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2002
SETTLEMENT AGREEMENT BY AND AMONG THE UNITED STATES OF AMERICA, THE FEDERAL COMMUNICATIONS COMMISSION, NEXTWAVE TELECOM, INC., ET AL.

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW

AND THE

SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION
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DECEMBER 6, 2001

Serial No. 56

Printed for the use of the Committee on the Judiciary

Available via the World Wide Web: http://www.house.gov/judiciary

COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, JR., WISCONSIN, Chairman
HENRY J. HYDE, Illinois
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
LINDSEY O. GRAHAM, South Carolina
SPENCER BACHUS, Alabama
JOHN N. HOSTETTLER, Indiana
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MARK GREEN, Wisconsin
RIC KELLER, Florida
DARRELL E. ISSA, California
MELISSA A. HART, Pennsylvania
JEFF FLAKE, Arizona
MIKE PENCE, Indiana

JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California

PHILIP G. KIKO, Chief of Staff-General Counsel
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PERRY H. APELBAUM, Minority Chief Counsel

Subcommittee on Commercial and Administrative Law
BOB BARR, Georgia, Chairman
JEFF FLAKE, Arizona, Vice Chair
GEORGE W. GEKAS, Pennsylvania
MARK GREEN, Wisconsin
DARRELL E. ISSA, California
STEVE CHABOT, Ohio
MELISSA HART, Pennsylvania

MELVIN L. WATT, North Carolina
JERROLD NADLER, New York
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
MAXINE WATERS, California

RAYMOND V. SMIETANKA, Chief Counsel
SUSAN JENSEN-CONKLIN, Counsel
ROBERT NEIRA TRACCI, Counsel
STEPHANIE MOORE, Minority Counsel

Subcommittee on Courts, the Internet, and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
HENRY J. HYDE, Illinois
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ELTON GALLEGLY, California
BOB GOODLATTE, Virginia, Vice Chair
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
LINDSEY O. GRAHAM, South Carolina
SPENCER BACHUS, Alabama
JOHN N. HOSTETTLER, Indiana
RIC KELLER, Florida
DARRELL E. ISSA, California
MELISSA A. HART, Pennsylvania

HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York

BLAINE MERRITT, Chief Counsel
DEBRA ROSE, Counsel
CHRIS J. KATOPIS, Counsel
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STEPHANIE MOORE, Minority Counsel

C O N T E N T S

DECEMBER 6, 2001

OPENING STATEMENTS
    The Honorable Bob Barr, a Representative in Congress From the State of Georgia, and Chairman, Subcommittee on Commercial and Administrative Law

    The Honorable Melvin L. Watt, a Representative in Congress From the State of North Carolina, and Ranking Member, Subcommittee on Commercial and Administrative Law

    The Honorable Howard Coble, a Representative in Congress From the State of North Carolina, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property

    The Honorable Howard L. Berman, a Representative in Congress From the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property

    The Honorable George W. Gekas, a Representative in Congress From the State of Pennsylvania, and Chairman, Subcommittee on Immigration and Claims

    The Honorable Jerrold Nadler, a Representative in Congress From the State of New York, and Ranking Member, Subcommittee on the Constitution
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    The Honorable John Conyers, Jr., a Representative in Congress From the State of Michigan, and Ranking Member, Committee on the Judiciary

    The Honorable Ed Bryant, a Representative in Congress From the State of Tennessee

WITNESSES

Mr. Jay S. Bybee, Assistant Attorney General, Office of Legal Counsel, accompanied by Mr. Jody Hunt, Counsel to the Deputy Attorney General
Oral Testimony
Prepared Statement

Mr. John A. Rogovin, Deputy General Counsel, Federal Communications Commission
Oral Testimony
Prepared Statement

Mr. Donald Verrilli, General Partner, Jenner & Block
Oral Testimony
Prepared Statement

Mr. Stephen M. Roberts, Eldorado Communications, LLC
Oral Testimony
Prepared Statement
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LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Statement of the Honorable Howard L. Berman, a Representative in Congress From the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property

    Letter from Mr. James L. Winston, Counsel to Urban Communicators PCS Limited Partnership

APPENDIX

Material Submitted for the Hearing Record

    Answers to questions of Mr. Jay S. Bybee, Assistant Attorney General, Office of Legal Counsel, submitted by Mr. Daniel J. Bryant, Assistant Attorney General, Office of Legislative Affairs

    Letter from Mr. Peter M. Schoenfeld, Chairman and CEO, P. Schoenfeld Asset Management LLC

    Settlement Agreement

    Amicus Brief

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    Letter from Mr. Donald B. Verrilli, Jr., Jenner & Block

SETTLEMENT AGREEMENT BY AND AMONG THE UNITED STATES OF AMERICA, THE FEDERAL COMMUNICATIONS COMMISSION, NEXTWAVE TELECOM, INC., ET AL.

THURSDAY, DECEMBER 6, 2001

House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.

    The Subcommittees met, pursuant to call, at 10:05 a.m., in Room 2141, Rayburn House Office Building, Hon. Bob Barr [Chairman of the Subcommittee on Commercial and Administrative Law] presiding.

    Mr. BARR. I would like to call this joint hearing of the Subcommittee on Commercial and Administrative Law and the Subcommittee on Courts, the Internet, and Intellectual Property regarding the NextWave settlement convened.

    For some 5 years the NextWave Telecom, Inc., and certain of its affiliates have been mired in a contentious dispute with the Federal Communications Commission, the FCC, over the ownership of personal communication services spectrum licenses that NextWave acquired in the 1996 FCC auction. In 1993, the Communications Act of 1934 was amended to permit the FCC to sell licenses and construction permits through a competitive bidding process and allow the successful bidders to pay for their licenses in installments. Pursuant to this authorization, auctions of certain licenses were held in 1996. NextWave successfully bid approximately $4.7 billion for a block of these licenses. Subsequently, however, the market value of these licenses became depressed in response to various events, which in turn adversely impacted the ability of some licensees to obtain funding for their purchases and operations.
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    After making an initial payment of $499 million, NextWave failed to obtain financing for the balance it owed to the Government and filed for bankruptcy relief under chapter 11 of the Bankruptcy Code of 1998. It thereafter made no other payments to the FCC for the licenses. Eventually 20 other licensees also filed for bankruptcy relief under chapter 11.

    Extensive litigation over the NextWave licenses dragged on for several years. Ultimately, the FCC canceled the licenses and reauctioned them in January of this year, resulting in winning bids totaling $15.82 billion. However, a subsequent ruling by the U.S. Court of Appeals for the District of Columbia held the FCC's cancellation of the licenses violated the Bankruptcy Code and was thus null and void.

    In an effort to resolve the issues presented by the disputed ownership of these licenses, the FCC, NextWave, and certain other interested parties have entered into a settlement agreement late last month. The agreement provides in essence and in part for the transfer of the licenses by NextWave to the FCC, which in turn will convey them to the successful reauctioned bidders. In exchange for agreeing to transfer the licenses, NextWave will receive a cash payment of $6.498 billion from the U.S. Government in addition to which the Government will make a cash payment of $3.052 billion directly to the IRS on behalf of NextWave. As a result of these transactions and certain related payments, the United States will receive $10.001 billion as net proceeds from the settlement. The settlement, in addition to the terms discussed, is also premised on the enactment of legislation approving the settlement and authorizing the appropriation of $9.55 billion to implement it.

    Proponents of the settlement agreement assert that this legislation is necessary by December 1 of this year. Various issues are presented by the settlement agreement that warrant close scrutiny by the Judiciary Committee and upon which I welcome the testimony we are about to hear today. Provisions regarding expedited judicial review and limitations on jurisdiction of actions taken pursuant to the settlement agreement, for example, require explanation and justification.
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    In addition, the means by which the legislation proposes to effectuate the settlement agreement may present concerns with respect to the uniformity clause in article I, section 8 of the U.S. Constitution. That clause provides that the Congress has the power to establish uniform laws on the subject of bankruptcies throughout the United States. As the proposed legislation is intended to affect the appellate venue and timing of one specified bankruptcy case, these components of the legislation raise a potential constitutional question that must be addressed.

    In addition, the central concern arises out of the billions of dollars passed back and forth by the settlement agreement; namely, is this settlement in the best interest of the American taxpayer? To raise and answer questions such as these on behalf of our constituents and the American people is why we are here in Washington today representing their interests and those of the American people at large.

    Former Senator Everett Dirksen once described big-time Washington spending in classic terms as, ''a billion here and a billion there, and pretty soon you are talking about real money.'' Even by Senator Dirksen's mathematics, we are talking about real money here, and we hope and need and better get it right on behalf of the American taxpayers.

    I would like now to recognize the distinguished Ranking Member of our Subcommittee on Commercial and Administrative Law, the gentleman from North Carolina, Mr. Watt.

    Mr. WATT. Thank you, Mr. Chairman. I thank the Chairman for convening the hearing to evaluate what has been proposed to us. I suppose if I were in law school and writing a law school examination, this would be a pretty good example of all of the issues that could be raised in the context of litigation. It raises questions about the extent to which we should second-guess litigants in litigation as opposed to allowing the FCC and the parties to litigation to enter into an agreement, but I guess they have invited us to do that when they put some provisions in this agreement that require our scrutiny.
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    It raises questions about the extent to which bankruptcy courts should have jurisdiction over these issues as opposed to other courts of jurisdiction.

    It raises questions about the extent to which a party in bankruptcy can use the bankruptcy process to what some would say substantially benefit themselves financially.

    It raises questions about whether we should try to figure out a way to preserve the minority in small business set-asides even in the context of—or maybe I should call it the minority in small business goals, even in the context of a bankruptcy proceeding, because, as I understand this, this whole process started out with a bid that was designed to benefit minorities, women and small businesses which was awarded to NextWave. NextWave then declares bankruptcy, and you end up with all of the bidders in the bankruptcy process or potential buyers of these spectrums not being either minority, women, or small. So you have got a system here that really subverts the original intent of the objective to get minority, small and/or women businesses involved in the communication system.

    It also raises the question of whether we should be talking about only the resolution of this dispute, because apparently there is a parallel dispute going on with another bidder that the FCC has right behind this one, which I presume they would want to cover following the same processes, but this legislation doesn't seem to address or give them the authority to do that. So I suppose they will be back next year.

    But the primary thing that this thing raises for me is how parties can engage in a process for 3 to 5 years, enter into a settlement, and then expect the wheels of Congress to move in a matter of days, and I am not sure that we are going to have the capacity between now and the end of the year to give this the kind of scrutiny that it needs regardless of whether we incline to approve it or not incline to approve it.
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    I think the first thing that we have an obligation to do is to understand all of the implications that go with every single one of the issues that I have raised in this litany of law school examination issues that I have put on the table, but also quite possibly a number of issues that I have not raised that, in my 2 or 3 hours of review of this and the review of our staffs, we might not even have anticipated as issues.

    I come to this hearing with an open mind, but I would have to say I come with the same trepidations that I normally approached the examinations I took in law school, wondering whether I have a basic understanding of what is before me and wondering even more whether I have a clear understanding or even some inkling of what the implications of that might be for public policy, the law, and the future course of conduct, and while the parties to this litigation may not have any real imperative to evaluate this impact on anything other than themselves, as the Chairman of our Subcommittee has eloquently indicated, our responsibility as Members of Congress and of this Committee go well beyond just the outline of this particular settlement. We have some responsibilities to the public, and the first of those responsibilities is to understand in a methodical, timely way the implications of what it is we are being asked to do and to act responsibly in doing what is in the public interest.

    I thank the Chairman for convening the hearing, and I yield back.

    Mr. BARR. I thank the gentleman from North Carolina.

    I would like to now recognize our distinguished colleague also from the great State of North Carolina and who serves as Chairman of the Subcommittee on Courts, the Internet, and Intellectual Property, Mr. Coble for any opening statement he might care to provide.
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    Mr. COBLE. Thank you, Chairman Barr. I thank you for scheduling and convening this hearing, and I will be brief.

    I say to my friend from North Carolina, I am relieved that I am not the law student having to write that exam that you are proposing. I would be ultimately challenged. According to the parties, I am told, Mr. Chairman, implementing the NextWave settlement agreement requires a legislative fix, which, of course, is the subject of the hearing today. It is this proposed legislation that we are here to scrutinize. In particular the Subcommittee on Courts, the Internet, and Intellectual Property on which Mr. Berman and I sat is concerned with these portions of the settlement affecting the procedures and jurisdiction of the Federal courts.

    Subparagraph (c) and (d) of the proposed legislation contain provisions for expedited judicial review and limitations on jurisdiction of actions taken pursuant to the settlement agreement. These provisions substantially alter regular court procedures and should be carefully reviewed.

    And, Mr. Chairman, you and Mr. Watt have both touched on matters that greatly concern me. I am told that at one point—I am applying 20/20 hindsight now, and oftentimes that is easy to do. I am told that NextWave offered to pay the FCC a substantial amount of money as payment in full for these licenses. Now, for some reason, and maybe it is for a valid reason, this offer was rejected, and I am sure somebody is going to put—or at least I hope you put the oars into those waters and assuage my discomfort, because looking back on it, it appears if that had been accepted, there would have been a heap of money saved.

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    But I thank you again, Mr. Chairman, for calling this hearing, and I yield back.

    Mr. BARR. I thank the distinguished Chairman.

    I would like now to call on the gentleman from California, Mr. Berman, the distinguished Ranking Member of the Subcommittee on Courts, the Internet, and Intellectual Property, for any opening statement he might care to make.

    Mr. BERMAN. Thank you very much, Mr. Chairman.

    Well, I guess our role in some way is limited. I certainly am looking forward to hearing the Government in the form of the Department of Justice and the FCC explain why something which seems so incredible on its surface is compelled by the law, by public policy, by the interests of the taxpayers, and why the party that, by bidding for something that it didn't have the money to pay for, ended up utilizing the bankruptcy process and then working out a settlement which provided no relief for the other parties who were injured by NextWave's bidding practices with money that they did not then have, and why the spectrum is then sold with NextWave reaping huge returns to people who don't even meet the category of people who were supposed to be able to get the spectrum which is being sold.

    I also just—I do to some extent resent the fact that we are asked in the nature of an arbitrary deadline to pass legislation which raises many, many questions in a very short time frame as a condition of a settlement, which hopefully you will persuade us, in fact, is in the public interest; that this legislation is necessary to make that settlement good. And I would like to have my entire statement put into the record, and I yield back my time.
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    Mr. BARR. I thank the gentleman from California.

