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Supreme Court bans FCC from revoking broadband licenses

By Bill Mears
CNN Washington Bureau

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WASHINGTON (CNN) -- In a defeat for the federal government, the Supreme Court Tuesday ordered the return of wireless licenses worth billions of dollars seized from a telecom business that had gone bankrupt.

The court was asked to resolve a conflict among federal laws giving the government the power to regulate, versus bankruptcy laws designed to protect companies from government creditors.

NextWave Communications in 1996 was the successful bidder at a government auction of wireless radio channels. The company's bid of nearly $5 billion was for federal licensing to allow the firm to establish high-speed wireless Internet and voice communications systems.

But the company had trouble making good on the conditional sale requiring "full and timely" payment, and filed bankruptcy after two years and having paid only 10 percent of the outstanding balance.

After attempts to work out a payment plan with the company failed, the Federal Communications Commission took back the licenses and then re-auctioned them, this time drawing more than three times the original bid.

Challenging the revocation, the company claimed federal bankruptcy laws protected it from losing its licenses, since the value of those licenses represented financial debt. A federal appeals court agreed. The FCC then appealed to the Supreme Court.

In its 8-1 opinion, written by Justice Antonin Scalia, the Supreme Court upheld bankruptcy protection as applied to the case, and rejected the FCC's contention it had a "valid regulatory motive" for canceling NextWave's licenses. "In our view, that factor is irrelevant," wrote Scalia.

In his dissent, Justice Stephen Breyer noted the government was being held to an unfair and higher standard when trying to collect debts than that faced by private companies such as car companies and home developers.

"Why should the government (state or federal), and the government alone find it impossible to repossess a product, namely a license, when the buyer fails to make installment payments?"

The New York-based company has since emerged from bankruptcy, and is now free to use the licenses to expand its broadband network in several urban markets. It could also choose to sell those licenses.

In court arguments last October, 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. Justices at the time questioned whether the FCC could act fairly in both its role as creditor and regulator, since the primary purpose of the auction was to sell the licenses to the highest bidder.

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 problems similar to that 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 multibillion dollar industry.

The case is FCC & Arctic Slope Corp. v. NextWave Communications, Nos. 01-0653/01-0657.

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