******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 ) In re Applications of ) File Nos. 00341CWL96 et al. NextWave Personal Communications, Inc.) for various C-Block broadband PCS Licenses) ) MEMORANDUM OPINION AND ORDER Adopted: January 3, 1997 Released: February 14, 1997 By the Chief, Wireless Telecommunications Bureau TABLE OF CONTENTS Paragraph I. INTRODUCTION 1 II. BACKGROUND 2 III. DISCUSSION A. Standing 10 B. Attribution, Affiliation and Control 12 1. Analysis of Affiliation 13 2. Analysis of Attributable Interests and Control Group of NextWave 24 C. Foreign Ownership 33 1. Consideration of Stock Ownership and Capital Contributions Under Section 310(b)(4) of the Communications Act 34 2. Evaluation of NTI's Foreign Investment as Equity 43 a. Convertible Promissory Notes 48 b. Convertible Senior Subordinated Notes 64 D. Restructuring Plan 79 1. Analysis of Allowing NextWave An Opportunity to Restructure 79 2. Analysis of the Restructuring Plan 92 E. Remaining Procedural Issues 102 1. Request for an Oral Hearing 102 2. Ex Parte Issues 108 IV. CONCLUSION 110 V. ORDERING CLAUSES 111 APPENDIX A - Licenses Conditionally Granted to NextWave Personal Communications, Inc. I. INTRODUCTION AND EXECUTIVE SUMMARY 1. In this Memorandum Opinion and Order ("MO&O"), the Wireless Telecommunications Bureau ("Bureau") conditionally grants 63 C-block broadband PCS licenses to NextWave Personal Communications, Inc. ("NextWave"). The Bureau finds that NextWave exceeds the foreign ownership benchmark of Section 310(b)(4) of the Communications Act, as amended. The Bureau has determined, however, that it is in the public interest to grant NextWave the 63 licenses, conditioned on its restructuring to conform its foreign ownership to the statutory benchmark, within six months from the date of the January 3, 1997 Public Notice granting the licenses. II. BACKGROUND 2. NextWave is a wholly-owned subsidiary of NextWave Telecom Inc. ("NTI"). Both entities were formed to acquire PCS licenses and to operate PCS networks. As of December 3, 1996, the companies had raised approximately $500 million in private capital. The companies' "control group" management contributed approximately $14 million for NTI's Series A stock, and nonattributable outside investors, including certain foreign investors, contributed approximately $498 million, consisting of approximately $308 million for NTI's Series B stock and approximately $190 million in the form of debt convertible to NTI's Series B or Series C stock. 3. The Commission conducted its auction for C-block licenses from December 18, 1995, through May 6, 1996. At the conclusion of the auction, NextWave was the high bidder for 56 licenses. On May 22, 1996, NextWave filed its initial "long form" applications (Form 600) ("May 22 Form 600"), and on May 31, 1996, the Bureau issued a Public Notice accepting NextWave's applications for filing. 4. The Commission also conducted a reauction of 18 C-block licenses from July 3, 1996, to July 16, 1996. At the conclusion of the reauction, NextWave was the high bidder for 7 of these licenses. Thus, NextWave was the high bidder for a total of 63 C-block licenses. On July 31, 1996, NextWave filed its long form applications for the licenses it won at reauction, and on August 14, 1996, the Bureau issued a Public Notice accepting NextWave's applications for filing. 5. On July 1, 1996, Antigone Communications Limited Partnership and PCS Devco, Inc. (collectively, "Petitioners") filed a Petition to Dismiss or Deny, or Alternatively, To Designate for Oral Hearing ("Petition") NextWave's applications. Petitioners were participants in the C- block auction for some of the same markets as NextWave, but were not the high bidder for any licenses. They allege that NextWave was ineligible for C-block licenses because (1) certain of its investors had impermissible "attributable interests" in or control over NextWave, such that their assets and revenues were attributable to NextWave, with the result that it is not an entrepreneur or small business eligible for C-block licenses; and (2) NextWave exceeded the applicable foreign ownership benchmark of Section 310(b)(4) of the Communications Act, as amended. On July 16, 1996, NextWave filed its Opposition to the Petition, contesting the merits of Petitioners' claims, and arguing that Petitioners do not have standing, to which Petitioners filed a timely Reply. 6. In order to resolve Petitioners' allegations fully, and to determine NextWave's qualifications to be a broadband PCS licensee, on November 15, 1996, the Bureau, pursuant to Section 308(b) of the Communications Act, sent NextWave a letter of inquiry ("LOI"), which propounded a number of questions and requests for production of documents about NextWave's financing and organizational structure. NextWave filed written responses, and produced a substantial number of documents. 7. Following a review of the record, the Bureau determined that certain convertible debt instruments are actually equity instruments, such that NextWave's level of foreign ownership exceeds the 25 percent statutory benchmark. On December 27, 1996, the Bureau granted NextWave an opportunity to file a restructuring plan, or to make a showing of why the public interest would be served by granting the licenses notwithstanding its level of foreign ownership. The Bureau granted Petitioners an opportunity to respond to the plan. 8. On December 30, 1996, NextWave filed a restructuring plan ("Restructuring Plan" or "Plan"). NextWave proposed during a nine-month period to reduce its level of foreign ownership by: (1) offering additional stock to domestic entities through private placement or an initial public offering; (2) reforming certain convertible financing instruments; and (3) obtaining certain high-yield debt financing to repay some of the instruments in question. On December 31, 1996, Petitioners filed their opposition to the Restructuring Plan ("Petitioners' Opposition to Restructuring Plan"), arguing that NextWave's Plan does not bring its level of foreign ownership within the statutory benchmark, and that NextWave should not be allowed the opportunity to restructure at any time after the filing of its initial applications to bring itself within the statutory benchmark. 9. On January 3, 1997, the Bureau issued a Public Notice, granting NextWave the 63 C-block PCS licenses. NextWave's license grants were conditioned upon its restructuring within six months, in accordance with its Restructuring Plan. III. DISCUSSION A. Standing 10. We do not expressly decide whether Petitioners have standing, inasmuch as the Bureau has investigated and resolved Petitioners' substantive allegations as part of our own independent public interest analysis. Section 309(a) requires the Commission independently to "determine, in the case of each application filed with it . . ., whether the public interest, convenience, and necessity will be served by granting of such application . . . upon examination of such application and upon consideration of such other matters as the Commission may officially notice." In part for these reasons, the Bureau issued its LOI, and developed a complete factual record to resolve Petitioners' allegations and its own concerns. 11. Nonetheless, we take this opportunity to emphasize that the Bureau recently established that a petitioner has standing to challenge the licenses for markets another applicant won at auction only if the petitioner was qualified to bid in those markets. We therefore are disinclined to grant a petitioner standing in markets for which another applicant was the high bidder but for which the petitioner was not eligible and qualified to bid. The subjective value placed on a license or groups of licenses by an applicant, and the activities caused by that valuation, are not the basis upon which to build the causal link to prove injury for purposes of standing. B. Attribution, Affiliation, and Control 12. Petitioners argue that NextWave's applications should be denied because two of its investors, Pohang Steel of America Corporation ("POSAM") and Qualcomm, Inc. ("Qualcomm"), are affiliates or "attributable investors" of NextWave, such that their assets and revenues should be attributed to NextWave under the Commission's rules, rendering NextWave ineligible for C-block licenses. We conclude that the assets and revenues of these investors should not be attributed to NextWave. 1. Analysis of Affiliation 13. Pursuant to the Commission's rules, C-block licenses are available only to an applicant with total assets of less than $500 million and gross revenues for each of the past two years of less than $125 million, at the time it files its "short form" applications (Form 175). Bidding credits of 25 percent are available to "small businesses," defined as those with average annual gross revenues of no more than $40 million for the past three years. 14. To determine whether an applicant meets these standards, the Commission attributes to the applicant not only its own assets and revenues, but also those of its "affiliates," and the assets and revenues of entities that hold interests in the applicant and their affiliates. An "affiliate" of an applicant is one that controls the applicant, is controlled by the applicant or a third party that also controls the applicant, or has an "identity of interest" with the applicant. 15. According to NextWave's long form application, NextWave "and its affiliates, the members of the control group and their affiliates, and persons who hold attributable interests in [NextWave] had less than $40 million in average gross income in 1991, 1992, and 1993 and less than $500 million in total assets as of November 6, 1995." NextWave does not list POSAM or Qualcomm as an affiliate, and so does not include their total assets and gross revenues. 16. Petitioners contend that Qualcomm is an affiliate of or exerts control over NextWave, through various relationships between the two companies. Petitioners explain that some of NextWave's senior management were recently or still are associated with Qualcomm. For example, Petitioners explain that Allen Salmasi, who (with his family) owns a majority of NextWave's Series A stock and founded NextWave in July 1995, was immediately prior thereto the president of Qualcomm's wireless telecommunications division, its Chief Strategic Officer, and a member of Qualcomm's board of directors. Petitioners also state that NextWave's and Qualcomm's boards are currently interlocked through Janice Obuchowski. Petitioners also state that three other NextWave senior executives, Frank Cassou, James Madsen, and Nicole Salmasi, were also formerly associated with Qualcomm. Qualcomm also is entitled to a seat on NextWave's board. 17. Petitioners also question the investment and contractual relationships between NextWave and Qualcomm. Petitioners state that Qualcomm invested more than ten million dollars in NextWave, and speculate that it did so because NextWave, to deploy its PCS network, has committed to use the CDMA technology for which Qualcomm holds a patent. Petitioners assume that the former Qualcomm executives now at NextWave likely had employment contracts with non-compete clauses, such that unless NextWave adopted Qualcomm's technology, Qualcomm would enforce these clauses, with the result that these executives would not have been able to operate NextWave. Petitioners also reference other agreements between NextWave and Qualcomm, and state that Qualcomm loaned money to NextWave, obtained a first priority security interest, and purchased stock or warrants to purchase stock. Petitioners also allege that Qualcomm introduced NextWave to certain other investors. 18. In its responsive pleadings, NextWave provides the sworn declarations of the five senior executives whose relationships with Qualcomm Petitioners questioned. Janice Obuchowski's declaration state that, although serving on both NTI's and Qualcomm's boards, she is an outside director of Qualcomm with only a de minimis equity interest; that she has recused herself from all of NTI's decisions regarding Qualcomm and vice versa; and that she does not otherwise act on behalf of Qualcomm at NTI and vice versa. Each of the other declarations provide that, besides holding small (less than 2 percent) equity interests in Qualcomm, none of the declarants has any current interest in Qualcomm; that none consults Qualcomm before making any NTI business decision; and that Qualcomm does not otherwise influence or seek to influence his or her NTI business decisions. 19. The declarations otherwise show that none of the senior executives who had employment contracts with Qualcomm had contracts with non-compete clauses that survived their departure from Qualcomm. Moreover, NextWave explains, even if these senior executives did, it would be irrelevant, because NextWave, a wireless service provider, does not compete directly with Qualcomm, a wireless equipment manufacturer and vendor. NextWave also explains its decision to deploy CDMA technology was the independent and reasoned decision of its managers, and was not dictated by Qualcomm. NextWave further explains that Qualcomm's seat on the board does not give it control, because NextWave's control group, which does not include Qualcomm, elects a majority of the board of directors. 