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Justices ponder how much authority FCC has over auctioned licenses

From Bill Mears (Washington, D.C. bureau)

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WASHINGTON (CNN) -- In a case involving billions of dollars in federal telecom licenses, justices at the Supreme Court Tuesday expressed doubts over the U.S. government's regulatory authority in the face of conflicting federal laws.

At issue, should a telecom company's bankruptcy prevent federal authorities from reauctioning broadband spectrum licenses the company won at a government auction.

The justices must grapple with competing federal laws: between the government's power to regulate and separate bankruptcy laws designed to protect companies from government creditors.

NextWave Communications successfully won a nearly $5 billion bid in 1996 for lucrative radio spectrum licenses the company wanted to use for its high speed Internet and wireless voice communications services.

The Federal Communications Commission, which controlled the licenses and conducted the auction, made the sale conditional on "full and timely" payment. But two years later, NextWave filed for bankruptcy, after paying only 10 percent of its original bid.

After attempts to work out a payment plan with the company failed, the FCC eventually reauctioned the licenses at more than three times the original bid. The company claims federal bankruptcy laws protected it from losing its licenses, since those licenses now represented financial debts, and a federal appeals court agreed. The FCC then appealed to the Supreme Court.

In court arguments, government lawyer Paul Clement said the FCC had a dual role as both regulator and creditor to ensure the licenses were being used by a financially viable company.

"Others stood ready to provide the service," said Clement, since NextWave's financial troubles prevented them from doing so.

But justices questioned whether the FCC could act fairly in both its role as creditor and regulator, since its primary purpose was to sell the licenses to the highest bidder.

"Had there been a settlement, this could have been worked out despite the non-payment" by NextWave, said Justice Ruth Bader Ginsburg.

Lawyers for NextWave argued the FCC had no jurisdiction in bankruptcy proceedings. Non-payment of licenses, said attorney Donald Verrilli "cannot be used to deny the ability in bankruptcy laws for a company to reorganize" its financial problems.

The FCC has since changed its policy regarding installment plans for licenses, to prevent similar problems with NextWave.

The case could have an impact on the way the federal government grants licenses, from livestock grazing permits to the operation of nuclear power plants, particularly in cases involving non-payment of fees or licenses. Many telecom companies are also closely watching the case, because of the still evolving legal and technical standards for the mutl-billion dollar industry.

Justices are expected to rule on the case in the coming month.

The case is: FCC & Arctic Slope Corp. v. NextWave Communications (Case Nos. 01-0653/01-0657)

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