    [The information referred to follows:]

PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

    Chairman Coble and Chairman Barr,

    I am particularly pleased that you called this hearing on the NextWave settlement. I understand that there was significant pressure on the Judiciary Committee to abdicate its legislative and oversight responsibilities with regard to the NextWave settlement and the legislation proposed therein. I thank you for resisting that pressure and calling this hearing so that the Judiciary Committee and our Subcommittees may give this issue the scrutiny it deserves.

    I do not have an opinion yet on whether the proposed NextWave settlement is a good or bad deal for the public. I look forward to hearing the perspective of our witnesses on the merits of the deal, and have an open mind to be persuaded by them.

    I am, however, somewhat displeased about the process through which the settlement was crafted, and at the settlement's dismissive attitude toward Congress' rightful role.

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    Somewhere along the line, the parties negotiating the settlement decided that legislation would be necessary to effectuate the settlement. I don't know when that decision was made, because neither the FCC nor DOJ was able to provide my staff with a firm answer, but it appears to have been made by early November at the latest.

    In any case, the parties decided legislation would be necessary, and began to draft legislation as part of the settlement negotiations. They did not, however, consult with Congress. They did not inform us about the decision to incorporate legislation in the settlement; they did not include us in the drafting of the legislation; and they did not ask us about the prospects for passing such legislation. And they most certainly didn't consult with us when they chose a December 31, 2001 deadline for enactment of the settlement legislation.

    On November 29, two weeks after execution of the proposed settlement, the FCC and DOJ finally met with our staffs and sprang on Congress the need for legislation to effectuate the settlement. Of course, whether intentionally or not, this left virtually no possibility that the legislation could be moved through the regular legislative process and still be enacted by December 31, 2001.

    Through their actions, the parties have presented Congress with very unattractive options. One option is to pass legislation we did not craft without full and deliberate consideration in a rush to meet an arbitrary deadline. The other option is to stand in the way of a deal that may greatly benefit the public interest. I am not keen on either option, and I resent being put in this position by the parties.

    I yield back the balance of my time.
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    Mr. BARR. In addition to the other Members, all of whom are certainly welcome to make opening statements, the Chair, and I know I speak for my colleagues, is happy to welcome my colleague from Tennessee, Mr. Bryant, who is here today even though he does not serve on the two Subcommittees which are holding this hearing today. He is a very distinguished Member of the Judiciary Committee, and we are very happy to have the gentleman from Tennessee with us today.

    Are there other statements?

    The Chairman of the Subcommittee on Immigration, the former Chairman of this Subcommittee, Mr. Gekas.

    Mr. GEKAS. Yes. I thank the Chair. I, for one, welcome the fact that the parties have chosen to see eye to eye and have the colloquialism ''meeting of the minds'' mean something for a change, and to bring the matter before the Congress for a final resolution by way of ratifying an agreement is a good way to do business.

    I have noticed over the time that I have served in the Congress that some of the contentious issues that finally were resolved at the witness table just like today had great, wonderful consequences for the American people, the taxpayers and the citizens who benefitted or at least were prevented from suffering at the hands of certain kinds of issues. So this is to me a Member's of Congress delight to have the opportunity to scrutinize something that a meeting of the minds has been reached.

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    When the first item of NextWave came through to us here in the Congress, it was in the context of our movement toward bankruptcy reform and, in my judgment, so muddled, the efforts we were making, because, in effect, the Congress is being asked to make an adjudication. Well, now we are in a different position. We are here to review a set of propositions that have been agreed, and that is a totally different process, and I welcome the opportunity.

    I yield back the balance of my nontime.

    Mr. BARR. I thank the gentleman.

    The gentleman from New York, Mr. Nadler, I believe, wishes to make an opening statement at this time.

    Mr. NADLER. Thank you, Mr. Chairman.

    Mr. Chairman, for the two Congresses preceding this one, I was the Ranking Member of the Subcommittee on Commercial and Administrative Law. During that time we were repeatedly told by the FCC that FCC—that FCC licenses are not the property of an estate in bankruptcy, and that the FCC in its exercise of its regulatory jurisdiction is exempt from the automatic stay of the bankruptcy law. To reinforce that position, the FCC on several occasions attempted to get language put into appropriations bills granting an immunity from the automatic stay of the bankruptcy law, which the courts have now made clear does not exist.

    Essentially the FCC's position that it is above the bankruptcy law has turned out to be no great surprise and has been without merit. During the last couple of years, a number of Members of this Committee urged for the FCC at the very least not to reauction the licenses while its title and right to do so was clouded by litigation over the Commission's tenuous position maintaining its immunity from the bankruptcy laws in court. We said at the time, Members of this Committee, myself included, that if the FCC proceeded with an auction, and if the courts, as was probable—probably to be anticipated, overruled the FCC and stated they were subject to the automatic stay in bankruptcy, that the Federal Government would then be on the hook for several billion dollars because either they would have to give the licenses back to NextWave and pay a consideration for taking the licenses away from the people it had given it to. Had they waited and not reauctioned them with the court of appeals decision pending, the Federal Government would not now be on the hook for about $6 billion.
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    So I hope that in Mr. Rogovin's testimony he will tell us why the FCC chose to take the risk which has now come to fruition to put the Federal Government on the hook for 6 or 7, X billion dollars when the FCC was warned by Members of this Committee against doing so and insisted on doing so, and now we are here for this legislation for this settlement, which may very well and I think probably is the only way to get the Federal Government off the hook with the least liability, albeit 6 billion unnecessary dollars.

    So I hope the FCC will explain to us why they chose to put the Government on the hook on the rather arrogant assumption that they would succeed in convincing the courts to abrogate Federal bankruptcy law.

    Thank you, Mr. Chairman.

    Mr. BARR. I thank the gentleman from New York.

    Does the gentleman from Ohio, Mr. Chabot, need time?

    The gentleman from Michigan, Mr. Conyers, is recognized for purposes of an opening statement, the distinguished Ranking Member of the full Judiciary Committee.

    Mr. CONYERS. Thank you very much, Mr. Chairman. I hope everybody here is testifying in support of the agreement because that gets us to the next issue real fast is that now that we all agree, and a little blame has been retroactively assessed, what do you do now? We are racing toward X number of days left. The agreement expires December 31. A very exciting situation we are in here. So what is the plan? We introduce a bill, it's referred to one or more Committees, hey, that is great. Forget December 31.
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    Maybe there is a better idea within the testimony that we are about to hear, because I think that is the reason that we are all gathered in the room today. After we have congratulated each other and asked, as the gentleman from New York has, why did it have to happen this way, the question is where do we go outside of exchanging seasons greetings and wishing everybody well in the next session of Congress, which will begin without an agreement. So stay tuned.

    Mr. Chairman, I return my time.

    Mr. BARR. I thank the distinguished Ranking Member of the full Committee.

    Are there other Members of either Subcommittee that wish to make opening statements?

    In that case, I would ask unanimous consent that the distinguished gentleman from Tennessee, a Member of the full Judiciary Committee, be recognized for a brief opening statement. Mr. Bryant.

    Mr. BRYANT. Thank you, Mr. Chairman, for allowing me to participate in this, and my thanks to all the other Members for this courtesy also. I was not as familiar with this situation as I probably should have been until I read about it a little more last week and became rather upset initially about it. And as I sit here and have talked to some folks before this and I still have those concerns, I find myself agreeing with my colleagues on the other side of the aisle quite a bit on the timing of this and the necessity of this. But having had some experience, quite a bit of experience, in bankruptcy law before I came to Congress in practicing bankruptcy law among other things, I always had situations where I have been suspect of the debtor filing bankruptcy, and I have seen the system used, but I don't think my feelings have been raised to this level, in the level of $6 billion, ever.
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    I am very concerned about how this process has worked out. I don't like this. I am opposed to it, even though the parties all agree, and I have got—I see some good sides to it, that we get some spectrum back in the market, but I am concerned what appears to me to be bad faith on the part of this debtor to come in possibly with no intent to ever pay that debt, to immediately go to court after that and have the asset devalued by the court, and have it crammed down where the Government—they weren't even going to pay what they agreed to pay for it. And they had it reevaluated down to a billion dollars and then come back—it just seems like this system has been worked here, and to end up where the debtor nets over $6 billion in profit, and there is an extra $24 million in there, I guess, for expenses and lawyers to pay over this period of time seeking the protection of the automatic stay and the other stays available in the bankruptcy court.

    I understand that the Government wants to approve this. I understand the purchasers of the spectrum want it approved. I understand NextWave certainly wants it approved. Quite an investment with the Government they made to put down less than $500 million and to get back clear net profit $6 billion plus another $24 million, but apparently it is legal.

    I don't know, but I am glad to have these parties here before us today, and I look forward to perhaps some explanation of this and maybe convincing me that I am wrong in this. But I do feel some obligation on behalf of the taxpayers to look at this a little bit more, and I think maybe—my friend from Michigan mentioned, where do we go from here? Maybe we need to let the courts decide whether there is a legitimate stay here and whether this whole process is proper. And we are very close to getting it to the Supreme Court, as I understand, and maybe that is the route we ought to look at.
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    But with that I thank these two Subcommittees for being so patient, and I will yield back the balance of my no time, as Mr. Gekas says.

    Mr. BARR. We thank the gentleman from Tennessee and again welcome him to today's hearing.

    At this time I would like to proceed with a number of very distinguished witnesses. As everybody can tell from the opening statements, this is a very important question with many complexities and a great deal of money at stake, and we hope to learn a great deal not only from the opening statements, but from the answers posed to the distinguished witnesses by the Members of the Subcommittees today that will help both Congress, the Administration, the parties and the American people ensure that this settlement, as the gentleman from Tennessee said, is not only legal, but good policy and good economic policy as well.

    Our first witness is Mr. Jay Bybee, the Assistant Attorney General for the Office of Legal Counsel. Prior to holding this position, Mr. Bybee was a professor at law at the William F. Boyd School of Law at the University of Nevada in Las Vegas. He has also taught law at the Louisiana State School of Law and was associate counsel at the Washington, D.C., offices of Sidley and Austin. Mr. Bybee also served in the Office of Legal Policy and at the Civil Division during the Reagan Administration.

    Mr. Bybee is accompanied by Mr. Jody Hunt, counsel for the Deputy Attorney General, who is the lead negotiator for the Department of Justice in crafting the NextWave settlement. I would ask Mr. Hunt at this time to join Mr. Bybee at the witness table to be available for any questions that the Members may have relevant to the Department of Justice participation, and we thank Mr. Hunt and Mr. Bybee for being here today.
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    Our second witness will be John Rogovin, the Deputy General Counsel for the Federal Communications Commission. Before joining the Commission, Mr. Rogovin was a partner in the Washington, D.C. office of O'Melveny & Myers. From 1993 to 1996, Mr. Rogovin served in the Justice Department as an assistant to the Attorney General and as Deputy Assistant Attorney General in the Civil Division, supervising the Federal programs branch. After receiving his JD from the University of Virginia School of Law in 1987, he clerked for the honorable Lawrence H. Silberman at the U.S. Court of Appeals for the D.C. Circuit. Mr. Rogovin, we certainly welcome you here today.

    The third witness will be Mr. Donald Verrilli. Mr. Verrilli is the managing partner of the D.C. office of Jenner & Block and serves as co-chairman of the firm's telecommunications group. He is currently an adjunct professor of constitutional law at Georgetown University and has argued several cases before the U.S. Supreme Court, including Verizon v. FCC. Mr. Verrilli is an honors graduate of Yale University and received his law degree from Columbia University, where he served as editor-in-chief for the Columbia Law Review. After law school, Mr. Verrilli clerked for appeals court Judge Scully Wright and Supreme Court Justice William Brennan. Mr. Verrilli, we appreciate your being here today and welcome you.

    Our fourth and final witness is Mr. Stephen Roberts, who is cofounder and managing editor of Eldorado Communications. Mr. Roberts held his position when Eldorado participated in the original C and F-block FCC license auctions in 1996. He is also cofounder and principal of Poplar Associates, a wireless telecommunications management group based in Memphis, Tennessee. Mr. Roberts graduated summa cum laude from Mississippi State University and received his JD cum laude from the Harvard Law School. Mr. Roberts, we welcome you and your expertise here today.
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    I would remind all the witnesses that we will time their opening statements, and while we certainly do recognize some leeway is sometimes necessary, we would appreciate their best efforts to work with us in ensuring they come in within the 5-minute time limitation. After each one of the witnesses in order has presented his opening statement, we will then open the floor for 5 minutes each for Members of the Subcommittees to pose questions and receive answers. We will certainly leave the record open in this case, and we will make a final announcement to that effect at the conclusion of the hearing, so that any additional materials by either Members of the Subcommittees or Mr. Bryant or the witnesses can be inserted into the official record.

    At this time the Chair is happy to recognize Mr. Bybee at the U.S. Department of Justice for an opening statement.

STATEMENT OF JAY S. BYBEE, ASSISTANT ATTORNEY GENERAL, OFFICE OF LEGAL COUNSEL, ACCOMPANIED BY JODY HUNT, COUNSEL TO THE DEPUTY ATTORNEY GENERAL

    Mr. BYBEE. Thank you, Chairman Barr and Chairman Coble as well as Members of the Subcommittees, for allowing me to provide a statement concerning the settlement agreement reached by the Government, NextWave, and the Auction 35 participants.

    The Government's dispute with NextWave dates back to 1996 and 1997 when the company was the high bidder at auctions held by the——

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    Mr. BARR. Excuse me. I have been asked by some Members if you could pull the mike a little bit closer and make sure it is on so that we can all hear properly.

    Mr. BYBEE. 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 $15.85 billion bid at Auction 35. Moreover, even if the Government were ultimately successful in its pursuit of litigation, victory could come only 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 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.
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    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, it accomplishes by mutual consent what lengthy and contentious litigation has been unable to achieve, the award of the spectrum to telecommunications companies that are more 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 the 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 surrender 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 a 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.
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    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. Only if Congress enacts the implementing legislation and keeps the settlement agreement in place, will the American people be able to realize in the foreseeable future both the improvement in wireless telecommunications services and the addition of several billion dollars to the Treasury.