20. In its response to the LOI, NextWave states that Qualcomm and other major investors that the Bureau identified in the LOI have not had any role in formulating NextWave's financing policy, and that Qualcomm has not promoted NextWave to other investors. NextWave further states that Qualcomm and the other named investors do not have any role in recruiting or hiring NextWave's senior management, except that those investors that are Series B stockholders, including Qualcomm, elect a minority of the board of directors, and some of those, including Qualcomm are entitled to a seat on the board. NextWave explains that it has not delegated any authority or duties to Qualcomm or the other named investors. NextWave also states that Qualcomm and the other named investors did not have any role in choosing equipment vendors, except in approving certain extraordinary transactions as Series B stockholders. 21. Essentially, Petitioners' allegations are that the common personnel and contracts between NextWave and Qualcomm render them affiliates. We find that the fact that some of NextWave's management have been associated with Qualcomm does not support a finding of affiliation. The Commission's C-block rules indicate that common management amounts to affiliation where "officers, directors, or key employees serve as the majority or otherwise as the controlling element of the board of directors and/or the management of another entity." Except for Janice Obuchowski, there is no common management between NextWave and Qualcomm. Although the Commission, in adopting its C-block affiliation rules borrowed from those of the Small Business Administration ("SBA"), it did not adopt an SBA rule that presumes affiliation "where former officers, directors, principal stockholders, and/or key employees of one concern organize a new concern in the same or related industry or field or operation, and serve as its officers, directors, principal stockholders, and/or key employees, and the one concern is furnishing or will furnish the other concern with subcontracts, financial or technical assistance, bid or performance indemnification, and/or other facilities, whether for a fee or otherwise." Petitioners present no concrete evidence to support their allegations that the limited current and former common management between NextWave and Qualcomm amounts to control. NextWave refutes these assertions with sworn declarations. 22. Likewise, the contractual relationships between NextWave and Qualcomm do not amount to affiliation. The Commission's C-block rules indicate that "[a]ffiliation generally arises through contractual relationships [only] where one concern is dependent upon another concern for contracts and business to such a degree that one concern has control, or potential control, of the other concern." The fact that NextWave purchased Qualcomm's CDMA technology, and that NextWave capitalized itself and will finance some of its infrastructure in part with Qualcomm's assistance, does not show control, and does not support a finding of affiliation. Again, Petitioners only speculate to the contrary. In adopting its affiliation rules, the Commission stated: we emphasize that these rules will not be applied in a manner that defeats the objectives of our attribution rules. Our attribution rules expressly permit applicants to disregard the gross revenues, total assets and net worth of passive investors, provided that an eligible group has de facto and de jure control of the applicant. Our attribution rules are designed to preserve control of the applicant by eligible entities, yet allow investment in the applicant by entities that do not meet the size restrictions in our rules. Therefore, so long as the requirements of our attribution rules are met, the affiliation rules will not be used to defeat the underlying policy objectives of allowing such passive investors. More specifically, if a control group has de facto and de jure control of the applicant, we shall not construe the affiliation rules in a manner that causes the interests of passive investors to be attributed to the applicant. 23. In sum, we find that Qualcomm is not an affiliate of NextWave, and therefore that its assets and revenues are not attributable to NextWave on that basis, and that there are no substantial and material questions of fact in this regard. Our analysis of whether Qualcomm otherwise holds an attributable interest in NextWave, and NextWave's control group generally, follows. 2. Analysis of Attributable Interests and the Control Group of NextWave 24. While a C-block applicant generally must attribute the assets and revenues of all investors, the applicant need not attribute the assets and revenues of certain investors for eligibility purposes if the applicant is organized in accordance with one of several exceptions. One of these exceptions (hereinafter, the "25 Percent Equity Exception") pursuant to which NextWave is organized, provides that the assets and revenues of investors who hold less than 25 percent of a C-block applicant's total equity, on a fully diluted basis, are not attributed to the applicant, so long as the investor is not a member of the applicant's "control group," and the control group meets certain requirements. Specifically, the control group must have de facto and de jure control over the applicant, and it must own 25 percent of the applicant's total equity. 25. Petitioners allege that POSAM holds an "attributable interest" in NextWave because NextWave so stated in its long form application. NextWave states that POSAM was listed on the long form applications only because the Commission's rules require C-block applicants to disclose all investors that hold at least a 5 percent interest. Petitioners also suggest that Qualcomm holds an "attributable interest" in NextWave. 26. NextWave's filings in response to the LOI show that no single investor owns 25 percent or more of NTI on a fully diluted basis. According to NextWave's long form application, POSAM and Qualcomm hold approximately a 5 percent interest in NTI, on a fully diluted basis, as of December 3, 1996. NextWave does not list POSAM or Qualcomm as an affiliate, and NextWave does not list POSAM or Qualcomm as a member of its control group. Under the "25 Percent Equity Exception," the assets and revenues of neither POSAM nor Qualcomm are attributable to NextWave, so long as the control group has de facto and de jure control over NextWave, owns 25 percent of NTI's fully diluted equity, and otherwise meets the other necessary requirements to hold a C-block PCS license. 27. According to NextWave's December 9 Form 600, its control group as of that date owned approximately 30 percent of NTI's total equity, on a fully diluted basis. In addition, the control group has always owned 100 percent of NTI's Series A stock, which elects a majority of the board of directors, and votes for all matters that come before the stockholders. The control group also owns some of NTI's Series B stock, which elects a minority of the board, and otherwise votes only for certain "extraordinary" events. Thus, as required under the "25 Percent Equity Exception," NextWave's control group owns more than 25 percent of NTI's total equity, on a fully diluted basis, and owns 100 percent of the stock that elects a majority of the board of directors, and so has de jure control over NextWave. NextWave's control group otherwise satisfies other applicable requirements as well. 28. Based on the above analysis, unless one or more of its investors exercises de facto control over NextWave or otherwise divests NextWave's control group of de facto control, NextWave satisfies the Commission's C-block and "small business" eligibility requirements. The Commission has repeatedly stated that its analysis of de facto control is necessarily case-by- case, and governed by a totality of the circumstances. However, as a general matter, the Commission has stated that a C-block applicant's control group must, at a minimum: (1) appoint or constitute 50 percent of the board of directors; (2) appoint, promote, demote, and fire senior executives that control day-to-day activities; and (3) play an integral role in all major management decisions. 29. As explained above, NextWave's control group elects a majority of the board. Indeed, its current board is composed exclusively of control group members, or representatives of control group members. According to NextWave's long form application, "the control group has authority to appoint, promote, demote, and fire the senior executives that control the Applicant's day-to-day activities [and] plays a key role in all major management decisions." In its response to the LOI, NextWave states that the major investors about which the Bureau inquired do not have any role in recruiting or hiring NextWave's senior management, except that those investors that are Series B stockholders, elect a minority of the board of directors, and some are entitled to a seat on the board. 30. Series B shareholders have other rights besides that to vote for a minority of the board and certain board seats. However, these are of the kind the Commission has said generally do not amount to de facto control: "We . . . clarify that under our case law non- majority or non-voting shareholders may be given a decision-making role (through supermajority or similar mechanisms) in major corporate decisions that fundamentally affect their interests as shareholders without being deemed to be in de facto control. Such decisions generally include: (1) issuance or reclassification of stock; (2) setting compensation for senior management; (3) expenditures that significantly affect market capitalization; (4) incurring significant corporate debt or otherwise encumbering corporate assets; (5) sale of major corporate assets; and (6) fundamental changes in corporate structure, including merger or dissolution." In sum, the rights of Series B shareholders do not, standing alone, amount to control. 31. We note, however, that NTI and POSAM have entered into a letter agreement, whereby "[p]rior to any qualified public offering by NTI, NTI agreed to seek POSAM's approval with respect to any equity investment by any other Korean investor." While we will review any such agreement closely, we do not find that this particular agreement gives POSAM de facto control over NextWave. By its terms, POSAM has the right to approve only additional Korean, and therefore only a fraction of additional foreign, investment. Moreover, given our conclusion below that NextWave has exceeded the foreign ownership benchmark, and that it must restructure accordingly, NextWave is unlikely to be able to seek additional Korean, or indeed any other foreign investment for the foreseeable future. 32. In sum, based on the record before us, we find, under the "25 Percent Equity Exception," that neither POSAM nor Qualcomm has an attributable interest in NextWave, and that NextWave's control group owns 25 percent of NTI on a fully diluted basis, and has de facto and de jure control over NextWave. We also find that there are no substantial and material questions of fact that would require further inquiry into the ownership interests of POSAM and Qualcomm. C. Foreign Ownership 33. We now consider whether NextWave exceeds the 25 percent foreign ownership benchmark of Section 310(b)(4) of the Communications Act. We conclude that certain debt instruments of NTI should be treated as equity and, as a result, NextWave exceeds the foreign ownership benchmark with respect to both foreign stock ownership and foreign capital contributions. After reviewing the measures proposed in NextWave's Restructuring Plan and Petitioners' response to the Plan, we believe that successful completion of the Plan's measures, as discussed below, should bring NextWave's foreign ownership within the benchmark set forth in Section 310(b)(4) of the Communications Act. We therefore grant NextWave six months within which to implement the Plan. In addition, as discussed below, beginning one month from January 3, 1997, NextWave must report to the Bureau on a monthly basis regarding the steps it is taking to come within the statutory benchmark. 1. Consideration of Stock Ownership and Capital Contributions under Section 310(b)(4) of the Communications Act 34. Section 310(b)(4) of the Communications Act authorizes the Commission to deny license applications, upon determination that denial is in the public interest, where more than 25 percent of a parent corporation's capital stock is owned or voted by foreign entities. That section provides in pertinent part that: [n]o . . . radio station . . . license shall be granted to or held by . . . any corporation directly or indirectly controlled by any other corporation of which more than one-fourth of the capital stock is owned of record or voted by aliens, their representatives, or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country, if the Commission finds that the public interest will be served by the refusal or revocation of such license. 