee's promptly 
holding hearings, and again I thank the subcommittee for the 
opportunity to appear before you today.
    [The prepared statement of Dennis Strigl follows:]
 Prepared Statement of Dennis Strigl, Chief Executive Officer, Verizon 
                                Wireless
    Mr. Chairman, and members of the Committee, thank you for holding 
this hearing today. I am concerned that much of the recent discussion 
of the NextWave settlement has focused on the lobbyists, lawyers, and 
investors. The big picture for the wireless industry and our economy 
has been missing from the dialogue. I'm not a lobbyist, lawyer, or 
self-interested investor. I'm a wireless network operator that has come 
before this Subcommittee for the third time in 18 months to talk about 
the need for more radio spectrum--the lifeblood of the growing wireless 
communications business. In many ways, I'm here today to deliver the 
same message.
    I believe the legislation proposed by the Administration is 
strongly in the public interest:

 The proposed legislation ends five years of legal 
        controversies that have prevented this spectrum from being put 
        to use. Continuing the legal fight is not productive. Even 
        assuming that the FCC would win every legal battle going 
        forward, renewed litigation in the Supreme Court and the D.C. 
        Circuit would take at least two or three more years.
 The proposed legislation will benefit consumers. This is 
        because the additional spectrum is needed by carriers to 
        introduce wireless service to new markets, to fortify existing 
        systems that are approaching capacity limits in major markets, 
        and to roll out high-speed wireless data services.
 The proposed legislation will stimulate investment and create 
        jobs. Verizon Wireless will invest billions of dollars over the 
        next 5 to 7 years for infrastructure and additional network 
        capacity to use the NextWave spectrum. Assuming other auction 
        winners make proportionately similar investments, the 
        settlement will yield a substantial stimulus to the economy. 
        The wireless carriers, equipment manufacturers, and others 
        involved in building out the infrastructure will create 
        thousands of good-paying jobs across the country.
 The proposed legislation produces net receipts of $10 billion 
        for the U.S. Treasury in fiscal year 2002. Without the 
        settlement and the authorizing legislation, the licenses would 
        generate few receipts this year under NextWave's installment 
        payments, and U.S. taxpayers would lose the benefit of the much 
        higher prices that prevailed in the reauction of the licenses. 
        The effect in fiscal year 2002 would actually be a negative 
        outflow of funds, because without the settlement the Treasury 
        would have to immediately refund more than $3 billion of 
        deposits to the Auction 35 bidders.
    There has been a suggestion that Congress should not act on the 
proposed legislation because there may be bankruptcy-related or other 
problems affecting past or future auctions. I urge the Subcommittee to 
take advantage of the solution at hand. This settlement and the 
authorizing legislation can avoid several more years of legal limbo for 
these licenses that can be working for the American people. Putting to 
use almost $16 billion worth of spectrum across 40 States now--rather 
than later--is a pretty good day's work. And on a separate track, with 
respect to the problem presented by bankruptcies in future spectrum 
auctions, Verizon Wireless will be happy to work with Congress in 
crafting a solution.
    The legal context for this settlement and the authorizing 
legislation are detailed in the attachment to this testimony. More than 
five years now have elapsed since the FCC's original auctions awarding 
the licenses to NextWave. Absent a settlement, the litigation could 
continue for another two or three years or even longer, because it is 
now doubtful that the Supreme Court could hear the case this term. 
Facing that prospect, the FCC, the Department of Justice, NextWave, and 
winning bidders from the FCC's January 2001 reauction have negotiated a 
settlement agreement that is intended to avoid the uncertainty of 
prolonged litigation and ensure that the spectrum covered by NextWave's 
licenses will finally be put to use.
    The settlement agreement is the product of lengthy and intensive 
negotiations among many public and private parties whose interests it 
affects. The parties attempted to negotiate a settlement that did not 
require authorizing legislation but in the end the only structure on 
which the parties could find common ground does require the legislation 
that you now find before you.
    To achieve its objectives in a timely way, the proposed legislation 
includes specific instructions to the courts to dispose promptly of any 
judicial challenges to the settlement or to the legislation itself. 
Those instructions are warranted to put behind us five years in which 
this spectrum has lain fallow. Those provisions are fully respectful of 
the independence of the judiciary and have ample precedent in prior 
legislation.
    In summary, I urge the Subcommittee to do everything it can to move 
this legislation through Congress before the end of the year. It is the 
best result for the industry and the economy. To that end, I appreciate 
the Subcommittee's promptly holding this hearing and again, I thank the 
Subcommittee for the opportunity to appear before you today.
                               Attachment
                    legal context of the settlement
    More than six decades ago, Congress determined that the public 
airwaves are a valuable and scarce resource that must be allocated by 
the Government for the temporary, exclusive use of particular persons. 
Since that time, it has vested in the FCC exclusive authority to make 
spectrum allocations. From the beginning, the guiding statutory 
standard for issuance of licenses has been, as it remains, ``public 
convenience, interest, or necessity.'' 47 U.S.C. Sec. 307(a).
    The FCC has used different means for allocating spectrum to serve 
the public interest, including comparative hearings and lotteries. In 
1993, Congress added Section 309(j) to the Communications Act to 
authorize the use of auctions. Congress found that a competitive 
bidding system would (1) ensure that spectrum is used more productively 
and efficiently than if handed out for free; (2) speed delivery of 
services; (3) promote efficient and intensive use of spectrum; (4) 
prevent unjust enrichment (to a lottery winner, for example); and (5) 
produce revenues for the American people. H.R. Rep. No. 103-111, at 
246-253 (1993).
    Section 309(j) makes clear, however, that revenue raising must take 
a back seat to the FCC's continuing duty to select the best user of the 
spectrum. Thus, Congress required the FCC to adopt safeguards to 
protect the public interest and to promote, among other goals, the 
dissemination of licenses to a ``wide variety'' of owners, including 
small businesses. 47 U.S.C. Sec. 309(j)(3). Congress required the FCC 
to consider installment-payment methods to implement this goal, and 
Congress restricted the FCC's ability to consider the ``expectation of 
Federal revenues'' in designing authorized auctions. 47 U.S.C. 
Sec. Sec. 309(j)7)(B), 309(j)(4)(A). In addition, Congress provided 
that the FCC's new auction authority does not otherwise affect any 
provisions of the Communications Act and that the FCC's licensing 
decisions are to be governed by the public interest, convenience, and 
necessity. In particular, Congress specified that the auction-related 
provisions of the Act do not diminish the Commission's authority to 
regulate or reclaim spectrum licenses, and do not convey any rights, 
including any expectation of renewal of a license, that differ from the 
rights of other licenses within the same service that were not issued 
via auctions. 47 U.S.C. Sec. 309(j)(6).
    In implementing its new auction authority, the FCC concluded that 
designing auctions to award licenses to the parties that value them 
most highly (as evidenced by their commitment to pay the most) will 
best achieve the congressional goals noted above. The FCC also adopted 
installment-payment programs to implement the express congressional 
directive to promote dissemination of licenses among a wide variety of 
owners, including small businesses, as one facet of identifying who 
would be the best users of the public spectrum overall.
    When the FCC conducted a series of auctions from 1995 through 1997 
for the right to use certain broadband PCS spectrum, NextWave (that is, 
NextWave Personal Communications Inc. and its affiliates) was the 
winning bidder for spectrum in 63 markets by submitting high bids 
totaling $4.74 billion, which NextWave, as a small business, would pay 
over a ten-year period under the FCC's installment payment program. The 
FCC issued the 63 licenses to NextWave in early 1997, subsequent to the 
express condition that failure to make a scheduled payment would result 
in automatic cancellation. Almost immediately, however, NextWave and 
winning bidders for other licenses, finding it hard to obtain 
financing, asked the FCC for relief from their obligations. The FCC 
suspended installment payments while it considered the matter, but 
ultimately gave licensees only a limited set of ``restructuring'' 
options, stressing the importance of avoiding changes that would impair 
the integrity of the auctions process and would be unfair to losing 
bidders in the auctions. The FCC's adoption of the restructuring 
options was upheld by the D.C. Circuit.
The NextWave Litigation
    On June 8, 1998, the day that PCS licensees were required to elect 
among these ``restructuring'' options, NextWave, rather than make an 
election, filed a petition for reorganization in bankruptcy. NextWave's 
next installment payment was due at the end of October 1998, but it 
failed to make that payment, thus triggering the express automatic 
cancellation condition on its licenses. NextWave, however, began 
litigating in the bankruptcy court to keep its licenses while avoiding 
its obligations to make full and timely payment, by asserting a claim 
of ``fraudulent conveyance'' under Section 544 of the Bankruptcy Code, 
11 U.S.C. Sec. 544, based largely on an asserted decline in the value 
of the licenses since the auctions.
    NextWave's bankruptcy filing has spawned years of litigation, which 
has focused on the FCC's right to reclaim spectrum from bankrupt 
licensees who are unable to meet the payment conditions imposed on 
their licenses. From the outset, the bankruptcy court framed the issue 
as whether the FCC's challenge to NextWave's plan of reorganization 
sought to adjudicate the FCC's rights as a creditor under the 
Bankruptcy Code (in which case the bankruptcy court could adjudicate 
the matter), or the FCC's rights as a regulator (in which case it could 
not). The bankruptcy court concluded that only creditor interests were 
at issue and ruled in NextWave's favor; the district court affirmed, 
allowing NextWave to retain the licenses while reducing NextWave's 
payment obligation from $4.74 billion to $1.02 billion.
    The Second Circuit reversed that decision. It rejected the 
bankruptcy court's view that the FCC's rights to enforce the license 
conditions against a bankrupt licensee were limited to those of a 
traditional creditor. Instead, the Second Circuit described the 
congressional commitment to the FCC (not any court) of exclusive 
authority over spectrum and the noncreditor regulatory interests behind 
auctions as spectrum allocation tools. Accordingly, the Second Circuit 
held that the bankruptcy court lacked authority to order remedies that 
abrogate the FCC's licensing authority. The Second Circuit further held 
that NextWave became obliged at the close of the auction, when what it 
was buying was worth what it bid, thus defeating NextWave's efforts to 
reduce the debt.
    When the case returned to the bankruptcy court, market conditions 
had changed, bringing a substantial increase in the value of the 
NextWave licenses and NextWave was therefore able to propose a 
reorganization plan providing for full payment of its obligations to 
the FCC. The FCC, however, announced that NextWave's licenses had 
automatically cancelled when the October 1998 payment was missed, and 
proposed to re-auction the spectrum. The bankruptcy court issued an 
order declaring the FCC's reauction notice null and void, citing the 
automatic stay and other provisions of the bankruptcy code, 11 U.S.C. 