    I am here today with Jody Hunt, counsel to the Deputy Attorney General, who participated in the lengthy and arduous negotiation process on behalf of the United States. Mr. Chairman, I appreciate your allowing Mr. Hunt to join us here at the table. Mr. Hunt also worked closely with John Rogovin, the Deputy General Counsel for the FCC, who has been called to testify today. I will defer to these gentlemen on questions that implicate the details of the agreement and the relationship between the proposed legislation and the existing law. I would be pleased to respond to any questions concerning the constitutionality of the settlement and the proposed legislation.

    Chairman Barr and Chairman Coble, that concludes my prepared statement. I appreciate this opportunity to present the Department's views on this important issue.

    Mr. BARR. Thank you Mr. Bybee.

    [The prepared statement of Mr. Bybee follows:]

PREPARED STATEMENT OF JAY S. BYBEE
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    Thank you Chairman Barr and Chairman Coble, as well as the Members of the subcommittees, 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. 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.
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    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 has concluded that ''the settlement is strongly in the public interest.'' 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.
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    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 the uncertain prospects of success and the delay associated even with a favorable outcome. 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 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 bill provides the guarantee of payment that is required before NextWave will surrender the licenses. It also specifies that Auction 35 should be implemented, with payment terms as modified under the settlement agreement. The bill also establishes a limited and expedited structure for judicial review of challenges to the settlement.

    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.
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    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.
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    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. 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 will the American people be able to realize in the foreseeable future both the improvements in wireless telecommunications services and the addition of several billion dollars to the Treasury.

    I am here today with Jody Hunt, Counsel to the Deputy Attorney General, who participated in the lengthy and arduous negotiation process on behalf of the United States. Mr. Hunt worked closely with John Rogovin, Deputy General Counsel for the FCC, who has also been called to testify today. I will defer to these gentlemen on questions that implicate the details of the agreement and the relationship between the proposed legislation and existing law. I would be pleased to respond to any questions concerning the constitutionality of the settlement and the proposed legislation.

    Chairman Barr and Chairman Coble, that concludes my prepared statement. I appreciate this opportunity to present the Department's views on this important issue.

    Mr. BARR. Mr. Rogovin, we once again appreciate your being here today, and we recognize you for an opening statement.
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STATEMENT OF JOHN A. ROGOVIN, DEPUTY GENERAL COUNSEL, FEDERAL COMMUNICATIONS COMMISSION

    Mr. ROGOVIN. Thank you, Chairman Barr, and good morning, Chairman Barr and Chairman Coble and Members of the Subcommittee. My name is John Rogovin, and I am Deputy General Counsel of the Federal Communications Commission, and I am pleased to be here with you here today.

    After months of hard fought negotiations, I am pleased to report that the parties to the NextWave case have reached an agreement that will conclude their long-running dispute. The agreement will bring substantial benefits to the American public. Of principal concern to the Commission is that the settlement will allow the immediate deployment of critical spectrum resources that have gone unused during 5 years of delay and litigation. Consumers throughout the United States will benefit from that outcome. In addition, the settlement will generate $10 billion for the Treasury, nearly twice the amount that NextWave would have paid if it kept the licenses.

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

    There are several reasons why this legislation is necessary. 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.
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    Second, the proposed legislation contains a judicial review provision, as Mr. Bybee has explained, that provides for expedited review limited to constitutional claims. This provides assurance that the American public will receive the benefits of the settlement with a minimum of additional litigation delay.

    Third, the legislation provides the guarantee necessary for NextWave to relinquish its claims on the licenses.

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

    We recommend the settlement because it eliminates the uncertainty of continued litigation. While the outcome of this litigation is unknown, it is clear that more litigation will likely mean years of further delay in the ability of the Commission to grant spectrum licenses for much-needed wireless services for American consumers. The Commission first auctioned the spectrum in 1996 and 1997; yet it has never been used. Without a settlement, valuable spectrum may well remain fallow at a time when our economy and consumers need it most.

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

    Thank you, Mr. Chairman.

    Mr. BARR. Thank you, Mr. Rogovin.

    [The prepared statement of Mr. Rogovin follows:]

PREPARED STATEMENT OF JOHN A. ROGOVIN

I. INTRODUCTION

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

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

    The agreement will bring substantial benefits to the American public. Of principal concern to the Commission is that the settlement will allow the immediate deployment of critical spectrum resources that have remain unused during five years of delay and litigation. Consumers throughout the United States will benefit from that outcome. In addition, the settlement will generate $10 billion for the Treasury, nearly twice the amount that NextWave would pay if it keeps the licenses.
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    The settlement, however, cannot be implemented without legislation. This legislation is needed to permit the Commission to make payments to NextWave and to take other actions to effect the settlement. Because the settlement would bring the NextWave litigation to an end while ensuring substantial benefits for the public, we respectfully urge the Congress to approve the settlement by enacting the proposed legislation before Congress adjourns this year.

II. BACKGROUND

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

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

    Over the next three years, the Commission, the United States, NextWave, and others engaged in intensely fought litigation in numerous courts, including the U.S. Bankruptcy Court, the U.S. Court of Appeals for the Second Circuit, the U.S. Court of Appeals for the D.C. Circuit, and the Supreme Court of the United States. The Second Circuit upheld the Commission's regulatory requirement that there be full and timely payment by NextWave for the licenses. The Second Circuit also held that the Commission's decision to automatically cancel the NextWave licenses and to re-auction them was not contrary to bankruptcy law. In January 2001, the Commission re-auctioned the spectrum previously licensed to NextWave. In that re-auction (Auction No. 35), 21 wireless carriers bid $15.85 billion for the new licenses.
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    Meanwhile, NextWave had petitioned the D.C. Circuit for review of the Commission's decision to cancel NextWave's licenses for failure to pay. On June 22, 2001, the D.C. Circuit ruled that the automatic cancellation of NextWave's licenses violated Section 525 of the Bankruptcy Code. The Government has sought review of the D.C. Circuit's decision in the Supreme Court. This matter is still pending.

     

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

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

III. THE SETTLEMENT AGREEMENT AND LEGISLATIVE PROPOSAL

    The settlement agreement requires that Auction 35 bidders pay the government $15.8 billion that they bid in exchange for receiving the licenses auctioned in Auction 35. The government will then keep $10 billion in net proceeds and will guarantee by December 31, 2002 to pay $5.8 billion net to NextWave in exchange for its complete release of all claims to the disputed licenses.
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    The principal benefit of the settlement is that it allows the Commission to grant licenses to companies that will rapidly use them to provide wireless telecommunications services. This fulfills the congressional mandate in the Communications Act to deploy spectrum as expeditiously as possible, without undue regulatory or judicial delay. Moreover, it allows the Commission to grant licenses to the very bidders who place the highest value on those licenses. In the absence of a settlement, there is considerable uncertainty about when the spectrum will be put to productive use in the service of the American public.

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

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

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

    Second, the proposed legislation contains a judicial review provision, patterned on other Acts of Congress, that provides for expedited review, limited to constitutional claims. Any challenge to the legislation, the settlement agreement itself, or to actions taken by the Commission would be funneled into one court of appeals (the D.C. Circuit) and would be on a fast track for review. This provides assurance that the American public will receive the benefits of the settlement with a minimum of additional litigation delay.
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    Third, the legislation provides the guarantee necessary for NextWave to relinquish its claims on the licenses. In return, NextWave will be paid once the Government receives Auction 35 receipts equal to the payments to be made to NextWave but no later than December 31, 2002.

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

IV. ALTERNATIVES TO SETTLEMENT

    The main reason to settle is that settlement is preferable to the alternatives. If the Commission continues to litigate and the Supreme Court declines to take the case, the decision of the D.C. Circuit will stand and NextWave will be the licensee. In that scenario, NextWave likely would elect to continue to pay for the spectrum over time at advantageous interest rates. Pursuant to the installment payment program, NextWave could pay for the spectrum over six years at a rate of 6.5% for C-Block licenses and 6.25% for the F-Block licenses. That would leave the Treasury with substantially less than the $10 billion in revenues that would be generated by the settlement.

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

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

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

V. CONCLUSION

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

STATEMENT OF DONALD VERRILLI, GENERAL PARTNER, JENNER & BLOCK

    Mr. VERRILLI. Thank you, Mr. Chairman and Members of the Subcommittees. My law firm, Jenner & Block, represented NextWave before the courts and the FCC in its efforts to retain the spectrum licenses the FCC awarded it in 1997. I also served as NextWave's principal outside counsel in negotiating the settlement agreement that is the subject of this morning's hearing.

    I would like to begin by thanking the Subcommittee for the oversight it has devoted to the constitutional and Bankruptcy Code issues in the NextWave controversy. The Committee as a whole and many of its Members individually have worked hard to ensure that the law was applied fairly in NextWave's reorganization proceeding. For example, in April of 2000, the Commercial and Administrative Law Subcommittee held a hearing on the contention of the FCC that it was exempt from certain provisions of the Bankruptcy Code. Similarly, several Members of the Subcommittee found an amicus brief in the D.C. Circuit on behalf of NextWave, and for those efforts the company is extremely grateful.

    As the Committee knows and will hear in detail this morning, there is a proposed settlement of the legal controversy that has clouded NextWave's bankruptcy reorganization. To appreciate the fairness of this settlement, it is important to understand what has happened to NextWave over the past 6 years. NextWave was formed in 1995 by a group of experienced telecommunications executives to participate as a designated entity in the auctions and implement an innovative business plan as a nationwide carrier's carrier to provide wholesale wireless service.
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    At the conclusion of the C-block auctions, NextWave was the high bidder for 63 licenses and made a timely down payment of $474 million for those licenses. In its initial month NextWave made great progress. It raised more than $600 million to finance its down payments and begin building its network. By early 1997, NextWave had hired 600 employees and contractors and had 22 offices around the country. It had $2 billion in financing commitments from major vendors, 90 percent of the microwave links it needed, had 7 switch sites and 1,300 cell sites and 300 site leases.

    But the decline in Spectrum value during 1997 caused, in our view, by the FCC's decision to make extra spectrum available resulted in NextWave's financing sources being dried up, but the company did not seek bankruptcy initially, not at all. The company spent more than a year trying to stave off bankruptcy and staying alive, but it was forced to curtail operations dramatically, and it ran up more than $400 million in debt to creditors, and eventually its fiduciary obligations required it to seek bankruptcy.

    The long litigation saga soon ensued, and these Subcommittees are familiar with it. The essence of it is that NextWave sought to defer its payment obligations, including to the FCC, in bankruptcy until it had successfully reorganized. After much litigation in bankruptcy court, and despite the FCC's assurances that NextWave's licenses would not cancel if it deferred payment, the FCC announced in January 2000 that it would cancel the licenses. NextWave fought that effort in bankruptcy court, but the second circuit said that the D.C. Circuit had jurisdiction to review the FCC's actions.

    NextWave went to the D.C. Circuit, and the D.C. Circuit held that section 525 of the Bankruptcy Code prevented those licenses' cancellations. Upon receiving that ruling, NextWave once again promptly sought to implement a plan of reorganization and get up and going as a business.
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    All of that brings us to where we are today, to the settlement. It is a compromise, and a very fair one, and its benefits are clear, but each of the parties is also giving up something important, and I think it is important for these Subcommittees to understand what NextWave is giving up. The first is lost opportunity that we have already experienced. In January of 2000, NextWave proposed a plan of reorganization to the bankruptcy court that would have paid the FCC in full in advance for its licenses. The FCC rejected that proposal and cancelled the licenses instead. The D.C. Circuit then said that was unlawful.

    Had the FCC not done so and we had emerged from bankruptcy, we would have been up and running for 2 years now. We would be a viable nationwide wireless carrier, and by way of comparison, another wireless carrier, VoiceStream, which has a national footprint comparable to the NextWave licenses, was sold for approximately $29 billion after a little over 2 years of operation. That is lost opportunity already.

    The spectrum, if NextWave were to retain it through this litigation, would require NextWave to pay to the FCC approximately $5 billion, but the market has evaluated that spectrum at $16 billion approximately now through the reauction process. So NextWave is giving up a great deal there as well.

    But there is also lost future opportunity. NextWave, if it keeps these licenses, will reorganize and will be a viable nationwide carrier with great value, but we are giving that up in this settlement, so this is a fair settlement.

    Mr. Chairman, I welcome the opportunity to answer any questions that Members of the Subcommittees may have about the settlement. Thank you.
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    Mr. BARR. Thank you, Mr. Verrilli.

    [The prepared statement of Mr. Verrilli follows:]

PREPARED STATEMENT OF DONALD VERRILLI

INTRODUCTION

    Thank you, Mr. Chairman; Members of the Committee. My name is Donald Verrilli and I am a partner in the law firm of Jenner & Block. For the part two years my firm has played a significant role in representing NextWave Telecom Inc. (''NextWave'') before the courts and the FCC regarding the company's efforts to retain, pay for, and build out spectrum licenses that were initially awarded to NextWave by that agency in 1997. For example, we represented NextWave in connection with all aspects of the D.C. Circuit litigation. We handled the effort to convince the D.C. Circuit to stay the reauction of NextWave's licenses pending appeal, and then handled the briefing on the merits that resulted in the D.C. Circuit's June 22 decision undoing the Commission's purported cancellation of NextWave's licenses. And we successfully opposed the Commission's efforts in the D.C. Circuit to stay the issuance of the court's mandate pending the filing of a petition for certiorari. I also served as NextWave's principal outside legal counsel during the negotiation of the settlement agreement that is the subject of this morning's hearing, and participated directly in nearly all of the negotiation sessions.

    I would like to begin by extending NextWave's sincere appreciation and thanks to this Committee for the oversight it has devoted to constitutional due process and general Bankruptcy Code issues that have arisen in proceedings initiated by NextWave and other FCC licensees in recent years to reorganize their business affairs under provisions of the Code. The Committee as a whole, and many of its Members individually, have expended considerable effort in recent years to ensure that those congressional protections were applied faithfully and fairly in NextWave's reorganization proceeding and in judicial review thereof. For example, on April 11, 2000, the Commercial and Administrative Law Subcommittee held a hearing on the contention of the Federal Communications Commission that it was exempt from certain provisions of the Bankruptcy Code. As Members of the Subcommittee noted in a subsequent letter to the Speaker, ''[e]very member of the subcommittee present at the hearing expressed his concern or disagreement with the FCC's position.'' Similarly, several Members of the Subcommittee filed an amicus brief in the D.C. Circuit proceedings on behalf of NextWave. For these and other efforts, the company is profoundly grateful.
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    I am here 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 and airtime on a wholesale basis. 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.(see footnote 1)

    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.
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    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, and to sustain the company as an ongoing venture, NextWave was forced to seek bankruptcy protection.