35. We have recently considered the application of the Section 310(b)(4) benchmark in Fox Television Stations, Inc., 10 FCC Rcd 8452 (1995) (Fox I). In Fox I, the Commission was presented with a renewal application where a single foreign investor in the licensee's parent company paid-in more than 99 percent of the capital for common stock constituting 24 percent of both the voting power and all stock issued by the corporation. The remaining stock was preferred stock, which exercised 76 percent of the voting power. The foreign owner of the common stock in Fox I had the right to virtually all of the profits and, upon liquidation, the assets of a company worth more than one billion dollars. The Commission concluded that "where the ownership of corporate shares does not correspond to the beneficial ownership of the corporation, we will not be bound by a formalistic 'count-the-shares' approach that understates the true extent of foreign ownership." Rather, in Fox I, the Commission considered the foreign capital contributions paid into the corporation. The Commission concluded that because foreign interests contributed more than 99 percent of the capital to the parent corporation, the level of ownership greatly exceeded the 25 percent benchmark established in Section 310(b)(4). 36. Our analysis under Section 310(b)(4) is two-pronged, one pertaining to voting interests and the second to ownership interests. The statute clearly requires that we calculate the percentage of outstanding shares of foreign-owned stock in a parent corporation to determine whether the Section 310(b)(4) benchmark is exceeded. Stock ownership in a corporation generally measures an investor's beneficial ownership in that corporation, including voting rights and distributions of dividends, and generally reflects the amount of shareholder capital contributed to the corporation. That is, a prudent investor invests an amount of money that fairly reflects those benefits that it expects to receive in return for its investment. Where the ownership of corporate shares does not correspond to the capital contributed to the corporation, we consider both stock ownership and capital contributions in our determination of beneficial ownership interests under the foreign ownership benchmark of Section 310(b)(4) of the Communications Act. 37. Petitioners argue that NextWave's applications should be dismissed for violating the 25 percent foreign ownership benchmark. Specifically, Petitioners argue that ownership percentages must be calculated on the basis of both capital contributions and stock ownership, and whichever results in a higher foreign ownership percentage is the basis for determining compliance with Section 310(b)(4). Petitioners assert that the percentage of foreign capital contributions made to NTI causes NextWave to be in violation of Section 310(b)(4). Moreover, Petitioners assert that Commission precedent put NextWave on notice that compliance on the basis of capital contributions is required under Section 310(b)(4). NextWave, however, asserts that it is now, and has been, in compliance with the benchmark because foreign investors hold less than 25 percent of NTI's stock. In its Opposition to the Petition, NextWave contends that the approach that reflects the beneficial ownership interest in an applicant, either stock ownership or capital contributions, constitutes the basis for determining compliance. 38. Foreign investment in NTI has been made largely through ownership of Series A and Series B common stock, debt instruments convertible to Series B stock, warrants and options to purchase Series B stock, and nonconvertible debt instruments. Domestic investors own 99.6 percent of NTI's Series A stock. In its May 22 Form 600, NextWave reported that foreign investors owned less than 23 percent of NTI's stock. NextWave more recently reports that foreign investors hold 21.28 percent of NTI's capital stock. In its Opposition to the Petition, NextWave stated that foreign investors had paid in 34.92 percent of NTI's capital contributions as of the date it filed its May 22 Form 600. While NextWave has not provided updated percentages on foreign capital contributed to NTI, based on the aggregate capitalization figures that NextWave reports in its December 9 Form 600 and stock ownership figures provided in its Restructuring Plan, foreign investors have currently paid in approximately 30.56 percent of NTI's total capital. 39. NextWave argues that beneficial ownership is more accurately assessed on a count- the-shares approach that reflects the Series A shareholders' "sweat equity" in NTI as a start-up company. The Series A shareholders purchased stock between November 22, 1995, and May 1, 1996, at $0.25 per share, whereas Series B shareholders purchased stock between May 8, 1996, and November 8, 1996, for a price between $3.00 and $5.00 per share. NextWave argues that measuring compliance with Section 310(b)(4) based on capital contributions both understates the relative value of the Series A stock and overstates the relative value in Series B stock. Petitioners argue that any sweat equity applicable to Series A shareholders must not be counted for purposes of the foreign ownership capital contributions test. 40. Because foreign investors have paid a higher percentage of capital into NTI for a lesser portion of NTI's issued and outstanding stock, we will analyze both the stock ownership and the capital contributed to NTI in determining whether NextWave's beneficial ownership interests exceed the foreign ownership benchmark in Section 310(b)(4) of the Communications Act. With respect to the valuation of sweat equity, in Fox I, the Commission recognized that the capital contributions test may not adequately value certain beneficial interests, including sweat equity invested by shareholders. The Commission indicated its intent to review such valuations on a case-by-case basis. NextWave does not include sweat equity in its percentage calculations for purposes of NTI's foreign capital contributions and we have not included sweat equity in our review of foreign investors' capital contributions to NTI. As a result, the issue of calculating NTI's foreign capital contributions to include any relevant sweat equity of NTI's Series A shareholders is not before us in this case. We therefore need not decide whether sweat equity is relevant to valuing foreign beneficial interests in NTI. 41. Finally, as the Commission concluded in Fox I, while Section 310(b)(4) clearly gives the Commission discretion with respect to foreign ownership in excess of the statutory benchmark, "[i]t is equally clear that the statute requires that the Commission be made aware whenever foreign ownership could exceed the benchmark level, so that it can exercise that discretion." NextWave has provided percentage information on foreign stock ownership in NTI in its long form applications. NextWave has provided information on the percent of foreign capital contributed to NTI, however, only in its Opposition to the Petition and in response to our LOI. In its Opposition to the Petition, NextWave states that "the foreign percentage of the total price paid for the Series A and Series B shares of common stock issued is 34.92 percent." NextWave repeated the same percentage in its November 18 Response to our LOI, stating that "[t]here [had] been no new foreign equity investments received by NextWave since it filed its opposition to the petition to deny on July 16, 1996." In its December 9 Form 600, NextWave states that it submitted the amendment to reflect equity investment, in part, by a new foreign investor in NTI, but does not provide any adjusted percentages of NTI's foreign paid-in capital. Aware that foreign capital contributions in NTI exceed the statutory benchmark, NextWave asserts that capital contributions do not reflect the foreign investors' beneficial ownership interest in NTI and unilaterally concludes that information on NTI's foreign capital is irrelevant to our determination under Section 310(b)(4). 42. We reiterate that an applicant must specifically and directly inform us that an ownership structure under consideration may exceed the foreign ownership benchmark in Section 310(b)(4) of the Communications Act. An applicant must provide specific information to us regarding a corporation's percentage of foreign stock ownership and percentage of foreign capital contributions where there is a possibility that either could exceed the statutory benchmark. As the Commission stated in Fox I, failure to do so violates the process under which we make Section 310(b)(4) determinations. 2. Evaluation of NTI's Foreign Investment as Equity 43. In Fox Television Stations, Inc., 11 FCC Rcd 5714 (1995) (Fox II), the Commission applied five factors that Congress suggested for distinguishing debt from equity under federal tax law. These five factors were used as guidelines, based on the totality of the circumstances, in determining whether alleged debt obligations were more properly classified as equity: (1) whether there is a written unconditional promise to repay the money on demand and to pay a fixed rate of interest; (2) whether there is subordination to or preference over any indebtedness of the company; (3) the company's debt/equity ratio; (4) whether the alleged debt is convertible to stock; and (5) the relationship between holdings of stock in the corporation and holdings of the interest in question. The objective of our inquiry is not to count factors, but to evaluate them. 44. In examining NextWave's financial structure, we apply the Fox factors to NTI's debt instruments to determine whether those instruments are bona fide debt or more properly characterized as equity. Where NTI's debt instruments are deemed to be equity, we include those obligations as equity in our analysis of whether NextWave meets the foreign ownership benchmark. Although Fox II reached a distinction between debt and equity based on the five factors suggested by Congress, tax courts have identified as many as sixteen analytical frameworks for making the same determination. From a review of federal tax cases, it is clear that no one single factor can provide a conclusive answer as to the nature of an instrument which is in the form of debt. To distinguish between NTI's debt and equity, we continue to use the five factors enunciated in Fox II as guidelines to assist us in our evaluation of the totality of the circumstances of the economic reality and substance of these transactions, and we again rely on the analyses presented in federal tax cases to assist us in our application of those guidelines. 45. Petitioners argue that NTI's foreign warrants, options, and convertible debt must be counted as equity, further increasing NextWave's foreign ownership in violation of Section 310(b)(4). Petitioners assert that we must assess future instruments now because there will be no requirement for further Commission "pre-exercise review." NextWave contends that Petitioners disregard consistent holdings of the Commission that future interests, such as options and convertible rights, are not relevant to alien ownership determinations until converted. In addition, NextWave argues that NTI's foreign debt is bona fide debt and should not be included in calculating the equity in NTI. 46. We reaffirm that bona fide debt interests as well as bona fide future interests are not included in our analysis of foreign ownership interests under Section 310(b). We have previously determined that future interests including warrants, options, and convertible debt do not constitute capital stock until exercised or converted and are therefore not relevant to our foreign ownership determinations. Moreover, a Commission licensee must remain in compliance with statutory requirements and Commission rules throughout the term of its license. Similarly, because creditors possess neither an ownership interest nor a voting interest through their bona fide debt relationship with a company, the Commission does not consider such debt interests in determining whether foreign ownership exceeds the statutory benchmark. The exception arises where debt instruments are not bona fide debt and are more properly characterized as equity. 