Sec. Sec. 362, 1123, 1124. The Second Circuit again reversed. The 
Supreme Court denied NextWave's petitions for certiorari from both 
Second Circuit decisions.
    In January 2001, the FCC completed its reauction of NextWave's 
licenses. In the reauction--dubbed Auction 35--21 companies seeking 
access to spectrum that has grown increasingly scarce bid a total of 
approximately $15.8 billion--more than three times what NextWave had 
originally bid for the spectrum.
The D.C. Circuit's Decision
    NextWave next appealed the FCC's public notice announcing the 
reauction of its licenses to the D.C. Circuit. Like the bankruptcy 
court and the Second Circuit, the D.C. Circuit was asked to consider 
whether the FCC's license cancellation was prohibited by Section 525 of 
the Bankruptcy Code, which forbids any governmental unit to ``deny, 
revoke, suspend, or refuse to renew a license'' to a person that ``is 
or has been a debtor'' under Chapter 11 of the Bankruptcy Code solely 
because such debtor was insolvent before the bankruptcy case was filed 
or has not paid a debt that is dischargeable in bankruptcy. 11 U.S.C. 
Sec. 525(a). The D.C. Circuit held that, because the FCC's license 
cancellation was triggered by NextWave's failure to make the required 
payments, the cancellation fell within these automatic stay provisions 
of the Bankruptcy Code. The D.C. Circuit invalidated the cancellation, 
returning the spectrum to NextWave.
    The FCC, Verizon, and certain other wireless carriers have 
petitioned the Supreme Court asking that they review the D.C. Circuit's 
decision. That petition is pending.
The Settlement Agreement
    More than five years now have elapsed since the FCC's original 
auctions awarding the licenses to NextWave. Absent a settlement, the 
litigation could continue for another two or three years or even 
longer, because it is now doubtful that the Supreme Court if it grants 
certiorari could hear the case this term and because there are other 
issues raised by NextWave that would be heard on remand from the 
Supreme Court even if the Court reversed the D.C. Circuit concerning 
Section 525. Facing that prospect, in the aftermath of the D.C. 
Circuit's decision, the FCC, the United States Department of Justice, 
NextWave, and winning bidders from the FCC's January 2001 reauction 
have negotiated a settlement agreement that is intended to avoid the 
uncertainty of prolonged litigation and ensure that the spectrum 
covered by NextWave's licenses will finally be put to use.
    The settlement agreement is the product of weeks of intensive 
negotiations among many public and private parties whose interests it 
affects. The parties attempted to negotiate a settlement that did not 
require authorizing legislation but in the end the only structure on 
which the parties could find common ground does require the legislation 
that you now find before you.
    To achieve its objectives in a timely way, the proposed legislation 
includes specific instructions to the courts to dispose promptly of any 
judicial challenges to the settlement or to the legislation itself. 
Those instructions are warranted by the need to put behind us the five 
years in which this spectrum has lain fallow. Those provisions also are 
fully respectful of the independence of the judiciary and have ample 
precedents in prior legislation.

    Mr. Upton. Thank you.
    Mr. Cassou.

                    STATEMENT OF FRANK CASSOU

    Mr. Cassou. Thank you, Mr. Chairman, and members of the 
committee. I would like to begin by thanking this committee for 
the oversight it has devoted to C-Block issues. The committee 
as a whole and many of its members have spent considerable time 
to give NextWave and other C-Block companies an opportunity to 
tell our side of the story.
    You have held hearings, and advocated legislative 
solutions, and exerted strong leadership on C-Block policy 
matters. NextWave has been treated very fairly here, and we are 
sincerely grateful.
    As the committee has heard this afternoon, there is a 
proposed settlement of a controversy that has clouded 
NextWave's bankruptcy reorganization. Mr. Chairman, to 
appreciate the fairness of this settlement, it is important to 
understand what has happened to NextWave over the past 6 years.
    NextWave has been attempting to enter the wireless market 
as a new competitor since 1995. The company was formed then by 
a group of experienced telecommunications executives, with an 
innovative plan to provide wireless services on a wholesale 
basis.
    NextWave was granted spectrum licenses by the FCC in 1997, 
after a thorough investigation of our qualifications. At that 
time, the FCC's wireless bureau certified unequivocally that 
NextWave was in compliance with all designated entity 
requirements.
    We have remained in compliance ever since. Moreover, 
NextWave's foreign ownership has fallen to a modest level well 
below the 25 percent threshold established in the 
Communications Act.
    In 1997, and in 1998, NextWave made great progress in 
raising hundreds of millions of dollars to finance its $500 
million payment to the FCC in the initial buildout of its 
network.
    The company hired over 600 employees and contractors, 
opened 22 offices, and secured more than $2 billion in 
financing commitments from major vendors. The company cleared 
microwave lengths, and acquired cell sites.
    We had test systems operating in four major markets. 
Indeed, the first call made on our network was placed to the 
FCC by the distinguished former chairman of this committee, 
Thomas Bliley.
    Unfortunately, spectrum values declined dramatically during 
1997 for reasons that were unforeseeable. As a result, 
financing sources dried up, and the company's financial 
position deteriorated, but the company did not run to the 
bankruptcy court.
    It fought off insolvency for more than a year, but it was 
forced to lay off more than 500 employees and contractors and 
had accumulated more than $400 million in debt to creditors.
    To preserve the assets for the benefit of creditors and to 
sustain the company as an ongoing venture, NextWave was finally 
forced to seek bankruptcy protection in June 1998. Indeed, it 
had a legal duty to do so.
    The committee is familiar with the litigation that has 
followed, but what it may not be familiar with is NextWave's 
repeated efforts, continuing to the present, to settle the 
litigation and to operate as a wireless carrier.
    In January of 2000, NextWave proposed a plan of 
reorganization that would have paid the FCC and other creditors 
in full, and enabled NextWave to emerge from bankruptcy with 
sufficient capital to build out its network.
    The FCC blocked the plan and despite repeated assurances to 
NextWave that its licenses would not cancel if it deferred 
payment while reorganizing, the FCC announced in January of 
2000 that it was canceling the licenses.
    In August of this year, following the D.C. Circuit decision 
giving NextWave back its licenses, NextWave submitted a new 
plan of reorganization that included approximately $5 billion 
in financing commitments, enough again to pay all creditors in 
full, and enable NextWave to build out its network.
    NextWave employees are currently working with contractors 
building out the markets, the network in 95 markets. Even with 
this settlement, NextWave intends to operate its remaining 
licenses in markets such as Detroit and Madison, Wisconsin.
    All that brings us to where we are today, to the 
settlement. The settlement is a fair compromise, and the 
benefits are clear, but that this is not a windfall for anyone. 
Each party is giving up something.
    It is important to understand what NextWave is giving up; 
loss of past opportunity. As I mentioned, in January of 2000, 
NextWave proposed to plan a reorganization that would have 
allowed it to emerge from bankruptcy and would have paid the 
FCC in full for NextWave's license obligations.
    Had the FCC not blocked that plan, NextWave would be fully 
operational today, providing service across the country. By way 
of comparison, another wireless carrier, Voice Stream, which 
has a national footprint comparable to that of NextWave, was 
sold for $29 billion after a little over 2 years of operation.
    That opportunity has already been taken from NextWave loss 
to the present value of this spectrum, and as a result of the 
D.C. Circuit's ruling in June of this year, NextWave's licenses 
were reinstated for use by the company.
    The FCC's reauction of those licenses established their 
market value at $15.85 billion. NextWave's present obligation 
to the FCC for those licenses is approximately $1 billion in 
2002, plus another $4 billion payable over the next several 
years.
    Loss of future opportunity. Under the settlement, NextWave 
is being asked to forego the opportunity to proceed with its 
current plan of reorganization. Based on the value that the 
market has placed on the spectrum alone, it is likely that 
NextWave would become a company of significant value in the 
near future.
    NextWave's payment is significant, but it is not a 
windfall. The settlement enables much larger additional 
payments to taxpayers, in excess of $10 billion, twice the 
amount that NextWave originally bid on the licenses, and more 
than 10 times the amount that would otherwise be received from 
nextwave in 2002.
    The settlement also avoids further delays in the use of the 
spectrum. I hope that this testimony has been helpful and I 
urge the committee to approve the settlement agreement.
    [The prepared statement of Frank Cassou follows:]
Prepared Statement of Frank Cassou, Executive Vice President & General 
                     Counsel, NextWave Telecom Inc.
                              introduction
    Thank you, Mr. Chairman; Members of the Committee. My name is Frank 
Cassou. I am the Executive Vice President and General Counsel of 
NextWave Telecom Inc. I joined NextWave in February 1996, and have 
played an active role since then in the Company's attempts to acquire, 
pay for, and build out broadband PCS licenses.
    I would like to begin by thanking this Committee for the oversight 
it has devoted to C block issues. The Committee as a whole, and many of 
its Members individually, have spent considerable time and energy in 
recent years to provide NextWave and other C block companies an 
opportunity to voice our concerns and tell our side of the story. You 
have held hearings, advocated legislative solutions, and exerted strong 
leadership on C block policy matters with your colleagues and with the 
FCC. NextWave has been treated very fairly here, and we are sincerely 
grateful.
    I come before you today to report that after years of conflict, 
there is a proposed consensual resolution of the primary legal 
controversy that has clouded NextWave's bankruptcy reorganization. The 
proposed settlement will end long-running litigation, generate $10 
billion in payments to taxpayers, allow consumers to access radio 
spectrum that has been tied up in the litigation, and provide the 
foundation from which the NextWave can complete its bankruptcy 
proceedings and emerge reorganized and able to proceed with its 
remaining business.
                               background
    NextWave was formed in 1995 by a group of experienced 
telecommunications executives, including the former President of the 
wireless business at QUALCOMM, Inc., to participate as a designated 
entity in the auctions and implement an innovative business plan as a 
nationwide ``carrier's carrier,'' providing wireless services on a 
wholesale basis at far lower rates than anything available at that 
time. At the conclusion of the C Block auctions in May and July 1996, 
NextWave was designated the high bidder for 63 licenses and timely made 
its $474 million down payment on such C Block licenses. NextWave then 
executed promissory notes for the remaining amounts due to purchase its 
C Block licenses.1
---------------------------------------------------------------------------
    \1\ In subsequent auctions, NextWave was the high bidder for 27 F 
Block licenses and made timely down payments on those licenses of 
approximately $25 million.