    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. Aided by improved market conditions, 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.
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    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. In response to the Public Notice, the 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. 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. NextWave also filed a precautionary appeal with the D.C. Circuit. On June 22, 2000, that appeal was dismissed pending resolution of the reconsideration petition. 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'').
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    Following the FCC's denial of NextWave's petition for reconsideration, NextWave appealed to the D.C. Circuit. In such appeal, the NextWave asserted, as they had before the Bankruptcy Court, that cancellation of the C and F Block licenses violated several provisions of the Bankruptcy Code, including §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 the NextWave 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 concluded that the NextWave licenses had been revoked solely because the NextWave had not paid a dischargeable debt, which revocation thus violated the Bankruptcy Code and reversed the Commission's purported cancellation. 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 asked for the judicial creation of 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 to Stay the Mandate Pending the Filing of a Petition for a Writ of Certiorari with the D.C. Circuit. Therein, the FCC indicated that the Acting Solicitor General had authorized the filing of a petition for certiorari with respect to the D.C. Circuit Opinion with the United States Supreme Court and requested that the D.C. Circuit stay issuance of the mandate pending resolution of same. 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.
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    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.

    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.
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THE REORGANIZATION PROCESS

    NextWave's goal has always been to be a nationwide provider of wholesale wireless telecommunication services. Throughout the bankruptcy cases, NextWave has worked 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. NextWave first filed a plan on June 25, 1999 (the ''Original Plan'') which proposed payment to creditors in connection with the proposed commercial launch and operation of a nationwide wireless network. Due to various developments in the litigation with the FCC, the Original Plan was modified in December 1999 to fully cure and reinstate the FCC's claims and pay other creditors amounts owed as of the bankruptcy filing. The Original Plan, as modified, was scheduled for confirmation in January 2000 and contemplated the build-out of a nationwide wireless network within 12 to 18 months. The Original Plan was, however, subsequently abandoned when it became clear as a result of a variety of events within and outside the litigation with the FCC that it had become unconfirmable.

    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 were 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. The NextWave remain 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.
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    Following the DC Circuit Opinion, NextWave filed a Second Plan of Reorganization. The Second Plan provided for payment in full of all creditors, including the FCC, and proposed financing commitments of approximately $5 billion to fund the build-out and commercial launch of a nationwide wireless 3G network. The Second Plan will, however, be superseded by the settlement agreement, should Congress conclude that it is in the public interest and enact the legislation necessary to implement it.

SUMMARY OF THE SETTLEMENT AGREEMENT

    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.

(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.(see footnote 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.

(b)
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    Pursuant to §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)
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    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.

    NextWave and the FCC have both had successes and setbacks in the course of this litigation. While the current posture is that NextWave holds the C Block and F Block licenses, as the Committee is aware, the FCC filed its Petition for Writ of Certiorari in the Supreme Court seeking review and reversal of the D.C. Circuit Opinion rendered in favor of NextWave.(see footnote 3) Although NextWave believes that certiorari is likely to be denied and that in any event the D.C. Circuit decision is correct and would likely be affirmed by the Supreme Court if review is granted, NextWave would suffer from further litigation expense and delay if the Supreme Court should choose to review the case on the merits, and would also run the risk that NextWave might not ultimately prevail in such a proceeding.
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    Although NextWave is confident the Supreme Court would affirm the D.C. Circuit's Opinion, the Company has concluded that the cost of continued litigation is outweighed in light of the benefits to creditors and other stakeholders afforded under the Settlement Agreement.

    Neither side can predict with certainty what the Supreme Court's ruling would be should this case be heard, but at this point, both sides are willing to eliminate that risk by fairly settling this case in a way that benefits all parties. 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. This case has been ongoing for over three years and without settlement could proceed well into 2003 or later before resolution. The parties and their counsel involved in these cases have spent extensive time and substantial amounts of money attempting to resolve this case.

    The parties are now at a point where all sides are willing to enter into an agreement that benefits all parties and further avoids costly litigation and delay. NextWave and the FCC will put years of litigation behind them with a positive recovery for the government; the Auction 35 Participants will put the spectrum covered by the C Block and F Block licenses into immediate use; NextWave's creditors will finally get paid, and NextWave's equity holders will benefit as well. NextWave will be able to complete its reorganization, distributing substantial value to stake holders and then proceed 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).
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    This is a rare case in which the resolution, while not the absolute 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. 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. When combined with the fact that the D Block and E Block licenses provide an opportunity for an ongoing business, albeit on a significantly reduced scale, the compromise is in the best interests of all concerned.

    Each party in this complex dispute benefits substantially, but each party gives up something substantial as well. 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 (including Detroit, Michigan and Madison, Wisconsin), 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. To understand why this compromise is fair, it is important to understand what NextWave has given up. NextWave made the decision that it was the right thing to do for its shareholders to accept this settlement, but that decision meant real and substantial lost opportunities for the Company.
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    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.

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    This Settlement Agreement is the clear 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 clearly 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.

    Mr. BARR. Mr. Roberts, you are recognized for an opening statement if you would, please.

STATEMENT OF STEPHEN M. ROBERTS, ELDORADO COMMUNICATIONS, LLC

    Mr. ROBERTS. Thank you, Chairman. Thank you, Chairman Barr, Chairman Coble, Members of the Subcommittee. I appreciate the opportunity to appear in front of the Subcommittees today.

    We are a small business that participated in the FCC's Auction number 5 C-block licenses in 1996. We strongly oppose the current form of settlement that has been entered into by the FCC, NextWave, Verizon, AT&T Wireless and the other larger wireless carriers.

    C-block auction, Auction 5, was intended to benefit small businesses, minorities, and businesses owned by women. NextWave bid a total of $4.72 billion for 63 licenses. We paid—bid $5.8 million for our three licenses.
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    Mr. NADLER. You paid or——

    Mr. ROBERTS. I bid $5.8 million. These guys bid $4.72 billion. All the winning bidders put 10 percent down. As a result of NextWave's aggressive bidding which drove license prices up, virtually no financing was available for C-block winners to build out their licenses. The FCC recognized this and gave the licensees three choices: forfeit the down payments and return the licenses; number two, forfeit half the down payment, return half the licenses; or number 3, keep the licenses and pay up the full amount.

    Eldorado, like most of the small companies, some 75 or 80 companies, elected to return the licenses. Let us all keep in mind that 89 bidders finished this auction and 75 or 80 of them turned in some or all of their spectrum. NextWave at that point owed a total of $4.72 billion to the U.S. Government, but rather than following the FCC's conditions, NextWave just didn't pay. When the FCC sought to enforce payment or recapture the licenses, NextWave declared bankruptcy. After 5 years of legal wrangling in Auction 35, FCC reauctioned the NextWave licenses to Verizon, Cingular, AT&T, and other carriers who bid about $16 billion for the original four-some-odd billion dollars worth of licenses.

    Now, subsequent to that auction, the bankruptcy court ruled the licenses were assets that were bankrupt and ordered that they be returned to NextWave. The FCC and the Justice Department sought review by the U.S. Supreme Court, which is still pending. Nonetheless now the FCC has reached a settlement with NextWave and Auction 35 winners which excluded the Auction 5 winners who played by the rules and excluded the public from the process. Now, they have agreed that the FCC is going to give the NextWave folks 9.55 billion, with a B, dollars for licenses it never paid for, never built out, and never operated, which comes up to about a 20 times return on the auction deposit that NextWave put down.
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    So here is the outcome of the settlement: 9.55 billion for NextWave. After you take off some taxes, I think it is about 6.55 billion, which is still about, oh, 14 some odd times return on investment. And this is to the very party who violated the FCC's conditions. The small companies like us who turned in their licenses have lost their deposits, and they lost the business opportunities that this Congress intended them to have when they put the authorizing legislation up for those original auctions.

    Now, the settlement negotiations have been held in secret. Now, we found out about them through the press, and now the participants demand that you all, that is Congress, step up to the plate and take this settlement or leave it by December 31.

    Now, if your Subcommittees don't give the judicial aspects of settlement a thorough review, I don't think any other body will. The FCC is an active participant, and I don't know, just human nature being what it is, that we can be a neutral arbiter. And what about courts? Under NextWave legislation, this settlement is effectively protected from judicial challenge. Interested parties won't have the opportunity to oppose the settlement in any forum unless the FCC solicits comments. Once the FCC approves the settlement, its decision will be nonreviewable except on constitutional grounds. No court will have the authority to invalidate an FCC order approving the settlement even though that order is arbitrary, capricious, or contrary to law. After 10 days it will be impossible to even file a constitutional challenge to the legislation. On the 11th day after the FCC issues an order approving settlement, no court will have the authority to reverse the order even if the FCC has acted unconstitutionally. Finally, the legislation warns that persons who file actions after the 10-day period or who are found to lack substantial justification, whatever that is, are subject to significant penalties.
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    Mr. ROBERTS. You are as a Subcommittee to look closely at the settlement from both a legal and a fairness standpoint. If any legislation is passed, it should restore the opportunities that lost when El Dorado and other companies turned in their licenses.

    This can be done by requiring the FCC to first return the forfeited down payments of winning auctions by small businesses, and reimburse their actual and opportunity costs for participation in the auction from the proceeds of any settlement that NextWave ends up with; and, two, to compensate them for their lost opportunities by providing substantial bidding credits for use in future spectrum auctions.

    As you all consider your position on the settlement legislation, I ask that you measure against three basic principles:

    Number one, fairness. Congress's original purpose with respect to wireless licensees was to give small business women and minorities the opportunity to participate in the communications revolution.

    Number two, fairness. The parties who play by the rules, like El Dorado, should not be penalized for doing so while those who don't play by the rules are rewarded.

    And, number three, fairness. Equal access to all of the administrative processes of our Government and to the courts when those processes fail them.

    It is an honor to appear before you all today, and I thank you for the invitation.
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    Mr. BARR. Thank you, Mr. Roberts.

    [The prepared statement of Mr. Roberts follows:]

PREPARED STATEMENT OF STEPHEN M. ROBERTS

    Mr. Chairman and Members of the Subcommittee:

    My name is Stephen Roberts and I am Managing Director of Eldorado Communications, LLC. I appreciate the opportunity to appear in front of the committee today. We are a small business that participated in the FCC's Auction 5 of C block PCS licenses in 1996.

    We strongly oppose the current form of the ''settlement'' that has been entered into by the FCC, NextWave Communications, Verizon Wireless, ATT Wireless and other large wireless companies.

    The C block auction, Auction 5, held in 1996, was intended to benefit small businesses, minorities, and businesses owned by women. NextWave bid a total of $4.72 billion for its 63 licenses. We bid $5.8 million for our 3 licenses. All winning bidders put 10% down. As a result of NextWave's aggressive bidding, which drove license prices up, virtually no financing was available for any C block winner for build out of the licenses. The FCC recognized this and gave licensees three choices: (i) forfeit their down payments and return the licenses; (ii) forfeit half the down payment and return half the licenses; or (iii) keep the licenses and pay the full amount. Eldorado, like most of the small companies—some 75–80 licensees—elected to return the licenses.
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    NextWave owed a total of FCC $4.72 billion. But rather than following the FCC's rules, Nextwave just didn't pay. When the FCC sought to enforce payment or recapture the licenses, NextWave declared bankruptcy. After five years of legal wrangling, in Auction 35, the FCC re-auctioned the NextWave licenses to Verizon Wireless, Cingular, ATT Wireless and other carriers, who bid a total of nearly $16 billion for the licenses. Subsequent to the auction, a bankruptcy court ruled that the licenses in question were assets of the bankrupt. The FCC and the Justice Department petitioned the US Supreme Court for a Writ of Certiorari, which the Court has not yet ruled on. Despite the pendency of the petition, the FCC began negotiations with NextWave and the Auction 35 winners, excluding the Auction 5 winners and the public from the process. Despite Eldorado's request that secret negotiations be halted and the process opened up to the public, the FCC, NextWave, and the Auction 35 winners have reached a ''settlement'' among themselves and without any public participation.

    They have agreed that the FCC will ''buy back'' from NextWave these defaulted licenses for $9.55 billion. ($3 billion will be reserved for taxes). In other words, NextWave will receive $9.55 Billion for licenses it never paid for, never built out, and never operated. Even after taxes, that leaves NextWave with a net $6.5 billion, about 14 times the auction deposit that NextWave paid, which is its only investment in these licenses.

    So, the outcome of the settlement is: (i) a $9.55 billion windfall for NextWave, the very party who violated the FCC's rules; (ii) the licenses are being transferred mostly to companies who were not eligible to buy them in the original auction; and (iii) the small companies, who were forced to turn in their licenses have lost their licenses, their bidding deposits and they have lost the business opportunities Congress intended them to have.
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    A detailed list of reasons the Nextwave settlement is not in the public interest is attached as Exhibit A.

    Prior to settling with NextWave, the FCC itself said: ''It would be unfair to permit a licensee that could not satisfy its bid to file for bankruptcy, tying up the spectrum in the process, and then emerge from bankruptcy at some later time and retain the licenses, while others that complied with our rules lost their licenses.'' The FCC has now compounded this unfairness by excluding the companies harmed by NextWave from the settlement, by turning its back on the Congress' goal of bringing small businesses and minority and women-owned companies into the telecommunications industry, and by making no effort to restore the opportunities that were lost when these companies turned in their licenses.

    To our knowledge, no bidders from the original C block auction who returned their licenses were involved in this settlement, nor did the FCC seek public comment on the issues presented by the negotiations. The FCC still has maintained a secret process. In order to shed some light on the process, Eldorado filed a Petition for Emergency Relief on November 7, 2001 (see Exhibit B), asking the FCC to:

(a)
    halt all private meetings and negotiations of the Commission and its staff with representatives of NextWave and others;

(b)
    provide for immediate access of Eldorado, all persons similarly situated, and the public to complete information in the possession of the Commission regarding negotiations reportedly now in progress;
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(c)
    provide public notice and initiate an open proceeding for the consideration of any disposition of the NextWave licenses and consideration of the circumstances surrounding the frustration of Congressional and Commission public policy objectives in reserving the C Block licenses for small business and other designated entities; and

(d)
    bring all Commission activities regarding the NextWave licenses into conformity with the requirements of the Administrative Procedures Act, the Commission's own rules and regulations, the U.S. Constitution, and other applicable law and regulations.

