Supreme Court Rules in Favor of NextWave

After a lengthy and contentious legal battle, the Federal Communications Commission lost its bid to repossess spectrum licenses assigned to NextWave Telecom Inc. The U.S. Supreme Court ruled last week that bankruptcy law protects the bankrupt carriers licenses, setting the stage for the long-fallow spectrum to be put to use carrying new wireless services.

In an opinion written by Justice Antonin Scalia, the court said that it is irrelevant whether the FCC had a valid regulatory motive for canceling NextWaves licenses. “What petitioners describe as a conflict boils down to nothing more than a policy preference on the FCCs part for (1) selling licenses on credit and (2) canceling licenses rather than asserting security interests when there is a default. Such administrative preferences cannot be the basis for denying NextWave rights provided by the laws plain terms,” Scalia wrote.

Responding to the ruling, FCC Chairman Michael Powell said the decision brings much-needed certainty to the law. “The Commission will faithfully implement the Courts mandate and looks forward to facilitating the provision of service in these bands to the American people as soon as practicable,” Powell said in a written statement.

The 8-1 ruling was a major blow to the FCC, which fought to take back NextWaves licenses, appealing numerous lower-court decisions, which chided the agency for its stance.

Throughout the battle, the FCC took seemingly self-contradictory positions and issued hasty decisions, which caught the industry by surprise, raised the ire of members of Congress and caused at least one commissioner to chastise his own agency.

The policy missteps began in 1996 with a failed installment payment plan, in which the FCC acted as a creditor of sorts to small businesses bidding on spectrum licenses (known as “C-Block” licenses) at auction. NextWave, based in Hawthorne, N.Y., bid $4.7 billion but declared bankruptcy in 1998 and failed to meet its payments. Many of the C-Block auction winners, determining that the licenses were overvalued at auction, defaulted on their payments or declared bankruptcy.

During the court proceedings, the FCC rejected repeated offers by NextWave to end the wrangling and pay its remaining debt as part of its bankruptcy reorganization. In a move that caught the industry off-guard, the FCC decided in January 2000 that NextWaves licenses had “automatically canceled” in 1998. At the end of 2000, in the midst of an uncertain legal environment, the FCC decided to reauction the licenses and took bids of approximately $16 billion from the major wireless carriers, including Verizon Communications Inc.

Perhaps the most questionable move on the part of the FCC throughout the proceedings was a secret agreement to aid Nextel Communications Inc. in a unilateral effort to buy NextWaves licenses out of bankruptcy in 1999. If the licenses had “automatically canceled” in 1998, as the FCC later maintained, they could not have been transferred to Nextel in 1999. The House Commerce Committee conducted an inquiry into the secret pact, citing “what appears to be a pattern at the FCC of engaging in closed-door deal-making with private parties on matters that affect public interest.”

The FCC did not handle all C-Block licensees in the same manner, which angered many in the industry. Some companies that failed to meet payment terms were allowed to continue operating, and not all the licenses that were deemed to have “automatically canceled” were reauctioned in 2000.