---------------------------------------------------------------------------
    NextWave was granted spectrum licenses by the FCC in 1997, after a 
thorough investigation of our qualifications. At that time, the FCC's 
Wireless Telecommunications Bureau certified unequivocally that 
NextWave was in compliance with all of the Commission's ``Designated 
Entity'' requirements. The Company has remained in compliance ever 
since. By virtue of our Chapter 11 filing in 1998, NextWave's 
fundamental corporate structure and ownership have been in a state of 
suspended animation. Nothing has occurred since the original license 
grant that would cause us to fall out of compliance. Moreover, 
NextWave's current foreign ownership is de minimus; well below the 25 
percent threshold established in the Communications Act.
    NextWave moved quickly to implement its business plan and raised 
more than $600 million to finance its down payments to the FCC and the 
initial build-out of its network. By early 1997, NextWave had hired 
over 600 employees and contractors, and had opened 22 offices across 
the country. NextWave also secured more than $2 billion in financing 
commitments from major vendors for deployment of network equipment. 
Within months, NextWave had ninety percent of the microwave links 
needed to launch service, had acquired seven switch sites, designed 
more than 1300 cell sites, signed more than 300 site leases, and 
negotiated an additional 900 leases. NextWave expected to begin 
commercial service in four markets by late 1997, and had completed 
network engineering designs for 22 of its major markets, including New 
York, Los Angeles, Chicago, and Boston. NextWave had also obtained 
airtime purchase commitments for in excess of 35 billion minutes of 
use.
    Unfortunately, spectrum markets declined dramatically during 1997, 
primarily due to the availability of additional spectrum that was made 
available through auction, at the very time NextWave was attempting to 
raise capital and launch service.
    Despite its efforts to remain solvent, NextWave was forced to 
curtail its operations, laying off more than 500 employees and 
contractors. By this time, NextWave owed (in addition to its FCC 
obligations) more than $400 million to creditors, and faced attachment 
proceedings and other litigation across the country. To preserve assets 
for the benefit of creditors, to sustain the company as an ongoing 
venture and to fulfill our fiduciary duties, NextWave was forced to 
seek bankruptcy protection. We did so only after exploring every 
alternative. The decision to initiate Chapter 11 proceedings was 
approved by our Board of Directors, including our outside directors, 
Allan E. Puckett, the former Chairman and CEO of Hughes Aircraft 
Company, and William H. Webster, the former Director of the CIA and 
FBI.
    On June 8, 1998, NextWave filed for relief under Chapter 11 of the 
Bankruptcy Code. Pursuant to Sections 1107(a) and 1108 of the 
Bankruptcy Code, the NextWave have operated their businesses and 
managed their properties as debtors-in-possession.
Litigation Between NextWave and the FCC
    Following extended litigation in the Bankruptcy Court and the 
Second Circuit, NextWave prepared to emerge from bankruptcy and. Aided 
by improved market conditions, and with the aid of the breathing space 
the Bankruptcy Code provides, NextWave submitted a plan of 
reorganization in December 1999. That plan would have cured all alleged 
defaults in installment payments to the FCC, permitted NextWave to meet 
all FCC obligations going forward, and paid all creditors in full, 
including interest and late fees. Indeed, NextWave went further and 
offered to make an immediate cash payment to the FCC of $4.3 billion--
thereby paying for the licenses seven years earlier than required. 244 
B.R. at 262. The plan was set for confirmation on January 21, 2000. Had 
that plan been confirmed, NextWave would have been a bankruptcy success 
story, having paid its creditors in full while retaining sufficient 
capital to realize its goal of building out its nationwide network.
    As a result of FCC actions, however, that plan was never confirmed. 
On January 12, 2000, the FCC issued a Public Notice declaring that the 
NextWave' C and F Block licenses were cancelled retroactively to 
January 1999 due to a failure to make postpetition installment payments 
while NextWave reorganized its business. In response to the Public 
Notice, NextWave pursued two parallel courses with respect to the 
Public Notice: (i) in the Bankruptcy Court and, on appeal, in the 
Second Circuit; and (ii) in the Court of Appeals for the District of 
Columbia Circuit (the ``D.C. Circuit'').
    In response to an Order to Show Cause filed by the NextWave seeking 
to void the Public Notice, the Bankruptcy Court found that the 
attempted cancellation of the C and F Block licenses was ineffective 
due to, inter alia, certain provisions of the Bankruptcy Code and it 
termed the FCC's purported cancellation ``shocking'' and ``offensive to 
due process.'' Subsequently, however, in response to a petition for 
writ of mandamus filed by the FCC, the Second Circuit found that 
bankruptcy courts lack jurisdiction to review regulatory actions such 
as the Public Notice. Specifically, the Second Circuit opined that 
``[e]ven if the bankruptcy court is right on the merits of its 
arguments against revocation,'' that court simply ``lacked jurisdiction 
to declare the Public Notice null and void on any ground: that the 
Public Notice violated the automatic stay, that the right to cure 
obviates any default, or that the government was estopped.'' In re FCC, 
217 F.3d 125, 139 (2nd Cir. 2000). The Second Circuit emphasized that 
``NextWave remains free to pursue its challenge to the FCC's regulatory 
acts'' in the D.C. Circuit, id. at 140, and refrained from commenting 
``on the prospects'' of any such appeal. Id. at 129.
    On February 11, 2000, NextWave filed a petition for reconsideration 
of the Public Notice with the FCC. On September 6, 2000, the Commission 
denied the reconsideration petition, and, shortly thereafter, scheduled 
NextWave's licenses for reauction on December 12, 2000 (such reauction 
referred to hereinafter as ``Auction 35''). NextWave vigorously opposed 
the FCC's actions seeking unsuccessfully to stay the reauction until 
after the D.C. Circuit had ruled on the merits of its claims.
    Following the D.C. Circuit's denial of the stay, NextWave pursued 
an appeal of the FCC's cancellation in the D.C. Circuit. In that 
appeal, the NextWave asserted, as it had before the Bankruptcy Court, 
that cancellation of the C and F Block licenses violated several 
provisions of the Bankruptcy Code, including Sec. Sec. 362, 525, 1123 
and 1124, as well as established principles of due process and fair 
notice.
    On June 22, 2001, the D.C. Circuit issued a ruling on the NextWave' 
appeal, reversing the FCC's purported cancellation and holding that 
cancellation of NextWave's C and F Block licenses violated Section 
525(a) of the Bankruptcy Code (the ``D.C. Circuit Opinion''). Section 
525(a) provides, in relevant part, that a ``governmental unit may not . 
. . revoke . . . a license . . . to . . . a bankrupt . . . solely 
because such bankrupt . . . has not paid a debt that is dischargeable . 
. . under this title.'' The D.C. Circuit reversed the Commission's 
purported cancellation concluding that the FCC had violated the 
Bankruptcy Code when it revoked NextWave's licenses solely because 
NextWave had not paid a dischargeable debt. The Court stated: 
``Applying the fundamental principle that federal agencies must obey 
all federal laws, not just those they administer, we conclude that the 
Commission violated the provision of the Bankruptcy Code that prohibits 
governmental entities from revoking debtors' licenses solely for 
failure to pay debts dischargeable in bankruptcy.'' The D.C. Circuit 
made clear that the FCC had effectively sought a ``regulatory purpose'' 
exception to that prohibition, but that Congress had not created such 
an exception. 254 F.3d at 151.
    On August 6, 2001, the FCC filed a motion asking the D.C. Circuit 
to stay the issuance of the mandate pending the Commission's filing a 
petition for a writ of certiorari in the United States Supreme Court. 
On August 23, 2001, the D.C. Circuit denied the Stay Motion, noting 
that ``the FCC has not demonstrated that the petition would present a 
substantial question'' warranting Supreme Court review.
    On August 30, 2001, the D.C. Circuit issued its mandate, thereby 
formally concluding the proceedings before it. On August 31, 2001, the 
FCC issued a Public Notice announcing that it had returned the 
NextWave' licenses to active status.
    Shortly after the D.C. Circuit opinion, NextWave filed a second 
plan of reorganization. As did the first plan, this second plan 
provided for payment in full of all creditors, including the FCC. The 
plan contained financing commitment of approximately $5 billion to find 
the build-out and commercial launch of a nationwide wireless 3G 
network.
    On October 19, 2001, the FCC filed a petition for writ of 
certiorari with the United States Supreme Court requesting review of 
the D.C. Circuit Opinion. Certain of the high bidders in Auction 35 
also filed certiorari petitions with the Supreme Court. Given the 
proposed settlement agreement, NextWave requested and received a sixty 
day extension of the time within which to respond to such petitions. It 
is contemplated under the settlement agreement that the petitions for 
certiorari will be withdrawn at the time the FCC receives the C Block 
and F Block licenses.
Auction 35 and Intervention by Wireless Carriers
    As indicated above, following the issuance of the Public Notice, 
the FCC scheduled and held Auction 35 which, while it included certain 
other licenses, was primarily a reauction of NextWave's C and F Block 
licenses. The 30 MgHz C Block licenses held by NextWave were divided 
into three 10 MgHz licenses and bidders for certain of those 10 MgHz 
licenses were not limited to designated entities. Further, Auction 35 
was specifically held subject to resolution of the litigation with 
NextWave over the C Block and F Block licenses. Even taking into 
account these factors, however, the results of Auction 35 indicated 
that the market value of spectrum had significantly increased during 
1999-2001. The aggregate bids for NextWave's licenses were $15.85 
billion. Alaska Native Wireless (``ANW''), Verizon Wireless 
(``Verizon''), Salmon PCS (``Salmon''), and VoiceStream Wireless 
(``VoiceStream'') were responsible for over $13.72 billion of such 
bids.
           nextwave's commitment to building out its network
    NextWave's goal has always been to be a nationwide provider of 
wholesale wireless telecommunication services. After being declared the 
high bidder in the C Block auctions, raised $600 million and secured 
more than $2 billion in financing commitments in an effort to create a 
nationwide wireless network. Throughout the bankruptcy cases, NextWave 
has continued to work toward this goal and on several occasions has 
sought to confirm a plan of reorganization providing significant 
present and/or future value to its creditors and equity interest 
holders--many of whom invested money or services in NextWave in 1996 or 
1997. In December 1999, NextWave proposed a plan that would fully cure 
and reinstate the FCC's claims and pay other creditors amounts owed as 
of the bankruptcy filing, while permitting NextWave to complete, the 
build-out of a nationwide wireless network within 12 to 18 months. That 
Plan was, however, subsequently abandoned when the FCC announced the 
cancellation of NextWave's licenses. Notwithstanding the disruptions to 
the reorganization process throughout the course of the bankruptcy 
proceedings, NextWave has proceeded to the extent possible with the 
build-out of the network. For example, network architecture and 
preliminary radio frequency designs are completed for the top 40 
markets. In June 2001, NextWave obtained court approval for debtor-in-
possession financing sufficient to achieve initial build-out of all of 
its markets with a full commercial build in the D and E markets. This 
build-out has continued with the signing of vendor contracts and the 
purchase and installation of base stations and switches in certain 
markets.