    The dominant characteristic of the NextWave settlement is the parties' desire for extraordinary speed in approving the settlement, while shielding it from public scrutiny and preventing review by an independent body.

    Despite five years of delay, NextWave and the others now have decided that Congress must approve the settlement by December 31, 2001, at a time when Congress is dealing with critical national security, financial stimulus, and government budgetary issues. Proposed legislation is being presented to Congress on a take-it-or-leave-it basis. Furthermore, NextWave's preferred approach is to have no review by the telecommunications and judiciary committees of the House or Senate. Rather, they want a fast-track appropriations process, perhaps bringing their bill directly to the floor in the form of an appropriations rider.

    If your committee does not carefully review this settlement, it is unlikely that the FCC or the courts would or could do so. The FCC, as a key participant in the settlement, is not a disinterested arbiter capable of determining the public interest.
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    And what of the Courts? Under the NextWave legislation, the ''settlement'' is effectively protected from judicial challenge.

 Interested parties will not have an opportunity to oppose the settlement agreement in any forum unless the FCC solicits comments concerning the agreement.

 Even if the FCC solicits comments, once it approves the settlement its decision will be non-reviewable, except on constitutional grounds. No court will have the authority to invalidate an FCC order approving the settlement even though that order is arbitrary, capricious, or even contrary to law.

 After an unusually short time, it will be impossible to file even constitutional challenges to the legislation and the settlement. On the 11th day after the effective date of the legislation, no court will have the authority to invalidate the legislation, even if it is unconstitutional. On the 11th day after the FCC issues an order approving the settlement, no court will have the authority to reverse the order, even if the FCC has acted unconstitutionally.

 And opponents of the settlement will be discouraged from seeking their day in court. The legislation warns that persons who file actions that are not commenced within the 10-day periods described above or that are found to lack ''substantial justification'' are subject to significant sanctions.

    We urge this Subcommittee to look closely at this settlement, from both a legal and a fairness standpoint. If any legislation is passed, it should restore the opportunities that were lost when Eldorado and similar companies turned in their licenses. This can be done by requiring the FCC to (i) return the forfeited down payments of winning Auction 5 small businesses; (ii), reimburse their actual and opportunity costs of participation in Auction 5 from the proceeds of any settlement; and (iii) compensate them for their lost opportunities by providing them with substantial bidding credits for use in future spectrum auctions.
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    As you consider your positions on this settlement and the legislation, I ask that you measure your positions against three basic American principles:

    (i) fairness—the fairness evident in Congress's original purpose with respect to these wireless licenses—to give small business, women and minorities the opportunity to participate in the business of the communications revolution, and

    (ii) fairness—the fairness of the FCC to not penalize parties like Eldorado who played by the FCC's own rules while while those who broke the FCC's rules are rewarded; and

    (iii) fairness—the fairness guaranteed by equal access of all citizens to the administrative processes of our Government, and to the Courts of our Land when those processes fail them.

    It is an honor to appear before this Subcommittee, and I thank you for the invitation.

     

EXHIBIT A

THE NEXTWAVE SETTLEMENT IS NOT IN THE PUBLIC INTEREST

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I.
Overview

 The Federal Communications Commission, Verizon Wireless, and others have agreed to a ''settlement'' of matters related to certain wireless communications licenses won by NextWave Communications in the FCC's Auction 5, held in 1996. The auction was intended to benefit small businesses, minorities, and businesses owned by women.

 NextWave bid up the value of the licenses, eventually winning 63 licenses for a total value of $4.72 billion and like all other bidders, made a downpayment of 10%, or $472 million. As a result of the high prices bid by Nextwave, no additional financing was available for C block owners to construct the licenses. The FCC recognized this and proposed a program whereby bidders could (i) forfeit their down payment and return the licenses purchased; (ii) forfeit half the down payment and return half their licenses ; or (iii) keep the licenses and pay the full amount bid in the auction. The majority of successful bidders—estimated at between 75 and 80 bidders—elected to return the licenses. NextWave, however, failed to pay the FCC for its licenses and then declared bankruptcy.

 The FCC rejected NextWave's efforts to keep its licenses by using the bankruptcy ploy and re-auctioned the NextWave licenses. Verizon Wireless, Cingular, ATT Wireless and other carriers won the licenses at the January 2001 re-auction (Auction 35) by bidding a total of nearly $16 billion. NextWave, however, prevailed upon one federal court of appeals to protect the NextWave licenses as ''assets'' of the bankrupt, rather than as assets of the public, and the court ordered the FCC to return the licenses to NextWave. Another Federal Circuit Court disagreed, and the FCC appropriately sought US Supreme Court review—in a petition for certiorari that is still pending, and that, for some reason, the FCC has now determined to abandon.
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 NextWave, the FCC, other federal agencies, and the carriers who won the re-auctioned licenses have now agreed to a ''settlement'' that will entitle NextWave to $9.55 billion from the federal treasury, with the IRS moving $3.052 of that sum from one pocket to another as an ''advance tax payment'' from NextWave, which will leave NextWave with $6.5 billion. Under this ''settlement'', the big carriers will pay the government $10 Billion, instead of $16 billion the same parties bid for the same licenses during their re-auction (Auction 35). And the carriers will get the licenses—at a $6 Billion discount. No provision has been made for the small businesses or minority and women-owned enterprises who participated in the NextWave tainted auction, followed the FCC's rules, and lost money and business opportunities as a direct result of NextWave's gaming of the auction process.

 Prior to settling with NextWave, the FCC itself said:

   ''Some of the licensees that complied with our orders actually forfeited their licenses because they could not ultimately meet their bid obligations. It would be unfair to permit a licensee that could not satisfy its bid to file for bankruptcy, tying up the spectrum in the process, and then emerge from bankruptcy at some later time and retain the licenses, while others that complied with our rules lost their licenses.'' FCC Order of Reconsideration 15 FCC Rcd 17500 at 17514 (September 2000).

 The FCC has now compounded this unfairness by excluding the companies harmed by NextWave from the settlement, by turning its back on the goal of bringing small businesses and minority and women-owned companies into the telecommunications industry, and by making no effort to restore the opportunities that were lost when these companies turned in their licenses.
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II.
The proposed settlement is unfair to the small businesses and minority and women-owned companies who were supposed to benefit from the auction that NextWave tainted.

 These companies lost hundreds of millions of dollars when they forfeited their bidding deposits and incurred the significant costs of participating in Auction 5, including the costs of engineering, financing, and consultants.

 In January 2001, however, the biggest players in the wireless business bid almost $16 billion for NextWave's $4.72 billion worth of licenses. This suggests that Auction 5 licenses today are worth more than three times what they were worth five years ago. The companies that followed the FCC rules turned in their licenses and lost the value of the licenses they could have retained—had they, like Nextwave, only violated the FCC's rules.

 These companies also have lost the business opportunities inherent in mobile telephony, the fastest growing part of the telecommunications market. It is obvious that the carriers who are taking over the NextWave licenses anticipate substantial operating profits and that NextWave has been well compensated for tying up those licenses. The companies that complied with FCC rules and turned in their licenses, however, gave up the business opportunities that the carriers will now enjoy. They will not be compensated for those lost opportunities at any level, let alone the windfall level that NextWave will achieve.

 The loss of licenses, the costs of auction participation, and the opportunity costs suffered by the Auction 5 winners who were forced to return their licenses amount to billions of dollars. One only has to look at the more than $9.55 billion that the government will pay to Nextwave in this settlement in order to understand the magnitude.
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III.
The settlement takes $6.5 billion from the U.S. Treasury and gives it to a company that has never provided a minute's worth of telephone service and puts additional licenses into the hands of carriers who already dominate the wireless business.

 NextWave has not constructed facilities and has not provided mobile telephone service to the public. In short, NextWave has met none of the requirements that the FCC imposed upon all Auction 5 winners, indeed upon all auction winners. Without NextWave's construction and operation of their enormous Auction 5 holdings, small business Auction 5 winners confronted a reduced demand for service from potential customers, the drying up of their financing, and the inability to dispose of their licenses profitably. As a result of their participation in Auction 5 gone awry, they will enjoy no benefit from the ''settlement, no opportunity to benefit as Congress intended. Not so NextWave.

 Not so the carriers.The big carriers who will now end up with the NextWave licenses. They are the dominant players in the mobile telephone business and the antithesis of kinds of companies that were intended to benefit from Auction 5. The top three wireless carriers in the U.S. have over 58 percent of the total number of wireless subscribers in the country. These carriers are the big winners in the scramble for NextWave licenses. Verizon Wireless, the biggest winner, already has more than 26 million subscribers and has a service ''footprint'' covering more than 90 percent of the U.S. population, 49 of the top 50 and 97 of the top 100 U.S. markets. Verizon Wireless' parent, Verizon Communications Inc., is the largest phone company in the U. S. Cingular Wireless, another big winner in the NextWave scramble, has 20.5 million subscribers, while AT&T Wireless has 17 million subscribers.
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IV.
The dominant characteristic of the NextWave settlement is the parties' desire for extraordinary speed in approving the settlement, while shielding it from public scrutiny and preventing review by an independent body. What's the rush, what are they afraid of?

 Despite five years of delay and administrative and judicial wrangling, the FCC and the settling parties now have decided that time is so much of the essence that the ''settlement'' must be approved by Congress by December 31, 2001, even though Congress is in the midst of critical national security, financial stimulus, and government budgetary issues.

 The reason given for such unprecedented haste is the need to provide mobile telephone service to the public. But, when constructed, these mobile systems will be the third or fourth to offer service in their respective markets and will be added to the already bulging bag of radio systems operated by Verizon Wireless, Cingular, and ATT Wireless.

 The settlement was negotiated in secret in violation of the letter and the spirit of the Government in the Sunshine Act, the Administrative Procedures Act, and the Communications Act, as well as Congress's intention to provide for participation of small business, minorities and women in the wireless build-out. It is unclear at this time whether the FCC ever will provide an adequate forum for public comment on the settlement terms. In any event, FCC approval of the settlement is a foregone conclusion, because the FCC was a key participant in the settlement and is now hardly a disinterested arbiter capable of determining the public interest.

 Nor will the Courts be able to provide meaningful independent review or relief. NextWave and the others propose to clip the judiciary's wings. There must be no court review of the legality of the settlement. In addition to codifying NextWave's lightning fast raid on the Treasury, the legislation that accompanies the settlement would prevent such review. Only the Circuit Court of Appeal for the District of Columbia Circuit could review FCC action on the settlement, but that Court would have no power to issue a stay, and its review would be limited only to constitutional issues. Throughout even the limited review provided, both the Court of Appeals and the US Supreme Court would be required to clear their dockets to deal with this case above all others, and do so on an expedited basis. Anyone who would even dare to seek court review without ''substantial justification'' is threatened with sanctions.
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 NextWave's and the carriers' approach to Congress stresses the need for speed and the desire to avoid review. The proposed legislation is presented to Congress on a take-it-or-leave-it basis and there would be no review by the telecommunications and judiciary committees of the House or Senate. NextWave's and the carriers want a fast-track appropriations process perhaps bringing their bill directly to the floor in the form of an appropriations ''rider.''

    The entire course of this ''settlement'' leaves a bitter taste in one's mouth—a taste of unfairness—an unfairness born of public business done in private; of denial of Congressional purpose, and denial of lawful and Constitutional process.

     

EXHIBIT B

BEFORE THE

FEDERAL COMMUNICATIONS COMMISSION

WASHINGTON, D.C. 20554

In the Matter of

Disposition Of Certain C Block Wireless
Communications Licenses Held By NextWave
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Personal Communications, Inc. Or Its Affiliates

PETITION FOR EMERGENCY RELIEF

    Eldorado Communications, LLC (''Eldorado''), by its attorneys, hereby files the following Petition for Emergency Relief (the ''Petition''). Eldorado participated in FCC Auction No. 5, where it secured certain C Block wireless communications licenses. Eldorado had to return those licenses to the Commission, at substantial cost, as the result of the disruptive bidding strategies and post-award defaults of Nextwave Personal Communications, Inc. and its affiliates (''Nextwave'').

    If, as reported in the press, the Commission continues to participate in the settlement of the on-going dispute with NextWave and the companies who were the high bidders for the recaptured NextWave licenses at Auction 35, the injury to Eldorado and others will be compounded. In order to avoid irreparable harm to Eldorado and similarly situated companies, the Commission must establish a fair and open public process for the disposition of the NextWave licenses and cease to foreclose access to and participation in that process by Eldorado and other interested parties.

SUMMARY

    As discussed more fully below, Eldorado petitions the Commission to:

(e)
    halt all private meetings and negotiations of the Commission and its staff with representatives of NextWave and others;
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(f)
    provide for immediate access of Eldorado, all persons similarly situated, and the public to complete information in the possession of the Commission regarding negotiations reportedly now in progress;

(g)
    provide public notice and initiate an open proceeding for the consideration of any disposition of the NextWave licenses and consideration of the circumstances surrounding the frustration of Congressional and Commission public policy objectives in reserving the C Block licenses for small business and other designated entities; and

(h)
    bring all Commission activities regarding the NextWave licenses into conformity with the requirements of the Administrative Procedures Act, the Commission's own rules and regulations, the U.S. Constitution, and other applicable law and regulations.

DISCUSSION

    Generally reliable trade press recently have reported that the Commission and its staff, representatives of NextWave, Verizon Communications, and others are presently engaged in private negotiations whose objectives appear to be the disposition of licenses to use certain C Block wireless communications frequencies originally and conditionally awarded to NextWave as the result of Auction No. 5. These licenses were reserved for Commission-defined entrepreneurs, small businesses, and other designated entities, in order to implement the Congressional policy to ''. . . [avoid] excessive concentration of licenses and [disseminate] licenses among a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by minorities and women. . . .'' 47 USC 309(j)(3)(B).
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    Petitioner, relying on the integrity of the Commission's auction process and the fair administration of the auction rules, won certain C Block licenses by participation in Auction No. 5 and paid the required deposits on them. When, in substantial part as the result of NextWave's high-bidding strategies and the consequent wave of investor reluctance to fund construction, the financial viability of licensed PCS operations was jeopardized, the Commission offered C Block licensees three options: return their licenses and avoid further obligations; pay half the successful bid for lesser capacity than auctioned; or pay in full. Petitioner was forced by market circumstances to return its licenses.