47. Based on our analysis of NTI's capital structure applying the Fox II factors, we find that two classes of debt instruments, (1) the Convertible Promissory Notes, all held by foreign investors; and (2) the Convertible Senior Subordinated Notes, approximately 44 percent held by foreign investors, are more properly characterized as equity. a. Convertible Promissory Notes 48. Before and during the initial C-block auction, NTI entered into subscription agreements with certain domestic and foreign investors ("Subscription Agreements"). Pursuant to the Subscription Agreements, investors subscribed to purchase Series B stock as well as warrants to purchase Series B stock in NTI. Sixteen of the foreign investors executed Subscription Agreements during the course of the initial auction between January 1, 1996, and May 3, 1996. Upon meeting certain conditions precedent, the terms of the Subscription Agreements required NTI to issue to each foreign investor (1) the maximum number of shares, not to exceed the foreign ownership allowable under Section 310(b); and (2) a convertible note, which, upon conversion at $3.00 per share, would equal the balance of the Series B shares for which the foreign investor had subscribed ("Convertible Promissory Notes"). Between May 8, 1996, and June 7, 1996, NTI, in fact, issued to the foreign investors, at the price of $3.00 per share, Series B stock equal to approximately 60 percent of the aggregate foreign subscribed principal amount and Convertible Promissory Notes in the aggregate principal of $38,912,478. At $3.00 per share, that aggregate principal amount would convert to 12,970,478 Series B shares. The provisions requiring issuance of convertible notes were inapplicable to domestic subscribers. Foreign investors hold 100 percent of the aggregate principal amount in the Convertible Promissory Notes. 49. By their terms, the Convertible Promissory Notes are unsecured obligations payable upon demand at any time after May 8, 1997, but prior to May 8, 2001. Interest begins to accrue on the date of the Convertible Promissory Note at 6 percent per annum. NTI is not obligated, however, to make interest payments on any principal converted prior to May 8, 1997. The Convertible Promissory Notes automatically convert into the right to receive a number of Series B shares upon an event, i.e., a new issuance of stock, that NTI deems increases the number of shares available to foreign investors without exceeding the statutory foreign ownership benchmark. NTI notifies the noteholder of the right to convert and the noteholder surrenders its Convertible Promissory Note. If NTI determines conversion of the full principal would cause NextWave to exceed the benchmark in Section 310(b), it issues only the number of shares allowed to maintain NTI's foreign ownership within the statutory benchmark. Concurrently, NTI issues a new note "of like tenor and date" for the remaining unconverted principal balance. Upon either full or partial conversion, the outstanding note is cancelled. Finally, the Convertible Promissory Notes are subordinated to all debt, with the possible exception of the Convertible Senior Subordinated Notes described in detail below. 50. Based on application of the five Fox factors to the Convertible Promissory Notes, we make the conclusions outlined below. 51. A written unconditional promise to repay the principal amount of the Convertible Promissory Notes on demand and to pay a fixed interest rate. NextWave contends that each of NTI's debt agreements obligates NTI unconditionally to repay the obligation at its stated maturity and to pay a fixed interest rate. In Fox II, payment was secured by a promissory note bearing a fixed 9.09 percent interest rate and the note was payable in ten years. The terms of the Convertible Promissory Notes, however, provide NTI with the opportunity to avoid all payment of interest on the entire principal amount because principal converted prior to May 8, 1997, does not bear interest. Thus, if NTI converts the Convertible Promissory Notes on May 7, 1997, although interest has accrued for one year, that accrued obligation for interest will not be paid. The interest rate determines the compensation for risk on a bona fide loan and the ability to avoid interest payments is a strong indication that the Convertible Promissory Notes are equity rather than debt. While a bona fide lender might agree to a delay in payment of interest for a period of time, we believe the fact that NTI could all together avoid interest payments on a $38,912,478 debt suggests that the Convertible Promissory Notes should be considered equity and not debt. 52. In addition, while the existing and outstanding Convertible Promissory Notes contain a stated expiration date, NTI may replace partially converted outstanding notes with new notes "of like tenor and date." This language raises a question of whether the new notes have the Convertible Promissory Notes' stated maturity date or terms of five years in perpetuity. Moreover, the Convertible Promissory Notes contain no amortization schedule for reduction in principal and, as a result, we find no reason to assume the new notes would include an amortization schedule. A bona fide lender would be concerned about the schedule for repayment of its debt given the time value of money. The absence of a scheduled reduction in principal payments in conjunction with the absence of a clearly stated maturity date are not characteristic of debt obligations. Thus, the Convertible Promissory Notes should be viewed as long-term equity commitments and not debt. 53. Whether there is subordination to or preference over any indebtedness of NTI. NextWave contends that each of NTI's debt instruments provides the lender with preference over NTI's equity interests creating a significant distinction between NTI's debt and equity. In a corporation's capital structure, one of the risks of equity ownership is that equity is subordinated to debt. The issue, however, is not whether shareholders' equity ownership is subordinated to the corporation's debt obligations. Our review involves the extent to which the instrument alleged to be debt is subordinated to other indebtedness in the corporation and to what extent the alleged debt has a repayment preference over any other indebtedness in the corporation. We also consider whether the debt is unsecured. The Convertible Promissory Notes are unsecured obligations that occupy a junior level in NTI's debt structure and may be senior only to the Convertible Senior Subordinated Notes. The Convertible Senior Subordinated Notes, which have an aggregate principal of approximately $130 million, may be repaid after repayment of the Convertible Promissory Notes, but the Convertible Promissory Noteholders' only hope for repayment would be after obligations to NTI's senior secured creditors, including the $4.2 billion debt to the Federal Government for NextWave's licenses, are satisfied. Subordination of the Convertible Promissory Notes to claims of most of NTI's other debt amounting to billions of dollars, indicates that the notes should be construed as equity and not debt. 54. NTI's debt/equity ratio. Examining the debt-to-equity ratio enables us to determine whether a corporation is so thinly capitalized that a business loss would result in an inability to repay the interests in question. This is particularly true where thinness of capitalization is found along with subordination to other creditors. The risk of repayment to those creditors in the junior levels of a debt structure is increased where a corporation is thinly capitalized. In Fox II, we found that the debt-to-equity ratio of Fox's parent corporation of roughly 1400:1 was not bona fide debt. We also noted in Fox II that one court has found a debt-to-equity ratio of 21:1 to be strong evidence that loans were not bona fide debt. 55. NTI contends that its debt-to-equity ratio is 2:3, not including the $4.2 billion debt that NextWave incurs upon award of its PCS licenses. We find no reason to exclude the debt that NTI would owe to the United States Federal government under the government's installment plan for payment of NextWave's PCS licenses in calculating NTI's debt-to-equity ratio. A meaningful debt-to-equity ratio compares a company's total liabilities to the stockholders' equity, which includes both initial paid-in capital and retained earnings. We calculate NTI's debt-to- equity ratio, including the Federal debt, to be approximately 14:1. In this case, we find that a 14:1 debt-to-equity ratio evidences a thinly capitalized venture, further suggesting that the Convertible Promissory Notes are equity rather than debt. 56. Whether the alleged debt is convertible to stock. NextWave contends that NTI's convertible debt instruments are not relevant to foreign ownership determinations until converted and that each of the agreements restricts conversion of the debt if such conversion would cause NextWave to exceed the foreign ownership benchmark. Petitioners argue that because savings clauses intended to ensure that NextWave never violates Section 310(b)(4) are included in various instruments that violate Commission rules, we should disregard the savings clauses and dismiss NextWave's applications. NextWave argues that NTI's inclusion of savings and redemption clauses in NTI's corporate and financial documents are enforceable internal mechanisms by which NTI and its investors can ensure compliance with Section 310(b). We have repeatedly accepted savings provisions in financial documents and we find no reason to reject the savings provisions included in NTI's financial documents. The savings provisions included in NTI's corporate documents are merely internal mechanisms that NTI and its investors may use to maintain foreign ownership within the Section 310(b)(4) benchmark. Those provisions in no way mitigate our finding that the convertible terms of the Convertible Promissory Notes indicate the notes are equity and not debt. As already discussed, bona fide convertible debt instruments are not relevant to our foreign ownership determinations until converted. Our inquiry here, however, is to analyze to what extent the ability to repay principal with stock affects the status of the obligation as bona fide debt. 57. In the case of the Convertible Promissory Notes, conversion of the principal to stock is automatic upon NTI's determination that it can issue shares to foreign investors without exceeding the foreign ownership benchmark in Section 310(b)(4). NTI notifies the Convertible Promissory Noteholders that it has stock available for conversion and the noteholders surrender their outstanding notes. If NTI issues fewer shares than the full principal amount of the outstanding notes, it concurrently issues entirely new notes for any remaining principal balances. The process of issuing new notes with increasingly reduced principal amounts may repeat until the entire principal of the Convertible Promissory Notes is converted to NTI stock. This perpetual ability to repay principal amounts of the Convertible Promissory Notes with stock suggests that the noteholders expect repayment in stock rather than cash. Moreover, as we have already discussed, whether the new notes would expire on the Convertible Promissory Notes' expiration date or be extended for five-year terms in perpetuity is unclear and neither the Convertible Promissory Notes nor the new notes contain amortization schedules for the repayment of principal. The perpetual conversion of the outstanding principal amount to stock, in conjunction with the absence of a clearly stated maturity date and the absence of a scheduled reduction in principal payments, supports a finding that the Convertible Promissory Notes are long-term equity and not debt. 58. Finally, with respect to conversion of the Convertible Promissory Notes, Petitioners assert that "as a quid pro quo for the preferred liquidation preference given to debt over equity, convertible debt converts at a higher price per share price than the then-current sales price for straight equity." The initial conversion price included in the Convertible Promissory Notes is $3.00 per share. According to Petitioners, because NTI was selling stock to domestic investors at $3.00 per share at the time NTI executed the notes, the conversion price should be higher, i.e., $4.00 per share. The absence of a conversion price higher than $3.00 per share, according to Petitioners, creates immediate equity value. Petitioners provide no support for this assertion and we therefore reject Petitioners' claim. As a matter of argument, however, the initial conversion price in the Convertible Promissory Notes of $3.00 per share is subject to adjustment in the event outstanding stock is subdivided, combined, or consolidated into a greater or lesser number of shares of common stock. The principal of the Convertible Promissory Notes will convert at an indexed conversion price based on the fair market value of NTI's stock at the time of issuance, not at a fixed price of $3.00 per share. Thus, further analysis fails to support Petitioners' claim. 59. The relationship between the Convertible Promissory Noteholders' stock holdings in NTI and holdings of the debt in question. In applying this factor, we must examine in full whether the benefits normally reflected in corporate ownership are derived through the debt obligations of the company. In Fox II, we found that the shareholder's rights to virtually all of the parent corporation's profits and, upon liquidation, its assets indicated the loan made by the minority shareholder was a capital contribution and not debt. NextWave contends that the holdings of stock in NTI and holdings of debt are related, consistent with reasonable commercial practices. In assessing the shareholder/creditor relationship, we examine: (1) whether foreign investor loans are made in proportion to the foreign investors' stock ownership in NTI; (2) whether expectation of repayment depends solely on the success of NTI's business; (3) whether the loan proceeds are used to purchase capital assets rather than to meet NTI's daily operating needs; (4) whether the debt in question, rather than the shareholders' ownership interests in NTI, reflects rights to profit distributions or liquidation preferences; (5) whether the creditor participates in management of the corporation; and (6) whether an outside commercial lender would have provided NTI a loan for the same principal amount under the same terms and conditions as those provided in the debt instruments. 