    Following the DC Circuit Opinion, NextWave filed a new plan of 
reorganization, this time backed by financing commitments of 
approximately $5 billion, to pay in full all creditors, including the 
FCC, to fund the build-out and commercial launch of a nationwide 
wireless 3G network.
                  summary of the settlement agreement
    Despite these efforts and the commitment to its original business 
plan, the Company concluded that its obligations to its shareholders 
and creditors required it to enter into the Agreement that is currently 
before this Committee and Congress as a whole. The Settlement Agreement 
contemplates, in sum, that the litigation and the regulatory disputes 
between the FCC and NextWave will be fully and finally resolved. As a 
result, NextWave's C Block and F Block licenses, which have been 
subject to the cloud of litigation, and NextWave's D Block and E Block 
licenses, which have been caught up in the delays caused by the dispute 
with the FCC would be put immediately to productive use. The following 
is a brief overview of the transactions and procedures encompassed in 
the Settlement Agreement.
    Even if the settlement agreement is approved by Congress, NextWave 
will continue its efforts to create a wireless company, albeit on a 
reduced scale. NextWave remains on schedule to launch commercial 
service in the markets covered by its D Block and E Block licenses--
which were paid for in full and are not the subject of this 
litigation--during 2002 and plans to continue operations with these 
licenses even if the C and F Block licenses are referred to the 
government.
    (a) The Parties will seek legislation authorizing the FCC and 
Department of Justice (the ``DOJ'') to settle with NextWave as set 
forth in the Settlement Agreement.2 The proposed legislation 
further appropriates the funds required to implement the settlement 
between the FCC and NextWave and provides for an expedited appellate 
review process for challenges to the Settlement Agreement or 
transactions contemplated thereunder.
---------------------------------------------------------------------------
    \2\ Capitalized terms utilized herein without definition are 
intended to be defined as set forth in the Settlement Agreement.
---------------------------------------------------------------------------
    (b) Pursuant to Sec. 363(b) and (f) of the Bankruptcy Code, 
NextWave's C Block and F Block licenses will be returned to the FCC.
    (c) Upon fulfillment of the conditions set forth in the Settlement 
Agreement including (i) enactment of the Legislation; (ii) occurrence 
of the Final Bankruptcy Settlement Approval Date; and (iii) transfer of 
NextWave's C Block and F block licenses to the FCC, NextWave will 
become entitled to receive $9.55 billion (the ``NextWave Payment''). 
The NextWave Payment will be provided for in the legislation and owed 
once the applicable conditions are satisfied. The NextWave Payment is 
comprised of $3.052 billion as a nonrefundable advance tax payment (the 
``Advance Tax Payment'') and $6.498 billion in cash (the ``Cash 
Payment'').
    (d) The FCC will retain $499 million of the deposits NextWave made 
on its C and F Block licenses. In addition, NextWave is required to 
make certain other payments to the FCC such that, when added to the 
Advance Tax Payment and the retention of its deposits, NextWave will 
have paid the United States $3.731 billion.
    (e) It is contemplated under the Settlement Agreement that counting 
the Advance Tax Payment and certain other payments by NextWave and the 
payments by Auction 35 Participants for the C Block and F Block 
licenses, the United States and the Commission will receive at least 
$10 billion.
    (f) Verizon and ANW are required to post letters of credit to 
secure the payments they owe for their Auction 35 licenses. Conditioned 
upon the posting of such letters of credit, once NextWave receives the 
Cash Payment, it is required to pay Verizon and ANW $118.1 million and 
$25 million respectively.
    (g) If Verizon does not post a letter of credit in the amount of 
$7,692,113,700 in January 2002, the FCC has the right to terminate the 
Settlement Agreement. The NextWave Payment is also conditioned on the 
issuance of an FCC Order approving the Settlement prior to January 10, 
2002 and final resolution of any litigation relating to bankruptcy 
approval of the Settlement.
    (h) In accordance with its normal regulatory proceedings and 
authority, the FCC will act upon the applications to issue the Auction 
35 licenses to Participating Auction 35 Winning Bidders.
                analysis of the settlement agreement \3\
---------------------------------------------------------------------------
    \3\ See NextWave Personal Comm. Inc. v. Federal Comm. Comm'n, 254 
F.3d 130 (D.C. 2001).
---------------------------------------------------------------------------
    These benefits are particularly appealing to the Government and the 
Auction 35 participants in light of the alternatives. As a result of 
the D.C. Circuit proceeding, NextWave currently holds the C Block and F 
Block licenses and the likelihood that the Supreme Court will act to 
reverse the D.C. Circuit decision is small. Even in the unlikely event 
of the grant of certiorari by the Supreme Court and a subsequent ruling 
against NextWave, the litigation would not be ended. The proceedings 
would then return to the D.C. Circuit for consideration and review of 
NextWave's remaining claims, including due process and fair notice 
claims. Even if the Government and the Auction 35 participants were 
ultimately successful, the spectrum would be tied up until at least the 
end of 2003, if not later.
    This is a rare case in which the resolution, while not the outcome 
any party would unilaterally select, is one that benefits all parties. 
The FCC and the government will receive at least $10 billion, more than 
twice the amount NextWave bid on the licenses at the original auction. 
In contrast, as matters now stand, NextWave's obligation to the FCC in 
the upcoming year will be to pay approximately $850 million, and its 
total obligation to the FCC for the licenses will amount to only 
approximately $5 billion. The settlement thus provides the United 
States with $10 billion in 2002--ten times what it would otherwise 
receive in that year from NextWave. The Auction 35 Participants will 
receive the C Block and F Block licenses and will put them to immediate 
use. This will enable these carriers, some of whom are currently or 
might in the future suffer from spectrum capacity constraints, to 
provide critical wireless services to consumers and may expedite the 
provision of third generation wireless technology.
    The settlement also benefits NextWave. While NextWave will be 
foregoing the opportunity to fulfill the vision for which it has 
struggled so long--that of becoming the first nationwide carriers' 
carrier providing third generation services on a wholesale basis--its 
creditors will receive payment in full and its shareholders will 
realize a return on their equity investments. In addition, NextWave 
will be able to complete the commercial launch of service in the 
markets covered by the D Block and E Block licenses (primarily Detroit, 
Michigan and Madison, Wisconsin). In addition, NextWave will be spared 
the expense and delay that could result from further court and 
regulatory litigation.
    It is critical to realize, however, that these benefits come at a 
substantial loss. Although the Company will be able to move forward and 
build out a network in the five markets where it will continue to hold 
licenses, the scale of its immediate future operations will be much 
smaller than would have been possible had NextWave retained all the 
licenses it currently holds. Moreover, the decision to settle has 
imposed real and substantial lost opportunities for the Company.
    Loss of past opportunity. In January 2000, NextWave proposed a plan 
of reorganization that would have allowed it to emerge from bankruptcy 
and would have paid the FCC in full for NextWave's license obligations. 
The FCC, however, rejected NextWave's proposal and tried to cancel 
NextWave's licenses. The D.C. Circuit ruled in June 2001 that the FCC's 
actions were unlawful. Had the FCC's unlawful action not been prevented 
from executing its plan in January 2000, NextWave would be a fully 
operational wireless carrier by now, providing service across the 
country. By way of comparison, another wireless carrier, VoiceStream, 
which has a national footprint comparable to that of NextWave, was sold 
for $29 billion after a little over two years of operation. That is an 
opportunity that has already been taken from NextWave.
    Loss of the present value of the spectrum. As a result of the D.C. 
Circuit's ruling in June 2001, and its subsequent decision denying the 
FCC a stay, the spectrum licenses that are the subject of this 
settlement have been returned to NextWave, and NextWave is in full 
possession of them and able to use them. The FCC's reauction of those 
licenses established their market value at $15.85 billion. NextWave's 
present obligation to the FCC for those licenses is approximately $5 
billion payable over the next several years.
    Loss of future opportunity. After the D.C. Circuit ruled in June 
2001 that NextWave rightfully holds the licenses, the Company again 
assembled a new plan of reorganization, and arranged for financing, 
that would allow it to emerge from bankruptcy, build out its nationwide 
wireless network, and become operational. Based on the value the market 
has placed on the spectrum alone, it is likely that NextWave would 
become a company of significant value in the very near future.
    This Settlement Agreement is the result of arm's length bargaining. 
The parties have been involved in an ongoing legal battle for years 
with which the Committee is familiar. Over the past several years, the 
parties have attempted on various occasions to discuss settlement 
alternatives. The Settlement Agreement itself has taken months to 
negotiate given the complexity of the issues involved. The negotiations 
were arms length and have resulted in an Agreement where each party 
benefits, but also has had to abandon achieving its particular view of 
the appropriate outcome of litigation--the true description of a 
compromise. We thus respectfully ask Congress to approve this 
Settlement Agreement and enact the necessary implementing legislation.

    Mr. Shimkus [presiding]. Thank you.
    And the last panelist, Mr. Jim Winston, Corporate Secretary 
of Urban Communications. You have 5 minutes, and your full 
statement is in the record, and welcome.

                  STATEMENT OF JAMES L. WINSTON

    Mr. Winston. Good afternoon. My statement says Chair 
Upton----
    Mr. Shimkus. I will take that as a compliment.
    Mr. Winston. Members of the subcommittee, my name is James 
Winston, Corporate Secretary and General Counsel of Urban 
Communicators, P.C., a limited partnership, known as Urban 
Comm.
    Thank you for the invitation to appear before you today to 
discuss the proposed settlement among NextWave Telecom, the 
Federal Communications Commission, the Department of Justice, 
and the Auction 35 participants.