    NextWave won a large number of licenses by bidding what, in light of the then-prevailing market, were extraordinarily high sums. Later, NextWave said it was unable to meet its obligations timely to pay the fees for its licenses and sought relief from the Commission on the rescheduling of those fees. Thereafter, and notwithstanding such rescheduling NextWave failed to make timely payments and, pursuant to the terms of the auction and the conditional grant, the licenses were cancelled. The Commission placed the licenses on the auction block a second time and they were re-auctioned in Auction No. 35.

    Meanwhile, NextWave sought and achieved protection under Chapter 11 of the U.S. Bankruptcy Code, including protection of its claimed assets, the cancelled licenses. A bankruptcy judge ruled the NextWave licenses could not be cancelled because they were protected under Chapter 11. The United States Circuit Court of Appeals for the District of Columbia Circuit, acting on a NextWave appeal from the Commission's cancellation of the licenses, held the licenses protected by the bankruptcy laws and ordered the Commission to return the NextWave licenses to active status, even though NextWave still had not made the required payments. The Commission has petitioned the United States Supreme Court for a Writ of Certiorari, seeking the reversal of the DC Circuit's decision and order.
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    Now, according to press reports, the Commission is preparing to compound further the damage to Eldorado, others similarly situated, and the public by negotiating, behind closed doors, a ''settlement'' with a few ''affected parties'' and a chosen few prospective buyers, which would result in:

 An unfair gain of billions of dollars by NextWave, which subverted the auction process by running up the bidding without an ability to make good on its exaggerated winning bids.

 A loss of billions of dollars to the U.S. Treasury, owing to the difference in the present market value of the subject licenses and the sums actually to be paid to the government for them.

 A material loss of confidence in the fairness and integrity of the FCC's auction procedures and its administration of conditional license grants in the public interest.

 The loss to Eldorado and others of moneys already paid as deposits for C Block licenses, and the loss of future income opportunity, of companies such as Eldorado, who played by the rules and suffered severe financial loss as a result.

    Accordingly, due process requires that the Commission call an immediate halt to its participation in the so-called settlement being pursued by NextWave and the large carriers that were high bidders for the recaptured NextWave licenses and open a public notice and comment or comparable proceeding regarding this matter.

EMERGENCY RELIEF REQUESTED
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    Petitioner urgently requests that the Commission:

1. halt all private meetings and negotiations of the Commission and its staff with representatives of NextWave and others interested in the disposition of the NextWave licenses (including without limitation, entities commonly referred to as Verizon Wireless, VoiceStream Wireless, and Alaska Native Wireless);

2. provide for immediate access of Eldorado, all persons similarly situated, and the public to complete information in the possession of the Commission regarding negotiations reportedly now in progress between and among Commission personnel, NextWave, Verizon Communications and its affiliates, and any other persons with whom any of them have met to discuss the disposition of the NextWave licenses;

3. open a public proceeding for the consideration and public comment upon any disposition of the NextWave licenses; and the terms and conditions under which such disposition may be made, to include consideration of the circumstances surrounding the frustration of Congressional and Commission public policy objectives in reserving the C Block licenses for small business and other designated entities; and

4. otherwise, to bring all Commission activities regarding the NextWave licenses into conformity with requirements of the Administrative Procedures Act, the Commission's own rules and regulations, the U.S. Constitution, and other applicable law and regulations.

CONCLUSION
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    Eldorado urges the Commission to grant the emergency relief requested above and thereafter act upon a schedule that permits full public comment and careful deliberation of all issues related to the NextWave licenses.

    Mr. BARR. Now, I turn to questioning of the witnesses. And we will also adhere to the 5-minute rule.

    The Chair recognizes itself for 5 minutes. Both under the terms of the statements today by some Members of the Subcommittees, as well as some of the witnesses, and certainly much of what has been written about this proposal, there are some very serious charges that are flying around; use of words such as ''gaming the system,'' ''unconstitutional.'' Certainly, the implication underlying some of the charges is that there is something very improper that has gone on.

    We certainly want to explore that and make sure that that is not the case; or, if it is, to be aware of it and take steps to prevent any unjust enrichment.

    I would like to address the following questions to Mr. Rogovin and Mr. Bybee as the gentlemen whose aid to the Federal Government agencies are primarily responsible for this.

    Has there been, is there any evidence, that any parties, including the Government, through the FCC—as testimony has indicated, there are allegations that the FCC action previously might have caused a decrease in the spectrum value.
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    Is there any evidence at all that any party, either on the Government's side or in private industry, gamed the system knowing—in other words, took action knowing that they were going to—or not going to take further action, and thereby become unjustly enriched? Or, is the scenario as it has played itself out here the result of forces beyond the control of those parties that gave rise to the situation?

    Mr. Rogovin and then Mr. Bybee.

    Mr. ROGOVIN. Mr. Chairman, I have no evidence of gaming of the system. I have no evidence of any party to the negotiation gaming the system in any way. The decision of the D.C. Circuit in June of 2001 was certainly a definitive statement on section 525 and prepared unlawfully in the Commission's automatic cancellation of the licenses, which put the licenses back in the hands of NextWave.

    Mr. BARR. Mr. Bybee.

    Mr. BYBEE. Mr. Chairman, I am going to defer to Mr. Hunt on that question.

    Mr. HUNT. Mr. Chairman, thank you for having me here as well. I—the Department of Justice has no information or evidence at all that anybody was gaming the system with respect to this agreement and this transaction. I think it is fair to say that the Department of Justice would not be here, the Attorney General would not have submitted the legislation to the leadership and asked that the Congress enact this legislation, if there was any evidence whatsoever that there had been any gaming of the system.
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    Mr. BARR. Mr. Bybee, I would like to address a couple of questions to you in terms of the constitutionality side that you said you would be available for. The legislation, which codifies this settlement, permits parties to withdraw if Congress decides to exercise its legislative authority to amend the legislation.

    As you know, in extraordinary circumstances, Congress waives its right to amend legislation that comes before it. Are the circumstances in this case so extraordinary as to justify congressional abdication of that legislative authority? And, secondly, can you provide to the Subcommittee other examples in which Congress has been asked to ratify, without amendment, a settlement agreement with a private company?

    Mr. BYBEE. Let me take the second question first, Mr. Chairman. I don't have any examples at hand. But we would be happy to look in our records and find out whether we can get back to you on that one.

    Mr. BARR. If you can do that with some expedition, I would appreciate it.

    Mr. BYBEE. Yes, I could do that.

    Mr. Chairman, could you offer that first question again?

    Mr. BARR. The legislation which codifies this settlement permits parties to withdraw if Congress decides to exercise its legislative authority to amend the legislation.
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    As you know, in extraordinary circumstances, Congress waives its right to amend legislation that comes before it. Are the circumstances in this case so extraordinary as to justify congressional abdication of its legislative authority?

    Mr. BYBEE. My understanding, Mr. Chairman, is that because of the timing of this, that the settlement expires at the end of this month, that if Congress doesn't act immediately, then on January 1st we are right back where we were.

    Mr. BARR. So the extraordinary circumstance here is the timing?

    Mr. BYBEE. Is the timing. If there is no agreement on January 1st, we are right back where we were, with all of the litigation risks that we presently have.

    Mr. ROGOVIN. Mr. Chairman, may I briefly address that question, because we feel strongly that—the Commission—that no circumstance justifies Congress abdicating its authority and its role, and we are not asking the Congress to do that. We are merely, I think, advising the Congress that because of the fragility of the coalition that was at the settlement table, there is no guarantee that after December 31st there will continue to be a settlement agreement. I thank you.

    Mr. BARR. Okay, thank you. The Chair is pleased to recognize the Ranking Member of the Subcommittee on Commercial and Administrative Law, Mr. Watt, for 5 minutes.

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    Mr. WATT. Thank you, Mr. Chairman. Mr. Verrilli, you mentioned in your testimony that several Members of Congress had filed an amicus brief on behalf of NextWave. Would you tell us who they are and what were the circumstances that led to that?

    Mr. VERRILLI. I will do my best to recall.

    Mr. WATT. Tell me who they are first.

    Mr. VERRILLI. Representative Conyers, I believe, was one. Giving me a little assistance, if you would just give me 1 minute.

    Mr. WATT. Why don't you submit that to us for the record?

    Mr. VERRILLI. I will be happy to do that, but we do have it now. It was Representative Conyers, Representative Nadler, Representative Lindsey Graham, and then——

    Mr. WATT. So this was on the constitutional issue, the issue of who owned the—the—can you just provide us a copy of what was submitted?

    Mr. VERRILLI. I would be delighted to do that.

    Mr. WATT. All right. Because, that is not substantive. I just—that just raised my eyebrows a little bit.

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    Mr. Bybee and Mr. Rogovin, particularly Mr. Bybee; you mentioned the whole issue of—you said that you strongly believe that this is in the public interest. And I started kind of trying to figure out what the public interest is here.

    It seems to me that we started with a statute that—or authorizing statute that talked about trying to get a class of spectrum to small minority and women-owned businesses. Am I missing something?

    Mr. BYBEE. Mr. Watt, I am going to defer to Mr. Rogovin on the original intent of that.

    Mr. WATT. All right. Mr. Rogovin, maybe you can tell me, is that where we started?

    Mr. ROGOVIN. Congressman Watt, I apologize. Could you re-ask the question?

    Mr. WATT. I am trying to figure out where we started in this process. And I thought where we started was that we were trying to get a—some small part of spectrum and involvement in the communications industry to small minority and womens' businesses. Isn't that where we started?

    Mr. ROGOVIN. Yes, Congressman Watt.

    Mr. WATT. Well, shouldn't that also be where we end in evaluating what is in the public interest? I guess that is the question that I am most troubled by. It seems to me—I started out thinking that maybe the Government and NextWave were being unjustly enriched.
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    I think Mr. Verrilli in his testimony at least got me back to neutral on whether NextWave has been unjustly enriched. But I don't know how we can get the Federal Government to where they started out with $4.9 billion coming to the Federal Government for spectrum, the Federal Government screws up by taking back auctions which a court—spectrum which a court now has said that you shouldn't have taken back, and then the Federal Government ends up getting $10.031 billion instead of $4.9 billion, and then you come and tell me that you have done what is in the public interest because you got more money for the Federal Government.

    The public interest, it seems to me, was defined by what our original objective was, which was to get these spectrums to somebody other than large carriers, Cingular, all of the big guys.

    Mr. ROGOVIN. Congressman Watt, from the perspective of the Commission, the most important feature of this settlement is getting the spectrum out for use. The——

    Mr. WATT. By whoever? In absolute disregard of what the Congress has said it wanted to do. So, have you redefined what the public interest is?

    Mr. ROGOVIN. No, Congressman. When the program initially started, it was to promote minority and women-owned businesses. And then in the wake of the Adoran decision by the Supreme Court, the Commission's policies were pared back to just small businesses. And as you may know, Auction 35——

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    Mr. WATT. Cingular is small?

    Mr. ROGOVIN. As you may know——

    Mr. WATT. Even on that criteria?

    Mr. ROGOVIN. Cingular is big.

    Mr. WATT. Any of these people who bought the spectrum small?

    Mr. ROGOVIN. A number of them have qualified as designated entities by the Commission. And those are the small businesses that are now the feature of the designated entity program.

    Mr. WATT. I yield back. My time is over, but I——

    Mr. BARR. The Chair announces that we are going to be having a couple of votes on the floor in just a few minutes. But I think if we move forward quickly, we will be able to get one more Member's questions posed and answered. And the Chair recognizes the distinguished Chairman of the other Subcommittee, the gentleman from North Carolina, Mr. Coble, for 5 minutes.

    Mr. COBLE. Thank you, Mr. Chairman. Good to have you gentlemen with us. Mr. Bybee, 8 days ago I asked the Department of Justice a question. I asked a subsequent question to DOJ, and then a question to FCC.
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    At 6:07 last night I received the answer. And I have not been able to thoroughly examine it. I realize you all are busy as we are. The question I wanted, if you can briefly answer this, Mr. Bybee, can you give us the cases where these expedited judicial review procedures have been used in settlements? If you can't do it now, do it at a subsequent date.

    Mr. BYBEE. We will be happy to get that to you promptly.

    Mr. COBLE. Do you know how many times that has been done, Mr. Bybee?

    Mr. BYBEE. I don't know offhand, but we will get a response to you quickly.

    Mr. COBLE. Second question, Mr. Bybee. Subparagraph c(4) prohibits a court from granting interlocutory relief effecting the licenses at any time before there is a final judgment on petitions or challenges to the FCC order or this statute, if enacted.

    Does this unduly or unconstitutionally restrict a court's jurisdiction, A? And, B, how does this affect the rights of potential challengers?

    Mr. BYBEE. Thank you, Mr. Chairman. As I understand it, this provision simply reduces the risk that an adverse decision in the D.C. Circuit would interfere with a settlement. There is precedent in other statutes for such provision. In the North LaGuardia Act, for example, that prohibits courts from enjoining a variety of labor-related activities. The Tax Injunction Act prohibits district courts from enjoining certain State tax collections efforts.
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    This deprives the court in this case only of a temporary remedy. It does not deprive the court of the ability to issue, for example, a permanent injunction, only an interlocutory injunction. There is other relief available here, Mr. Chairman.

    Mr. COBLE. Does the venue selection and expedited review procedures effect a complainant's ability to challenge the settlement?

    Mr. BYBEE. I don't believe so, Your Honor; that is, Mr. Chairman. That is—the venue provisions here merely send this to the District of Columbia Circuit which helps us expedite it. It also helps us avoid the possibility of conflicting decisions.

    Mr. COBLE. I thank you. Mr. Chairman, not unlike Mr. Watt, I am troubled by the mathematics here. And I am going to have to go to another transportation hearing, but my staff will be here to assure you that we are interested in this subject. I thank you again for having convened this hearing.

    Mr. BARR. We thank the gentleman from North Carolina. Let's again, keeping in mind that we do—we are going to have votes on the floor very shortly, the Chair is pleased to recognize the gentleman from New York, Mr. Nadler, for 5 minutes for questions.