60. Each of the Convertible Promissory Noteholders is also a shareholder in NTI. We find no basis for concluding that the Convertible Promissory Notes were made in proportion to the percentage of the noteholders' respective stock ownership in NTI. Each noteholder's percent of ownership in NTI differs from its ownership percentage of the notes' aggregate principal amount. We find no evidence, nor was any presented by the Petitioners, that repayment of the Convertible Promissory Notes depends solely on NTI's success as a business. As Series B shareholders, the Convertible Promissory Noteholders are entitled to participate in dividends ratably on a per share basis. In the event of liquidation or dissolution of NTI, the Series B shareholders will receive the price originally paid for each outstanding share of Series B stock and an amount equal to declared but unpaid dividends on those shares. Moreover, we find that Convertible Promissory Noteholders do not participate in the day-to-day affairs of NTI. A creditor's participation in a debtor corporation's daily management indicates the loan is a capital contribution and not debt. NextWave has stated that NTI's Series A shareholders will at all times elect a majority of NTI's board of directors and the board exercises control over NTI's day-to-day management. None of the Convertible Promissory Noteholders hold Series A stock. 61. On the other hand, we do find that NTI intends to use the proceeds of the Convertible Promissory Notes to purchase capital assets, including NextWave's PCS licenses, which suggests the notes are equity rather than debt. Finally, we examine whether an outside commercial lender would have provided NTI a loan for the same principal amount under the same terms and conditions as those provided in the Convertible Promissory Notes. If a prudent lender would not make a loan under the terms of the instrument in question, this would indicate that the loan is subject to the risks of the business and, as a result, is a capital contribution and not debt. NextWave contends that the interest rates included in NTI's debt agreements are commercially reasonable. We disagree. We find that no commercial lender would have consented to a loan that contained the interest rate provided in the Convertible Promissory Notes. The Convertible Promissory Notes occupy a junior level on NTI's debt structure subordinated to virtually all other creditors. A bona fide lender would require some form of compensation, usually a high interest rate, for making such a high risk investment in a corporation. Other PCS C-block applicants have promissory notes in the highest position of their debt tranche, maturing at approximately the same time as the Convertible Promissory Notes, priced at market rates of 11.625 percent and 12.25 percent interest. By contrast, the 6 percent interest rate is incongruent with the repayment risk associated with the Convertible Promissory Notes' junior level in the debt structure. The Noteholders' willingness to accept a commercially unreasonable rate on the return of such a high risk investment suggests the Convertible Promissory Notes should be construed as equity and not a debt obligation. 62. Petitioners also argue with respect to the Convertible Promissory Notes that NextWave cannot justify its foreign ownership levels under the effective competitive opportunities analysis ("ECO Test"), which in Petitioners' opinion requires "an applicant or licensee to justify a foreign ownership level in excess of 25 percent if (and to the extent that) the foreigners' country of origin allows U.S. ownership of its domestic PCS/cellular licensees in excess of 25 percent," because NTI's foreign money comes from South Korea. Because NextWave has agreed to restructure its foreign ownership so as not to exceed the Section 310(b)(4) foreign ownership benchmark, an ECO analysis is not required at this time. The issue of whether NextWave would fail to meet the requirements of the ECO Test is, therefore, not before us. 63. Conclusion. After analyzing the Convertible Promissory Notes, we conclude that the instruments are more properly characterized as equity rather than as bona fide debt. The terms of the Convertible Promissory Notes provide NTI with a one-year opportunity to avoid all interest payments up to the entire aggregate principal amount. The perpetual automatic conversion of principal to stock and the absence of a clear maturity date provides NTI with the opportunity to avoid payment of all principal and creates the inference that the lenders do not expect repayment in cash. A debt-to-equity ratio of 14:1 indicates a thinly capitalized venture and the Convertible Promissory Notes' subordination to virtually all of NTI's indebtedness suggests the notes are in fact equity and not debt. In addition, NTI intends to use the funds to purchase capital assets. Finally, the high risk of the investments in conjunction with the correspondingly low interest rates similarly create the inference that the lenders expect repayment of the principal in stock rather than cash. Accordingly, we will reanalyze NextWave's capital structure to include the Convertible Promissory Notes as equity. b. Convertible Senior Subordinated Notes 64. NTI entered into the Convertible Senior Subordinated Notes concurrently with and pursuant to the terms of the securities purchase agreement dated April 9, 1996 ("Securities Purchase Agreement"), between NTI and certain foreign and domestic investors. Fourteen of the investors are foreign and of those fourteen, three hold Convertible Promissory Notes. NTI issued Convertible Senior Subordinated Notes to investors in the aggregate principal amount of $130,348,000. Also on April 9, 1996, each investor transferred the principal amount of its Convertible Senior Subordinated Note to an escrow account. The foreign investors received Convertible Senior Subordinated Notes for approximately 44 percent of the principal amount. Domestic investors hold the remaining Convertible Senior Subordinated Notes. 65. Interest on the Convertible Senior Subordinated Notes begins to accrue on the amount released from escrow on the date of release at 2 percent until April 9, 1998, and at 12 percent after that date. Principal and interest become due on the notes' maturity date, April 9, 2002. For the first three years, however, until April 9, 1999, NTI may avoid cash payment of interest by issuing additional Convertible Senior Subordinated Notes in a principal amount up to the full amount of payable interest. The additional notes are otherwise identical to the outstanding note. 66. The Convertible Senior Subordinated Notes are unsecured obligations expressly subordinated to NTI s senior debt, which includes all purchase money financing, the Federal debt, underwriter bridge financing, and vendor bridge financing (collectively "Senior Debt"). The Convertible Senior Subordinated Notes are convertible, with limitations, at the request of the noteholder. Convertible Senior Subordinated Noteholders notify NTI when they want to convert all or part of the principal amount. In converting the principal to Series B stock, NTI limits the actual number of shares it will issue to prevent, in its opinion, foreign ownership in NTI from exceeding the statutory benchmark and issues a new Convertible Senior Subordinated Note in the amount of any remaining unconverted principal balance. The terms of the new note are not described in either the Securities Purchase Agreement or the Convertible Senior Subordinated Notes. Finally, conversion of Convertible Senior Subordinated Notes is permitted if NTI defaults on payment and other terms and conditions of the Senior Debt, while cash payments on the notes are prohibited during default. 67. By their terms, NTI may voluntarily prepay the Convertible Senior Subordinated Notes at any time with any source of funds. If NTI consummates a high-yield financing, it is required to prepay the Convertible Senior Subordinated Notes. At any time after October 7, 1996, noteholders may elect to convert to stock the principal of the notes, rather than receive prepayment. Upon the election to convert, NTI would issue shares to the extent the amount, in NTI's opinion, would not exceed the Section 310(b)(4) foreign ownership benchmark. NTI would pay 100 percent of any remaining principal and interest in cash. If the notes are prepaid in connection with a high-yield financing, the noteholders will receive warrants to purchase the same number of shares that would otherwise be issuable upon conversion of the notes. 68. While the terms and conditions of the Convertible Senior Subordinated Notes differ somewhat from the terms and conditions of the Convertible Promissory Notes, the two classes of notes raise virtually identical concerns under a Fox II analysis. Moreover, NextWave's arguments that application of the Fox II factors renders the Convertible Senior Subordinated Notes as bona fide debt are the same as those set forth in our discussion of the Convertible Promissory Notes. Based on our analysis set forth in the discussion on the Convertible Promissory Notes, we make the following findings with respect to the Convertible Senior Subordinated Notes. 69. A written unconditional promise to repay the principal amount of the Convertible Senior Subordinated Notes on demand and to pay a fixed interest rate. NTI may issue additional notes in lieu of cash interest payments on the principal amounts of the Senior Subordinated Notes. Thus, NTI has half of the term of the Convertible Senior Subordinated Notes to convert principal to stock, and can therefore altogether avoid cash interest payments on the aggregate principal amount of $130,348,000. 70. In addition, NTI's right to replace partially converted outstanding notes with new notes for any remaining unconverted principal amount raises the question of whether the new notes would expire on the Convertible Senior Subordinated Notes' stated maturity date or have terms of six years in perpetuity. Likewise, a question arises regarding the term of additional notes issued in lieu of cash interest payments of whether the additional notes have a term of six years in perpetuity or have the same maturity date as the outstanding note, which may be either a Convertible Senior Subordinated Note or a new note. Moreover, the Convertible Senior Subordinated Notes contain no amortization schedule and, as a result, we find no reason to assume the new notes or additional notes would include an amortization schedule. The absence of a scheduled reduction in principal payments and the absence of a clearly stated maturity date in conjunction with avoidance of interest payments evidences that the Convertible Senior Subordinated Notes are long-term equity commitments and not debt. 71. Whether there is subordination to or preference over any indebtedness of NTI. The Convertible Senior Subordinated Notes are unsecured obligations occupying the most junior debt tranche in NTI's capital structure subordinated to all other debt, including the Federal Debt, equipment or vendor financing arrangements and all other secured debt, amounting in the aggregate to billions of dollars. No preference for repayment of Convertible Senior Subordinated Notes exists over any other NTI indebtedness. Subordination of the unsecured Convertible Senior Subordinated Notes to claims of all of NTI's other debts indicates that the notes resemble equity rather than debt. 72. NTI's debt/equity ratio. As discussed above, a 14:1 debt-to-equity ratio in this case evidences a thinly capitalized venture. We find that NTI's 14:1 debt-to-equity ratio further suggests that the Convertible Senior Subordinated Notes are equity rather than debt. This is particularly true where the debt instrument in question occupies the most junior debt tranche in a corporation's capital structure. 