Supreme Court rules in favor of NextWave

The U.S. Supreme Court today in an 8-1 decision upheld a ruling by the U.S. Court of Appeals–D.C. Circuit that said the FCC violated federal bankruptcy law when it cancelled and repossessed the 90 C and F block spectrum licenses won by NextWave in auctions held in 1996 and 1997.

The FCC had cancelled the licenses in January 2000 because NextWave had failed to make timely payments on the $4.8 billion it owed for the spectrum. In fact, it had paid just $500 million of what it owed before filing for bankruptcy protection. In January 2001, the same licenses generated $16 billion in bids when they were re-auctioned by the FCC.

However, the D.C. Circuit forced the FCC to return the licenses to NextWave in June 2001. The FCC filed an appeal of that decision with the Supreme Court in September 2001. The commission also brokered a deal through which NextWave would have received a $5.85 billion settlement, the FCC would have received $10 billion of the $16 billion raised during the re-auction, and the winning bidders in the re-auction would have been allowed to keep the licenses. While the U.S. Department of Justice signed off on the deal, Congress ultimately failed to enact the agreement. As a result, the FCC released all of the re-bidders from their obligations in November 2002 and refunded their deposits.

The D.C. Circuit had said that Section 525 of the federal bankruptcy code prevents a government agency from revoking a license solely because the license holder could not pay the debt. The FCC had argued in its appeal that Section 525 did not apply in the NextWave case because the commission had a “valid regulatory motive” for revoking the licenses. However, Justice Antonin Scalia, writing for the majority, said that Section 525 provides for no such exceptions.

“Such a reading would deprive Section 525 of all force,” he said. “It is hard to imagine a situation in which a governmental unit would not have some further motive behind the cancellation. … Some may think that there ought to be an exception for cancellations for a valid regulatory purpose.”

NextWave Chairman and CEO Allen Salmasi said in a statement that the carrier would put the licenses into use “as quickly as possible.” He said the company had presented to the bankruptcy court three “fully financed” reorganization plans, each of which included provisions for making all spectrum payments to the federal government. Salmasi said the plans had been deferred due to the continued litigation.

“We are extremely pleased with the decision because it clears the way for us to move forward and complete our organization,” Salmasi said.

FCC Chairman Michael Powell said in a statement that the Supreme Court’s decision brought “ much needed certainty to an unsettled area of the law.” Powell added that the FCC would facilitate the provisioning of service in the affected spectrum bands “as soon as practicable.”

According to wireless industry analyst Mark Lowenstein, managing director of Mobile Ecosystem, the ruling paves the way for wireless industry consolidation because “this large and valuable chunk of capacity is no longer in limbo.” However, he added that the pending 3G license auctions would likely be delayed as a result of the ruling, as the major wireless carriers assess its impact.

With reporting by Kevin Fitchard in Chicago.