    I wish to make two points concerning this settlement. 
First, it is indeed a fair and reasonable result for the 
parties and the American public that the FCC would finally 
recognize that they should move this process forward and settle 
the NextWave litigation.
    My second point is that it is also fair and reasonable that 
Congress should direct the FCC and DOJ to negotiate a similar 
settlement with Urban Comm. I am pleased to appear before the 
subcommittee today on behalf of Urban Comm.
    I have had the honor of appearing before the subcommittee 
in the past in my capacity as Executive Director of the 
National Association of Black-Owned Broadcasters. In many ways, 
my appearance today is an extension of my role with NABOB 
because Urban Comm was formed by a group of NABOB members.
    In the spring of 1993, at a NABOB conference, Sydney Small, 
Chairman of Urban Comm, and a member of the NABOB Board of 
Directors, suggested that Urban Comm--okay. In 1996, Urban 
Comm, like NextWave, obtained PCS licenses in the C-Block 
auction.
    Urban Comm obtained 10 licenses for an aggregate bid price 
of $74.6 million, and paid a downpayment of $7.46 million for 
those licenses. Urban Comm, unlike NextWave, made its first 
quarterly interest payment to the FCC on its license debt.
    However, Urban Comm was not able to make its second 
interest payment. On October 28, 1998, Urban Comm filed for 
Chapter 11 reorganization under the bankruptcy code. When the 
FCC announced that it would reauction Urban Comm's licenses, 
Urban Comm filed a petition for reconsideration and a petition 
to stay the reauction.
    Those petitions were filed October 6, 2000, over 14 months 
ago, and over 2 months before the reauction began. The FCC has 
never acted on either petition. Last month, on November 9, 
Urban Comm filed in the D.C. Court of Appeals a petition 
seeking a writ of mandamus, which would order the FCC to act on 
Urban Comm's petition for reconsideration.
    A grant of the writ of mandamus will require the FCC to act 
on our petition for reconsideration. If the FCC denies our 
petition for reconsideration, Urban Comm will have the right to 
appeal to the D.C. Court of Appeals.
    At that point, Urban Comm will be in the same court which 
issued the NextWave decision, and we will be arguing virtually 
the same case. Thus, we expect a decision similar to the 
NextWave decision at some time next year.
    Like NextWave, Urban Comm believes that settlement of this 
litigation is preferable to continued litigation. Throughout 
the course of its Chapter 11 proceedings, Urban Comm has sought 
to negotiate a settlement of this adversary proceeding with the 
FCC.
    However, every effort to negotiate a settlement with the 
FCC has been rebuffed with the same netru. We can't settle with 
you until we settle with NextWave. Therefore, Urban Comm is 
here today to ask Congress to end the long tortured trail on 
the C-Block and F-Block licensees.
    The settlement of the NextWave litigation has been 
presented to Congress as a reasonable and appropriate means of 
resolving this ongoing saga. The C-Block and F-Block auctions 
were a failed experiment by the FCC.
    The FCC experiment was a number of auction ideas in that 
subject auction that were subsequently abandoned, such as 
setting itself up as the auction winners' senior creditor and 
holding this position for a 10 year period.
    The parties in the NextWave settlement have provided a 
reasonable justification for approving the NextWave settlement. 
Those reasons are equally applicable to the Urban Comm case. A 
settlement with Urban Comm along the lines of the settlement 
with NextWave will provide concrete benefits to the American 
public, and therefore, would be in the public interest.
    Urban Comm's concern with the Federal legislation therefore 
is not with its terms, but with its limited scope. The 
bankruptcy court has determined that the issues to be resolved 
in the Urban Comm case are so similar to those to be resolved 
in the NextWave case that he Urban Comm case has essentially be 
held in abeyance awaiting the resolution of the NextWave case.
    Therefore, as a legal matter, the settlement of both cases 
at this time is appropriate. Urban Comm's debt to the FCC of 
approximately $75 million is only 1.6 percent of NextWave's 
debt.
    Consequently, a settlement with Urban Comm raises none of 
the Congressional budgetary issues that the NextWave settlement 
raises. Therefore, Urban Comm requests that Congress take 
action considering the NextWave settlement to assure that the 
FCC and DOJ immediately initiate settlement discussions with 
Urban Comm.
    Urban Comm submits that such assurances can best be 
achieved by, one, including language in the pending settlement 
legislation directing the FCC and DOJ to immediately commence 
settlement discussions with Urban Comm.
    And, two, providing authority in this legislation to permit 
a settlement similar to a settlement negotiated with NextWave. 
Thank you for the opportunity to present Urban Comm's views on 
this important subject. I look forward to answering any 
questions that you may have.
    [The prepared statement of James L. Winston follows:]
Prepared Statement of James L. Winston, Secretary and General Counsel, 
                     Urban Communicators PCS, L.P.
    Good afternoon Chairman Upton and members of the Subcommittee, my 
name is James Winston, and I am Secretary and General Counsel of Urban 
Communicators PCS Limited Partnership (``Urban Comm'').
    Thank you for the invitation to appear before you today to discuss 
the proposed settlement between NextWave Telecom, Inc., the Federal 
Communications Commission, the Department of Justice, and the Auction 
35 participants. I wish to make two points concerning the settlement. 
It is a fair and reasonable result for the parties and the American 
public, and Congress should direct the FCC and DOJ to negotiate a 
similar settlement with Urban Comm.
                             i. background
    I am pleased to appear before the Subcommittee today on behalf of 
Urban Comm. I have had the honor of appearing before the Subcommittee 
in the past in my capacity as Executive Director of the National 
Association of Black Owned Broadcasters (``NABOB''). In many ways, my 
appearance today is an extension of my role with NABOB, because Urban 
Comm was formed by a group of NABOB members. In the spring of 1993, at 
a NABOB conference, Sydney Small, Chairman of Urban Comm and a member 
of the NABOB Board of Directors, suggested that NABOB members form a 
company to participate in the PCS auctions.
    In the spring of 1994, Urban Comm was formed and funded by NABOB 
members. Urban Comm immediately began to participate in the FCC's rule 
making proceedings in which the Commission established the rules for 
auctioning PCS licenses. Unfortunately, as I will describe in detail 
below, over the strenuous objections of Urban Comm, the FCC adopted a 
number of auction rules which had the ultimate effect of undermining 
the ability of the C-block and F-block PCS licensees to obtain 
financing to pay their license debt to the FCC and to construct and 
operate their PCS systems.
    In 1996 Urban Comm, like NextWave, obtained PCS licenses in the C-
block auction. Urban Comm obtained ten licenses for an aggregate bid 
price of $74.6 million and paid a down payment of $7.46 million for 
those licenses. Unfortunately, immediately after the C block auction 
was concluded, the FCC announced another PCS auction for the D, E, and 
F frequency blocks. The D and E-block licenses had no small business 
incentive rules. The F-block licenses had bidding credit rules and ten 
year payment terms similar to those applied to the C-Block.
    The market for financing of wireless companies promptly experienced 
a downturn as financial institutions feared a PCS spectrum glut from 
the D, E and F-block auctions, which were announced before the C block 
bidders even received their licenses. The financial market downturn 
precluded Urban Comm from obtaining financing to construct its system. 
Urban Comm, unlike NextWave, made its first quarterly interest payment 
to the FCC on its license debt. However, Urban Comm was not able to 
make its second interest payment. On October 28, 1998, Urban Comm filed 
for Chapter 11 reorganization under the Bankruptcy Code.
    Shortly after its Chapter 11 filing, Urban Comm became involved in 
an adversary proceeding with the FCC in the Bankruptcy Court. The 
Bankruptcy Court has reserved deciding a motion filed by the FCC to 
dismiss the Urban Comm adversary proceeding. The Bankruptcy Court's 
position is that it would be a waste of judicial resources to litigate 
the same issues in the same forum as NextWave's Chapter 11 case, as the 
Chapter 11 cases of NextWave and Urban Comm are so similar that a 
decision involving one would equally apply to the other.
   ii. the fcc c-block and f-block auctions were a failed experiment
    The FCC's C-block and F-block auctions were conducted shortly after 
Congress gave the FCC auction authority. The auction legislation 
imposed an obligation on the FCC to adopt auction rules which would 
promote opportunities for small businesses and businesses owned by 
minorities and women. Urban Comm participated actively in the FCC's 
rule-making proceedings to develop rules and procedures which would 
promote ownership among small businesses and businesses owned by 
minorities and women. Unfortunately, the FCC did not adopt rules as 
proposed by Urban Comm. Instead, the FCC adopted auction rules and 
procedures which ultimately worked to prevent the C-block and F-block 
licensees from successfully financing and building their businesses. 
The FCC has since abandoned many of its C and F-block auction rules, 
thus treating the C and F-block as a failed experiment.
    Among the rules and procedures adopted by the FCC which hampered 
and eventually undermined the C-block bidders were the following:
    1. In the first broadband PCS auction, the FCC divided the PCS 
spectrum into three frequency blocks: A, B, and C.
    2. The FCC determined that small businesses and businesses owned by 
minorities and women would be given bidding credits of up to 25%, and 
would be allowed to pay for their licenses over a period of ten years.
    3. However, the FCC ruled that bidding credits and payment terms 
could not be used in the A and B-block auctions.
    4. Then, the FCC ruled that the A and B-block auctions would be 
conducted before the C-block auction.
    5. These two critical decisions, (1) not allowing the use of 
bidding credits and payment terms in the A and B-block auction and (2) 
conducting the A and B-block auctions first, were major blows to the 
ultimate success of minorities, women and small businesses in the PCS 
business. Because of these decisions, the dire fate of the C-block 
auction may have been sealed long before the C-block auction ever 
commenced.
    6. By permitting the A and B-block auction to go forward before the 
C-block auction, the FCC allowed the large cellular telephone companies 
to acquire the first licenses for the PCS service--a service which was 
heralded by the FCC as an opportunity for new entrants to compete with 
the existing cellular companies. Instead, the existing carriers, who 
already had every advantage (huge existing cellular telephone 
businesses, built-out networks and cell sites, fully staffed companies, 
financial leverage, and operating experience) were also given the 
advantage of receiving their PCS licenses first. Thus, the existing 
cellular companies received their licenses and began building their 
networks in March 1995--a year and a half before Urban Comm and other 
C-block auction winners would receive their licenses in September 1996.