73. Whether the alleged debt is convertible to stock. The Convertible Senior Subordinated Notes are convertible to Series B stock, and, under certain circumstances, to warrants to purchase Series B stock. If NTI issues fewer shares than the amount requested, NTI issues a new note for the reduced principal balance. The perpetual ability to repay the Convertible Senior Subordinated Notes with stock suggests that the noteholders expect repayment in stock rather than cash. Moreover, as we have already discussed, whether the new notes or additional notes issued in lieu of cash interest payments would expire on the Convertible Senior Subordinated Notes' stated maturity date or extend for six-year terms is unclear and neither the Convertible Senior Subordinated Notes, new notes, nor the additional notes contain amortization schedules for repayment of principal. Stated maturity dates and amortization schedules reducing principal amounts are measures designed to eliminate firm loan obligations normally found in arms' length lending obligations. The absence of both suggests that the Convertible Senior Subordinated Notes are intended as long-term equity commitments and not debt. 74. In addition, the terms of the Securities Purchase Agreement permit noteholders to receive warrants to purchase the same number of shares that would otherwise be issuable upon conversion of the Convertible Senior Subordinated Notes if NTI prepays the Convertible Senior Subordinated Notes. A warrant is generally considered an equity equivalent because a warrant has an exercise price that entitles the holder to convert that warrant into stock. The ability to completely replace the convertible debt principal obligation upon repayment with a warrant further indicates the Convertible Senior Subordinated Notes are not intended to be debt. 75. The relationship between the Convertible Senior Subordinated Noteholders' stock holdings in NTI and holdings of the debt in question. Based on information provided by NextWave, three of the Convertible Senior Subordinated Noteholders also hold Convertible Promissory Notes. While other Convertible Senior Subordinated Noteholders may have converted principal to NTI stock, at least the three Convertible Senior Subordinated Noteholders that hold Convertible Promissory Notes are currently Series B shareholders in NTI. As to those Convertible Senior Subordinated Noteholders who are also shareholders, we find no basis for concluding that the Convertible Senior Subordinated Notes were made in proportion to those noteholders' respective stock ownership. Those Convertible Senior Subordinated Noteholders do not participate in the management of NTI's daily operations. In addition, we find no basis for concluding that those Convertible Senior Subordinated Noteholders' rights to profits or assets in the event of liquidation exceed their ownership interest in NTI nor does repayment of the notes depend solely on NTI's success as a business. 76. On the other hand, we find no basis for concluding that NTI intends to use the proceeds of the Convertible Senior Subordinated Notes to meet its daily operating needs. Moreover, no commercial lender would have consented to a loan that contained the interest rates of the Convertible Senior Subordinated Notes. The Convertible Senior Subordinated Notes contain interest rates that do not reflect the risk associated with a debt instrument occupying the most junior level of the debt structure. The loans are unsecured with a below-market interest rate of 2 percent for a two-year period -- a crucial period during which NextWave will be trying to enter the PCS market for the first time. The 2 percent interest rate over a period of two years, even when escalated to a 12 percent interest rate, is incongruent with the repayment risk associated with such a junior position in the debt structure of a start-up company in a new business. 77. Conclusion. After analyzing the Convertible Senior Subordinated Notes, we conclude that these instruments are not intended as debt, but equity. The terms of the Convertible Senior Subordinated Notes provide NTI with the opportunity to avoid cash interest payments for half of the notes' six-year terms. The perpetual automatic conversion of principal to stock, the absence of an apparent maturity date, and the absence of an amortization schedule for reducing principal provides NTI with the opportunity to avoid payment of all principal. NTI's debt-to-equity ratio of 14:1 suggests a thinly capitalized venture and subordination of the Convertible Senior Subordinated Notes to all of NTI's other indebtedness suggests the notes are equity and not debt. In addition, NTI does not intend to use the funds to meet its daily operations. Moreover, the high risk of the investments in conjunction with the correspondingly low interest rates similarly creates the inference that the lenders expect repayment of the principal in stock rather than cash. Finally, issuance of stock warrants for the principal amount of the Convertible Senior Subordinated Notes upon prepayment -- a real likelihood in light of the pending initial public offering ("IPO") -- further indicates the Convertible Senior Subordinated Notes are intended to be equity and not debt. Accordingly, we will analyze NextWave's capital structure to include the Convertible Senior Subordinated Notes. 78. Our conclusions that both the Convertible Promissory Notes and Convertible Senior Subordinated Notes are equity requires that we re-evaluate NextWave's capital structure both in terms of foreign stock ownership and foreign capital contributions. NextWave reported that upon full conversion of the principal of both the Convertible Promissory Notes and Convertible Senior Subordinated Notes, NTI's total number of shares outstanding would increase to 200,611,224, of which 60,272,826 shares, representing 30.04 percent of the outstanding stock, would be foreign-owned. Until conversion actually takes place, the percentage of paid-in capital is not fixed. Based, however, on NextWave's figures in its Restructuring Plan and the initial conversion price included in both instruments, $3.00 per share for the Convertible Promissory Notes and $4.00 per share for the Convertible Senior Subordinated Notes, we calculate that the percentage of foreign capital paid into NTI would increase to 39.59 percent of NTI's total capital contributions. Accordingly, we conclude that foreign voting and ownership interests in NextWave exceed the 25 percent benchmark established in Section 310(b)(4) of the Communications Act. D. Restructuring Plan 1. Analysis of Allowing NextWave the Opportunity to Restructure 79. We must now determine whether we should allow NextWave the opportunity to proceed with a Restructuring Plan which, if successful, would bring its capital structure within the Section 310(b)(4) foreign ownership benchmark. Petitioners' argue that NextWave should not be given the opportunity to implement the Plan. We disagree, and conclude that NextWave should have such an opportunity. 80. NextWave points out that the Commission, in exercising its authority to condition licenses, at times has granted licenses to applicants that exceeded the Section 310(b)(4) foreign ownership benchmark, conditioned upon the applicants undertaking a restructuring to reduce their level of foreign ownership. For example, in Fox I, the Commission renewed the license of an existing licensee who had exceeded the foreign ownership benchmark, conditioned upon the licensee either restructuring, or making a showing that maintaining its existing structure was in the public interest. Moreover, in the related cases of Seven Hills Telephone Company and Spanish International Communications Corporation, the Commission also renewed the licenses of licensees that exceeded the foreign ownership benchmark, in one case to allow the licensees to transfer their licenses to third parties and, in the other, subject to certain conditions. 81. Petitioners argue that these precedents are distinguishable, because they involve the Commission renewing licenses that were not subject to competing applications. In contrast, the case here involves grant of an initial license subject to competing applications. Specifically, Petitioners argue that providing NextWave an opportunity to restructure harms other C-block applicants because NextWave gained an unfair advantage in the selection process. In support of their argument, Petitioners rely on several broadcast and cellular cases, where the Commission has not allowed certain mutually exclusive applicants an opportunity to cure defects in their applications. In one of these cases in particular, Algreg Cellular Engineering, the Common Carrier Bureau did not allow applicants that won lotteries for cellular licenses to cure a violation of a Commission rule that prohibits an applicant from having an interest in more than one application per market, in part because the violation skewed the lottery results. 82. The cases relied upon by the Petitioners, however, do not take into account the differences in the licensing scheme for resolving mutual exclusivity by auction, as opposed to using comparative hearings or lotteries. In the broadcast cases cited by the Petitioners, Classic Vision and South Florida Broadcasting, the Commission did not allow applicants that did not have "reasonable assurance" of transmission facilities at the time of filing their applications the opportunity to cure these deficiencies. Similarly, in the cellular cases cited by the Petitioners, the Commission applied its "letter perfect" application standard, which generally did not permit applicants that did not substantially comply with its rules the opportunity to cure defective applications. The Commission's primary concern in these cases was on "making the window filing and 'first come/first serve' process work smoothly and with minimal delay in processing large numbers of applications." Likewise, the Commission believed that its "hard look" standard in the cases was appropriate in these instances to process expeditiously applications of "serious candidates" who were "ready, able and willing to rapidly bring service to the public" and to promote the Commission's overall efficiency. 83. In the auctions context, however, the Commission expressly declined to adopt a "letter perfect" standard. Rather, in a market-driven auctions context, the upfront and down payment provisions in Section 24.711 of the Commission's rules, and the requirement that such payments be made on a timely basis, act as a built-in mechanism to screen applicants and deter speculative or unqualified bidders, and thus maintain the integrity of the auction and the licensing process. Specifically, such payments, timely tendered, signal to the Commission the sincerity of the bidder and its ability to meet its obligations. If a bidder fails to satisfy these requirements, the Commission is not without recourse. If the applicant fails to satisfy its upfront payment, it will be ineligible to bid and its application will be dismissed. Similarly, if the applicant or licensee fails to make its required down payment, its application will be dismissed and subject to a default payment. Moreover, these payments also serve as a mechanism to ascertain the financial viability of the applicant and its ability to bring service to wireless consumers. 84. While we have found that NextWave's capital structure exceeded the foreign ownership benchmark, we do not believe that Petitioners have shown that this aspect of NextWave's capital structure skewed the auction results, and prevented it or other bidders from winning licenses. NextWave met its initial eligibility requirements to participate in the auction, i.e., its upfront payments, without the capital from the Convertible Promissory Notes or the Convertible Senior Subordinated Notes. The Subscription Agreements that gave rise to the Convertible Promissory Notes were executed at various dates after the start of the auction. The Convertible Senior Subordinated Notes were executed on April 9, 1996. 85. In addition, as previously explained, in counting the Convertible Promissory Notes and Convertible Senior Subordinated Notes as equity instruments, the Bureau found that NextWave's total capital contributions were approximately $75 million in excess of the statutory benchmark. By contrast, the aggregate value of NextWave's high bids at auction was $4.2 billion. Thus, NextWave's foreign capital contributions that exceeded the benchmark were a tiny fraction, considerably less than one percent, of the amount it bid at auction and will ultimately need to pay the U.S. Treasury for the licenses. 86. With respect to Petitioners specifically, they also have not shown that NextWave's participation prevented them from winning licenses. We note that Petitioners actually bid for only 20 of the 63 licenses NextWave won at auction. Further, in the majority of these markets, NextWave placed its high bids many rounds after Petitioners submitted their last bids, and only after at least several other auction participants had placed multiple intervening bids. In addition, in the majority of the twenty markets for which NextWave won the licenses and in which Petitioners bid, the amount of NextWave's high bid was several times that of Petitioners' last bid. Given these facts, Petitioners have not shown that NextWave's foreign ownership interests prevented Petitioners from winning C-block licenses, or that the auction did not fairly resolve mutual exclusivity. 