Pocket Communications Inc., which bid $1.4 billion for 43 licenses to offer a new generation of cellular service, said yesterday it took the step voluntarily to protect its assets from a group of creditors after defaulting on $80 million in loans.
One of the licenses is for Honolulu, where the company has opened two offices. Kevin Inda, a Pocket Communications vice president, said the company is still developing a personal communications services (PCS) network in Honolulu.
Pocket is one of several top bidders in the government's $10.2 billion auction that have come under pressure from the high prices and hefty interest payments required to pay for the PCS licenses.
The companies, including No. 1 bidder NextWave Telecom Inc., also have come under strain because of a reluctance on Wall Street to finance PCS ventures.
Pocket is the first company from the pricey 1996 auction known to have filed for bankruptcy protection.
Privately held Pocket's big creditors include a group of Asian entrepreneurs and communications-equipment makers Siemens AG of Germany and L.M. Ericsson of Sweden.
"It enables the company to develop a plan to improve our financial health" while continuing to build a wireless phone system, Pocket Chairman Daniel Riker said of the company's Chapter 11 bankruptcy filing Monday.
Pocket, based in Washington, said it would take "several months" to restructure its finances and business affairs before it would emerge from Chapter 11 on firm financial footing.
The Federal Communications Commission on Monday gave PCS companies from last year's auction some breathing space when it suspended indefinitely a March 31 deadline for them to make payments to the agency.
The FCC took the step while mulling a request from Next-Wave, Pocket and seven other winners to make the payments annually instead of quarterly.
The bids have become loans from the government, with the winners paying interest on the money owed for the licenses.
"When you're out trying to raise capital, investors don't like to see their money go toward interest," said Inda.
The company has had to postpone initial public stock and bond offerings until the market for PCS stocks improve.
Analysts foresee a shakeout in the industry as a host of new players engage in a city-by-city battle for market share with established cellular providers typically owned by big regional Baby Bell companies and long-distance carriers.
Pocket's bankruptcy filing is expected to send a shudder through the ranks of the other auction winners who are trying to drum up money from wary investors.
"Pocket was a respected company that was considered to have put together a sensible plan," said Edward Warner, Washington bureau chief of Wireless Week magazine. "It won't make financing more available."
Pocket said it has about $1 billion in assets, largely the value of its licenses, and about $1.5 billion in liabilities. The latter is largely the long-term debt owed to the FCC.
The company's 43 licenses cover 35 million potential U.S. customers in markets such as Honolulu, Chicago, Detroit, Dallas-Ft. Worth, St. Louis, New Orleans, Las Vegas.
Pocket's financing plans had hinged on an initial public offering planned for last fall. It was postponed because of delays in the FCC auction process, said Riker.
A second shot at an IPO in January fell apart when Wall Street soured on initial offerings in the wireless sector.