    Mr. NADLER. Thank you. My first question, I stated in my opening statement. Mr. Rogovin did not address it in his statement. Given the fact that the FCC was taking a rather speculative, to put it mildly, view of its exemption from the automatic stay provisions of the Bankruptcy Code, and given the fact that Members of this Committee urged it to, at least until the Court of Appeals ruled, to not reauction the licenses so as not to put the Federal Government on the hook potentially for billions of dollars, why did the FCC go ahead in and recklessly do that, now putting the Federal Government on the hook for billions of dollars?
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    Mr. ROGOVIN. Congressman Nadler, your question is why did we reauction the licenses?

    Mr. NADLER. Why, given the possibility—in my opinion the likelihood—we now know the reality—that you were going to lose at the Court of Appeals, and should you lose, you were going to put the Federal Government on the hook for billions of dollars, why did you insist on doing that without—and having been warned about that, why did the FCC insist on doing that, putting the Government on the hook for billions of dollars and creating the mess that we have now that we are trying to get out with this settlement and legislation?

    Mr. ROGOVIN. Congressman Nadler, I was not at the FCC at the time. But my understanding is that the decision was made in the wake of two rather strong opinions by the Second Circuit affirming what the FCC had done. And, further, there were attempts to stay the auction by the—in front of the D.C. Circuit, which several times denied those stays.

    And——

    Mr. NADLER. In other words—reclaiming my time. In other words, you thought because of some rulings by the Second Circuit that you had good odds in the D.C. Circuit?

    Mr. ROGOVIN. I think the thinking at the time was that since every auction is challenged, the default choice of the Commission is to go forward with the auctions rather than hold up——
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    Mr. NADLER. But here there was a rather strong argument, in fact a novel claim by the FCC, that it was exempt from what everybody always thought was the application of the automatic stay. And you are saying that you thought that that argument was supported by some Second Circuit rulings, so you thought you had good odds of winning in the D.C. Circuit and it was worth going ahead with the auctions. Is that correct?

    Mr. ROGOVIN. Congressman Nadler, there are extremely strong decisions of the Second Circuit——

    Mr. NADLER. I just said that. So, fine. Thank you.

    Mr. Verrilli, did the Second Circuit give good grounds to think that the D.C. Circuit would cut the automatic stay provision the way that the FCC wanted it to? In your opinion.

    Mr. VERRILLI. Well, Congressman Nadler, as we read the Second Circuit decision, and as it turns out the D.C. Circuit read the Second Circuit decision, what they said really wasn't about the substance of bankruptcy law and whether it applied or not; what they said is that in their view, the proper place for someone to go to challenge an FCC action is the D.C. Circuit; that only the D.C. Circuit could——

    Mr. NADLER. So, in other words, the Second Circuit ruled as a matter of venue or jurisdiction, not as a matter of substance, and the FCC was wrong to rely on those circuits for the substance?
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    Mr. VERRILLI. Yes. That says it perfectly correctly.

    Mr. NADLER. Thank you. Let me ask you this, Mr. Verrilli. The press has reported for a group of people who filed for bankruptcy, the NextWave investors stand to do very well in this settlement agreement.

    Let me ask you two questions. One, why should the taxpayers fund such enormous profits as part of this agreement for a company that defaulted—filed for bankruptcy and never came close to completing its buildout? And second, given the enormous opportunity lost that you outlined that NextWave is taking by going into this settlement, why in fact is it doing it? Why don't you just take the licenses and build out the system and make a mint?

    Mr. VERRILLI. If I can take the second question first. The answer to that question is because NextWave and its board of directors have multiple responsibilities. They have a responsibility to the creditors in bankruptcy, and they have a responsibility to their shareholders. It was the view of the company that all things considered, ensuring fairness for the creditors, and ensuring returns for the shareholders, that it was the right thing to do to take this settlement.

    And I would point out, if I could, that the company will still retain several licenses for spectrum for which it has paid for.

    Mr. NADLER. And the first question?

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    Mr. VERRILLI. I am sorry. If you could just remind me?

    Mr. NADLER. Essentially that the NextWave investors are getting a lot of money out of this for people who filed for bankruptcy, defaulted and didn't complete the buildout.

    Mr. VERRILLI. Well, the facts are, as I tried to set them forth in my statement, NextWave was ready in 1997 to build its network and tried to do so. It got caught in forces beyond its control. When the situation improved so that NextWave was in a position to raise financing again in January of 2000, it was ready, willing, and able to try again then. The FCC said no.

    We are ready, willing, and able to try now if we have to. But, on balance, the board made the decision that the right thing to do is to take this settlement and to move on.

    Mr. NADLER. Thank you, Mr. Chairman. Can I have unanimous consent for an additional minute, please?

    Mr. BARR. The gentleman from New York is recognized for 1 additional minute.

    Mr. NADLER. Thank you.

    Mr. Roberts, you stated that essentially this settlement doesn't treat other companies such as yours who play by the rules, as you say, fairly. Assuming for the sake of argument that this settlement is the best, most efficient, and cheapest way of getting the Government—is the cheapest way of getting the Government off the hook for what it is on the hook for, because of what happened, how if it all—what should this Committee do, in your opinion, to make things fair for other small companies, such as your own?
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    Mr. ROBERTS. Well, Congressman, if the Congress decides to pass any of these settlement proposals, I think what the Congress should do is try to put the 75 to 80 folks out of the 89 bidders, the 75 to 80 folks who played by the rules, as close to back in the original situation as possible.

    There are two things that can be done for that. First of all, rather than paying NextWave $9.55 billion, they can only pay NextWave $8.55 billion, which lowers them from 20 times to 18. They could simply take $1 billion out of the amount that they are going to pay NextWave and allocate it, pro rata, to the folks who played by the rules in recognition of the money they lost and the opportunity costs that, in fact, my colleague so eloquently talked about, opportunity costs.

    The second thing they can do is to allocate $3 billion dollars in bidding credits to these same folks.

    Mr. NADLER. Bidding credits? You mean for the next auction?

    Mr. ROBERTS. For auctions in the future. And if QUALCOMM, who is a big shareholder of NextWave, got about $120-some-odd million bidding credit back in Auction 5, that would, I think, put the folks who played by the rules back in the shape they could have been in had this auction not turned into a disaster based on the actions of NextWave.

    Mr. BARR. The time of the gentleman from New York has expired. Did you conclude your answer?
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    Mr. ROBERTS. Yes, sir.

    Mr. BARR. The Chair recognizes the distinguished former Chairman on the Subcommittee on Commercial and Administrative Law and the current Chairman of the Subcommittee on Immigration and Claims, Mr. Gekas, for 5 minutes.

    Mr. GEKAS. Yes, thank you. Mr. Roberts, in your statement you made reference to the fact that your company, among other companies, played by the rules when you chose to return the licenses; is that correct? Is that what you meant by that?

    Mr. ROBERTS. That is correct. The FCC had given three options.

    Mr. GEKAS. The indication in your statement and actually what you said overtly is that NextWave did not play by the rules, because they chose to go bankrupt?

    Mr. ROBERTS. The FCC——

    Mr. GEKAS. Isn't it possible that your company could have declared bankruptcy?

    Mr. ROBERTS. Not within the conditions that the FCC set out. The FCC said three things to us and all similarly situated folks. They said, turn in your licenses and lose your down payment; turn in half your license and lose half of your down payment; or pay up. And we took our regulator at their word.
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    Mr. GEKAS. Didn't they say the same thing to NextWave?

    Mr. ROBERTS. I suppose they did. But then NextWave simply decided that they weren't going to pay.

    Mr. GEKAS. So what I am saying to you is that NextWave, on the one hand, and the other companies that—of which you were one—all had these three options that you are talking about. So under your description of playing by the rules was to succumb to the options given to you by FCC; is that correct?

    But you say it is not playing by the rules when NextWave, in looking at those options granted by the FCC, chose a legal option to declare bankruptcy. You say that that is not playing by the rules?

    Mr. ROBERTS. Congressman, I say that when a company says—essentially thumbs its nose at its regulator and turns around and gets paid off $9.55 by the regulator, that seems to me that it is not playing by the rules.

    Mr. GEKAS. At the time that the election was made by your company to opt for number 3, to return the license, that was done outside of court; is that correct? I mean, that was done by whim—not whim, by decision of your board; is that correct?

    Mr. ROBERTS. We looked at the financial arena out there. And because NextWave, of course, is—as they say, NextWave had bid huge amounts for these licenses. That had essentially sucked all of the financing out of the system to build cellular phone companies at that time. So we looked at that and we said, these are the three options that our regulator has given us. We will take turning them in.
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    Mr. GEKAS. Were you ever advised by your counsel or by external entities that another option you had was to declare bankruptcy?

    Mr. ROBERTS. We simply read the FCC rules, sir. We are small businesses and we were not—no. I mean, it didn't occur to us to take some other option other than that which the regulator had outlined.

    Mr. GEKAS. Well, do you believe that your counsel would have declared to you that going bankrupt was not playing by the rules?

    Mr. ROBERTS. I don't know what our counsel, sir, would have declared to us, because we didn't do that. We adhered to the conditions.

    Mr. GEKAS. I have no further questions.

    Mr. BARR. The Chair will declare a recess until 10 minutes to noon. We have—I would advise Members that I have been informed that we have a 15-minute followed by a 5-minute vote. This will give the witnesses a chance to relax for a few minutes also. So we will recess and reconvene at 11:50.

    [Recess.]

    Mr. BARR. The hearing will reconvene.

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    The Chair is pleased to recognize the gentleman from Virginia, Mr. Boucher, for 5 minutes.

    Mr. BOUCHER. Thank you very much, Mr. Chairman. Let me say at the outset that I believe this settlement to be broadly in the public interest, and I want to compliment the various parties that have participated in the negotiation of the settlement.

    From the standpoint of the Government, it is clear that the public Treasury will be advanced, the Government will receive more than $5 billion more than it would have gotten from the original auction. In addition to that, the public interest is served by virtue of the fact that this spectrum will immediately be put to use and will be available for wireless, voice, and data traffic.

    So it appears to me to be a very good resolution to a legal quagmire, and I again want to compliment the parties who negotiated it.

    You all heard the statements of Mr. Conyers earlier today. That presented what I think is a real problem. And I agree with his analysis; that is, that in the 10 days or 2 weeks that we have remaining in this session of Congress, it is going to be difficult at best, in order to have legislation originate and pass both houses that would ratify this settlement. And I think we confront the very real prospect that that may not happen.

    And so the question that I have to this panel is: First of all, why does Congress have to be involved at all? You basically had the parties around the table. Why isn't a settlement that is signed onto by these parties sufficient in and of itself? Why does Congress have to be involved?
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    And the corollary to that question, which I will also pose and simply ask this panel to respond to is: What is going to happen if Congress, as is possibly the case, does not act, does not pass the legislation that you are seeking? What then happens? What are the events from that time forward?

    Mr. Bybee, Mr. Rogovin, whoever would like to respond, I would be glad to recognize you. Mr. Bybee.

    Mr. BYBEE. Thank you, Mr. Boucher. Let me take your first question as to why Congress is being asked to act, and let me defer first to Mr. Hunt on what happens in the event that Congress does not act.

    On the first question, let me be very brief. We are asking Congress to act here for basically three reasons:

    First of all, we need an appropriation. Ordinarily the Department of Justice can settle litigation under the judgment fund when there is a monetary claim against the United States. Ordinarily the United States can—the Department of Justice can—has authorization to settle matters under the judgment fund if there is a monetary claim against the United States.There is no claim against the United States that would permit us or the FCC to settle this case without a congressional appropriation. A Congressional appropriation first—an easy one—we have to have that from Congress.

    Secondly, we really need Congress to provide for expedited review. That will make these licenses available more quickly and gets us into the system, makes the settlement work.
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    Mr. BOUCHER. Well, on that point, Mr. Bybee, let me ask you this. A lot of parties participated in drafting this settlement. They have signed off on it. Presumably those parties are not going to contest the settlement in court. And so who is the party that you think is likely to go to court and challenge this settlement, and what party would have standing to do that?

    Mr. BYBEE. Let me defer both that question to Mr. Hunt and the question of what happens in the event that Congress does not approve the settlement.

    Mr. HUNT. Congressman Boucher, I think the answer to the question of what happens if Congress does not enact this, I want to make clear that we have not presented this to Congress in an effort to have Congress abrogate its responsibility here to look at this. There has been some tenor here——

    Mr. BOUCHER. Well, let me say that I am not suggesting that in Congress, acting on this quickly, we would abrogate anything. That is not my position. I am just asking a basic question. That is, why do we have to act at all, and what happens if we don't?

    Mr. HUNT. There are several reasons why we think it is important for Congress and necessary for Congress to act at all. One is the appropriation. There is no way for the FCC to get the licenses back from NextWave if there is not a guarantee that NextWave will receive payment. NextWave will not relinquish its claims to those licenses. And if the FCC does not have clean licenses, they are not able to put those licenses or grant them to the Auction 35 participants.
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    So that is why the appropriation is needed. There is no other fund, as Mr. Bybee indicated. The judgment fund would not be available as a source here.

    The other is because—and ties into the question of why we need it—would need to do this by December 31 of this year.

    Mr. BOUCHER. Well, let's get to the question of expedited review first, and answer my question, if you would. With all of those various parties having signed the settlement, we can presume they are not going to challenge it, and so who would have standing to challenge this in court? Why do we have to provide expedited review?

    Mr. HUNT. We are not aware, Congressman, of any party that has a meritorious claim. We cannot think of a party that has a valid claim. It doesn't mean that perhaps El Dorado, who you have heard from today, would not seek to present a claim and perhaps have standing to do so. But we don't think the claim would be meritorious, and we don't think it would succeed. But, in order to resolve this expeditiously and enable the FCC to get the spectrum into public use, all of the parties felt it was necessary to have the expedited judicial review provisions in order to end this litigation and get the spectrum into use in 2002. So those were the reasons for—those are the principal reasons.

    There is one other reason why the legislation is necessary, and that would be to close any question about the FCC's authority to deploy the spectrum in the manner contemplated by this agreement. Congress, of course, has the authority to deploy the spectrum and, by authorizing and approving this settlement, would be eliminating any statutory challenge.
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    Mr. BOUCHER. Now, what about the December 31——

    Mr. BARR. Does the gentleman request an additional minute?

    Mr. BOUCHER. Mr. Chairman, may I have 1 additional minute, please?