87. In the instant matter, we do not find that there is any reliable evidence that NextWave devised its capital structure in bad faith to exceed the foreign ownership benchmark, or deliberately attempted to deceive the Commission or evade its rules. Rather, NextWave cooperated in the LOI process, and produced facts and information the Bureau deemed necessary to resolve its concerns. NextWave, however, unilaterally concluded that information about NTI's foreign capital was irrelevant to our determination under Section 310(b)(4). We reiterate that failure to inform us specifically that a capital structure exceeds the foreign ownership benchmark, at any point during the auction, licensing process, or even as a Commission licensee, is inconsistent with the manner in which the Commission makes Section 310(b)(4) determinations. Accordingly, we affirm that "[a]n applicant must specifically and directly inform the Commission that the ownership structure under consideration may exceed the foreign ownership benchmark, and that absent such explicit notification and an express finding by the Commission that allowing the applicant to exceed the benchmark is in the public interest, an applicant may not exceed the benchmark." Further, we note that an applicant's failure to comply with its duty to disclose such information, may, in certain circumstances, raise issues regarding the candor of the applicant's disclosure to the Commission. 88. Given the foregoing, we grant NextWave the opportunity to implement its Restructuring Plan. Our decision is premised on the specific facts before us, where we have no evidence that the applicant was not eligible to participate in the auction, and no evidence that its capital structure in excess of the statutory benchmark interfered with or jeopardized the auction. If in the future we are presented with facts that an applicant compromised the integrity of the auction and violated Commission rules, we will take all actions we deem appropriate. 2. Analysis of The Restructuring Plan 89. Based upon the unique circumstances of this case, we granted NextWave an opportunity to restructure its foreign ownership and on December 30, 1996, NextWave presented a Restructuring Plan to come within the 25 percent benchmark in Section 310(b)(4). Under the Plan, NextWave proposes, that within nine months of the Public Notice issued January 3, 1997 granting NextWave all 63 licenses, NextWave will undertake several measures, discussed in detail below, so that its foreign ownership levels do not exceed the Section 310(b)(4) benchmark. NextWave has proposed a baseline and two alternative measures to implement the restructuring of its foreign ownership. NextWave's baseline measure is to infuse additional domestic capital in NTI through private placement and successful completion of NTI's IPO. One alternative measure is to reform the terms of the Convertible Promissory Notes and Convertible Senior Subordinated Notes so that they represent bona fide debt or to sell the notes to domestic investors. A second alternative measure is to prepay the Convertible Senior Subordinated Notes upon obtaining high-yield financing in conjunction with the infusion of domestic capital from private placement and successful completion of NTI's IPO. Petitioners oppose NextWave's Restructuring Plan, arguing that the Plan fails to cure the violation. Specifically, Petitioners state that NextWave's foreign ownership appears to be "between 40 percent and 50 percent of NextWave's contributed capital," and that NextWave's capital contributions must be below 25 percent. Petitioners provide no support for this statement. As discussed below, until NextWave completes the measures in its Plan, the percentage of foreign capital paid into NTI is speculative. Based on the information that NextWave has provided us regarding foreign ownership, however, NextWave should be able to come within the foreign ownership benchmark upon successful completion of its Restructuring Plan. We therefore reject Petitioners' claim. 90. NextWave proposes to secure additional financing through private and public stock offerings. NextWave expects to issue additional domestic equity through the conversion to equity of a convertible note in the principal amount of $50,000,000 held by Hughes Network Systems to 11,000,000 Series B shares ("Hughes Note"). In addition, NTI proposes to issue 30,576,738 shares of stock, 25,000,000 shares to domestic investors in private and public equity offerings and 5,576,738 shares to NextWave's control group which, based on information provided by NextWave, would dilute NTI's foreign-owned shares to 24.88 percent of its total issued and outstanding shares. NextWave states that the number of shares to be issued in NTI's IPO would exceed the shares required to bring NextWave's capitalization within the foreign ownership benchmark. 91. Until the IPO is completed, the percentage of paid-in capital is speculative. Estimating the purchase price of the additional shares to be between $3.00 and $7.00, based on purchase prices in NextWave's existing financial documents, NTI's foreign capital contribution percentage would decrease to between 25.75 percent and 30.73 percent. NTI would need to raise approximately $287 million dollars in domestic capital to bring NextWave under the foreign ownership benchmark for capital contributions. NTI proposes to raise $300 million through the sale of common stock in its IPO. Successful completion of NTI's IPO as currently proposed, combined with private equity offerings, should infuse enough domestic capital and result in issuance of stock to a sufficient proportion of domestic interest holders for NextWave to come within the Section 310(b)(4) benchmark. 92. If NTI is unable to raise additional capital and issue additional shares of stock through NTI's IPO, it proposes to reform the terms of the Convertible Promissory Notes and Convertible Senior Subordinated Notes so that both sets of instruments meet the criteria for bona fide debt. NextWave states that it would consult with the Commission, as necessary, to identify the appropriate changes and contends that as bona fide debt, the instruments would not be counted for Section 310(b)(4) purposes. Reforming the Convertible Promissory Notes and Convertible Senior Subordinated Notes is necessary if the instruments are to be considered as bona fide debt. Successful reformation of all of the Convertible Promissory Notes and Convertible Senior Subordinated Notes would return NTI's capital structure to its current status: 21.28 percent foreign-owned stock and 30.56 percent paid-in capital. While, upon successful reformation, NextWave would come within the statutory benchmark with respect to stock ownership, we calculate that NTI would need to raise approximately $72 million in domestic capital to bring NextWave within the statutory benchmark for capital contributions. We find that reformation of NTI's notes, standing alone, is insufficient to bring NextWave within the statutory benchmark. Assuming NextWave reforms the terms of the Convertible Promissory Notes and Convertible Senior Subordinated Notes and successfully infuses additional domestic capital from private placement and completion of NTI's IPO, we will then re-evaluate whether NextWave exceeds the Section 310(b)(4) benchmark. 93. In addition, NextWave proposes that, if necessary, NTI will work with its existing domestic investors to facilitate their purchase of a portion of the Convertible Promissory Notes and Convertible Senior Subordinated Notes from foreign investors. While NextWave does not describe the terms of any potential sale, we consider this proposal as a sale of equity to domestic investors. Unless the terms of the instruments are reformed as bona fide debt, we will consider the Convertible Promissory Notes and Convertible Senior Subordinated Notes to be equity even upon selling the instruments to domestic investors. If NTI sells the entire principal amounts of the Convertible Promissory Notes and Convertible Senior Subordinated Notes at face value to domestic investors, upon conversion at $3.00 and $4.00 per share of principal to stock of the Convertible Promissory Notes and Convertible Senior Subordinated Notes respectively, foreign- owned stock would be 16.45 percent of NTI's outstanding stock and foreign capital contributions would be approximately 20.05 percent of the NTI's total capital. 94. NTI further proposes to proceed with a high-yield debt offering concurrently with its planned public offering of equity securities. NTI would use a portion of the proceeds from the debt offering to repay the Convertible Senior Subordinated Notes, which NextWave asserts would eliminate the notes from our foreign ownership calculations and reduce the amount of domestic investment needed to bring NextWave within the statutory benchmark. Including only the Convertible Promissory Notes as equity, NTI's total outstanding stock would be 27.3 percent foreign-owned and foreign paid-in capital would be 38.09 percent of NTI's total capital contributions. 95. Recognizing that repaying the Convertible Senior Subordinated Notes would not bring NextWave fully within the foreign ownership benchmark, NextWave states that in conjunction with its high-yield debt financing, NTI would issue an additional 4,000,000 shares of stock to domestic investors and 906,416 shares to NextWave's control group to bring NextWave within the benchmark. Although not stated, this calculation of additional shares to be issued to domestic investors presumes conversion of the Hughes Note to 11,000,000 shares of common stock as set forth above. We calculate that upon repayment of the Convertible Senior Subordinated Notes and assuming the Convertible Promissory Notes remain equity, NTI would need to raise approximately $281 million in domestic capital to bring NextWave within the statutory benchmark for capital contributions. 96. Finally, NextWave has agreed to establish and strengthen internal procedures to monitor financial transactions to ensure adherence with the foreign ownership benchmark. NextWave will assign one of its corporate officers with the primary responsibility for tracking foreign investment in NextWave; question each private investor in NTI to determine the extent of foreign ownership interests in the investor and make those files available to the Commission; and undertake to conduct periodic surveys of its public shareholders to determine the percentage of its foreign-owned publicly traded shares. 97. Petitioners argue that to reform the terms of the Convertible Promissory Notes and Convertible Senior Subordinated Notes, NTI must modify the conversion price from $3.00 and $4.00 per share respectively, to at least $7.00 per share so that the purchase price of both the Convertible Promissory Notes and Convertible Senior Subordinated Notes is not below the current market price. Petitioners base the $7.00 conversion price on NTI's estimated market value of its shares for its proposed IPO. We disagree. The conversion price relative to the market price is not the determining factor in whether the convertible debt instruments are bona fide debt. Moreover, we will not require use of a set market price, which we leave to the parties in a position to negotiate market terms. In the event the Convertible Promissory Notes and Convertible Senior Subordinated Notes are reformed under NextWave's Restructuring Plan, we will revisit the statutory foreign ownership issue. 98. Petitioners also argue that any sale of the Convertible Promissory Notes or Convertible Senior Subordinated Notes to domestic investors at market value after NextWave receives its licenses would allow foreign owners to reap a profit in contravention of the ECO Test on an equity investment that causes NextWave to be in violation of the foreign ownership benchmark. Again, this argument is speculative because no market value of NTI's stock yet exists. Given the riskiness of the investment, the value of the Convertible Promissory Notes and Convertible Senior Subordinated Notes in a secondary market might just as easily be less than their face value, resulting in a loss to the foreign investors. 99. Once NTI successfully completes its IPO, which proposes to raise $300 million in domestic capital, and infuses domestic capital from private placement in conjunction with reforming all or a portion of the Convertible Promissory Notes and Convertible Senior Subordinated Notes and repaying all or a portion of the Convertible Senior Subordinated Notes, should bring NextWave within the Section 310(b)(4) benchmark. NextWave's Restructuring Plan relies heavily on success of NTI's IPO. NextWave must, therefore, concurrently with its IPO begin to implement the other measures of the Plan to come within the statutory benchmark. 100. NextWave will have six months from the date of the Public Notice to meet the Section 310(b) benchmark in accordance with the terms of its Restructuring Plan. We are allowing six months rather than nine in accordance with our stated goal of rapidly deploying broadband Personal Communications Services. We emphasize, however, that NextWave must come within the Section 310(b) benchmark at the earliest opportunity. Beginning one month from January 3, 1997, NextWave must report to the Bureau on a monthly basis regarding the steps it is taking to meet the Section 310(b)(4) benchmark. In addition, NextWave will promptly provide the Bureau with copies of any correspondence received during the six-month period to or from the United States Securities and Exchange Commission in connection with the proposed IPO described in the Restructuring Plan. NextWave will submit a final report to the Bureau documenting how its ownership and debt structure brings NextWave within the foreign ownership benchmark of Section 310(b)(4). This report will include a detailed listing of the individual and aggregate percentage of foreign-owned shares and foreign capital contributed to NTI or NextWave and all foreign debt interests in NTI or NextWave. 