    7. The C-block auction was delayed by court cases, and did not 
begin until December 1995. By that time, because of the Supreme Court 
decision in the Adarand case, the FCC had abandoned its bidding credits 
for minorities and women, and provided only a small business bidding 
credit in the C-block auction.
    8. When the C-block auction began in December 1995, virtually all 
bidders qualified for the same bidding credit and ten year payment 
terms. Thus, the bidding credits and ten year payment terms, which may 
have been useful to small businesses bidding against the large 
companies in the A and B-block auctions, were totally incapable of 
achieving their intended purpose in the C-block auction, because the 
large cellular companies did not bid in the C-block auction. Those 
companies had obtained all of the spectrum they needed in the A and B-
block auction.
    9. Thus, the C-block auction pitted all of the small businesses 
against each other in a PCS ``ghetto.'' Because all of the bidders had 
the same bidding credits, the bidding credits were nullified and were 
of no value.
    10. Similarly, because the small companies were not bidding against 
the existing cellular companies, the ten year payment term did not 
provide them with the ability to bid against the large companies. 
Instead, the ten year payment term merely plunged the FCC into the role 
of creditor, a role for which it was woefully unprepared, and as we now 
see, helped lead to the ultimate demise of the C-block.
    11. The correctness of this analysis is borne out by the FCC's 
refusal to provide any payment terms in any of the auctions it has 
conducted in recent years, including the Auction 35 re-auction of C-
Block licenses.
    12. After conclusion of the C-block auction, the FCC further 
undermined financing opportunities for the C-block auction winners by 
announcing on June 26, 1996, just seven weeks after the conclusion of 
the C-block auction, that the FCC would auction D, E, and F-block PCS 
licenses, beginning August 26, 1996. As a result of a feared spectrum 
glut, bid prices in the D, E, and F-block auction were only a fraction 
of the prices bid in the C-block auction.
    13. In September 1996, well the after the close of the C-block 
auction, the FCC sent to C-block auction winners a series of promissory 
notes and security agreements, and required all auction winners to sign 
these documents without negotiation or revision. The notes and security 
agreements established the FCC as the senior secured lender for the C-
block licensees. The notes and security agreements added an additional 
unexpected difficulty for C-block auction winners seeking to obtain 
financing to construct and operate their systems. The FCC gave bidders 
no warning prior to the auction that they would be required to sign 
such notes and security agreements. These notes and security agreements 
proved to be the final nail in the coffins of most C-block licensees.
    Urban Comm does not provide this long list of counterproductive FCC 
actions to place blame on the FCC. Rather, it is Urban Comm's intent to 
put the current settlement in its proper historical context.
  iii. urban comm has been trying unsuccessfully for most of the past 
  three years to settle its chapter 11 related litigation with the fcc
    Throughout the course of its Chapter 11 proceeding, Urban Comm has 
sought to negotiate a settlement of its adversary proceeding with the 
FCC. However every effort to negotiate a settlement with the FCC has 
been rebuffed with the same mantra, ``We can't settle with you until we 
settle with NextWave.'' In October of this year, after several press 
reports of an imminent settlement between NextWave and the FCC, 
officers of Urban Comm traveled to the FCC to meet with FCC and DOJ 
officials to discuss the inclusion of Urban Comm in any potential 
settlement with NextWave. Again we were told that a settlement with 
NextWave would have to be concluded before the FCC would commence 
settlement discussions with Urban Comm.
    Even now, after the NextWave settlement discussions have been 
concluded, we continue to be rebuffed in our efforts to initiate 
settlement discussions. We met with FCC officials again last week and 
were told that, even though the FCC has completed its negotiations with 
NextWave, no settlement discussions would be commenced with Urban Comm 
until the NextWave settlement is approved. We were also told that, if 
the NextWave settlement is not approved, no settlement discussions will 
be held with Urban Comm, and the FCC will continue its litigation 
against Urban Comm.
iv. the public interest will be served by adoption of legislation which 
          settles both the nextwave and urban comm proceedings
    Therefore, Urban Comm is here today to ask Congress to end the 
long, tortured trail of the C-block and F-block PCS licensees. The 
settlement of the NextWave litigation which has been presented to 
Congress is a reasonable and appropriate means of resolving this 
ongoing saga. The C-block and F-block PCS auctions were a failed 
experiment by the FCC. The FCC experimented with a number of auction 
ideas in that auction which it has subsequently abandoned--such as 
setting itself up as the auction winner's senior creditor and holding 
this position for a ten year period.
    The parties to the NextWave settlement have provided a reasoned 
justification for approving the NextWave settlement. Those reasons are 
equally applicable to the Urban Comm case. A settlement with Urban Comm 
along the lines of the settlement with NextWave will provide concrete 
benefits to the American people and therefore would be in the public 
interest.
    A settlement with Urban Comm will prevent years of additional 
litigation. As the parties to the NextWave settlement have advised 
Congress, absent a settlement, the litigation in the NextWave and Urban 
Comm cases could continue for years. Even if the FCC is successful in 
its request to the Supreme Court for review of the D.C. Court of 
Appeal's NextWave decision, the litigation could continue for years 
even after a favorable decision by the Supreme Court. The licenses 
would continue to go unused during such litigation, and the American 
public would be deprived of much needed improvements in PCS service 
which the spectrum could permit.
    And in a settlement, Urban Comm will not be made whole. A 
settlement cannot restore Urban Comm's lost past business 
opportunities. Urban Comm has approached the FCC many times over the 
past three years in an effort to settle the pending litigation. Urban 
Comm has offered to pay all of its license debt immediately along with 
all interest and penalties. Had the FCC settled with Urban Comm 
previously, Urban Comm could have emerged from its Chapter 11 
proceeding, constructed its network and become a viable PCS business 
and competitor to the existing companies.
    Similarly, a settlement will foreclose future PCS business 
opportunities for Urban Comm. In a settlement Urban Comm will lose the 
opportunity to become a PCS provider. Unlike NextWave, Urban Comm has 
no PCS licenses other than those involved in the Chapter 11 proceeding. 
A settlement in which Urban Comm returns to the FCC all of its PCS 
licenses involved in the Chapter 11 proceeding will leave Urban Comm no 
licenses with which to begin constructing a PCS business. Thus, Urban 
Comm will have foregone its chance to build a PCS business.
    In spite of the opportunities which Urban Comm must forego in a 
settlement, Urban Comm recognizes that the terms described in the 
NextWave settlement are a reasonable compromise of the competing 
interests being addressed. Urban Comm, therefore, is prepared to enter 
into a settlement similar to that negotiated between the FCC, DOJ, 
NextWave and the Auction 35 parties.
    Urban Comm's concern with the settlement legislation therefore is 
not with its terms but with its limited scope. The Bankruptcy Court has 
determined that the issues to be resolved in the Urban Comm case are so 
similar to those to be resolved in the NextWave case that the Urban 
Comm case has essentially been held in abeyance awaiting a resolution 
of the NextWave case. Therefore, as a legal matter, settlement of both 
cases at this time is appropriate. Urban Comm's debt to the FCC of 
approximately $75 million is only 1.6% of NextWave's debt. 
Consequently, a settlement with Urban Comm raises none of the 
Congressional budgetary issues that the NextWave settlement raises.
    Therefore, Urban Comm requests that Congress take action in 
considering the NextWave settlement to assure that the FCC and DOJ 
immediately initiate settlement discussions with Urban Comm. Urban Comm 
submits that such assurances can best be achieved by: (1) including 
language in the pending settlement legislation directing the FCC and 
DOJ to immediately commence settlement discussions with Urban Comm, and 
(2) providing authority in this legislation to permit a settlement 
similar to the settlement negotiated with NextWave.
    Thank you for the opportunity to present Urban Comm's views on this 
important subject. I look forward to answering any questions you may 
have.

    Mr. Shimkus [presiding]. Thank you. And just for the 
record, as you see, we have a small group of members left, but 
we are pleased to see that the full committee chairman has been 
diligent in listening, and is now prepared to open a first 
round of questions, and he is recognized for 5 minutes.
    Chairman Tauzin. Thank you, Mr. Chairman. Mr. Winston, let 
me first thank you for your analysis in your testimony on page 
two, in which you do a much better job than I tried to do in 
outlining the failure of the C-Block auctions, and many of the 
reasons why they failed.
    And particularly I had not remembered this, the fact that A 
and B-Block auctions occurred 1\1/2\ years prior to C-Block, 
and therefore the largest cellular companies already had their 
spectrum and were already deploying it by the time that smaller 
companies, like yours and others, were invited to a C-Block 
auction.
    And the other point that you raised that the bidding 
credits were essentially nullified in the process, which made 
it even more difficult for smaller bidders to meet their 
financial obligations in the bids.
    All of that contributed as you pointed out to what should 
have been a predictable failure of that process, correct?
    Mr. Winston. Yes. Needless to say, we had high hopes in 
1993 when Congress passed the Auction Authority Legislation, 
and specifically provided in the legislation for opportunities 
to be made available for small businesses, and businesses owned 
by minorities and women.
    From 1993 until the auction began in December 1995, we saw 
one mistake after another that eviscerated everything Congress 
tried to do with Section 309(j) of the Communications Act.
    By giving the existing carriers a 1\1/2\ year headstart on 
us, they had all the pluses going for them to begin with, and 
then giving them a 1\1/2\ year headstart, I guess we should not 
be too surprised at where we are now, but it is frustrating.
    Chairman Tauzin. Well, the point is that the failure to get 
the finances to deploy those licenses, and the fact that 
bankruptcy followed was not terribly unpredictable when you 
consider all the facts that led up to the NextWave and the 
Urban Comm situation.
    I mean, we are literally in this position largely because 
of the failure of the early efforts at auctioning licenses, and 
complicated as I pointed out by the fact that the budgeteers in 
this body pushed an awful lot of spectrum out I think too soon, 
and complicated the value of that spectrum in the marketplace.
    Mr. Strigl, there is a little provision in the Fifth 
Amendment of the Constitution. The Fifth Amendment is one that 
politicians remember because they often have to take it before 
courts.
    But there is a provision at the end of it that I think is 
often forgotten, and it reads as follows. ``That private 
property shall not be taken for public purposes without just 
compensation.''
    Now, essentially, isn't that where we find ourselves? The 
D.C. Circuit Court has said that whether we like the process or 
not the government sold some property to NextWave, and that 
whether you would like to buy it from the government again, the 
court said that you can't do that because NextWave owns it and 
the fact that they are in bankruptcy with their property does 
not in any way take away their ownership of property rights. 