    Mr. BARR. The gentleman is recognized for 1 additional mind.

    Mr. BOUCHER. What about the December 31 deadline that you have suggested? Why is that a real deadline? What happens if this goes beyond December 31?

    Mr. HUNT. The reason for the December 31 deadline is in order for the clock to start ticking on all of the judicial review that must happen in order for the spectrum to be put into use in the year 2002. If this legislation is not enacted by December 31, 2002, there is no agreement—sorry, 2001.

    If this agreement is not enacted by December 31, 2001, there is no agreement. So what would happen at that point would be the parties would be forced back to the table to see if they could get a resolution. It may be that the parties are unwilling again to try to do that because it is unclear and doubtful that we would be able to end the litigation and put the spectrum into public use in the year 2002.

    Mr. BOUCHER. Well, thank you very much for your answers. I appreciate that. Thank you for your indulgence, Mr. Chairman.
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    Mr. BARR. Thank you. The Chair recognizes the gentleman from Utah, Mr. Cannon, for 5 minutes.

    Mr. CANNON. Thank you, Mr. Chairman.

    Mr. Roberts, just a follow-up on what I think Chairman Gekas was getting at earlier. Are you planning to sue your lawyers for malpractice here?

    Mr. ROBERTS. Sir——

    Mr. CANNON. I am glad that you laughed at that because it is funny; but it is dang serious when you get down to what is the core issue.

    Mr. ROBERTS. Sir, our issue is with the Auction 5 participants like us who played by—who accorded themselves and played with the FCC's conditions. That is—it seems to us to be manifestly unfair to have——

    Mr. CANNON. It seems to me that you guys are missing out on—considering the money that actually was at risk here, you are missing out on like a 200-to-1 return.

    I mean, it seems to me that someone has got a problem. It is either your lawyers who you are going to sue for malpractice, or somehow—Mr. Rogovin, you may want to address this—we have a system that is now going to be held up by lawyers who believe that they have to advise their clients to jerk you guys around pretty badly to beat you up with the bankruptcy courts.
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    Mr. ROGOVIN. Congressman Cannon, the El Dorado firm made a decision under the restructuring order, and it was a business choice that they made. And they made that choice under a restructuring order that was affirmed by the D.C. Circuit. With due respect to El Dorado, I think they should rest on the business choice that they made. They were not a party to any of the proceedings.

    Mr. CANNON. But my point is a little different. My concern about this thing, I think you will concur that other people have been expressing is, what happens to the system if we let a grotesque profit—these are profits that make the dot-com boom look silly, you know, but we don't have anything to deflate them here, because we are holding up spectrum as the Justice Department is suggesting here.

    In other words, we don't get this in the system unless we pay this exorbitant fee to these guys. Isn't this a problem for how we operate in future auctions?

    Mr. ROGOVIN. Congressman, I think a central part of the reason why the numbers got so big is that the price of spectrum goes up and down. And that is what we have seen throughout the NextWave litigation.

    Mr. CANNON. And right now you have the price of spectrum way up because Verizon needs spectrum, and if we don't get spectrum out there to Verizon soon, they are going to have a serious problem in meeting their business potential, and frankly a whole lot of people who want to use telephones, wireless phones, are not going to be able to use them.

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    Mr. ROGOVIN. That is very much a goal of this, the Chairman and the Commission, to get these licenses out as quickly as possible so that the real winner here is the American consumer.

    Mr. CANNON. Someone is paying a ton of money and a ton of money is going to the NextWave investors, a big chunk of money. What is wrong with doing what—in fact, let me just address this, Mr. Verrilli, to you.

    What is wrong with doing what Mr. Roberts suggested? Why not make a deal with him? We have got billions here to play with. Why not put a billion aside for these guys who played by the rules?

    Mr. VERRILLI. Well, with all due respect, Congressman Cannon——

    Mr. CANNON. You guys have the lock on this thing.

    Mr. VERRILLI. NextWave played by the rules, and has always played by the rules.

    Mr. CANNON. Let's don't get in an argument about the rules here. The question is, you got such a large amount of money; why shouldn't you split it up?

    Mr. VERRILLI. This was a settlement entered into to resolve litigation.
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    Mr. CANNON. Right. You guys are in a great position because we are not going to—the Chairman's goal of the FCC is to get this spectrum out in the public, and we are paying, what, $5 or $9 billion extra for that. That is either going to be taxpayers or it is going to be rate users who are going to be paying that. Why not split up the largesse?

    Mr. VERRILLI. Congressman Cannon, the way this settlement will work as a result of the settlement, the United States Government will end up with much, much more in the way of revenue than if NextWave retained their licenses.

    Mr. CANNON. I think we all understand the numbers. The United States will not end up with nearly as much revenue as if they reauctioned these and get the revenue for the taxpayer of America.

    So let me just shift gears. With all of this money on the table, I understand that you may not be able to get this spectrum out by the end of 2002 unless we do this extortionist deal. I mean, I understand that. But why do we have to do it by December 31? If this deal is so good for everybody, why can't we look at it for a little while? We are talking about a ton of money. We are talking huge policy. We are talking about the stability of, I think, not just our FCC auctions, but auctions all over the country.

    And let me start—Jay, it is really nice to have you here; my classmate, does my law school proud, I might point out.

    Why don't we start as a matter of policy, Jay, and talk about what this does policywise; and then, Mr. Rogovin, if you want to address that, I would like to hear that.
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    Mr. BYBEE. I want to give Mr. Hunt a chance to address this as well. But let me just answer quickly that there are always litigation risks. And all of the parties have to compromise somewhat if we want to have a settlement. It will expedite the resolution of this. It gets the spectrum into the market, and everybody is going to have to give.

    It is always a cost of settling litigation. Let me ask—let Jody address that.

    Mr. HUNT. If I might just add to that, Congressman. There has been some suggestion here that the taxpayer is being put out because we are going to have to pay money to NextWave.

    I want to make clear that it is our view, having lived with this and litigated it, and being aware of all of the factors and circumstances, that we think we are here not to present a problem to Congress, but to present something that is good, and good for the American public, because not only will we be making that payment but we will be, after making that payment, receiving billions of dollars into the Treasury that we otherwise wouldn't see.

    If we don't succeed——

    Mr. CANNON. Reclaiming my time. Those are really not the questions. You are not here to convince us—we have looked at the documents. You don't have to convince me of what is good or bad. Personally I think it is very important that we get that spectrum out there. I am concerned about the more fundamental issues of what we are doing to our structure and our system by caving into extortion when the market shifts against us as the price of bandwidth goes up or down or the spectrum goes up and down.
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    When it goes up, we are subject to extortion. That is what we are talking about doing here, it seems to me. So pardon me, Mr. Rogovin, if you want to just address that, I would appreciate it.

    Mr. BARR. The witness will certainly have time to answer the question. And then the gentleman's time has expired.

    Mr. ROGOVIN. The decision, as in many litigations when there is an adverse decision, is to decide whether to pursue litigation or to pursue settlement. And we have chosen not only to file a cert petition if case settlement doesn't work, but to explore settlement.

    And from the Chairman's perspective, from the Justice Department's perspective, the settlement agreement that we did reach, to our mind, was preferable; and it is now for Congress to decide. And we defer to you and understand the decision that you need to make. And we hope that you will agree with us, and we will be disappointed if you don't.

    But I think it is only fair and only makes sense, given the nature of this issue, for Congress to be doing exactly what it is doing, which is to be holding this hearing that Chairman Barr has convened and for you all to exercise your judgment.

    Mr. BARR. Thank you. The Chair is pleased to recognize the gentlelady from California, Ms. Waters, for 5 minutes.

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    Ms. WATERS. Thank you very much, Mr. Chairman. I am very appreciative for this hearing. Let me just say that I never like to be put into a position to have to make a decision at the last minute without the benefit of having been involved earlier, or even asked to participate in some form.

    Did anybody participate with the Members of Congress at the point that you turned down the offer for settlement from this company? And why did you turn down NextWave's offer for $4.2 billion when they offered to settle?

    Mr. ROGOVIN. Congresswoman Waters, I believe that decision was made at the time—and I might add, at a time when I was not at the Commission. But my understanding is that the decision was made on the strength of the Second Circuit's rulings, and the theory was that licenses had automatically canceled.

    Ms. WATERS. So you weren't there. But it seems to me that when a decision like that is made, and Congress may have to do the appropriation later on if you aren't successful, then someone ought to contact someone and start to talk about this early on. And I guess we will never get the benefit of all of the things that went into that.

    Secondly, let me ask you about Urban Communications. Are you familiar with Urban Communications and the situation that they have that is so similar to NextWave?

    Mr. ROGOVIN. Yes, I am.

    Ms. WATERS. What are you doing about that?
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    Mr. ROGOVIN. I have met with them on several occasions, and met most recently with both UrbanCom officials as well as their outside counsel. I believe it was 2 days ago.

    Ms. WATERS. What are you going to do?

    Mr. ROGOVIN. What we have told UrbanCom is that we need to address the NextWave case first, because that is on the track in the litigation, where we need to make sure that we have settled that case before we can look at other cases and settle those cases.

    Ms. WATERS. This seems to be exactly the same thing where Urban Communications also had filed for bankruptcy. This seems absolutely the same case. And it seems to me that the court is saying to them that this is the same case, and giving you an opportunity to settle it while you are taking care of this. Why aren't you doing that?

    Mr. ROBERTS. We recognize that Urban Comm is similar to the NextWave case, and we recognize that it may well be a prime candidate for settlement. The case is being handled by the Justice Department by the southern district litigators in New York, and before we could take the step to settle the case, we would certainly need the approval of the Justice Department. But I recognize that, Congressman Waters——

    Ms. WATERS. Justice Department, you know about this case?

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    Mr. HUNT. Yes, Congresswoman.

    Ms. WATERS. What are you doing about it?

    Mr. HUNT. Well, I understand that we are in discussions. I have not personally been involved in those discussions.

    Ms. WATERS. Where is the person who is involved?

    Mr. HUNT. Actually one of them is seated behind me.

    Ms. WATERS. Get him up here. It doesn't make good sense for you to be here with the exact same case.

    Mr. BARR. We do have regular order here. Is the gentlelady making a request that an additional person——

    Ms. WATERS. Yes, in a very abbreviated way. You are right. The gentleman is correct, we should respectfully request that the person who knows something about this join us to help us shed some light on it.

    Mr. HUNT. If I might just add before we do that——

    Mr. BARR. The Chair will decide if we will do that, but you may proceed.
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    Mr. HUNT. Thank you. Sorry if I misspoke.

    I understand that there is a difference that while they are in bankruptcy in the southern district of New York, Urban Com, that there is no pending regulatory action as NextWave had in the D.C. Circuit. That puts them in a little bit of a different posture. But there is nothing about this agreement that—or the proposed legislation that precludes us from entering into a settlement with Urban Com.

    Ms. WATERS. Let me just say this. Since the case is exactly the same, it seems to me that instead of making the same mistake that has been made before and then coming back here after the fact asking us to appropriate money in order to settle, you ought to be trying to get rid of this at the same time. I am not so sure—and, Mr. Chairman, let me just say this, I don't know where we will enter this, and I certainly hope that we don't—this won't be resolved by the 31st, I don't think. But I would like to see Congress take ahold of this whole thing and do several things.

    One, Mr. Roberts, I think you are absolutely right. I think you did play by the rules, and I think that you have been screwed, I really do. I don't care what Mr. Verrilli says, that which is framed by the FCC about how this works. Nobody anticipated bankruptcy as a way by which someone would not have to honor the fact that they came in and bid this thing way up, maybe above and beyond their ability to pay. But that is not good intent when you do that. I have some questions about intent when you bid that high and you don't get anywhere near paying the amount of money that you bid.

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    Now, having said all of that, it is my greatest wish that Congress take ahold of this whole thing, and that we put Urban Communications in for settlement, and that we take care of those small businesses that were in auction block 5 and make them whole. That is my wish. I don't know if that is what is going to happen, but as I work with this, I am going to say to my colleagues here that I think that is the only fair thing to do. I am not against NewWave getting a settlement of some kind, but I am against the other entities that are involved in this being ignored in the way they appear to be being ignored. And I think while we are working on the whole thing, we may as well take care of everybody.

    Mr. ROBERTS. Congresswoman, may I add something?

    Ms. WATERS. I don't know. My time is up. You have to ask him.

    Mr. BARR. Mr. Roberts, you may conclude your thought.

    Mr. ROBERTS. In fact, the FCC itself has said, and I quote, ''it would be unfair to permit a licensee that could not satisfy its bid to file for bankruptcy, tying up the spectrum in the process, and then emerge from bankruptcy at some later time and retain the licenses while others that complied with our rules lost their licenses.'' This is what the FCC said.

    Ms. WATERS. I absolutely 100 percent agree.

    Mr. BARR. The time of the gentlelady has expired. Thank you, ma'am.
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    We appreciate very much the witnesses being here today. We appreciate the Members of both Subcommittees here today. We appreciate Mr. Bryant's time being with us today and his contribution.

    The record will remain open for 7 days for any additional materials that either Members or witnesses wish to present and make a part of the record.

    Mr. BARR. And with that, the——

    Ms. WATERS. Mr. Chairman.

    Mr. WATT. I ask unanimous consent to submit for the record a letter dated November 21 from the attorneys for Urban Communications—Communicators.

    Mr. BARR. Without objection.

    [The information referred to follows:]

    Mr. BARR. The gentlelady from California.

    Ms. WATERS. I was trying to get your attention for the same thing. The issue that I took up relative to Urban Communications, I want to submit for the record their letter that I think was just done by Mr. Watt. I want to make sure that is in the record.

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    Mr. BARR. That has been done without objection.

    Again, we appreciate the witnesses being here for their expertise and background. And this hearing is adjourned.

    [Whereupon, at 12:30 p.m., the Subcommittee was adjourned.]

A P P E N D I X

Material Submitted for the Hearing Record

Bryant1A.eps

Bryant1B.eps

Bryant1C.eps

Bryant1D.eps

Bryant1E.eps

Bryant1F.eps

     

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(Footnote 1 return)
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.


(Footnote 2 return)
Capitalized terms utilized herein without definition are intended to be defined as set forth in the Settlement Agreement.


(Footnote 3 return)
See NextWave Personal Comm. Inc. v. Federal Comm. Comm'n, 254 F.3d 130 (D.C. 2001).