101. We will reanalyze NTI's foreign ownership upon completion of its restructuring within the allotted six month period. If NextWave chooses to retain the Convertible Promissory Notes and Convertible Senior Subordinated Notes in their current form, upon reanalysis, we will consider each set of instruments as equity and not debt. NextWave's failure to bring its foreign investment within the foreign ownership benchmark of Section 310(b)(4) will result in automatic cancellation of NextWave's licenses, absent a showing that it is in the public interest to permit NextWave to exceed the benchmark. Should such a showing be made, we will then determine whether it is in the public interest to allow NextWave to exceed the foreign ownership benchmark in Section 310(b)(4) of the Communications Act. E. Remaining Procedural Issues 1. Request for an Oral Hearing 102. Petitioners request, as an alternative to dismissing NextWave's application, that we designate this matter for an oral hearing to determine Qualcomm's control. Petitioners also suggest that we conduct a hearing to determine the extent of NextWave's foreign ownership. Given the factual record developed, we find that there are no substantial and material questions of fact outstanding, and therefore deny the request. 103. In making a determination as to whether a hearing is warranted, the Commission is governed by the clear mandate of Section 309(d) of the Act. As a preliminary matter, a party requesting a hearing must proffer specific allegations of fact sufficient to show that grant of the application would be prima facie inconsistent with the public interest, convenience, and necessity. If the Commission is satisfied that the party has alleged a prima facie inconsistency with the public interest, the Commission must next determine whether, on the basis of such pleadings filed, a "substantial and material question of fact is presented." 104. In applying the first prong of the hearing standard, the Commission is limited to a consideration of the facts of the request for the hearing and accompanying affidavits. In such instances, we have been instructed to proceed "on the assumption that the specific facts set forth [in the request] are true." In determining whether a party has raised a "substantial and material question of fact," the Commission has broad discretion. Therefore, the Commission "may draw factual and legal inferences from undisputed evidentiary facts and it may determine how much weight to accord disputed facts based on the record before it." From its assessment of the contested issues, the "Commission must [then] determine whether the totality of the evidence arouses a sufficient doubt on the point that further inquiry is called for." 105. We conclude that Petitioners have not met the requirements for which the Commission must conduct an oral evidentiary hearing regarding Qualcomm's role or NextWave's foreign ownership level. Petitioners have not established specific allegations of fact that Qualcomm has an attributable interest in NextWave. Rather, the Petitioners' pleadings regarding the role of Qualcomm in NextWave are purely speculative and contain no factual basis that Qualcomm has control over NextWave. 106. We likewise conclude that Petitioners have not established that "a substantial and material question of fact" exists regarding the extent of NextWave's foreign ownership. The documents and information NextWave produced are sufficient for the Bureau to determine the level of foreign ownership accurately. With respect to the Petitioners' claim that NextWave's foreign ownership level has continually changed throughout the post auction period, it should be noted that NextWave constantly obtained additional financing and properly submitted amendments to its long form application to the Commission. 107. In sum, given the facts derived from the Bureau's investigation through the LOI process, and there being no evidence established by Petitioners that dispute the facts before the Bureau, we conclude that there are no further substantial and material issues of fact outstanding that would warrant granting a hearing under Section 309 of the Communications Act. 2. Ex Parte Issues 108. During the course of this proceeding, NextWave made ex parte presentations to Commission personnel. Specifically, on November 18, 1996, NextWave contacted the Bureau Chief in one telephone conversation and the General Counsel in another, and generally expressed concern about the breadth of the Bureau's LOI, and the length of time for processing the Petition. Pursuant to Commission's rules, on November 19, 1996, the General Counsel prepared a memorandum to the Commission's Managing Director about the call, and on November 22, 1996, the Bureau chief did the same. Pursuant to Commission rules, on November 26, 1996, the Commission's Secretary sent these memoranda to the parties. In response, on December 6, 1996, Petitioners filed comments, and urged that the Commission sanction NextWave either by rejecting its C-block applications, or by assessing a monetary penalty. 109. Although both ex parte conversations went beyond mere status inquiries, both involved little more than issues of timing, and neither involved the merits of Petitioners' allegations. Moreover, the Bureau Chief, the decision-maker at this stage in the proceeding, stated in her memorandum that the Bureau had already planned to take swift action on all remaining C-block license disputes, and that NextWave would not receive any special consideration. Under these circumstances, no sanction is warranted. Petitioners' reliance on cases in which the Commission assessed a sanction against a party whose ex parte communications went to the merits of a restricted proceeding are distinguishable. IV. CONCLUSION 110. For the foregoing reasons, we grant NextWave the 63 C-block PCS licenses for which it was the high bidder at auction, conditioned on NextWave taking the following actions: (1) coming within the Section 310(b)(4) benchmark, in accordance with the terms of its December 30, 1996 Restructuring Plan, within six months of January 3, 1997, the date on which the Bureau issued the Public Notice conditionally granting the licenses; (2) reporting to the Bureau, on a monthly basis, about the steps it is taking to meet the Section 310(b)(4) benchmark; and (3) providing the Bureau with copies of any correspondence to or from the United States Securities and Exchange Commission in connection with the proposed public offering described in its December 30, 1996 Restructuring Plan. V. ORDERING CLAUSES 111. Accordingly, IT IS ORDERED that, pursuant to the authority delegated by Section 0.331 of the Commission's rules, 47 C.F.R.  0.331, NextWave's applications for the 63 licenses for which it was the high bidder are GRANTED, CONDITIONED on NextWave's restructuring to reduce its foreign ownership to less than 25 percent within six months, in accordance with this MO&O. 112. IT IS FURTHER ORDERED that, pursuant to 47 U.S.C.  309(d), Petitioners' Petition to Dismiss or Deny, or Alternatively, to Designate for Oral Hearing is DENIED. 113. IT IS FURTHER ORDERED that NextWave's Motion to Strike Petitioners' Reply is DENIED, and its Motion to Accept its Supplemental Response is GRANTED. 114. IT IS FURTHER ORDERED that Petitioners' Suggestion that NextWave Be Required to Supply Redacted Material is DENIED. 115. IT IS FURTHER ORDERED that Petitioners' Comments on Prohibited Ex Parte Communications, wherein Petitioner suggest that NextWave be sanctioned, is DENIED. 116. IT IS FURTHERED ORDERED that, in light of the Bureau's decision to grant NextWave's applications conditionally, NextWave's motion for a waiver of Section 319(d) is DISMISSED AS MOOT. Michele C. Farquhar Chief, Wireless Telecommunications Bureau APPENDIX A Licenses Conditionally Granted to NextWave Personal Communications, Inc. Market CallSign File Number Name B007 KNLF669 00341-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B010 KNLF674 00351-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B020 KNLF681 00364-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B027 KNLF671 00345-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B029 KNLF652 00307-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B036 KNLF801 00558-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B047 KNLF695 00378-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B051 KNLF646 00294-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B056 KNLF692 00375-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B059 KNLF698 00381-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B074 KNLF656 00315-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B081 KNLF654 00311-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B084 KNLF649 00301-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. Market CallSign File Number Name B093 KNLF699 00382-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B095 KNLF660 00323-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B106 KNLF666 00335-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B110 KNLF802 00566-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B128 KNLF676 00355-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B135 KNLF682 00365-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B159 KNLF693 00376-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B174 KNLF665 00333-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B179 KNLF689 00372-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B189 KNLF690 00373-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B196 KNLF648 00299-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B204 KNLF662 00327-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B212 KNLF667 00337-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B220 KNLF696 00379-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. Market CallSign File Number Name B226 KNLF655 00313-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B235 KNLF694 00377-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B239 KNLF686 00369-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B244 KNLF697 00380-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B252 KNLF672 00347-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B261 KNLF803 00567-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B262 KNLF645 00291-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B263 KNLF661 00325-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B268 KNLF685 00368-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B274 KNLF678 00359-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B289 KNLF687 00370-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B298 KNLF804 00568-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B318 KNLF670 00343-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B319 KNLF688 00371-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. Market CallSign File Number Name B321 KNLF644 00203-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B324 KNLF657 00317-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B329 KNLF663 00329-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B331 KNLF805 00569-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B336 KNLF664 00331-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B350 KNLF650 00303-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B357 KNLF683 00366-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B358 KNLF812 00570-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B361 KNLF684 00367-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B364 KNLF659 00321-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B374 KNLF668 00339-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B376 KNLF677 00357-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B401 KNLF658 00319-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B402 KNLF651 00305-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. Market CallSign File Number Name B408 KNLF680 00363-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B412 KNLF675 00353-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B413 KNLF813 00571-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B428 KNLF679 00361-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B440 KNLF653 00309-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B441 KNLF691 00374-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B461 KNLF647 00297-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC. B480 KNLF673 00349-CW-L-96 NEXTWAVE PERSONAL COMMUNICATIONS INC.