Isn't that essentially what the D.C. Court said?
    Mr. Strigl. Mr. Chairman, I think that is exactly what the 
D.C. Court said.
    Chairman Tauzin. And in effect you were invited to bid on 
some government property that the government no longer owned. 
It had not been paid for yet, but it no longer owned it; is 
that right?
    Mr. Strigl. Yes, sir. We did so with our eyes open.
    Chairman Tauzin. And you knew that it was a risk coming in, 
and so what we have is a situation where all these enormous 
bids that were put up at this auction for property that the 
government no longer owned are literally invalid if the D.C. 
Court is correct, and if it were upheld, and if we went through 
all kinds of litigation to the Supreme Court; is that correct?
    Mr. Strigl. Yes, sir, that's correct.
    Chairman Tauzin. So that while this is a nice pot of money 
that the government would like to pick up, the government has 
no right to literally if the D.C. Court is correct, has no 
right to sell somebody else's property; and that you have 
literally no legal rights to take that property in that sale 
until the ownership was settled; is that correct?
    Mr. Strigl. Mr. Chairman, we never took the property. 
However, I might point out that we are still committed for the 
$8.8 billion that we bid.
    Chairman Tauzin. And in effect the settlement says that yo 
guys are going to go ahead and all of you bid in this auction 
for property that the government didn't own. And you are still 
going to put up that money, and the government is going to get 
not just the $4.86 billion that it was promised for in the C-
Block auction by NextWave, but it is going to get a substantial 
amount more.
    And NextWave is going to be paid something closer to the 
current value of its property in the settlement. Is that 
essentially what we are talking about?
    Mr. Strigl. Yes, sir, I believe that is essentially what we 
are talking about here, and I think it is very important that 
we get certainty to this.
    Chairman Tauzin. And if we don't, and we have said this a 
number of times at this hearing, but if we don't accept this 
settlement, whether we like the numbers in it, or we like the 
position that we are in, or who was right or who was wrong in 
this awful 5 year process, if we don't accept the settlement 
and put it behind us, where are you?
    I mean, you have bid for property that the government said 
or the court said that you couldn't buy, and you put up a lot 
of your resources to buy this property, and to I suspect forego 
other business opportunities, and other things that you might 
have done with this commitment of financial resources. Where 
are you?
    Mr. Strigl. First, I think, sir, that the settlement is 
very fragile, and if December 31 comes and goes without the 
enacting legislation, there is no certainty that this deal can 
be put back together.
    Speaking for my company, we have had what I would call a 
dark cloud over our head since January, and that is the 
commitment to pay the government $8.8 billion. There are plenty 
of other things as one would imagine that a business can do 
with $8.8 billion.
    And we stand ready to explore some of those opportunities, 
but not as long as this obligation hangs over our head.
    Chairman Tauzin. And you chose instead to take a risk and 
to put this money up to get this spectrum, and you must have 
some awful big needs for that spectrum out there?
    Mr. Strigl. We have great need for the spectrum, not only 
to meet our capacity needs in major cities across the United 
States, but also to roll out 3-G spectrum, and one of the 
things that I have said to this subcommittee before is that I 
believe that we are falling behind our foreign competitors.
    Chairman Tauzin. I know that my time has expired, and I am 
going to end, Mr. Chairman. We don't have a lot of members 
here, but I want to end on this note, because Mr. Strigl has 
made an excellent point here.
    We are talking about spectrum that is apparently going to 
be used for third generation wireless, and I don't know if 
Americans fully understand the implications of third generation 
wireless yet, or the fact that most European countries are 
already way ahead of us in licensing out third generation 
spectrum.
    And companies in Europe and other parts of the world are 
busy building the software and hardware that is going to manage 
these systems, and provide incredible new services for people.
    But we are talking about incredible new wireless devices 
that are going to allow us to communicate much more readily and 
reliably in not only good times, but in tough times, like 
September 11 incidents.
    And it will give us a chance to literally stay connected in 
this country in a new highly dense sort of communications 
wireless system called Third Generation. Without this spectrum 
out there, and companies like yours investing in it, we are not 
only behind Europe and other parts of the world, we are 
desperately behind them; is that not correct?
    Mr. Strigl. I think that is accurate, yes, sir.
    Chairman Tauzin. Thank you, Mr. Chairman.
    Mr. Shimkus [presiding]. Thank you, Mr. Chairman, and now I 
will yield 5 minutes to the gentleman from Virginia, Mr. 
Boucher.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. Mr. 
Strigl, welcome. Let me pick up where Chairman Tauzin left off, 
in terms of talking about the next generation of wireless 
services and the extent to which you--and to the extent that 
you know this--and other wireless companies may be planning to 
devote this NextWave spectrum to the roll out of Third 
Generation services.
    Is that really your intent, or do you anticipate using part 
of this spectrum for the enhancement of your existing 
generation of voice-based services?
    Mr. Strigl. Congressman Boucher, it is difficult to say 
exactly any amount of spectrum that will be devoted to 3-G 
services, as opposed to voice services. Our intention is to 
meet our capacity demands, and at the same time roll out 3-G 
spectrum over the--the 3-G services over the entirety of our 
spectrum.
    Here is what I know for certain. That without this spectrum 
that we cannot devote any of the spectrum we have to anything 
other than voice and short messaging service. Data, 
particularly high speed data, is not a possibility in our major 
cities with the limited spectrum that we have today.
    Mr. Boucher. And so in the event that Congress does not 
approve this settlement, and for various reasons the companies 
that successfully bid for this spectrum in the reauction decide 
to take their investment dollars elsewhere because of the 
complexities that would lie ahead of them in the absence of 
Congressional approval, you would see an effect then on the 
ability of the United States to have the near-term deployment 
of Third Generation services; is that correct?
    Mr. Strigl. Yes, sir, and we are experiencing it now. I 
think we would continue to experience it. This is essential for 
carriers to have.
    Mr. Boucher. And you would say that this spectrum is 
essential for carriers to have to deploy Third Generation 
services?
    Mr. Strigl. Yes, sir.
    Mr. Boucher. Let me ask you this also. When the Chairman of 
the Federal Communications Commission was here a few moments 
ago, we asked him about why it is necessary for Congress to 
approve this settlement for it to become effective.
    He mentioned two basic things. He said, first of all, that 
there has to be an appropriation because the dollar flow simply 
doesn't work if Congress doesn't have this appropriation made 
and available at the time that all the other pieces are put in 
place.
    And potentially that could be handled by having an 
appropriation approved without taking the other steps that 
Congress is being asked to take in the settlement. So those 
other steps I think are something that you perhaps 
appropriately could address.
    What else Congress is being asked to do is to provide an 
expedited and specifically targeted process for handling any 
challenges that are made of a legal nature to the settlement 
itself.
    And my question to you is why is that necessary? How 
insistent are Verizon's lawyers that Congress has got to clear 
this path, if you will, for this settlement to be something 
that you can take confidence in.
    And why would it be reasonable to think that parties who 
are external to this settlement would actually have standing to 
challenge it? We can assume that the parties to it are not 
going to challenge it and so it has to be someone outside.
    And so how could they have standing to do that? I realize 
in-part that this is a legal question, but I am going to give 
you an opportunity to convince us that we really have to do 
this.
    Mr. Strigl. Congressman, you have asked a multiple part 
question, and let me attempt to answer at least some of these. 
The fragile nature of this agreement, of putting the Auction 35 
winners with the government, with NextWave, has been very 
difficult for all parties concerned.
    I think the issue from Verizon's point of view--and I 
believe that Chairman Powell said it quite well--I have a board 
of directors, and I have shareholders who are very concerned 
about the opportunity costs of what my company has committed 
to.
    We have been under this cloud for some arguably 11 or 12 
months, without any certainty, and the legislation brings 
certainly, as Chairman Powell spoke of, from the point of view 
of ending the litigation. From the point of view of putting the 
spectrum into use.
    And from my point of view of what I call putting clear 
spectrum into use, and without any onerous legal challenges 
that obviously are very troublesome to someone willing to make 
an investment about the size of what we paid for the spectrum.
    I think it is important to say here that we stand ready not 
only to pay for the spectrum, but also to put investment in 
place of approximately some $7 to $8 billion to use that 
spectrum.
    So in order to devote that $7 billion, plus another $8 
billion, we have to know that we are through this onerous 
litigation process. That is the driver, sir, why we are 
insistent that we get some certainly to this once and for all.
    Mr. Boucher. Thank you, Mr. Strigl. You make an excellent 
case. Thank you, Mr. Chairman.
    Mr. Shimkus. Thank you, and I will now recognize myself for 
just one question. Mr. Cassou, many people have been able to 
answer this for your company, and so I am going to give you an 
opportunity to address this.
    And as many people mentioned in their opening statements, 
it is a $500,000 investment, and a $6.5 billion return--a 
pretty good return--minus legal fees, and I know that legal 
fees can be pretty high, but I don't think it would consume the 
whole return.
    How do we justify this then to our constituents as they are 
trying to sort out whether we can justify and look at getting 
spectrum available. There is a lot of things. But that is the 
hurdle that a lot of us are going to have to overcome. Can you 
kind of talk us through how we might be able to manage that?
    Mr. Cassou. Yes. I tried to address that in my opening 
statements that while the payment is a large payment, the 
company, as a result of the D.C. Circuit decision this year, 
has had the licenses reinstated to it, and those licenses have 
through Auction 35 been valued at roughly $16 billion.
    So as a result of this settlement, the company is agreeing 
to forego the opportunity now to proceed forward with its plan 
of reorganization and build out those licenses, and accepting 
one-third of the value of the licenses, and the other two-
thirds, of course, going to the government and the taxpayers.
    And NextWave throughout the process has complied with the 
law. We made our initial downpayment as required by the FCC's 
rules in a timely manner, and then after seeking protection 
through bankruptcy in June 1998, also complied with the rules 
as we operated under the bankruptcy laws as well.
    So while it is not a result that we sought, we think it is 
a fair settlement, and one that is beneficial to the taxpayers 
and provides a fair return to the NextWave creditors and 
investors that have been patient through this process.
    Mr. Shimkus. Thank you. And, Mr. Winston, I would just make 
a statement that your testimony is very compelling. It would 
make the case for us of fair and equal treatment in 
consideration of what you are attempting to do, and I think 
that the committee will probably follow up on some of your 
requests.
    Mr. Winston. Thank you, sir.
    Mr. Shimkus. With that, I would like to yield back my time 
and recognize Mr. Markey for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much. Mr. Strigl, 
first congratulations. Chairman Powell has lifted the spectrum 
caps, and you really do have a bright future. Why wouldn't it 
make sense for you to just walk away from this deal, take the 
billions which you have invested in the auction, and just 
purchase the additional spectrum which you need out in the open 
marketplace, avoiding this entire mess? Doesn't that make 
sense?
    Mr. Strigl. Congressman, I have asked myself numerous times 
over the last 11 months why we haven't, and why I haven't said 
to my board, and to my shareholders, let's walk from this deal.
    Mr. Markey. And the answer was?
    Mr. Strigl. The answer is that I think I can get this 
spectrum faster through the Auction 35 process, and that is 
what I thought every month that has gone by, than to go out and 
to try to acquire new spectrum.
    Mr. Markey. But you didn't know that the spectrum cap was 
going to be lifted at that point in time?
    Mr. Strigl. Of course, Congressman, I didn't know that 
until quite recently.
    Mr. Markey. Right. But from this point on doesn't it make 
sense for you to just go out and to purchase this additional 
spectrum which you need?
    Mr. Strigl. Congressman Markey, first of all, we have put a 
lot of blood and sweat into this deal, and my feeling is that 
the settlement that we have put together is fair and it is the 
quickest way of putting spectrum to use.
    If we were to do another deal, as you very well know, sir, 
it would be months of a process to go through, and not only of 
negotiating, but of license transfer approvals. I think that 
this is the quickest way to use the spectrum.
    Mr. Markey. Well, let me move to Mr. Cassou. Mr. Cassou, is 
it?
    Mr. Cassou. Yes.
    Mr. Markey. Mr. Cassou, congratulations to you. You have 
won the case, and you have great expectations that you would 
win at the Supreme Court no doubt, and so the question that I 
have for you is why don't you just build out the plan, or some 
assemblance of the plan, which you as a company had always 
intended to build out, instead of using this C-Block auction as 
an exit strategy? Why don't you stay in the market? Why don't 
you compete?
    Mr. Cassou. Well, it actually isn't an exit strategy. We 
have--as you know this has been a long and complex, and drawn 
out litigation with the Commission. And throughout this process 
we have been trying to vindicate our ability to build out the 
licenses just as you say.
    After the D.C. Circuit decision this summer, we filed a 
plan of reorganization to do just exactly as you described, and 
to proceed forward. We raised $5 billion toward that effort.
    However, at the time that the Commission and the Auction 35 
participants approached us at the end of August, we had a 
fiduciary duty to our creditors and to our shareholders to look 
at this and evaluate it, and to provide them with a path, and 
to provide certainty, and also avoid further delays in the 
investments that they have made in this process.
    After balancing those considerations and talking with those 
constituencies, it was the conclusion that it was time to stop 
fighting with our regulator, and that this was a fair 
settlement, and a good resolution of these issues.
    Mr. Markey. Well, let me ask you this. The creditors or the 
investors, they knew what the goal was, was to build out. And 
now that you are on the cusp of victory, with a clear cut 
Circuit Court decision, you could have gone to the Supreme 
Court and got a knockout punch, and begun the process.
    Why do you say that the fiduciary duty is to now just take 
the money and exit the wireless business? Why is that a 
fiduciary responsibility? Isn't there a longer term return on 
investment that you would get that was always the promise that 
you were giving to your investors?
    Isn't this now the time to capitalize upon it as Mr. Strigl 
and others are trying to gain more spectrum, and almost at any 
cost? Isn't this the ideal time to build out your own plan and 
to capture that over the next 20 and 30 years?
    Mr. Cassou. Yes, we balanced those considerations against 
the risks of further delay and litigation, even in the scenario 
where we are successful with the Supreme Court, which we expect 
that we would be.
    There are as you have heard continuing regulatory petitions 
that are on file with the Commission, and the carriers from the 
industry have indicated in filings with the government back in 
July that they would continue to pursue those regulatory 
proceedings. So again we are looking to put an end to a 
process.
    Mr. Markey. Are you concerned that the FCC will never end 
its proceedings surrounding your existence? Is that a concern 
which you have? That Chairman Powell and the FCC will continue 
to bring actions against you?
    Mr. Cassou. They have been very fair to us in this current 
settlement process and as I mentioned, we have additional 
licenses that we will go forward and build out with, covering 
roughly $6.5 billion POPs in five markets, and so the company 
will be a licensee.
    Mr. Markey. Well, I appreciate that, but what I am trying 
to find is what is the source of your concern. Are you saying 
that the FCC is just such a threat to you that you can't afford 
not to basically sell out and never build out your dream of 
having this network?
    Mr. Cassou. Well, the history of our experience over the 
past 5 years is that we have not been able to.
    Mr. Markey. I appreciate that, but I am talking about the 
FCC right now. Do you think they are an impediment to you 
building out right now? If you went that course, legally you 
know that you are on very strong ground.
    Mr. Cassou. Yes, we have concerns though that we night be 
further delayed through the regulatory proceedings and through 
proceedings in which we have to justify extensions to the build 
out requirements that are coming up.
    Mr. Markey. I appreciate that, but you are long term 
investors, and you are not in it just for the quick kill.
    Mr. Cassou. That's correct, and we will be.
    Mr. Markey. And so what I am saying is that over the next 
20 or 30 years that you would definitely get a good return on 
your investment over the long term.
    Mr. Cassou. People like myself who have been with the 
company for 6 years, and will continue to be with the company 
to build out in the future, will continue that vision. The 
creditors and investors that made their investments back in 
1996 are looking for a solution that ultimately provides 
certainty. If we had certainty to go forward and build out, we 
would do that.
    Mr. Markey. But you are so close with the Supreme Court 
decision in the offering, and you could have just taken it 
there. That's hard to understand why you would not have just 
finished it off in other words.
    Mr. Cassou. There was additional--certainly there is 
additional risk at the Supreme Court level, although we believe 
that we have the better arguments here, and then there is 
further regulatory delays that we were expecting.
    Mr. Markey. Mr. Winston, I wish I could say congratulations 
to you.
    Mr. Winston. I wish you could, too, sir.
    Mr. Markey. How much would you settle for, Mr. Winston? 
What would you accept?
    Mr. Winston. Can you invite anybody else into a room 
together and give up a number?
    Mr. Markey. What do you think it is worth, Mr. Winston, 
honestly?
    Mr. Winston. We have not discussed numbers. Obviously we 
have not had any settlement discussions with anyone to discuss 
numbers about. But I would assume that a formula, similar to 
the formula that was applied in the NextWave settlement, would 
be a reasonable way of approaching a settlement with us.
    Mr. Markey. Just one final question. Do you think that we 
should end this process without resolving this issue of 
bankruptcy law versus telecommunications law? Do you think that 
should be a part of any legislative proposal that ultimately is 
attached to any moving piece of legislation?
    Mr. Winston. I think those issues are probably much larger 
than the limited settlement that we are discussing here.
    Mr. Markey. But because of the lack of resolution of that 
larger issue, we have this settlement before us. Do you think 
we should add predictability to that process henceforth as we 
deal with this as the illuminating event that has drawn 
everyone to the Commerce Committee here today?
    Mr. Winston. I would hope that the committee would address 
he settlement before with respect to NextWave, and hopefully 
Urban Comm because of the issues that they have raised about 
timing, et cetera.
    And that the larger issue, I think, requires much more time 
and attention than the specific matter before the committee 
now.
    Mr. Markey. Thank you, Mr. Winston, and Mr. Strigl, and Mr. 
Cassou.
    Mr. Shimkus. And thank you. Whitey Herzog may be coming to 
the Sox, and so I may have to be routing for them. You know 
that.
    Mr. Markey. Are you rooting for the Red Sox?
    Mr. Shimkus. Well, with Whitey Herzog, you could.
    Mr. Markey. What is his nickname?
    Mr. Shimkus. The Rat.
    Mr. Markey. The Rat.
    Mr. Shimkus. Fitting for Boston. I will now recognize Mr. 
Engel for 5 minutes.
    Mr. Engel. Well, I don't know about you guys, but I am 
delighted that the Mets just got Roberto Alomar today. So, I 
have to say. Mr. Strigl, the deadline of December 31 of this 
year, some people have said that it is a power play by the 
Department of Justice and the FCC, but I don't think it is.
    I think it is a simple admission that the reauction bidders 
are holding letters of credit for these projects and that by 
tieing up so much capital for too long is obviously very 
detrimental to Verizon. I would like you to expand on that.
    Mr. Strigl. Yes. Congressman Engel, first of all, the 
letters of credit will be posted as soon as this settlement is 
finalized by legislation. But we do have what I would call a 
very sizable $1.8 billion deposit that has been sitting with 
the government and not collecting interest for many months.
    And our fear is that that would stay in place without 
interest going forward without this settlement. We think that 
on December 31 that it may very well be in our best interests 
to walk from this deal, and to use the $8.8 billion for other 
opportunities.
    There are plenty of opportunities in the marketplace today, 
and we think that those are worth investigating. However, at 
the same time, if we can conclude this and bring certainty to 
this process, that is certainly in our best interests.
    Mr. Engel. Well, I would think it would be in everybody's 
best interests. I think that is in line with the question that 
Mr. Markey was asking as well. I think there is a limit to how 
long this can drag on.
    Mr. Strigl. Yes, sir.
    Mr. Engel. How long after Verizon takes control of these 
licenses will your company begin using them and deploying 
telecommunications equipment that utilizes this spectrum?
    Mr. Strigl. Immediately. Our intention is the end of June, 
July 1, to take possession of this spectrum, and to begin 
building out certainly in the year 2002 as rapidly as we can, 
particularly in our major cities.
    Mr. Engel. So again that would be an incentive to wrap this 
up as quickly as possible, or at least from my vantage point it 
seems very simple to me.
    Mr. Strigl. We can put it to use, sir, in places like New 
York, Chicago, Washington, DC, Boston, and other major cities 
almost immediately.
    Mr. Engel. Okay. Thank you very much. Thank you, Mr. 
Chairman.
    Mr. Shimkus. Thank you. Mr. Markey, do you have anything to 
add? Seeing no other members, I will call this hearing 
adjourned.
    [Whereupon, at 5:47 p.m., the subcommittee was adjourned.]
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