The Supreme Court's decision to intervene in a 4-year-old dispute between the Federal Communications Commission and wireless carrier NextWave Telecom could have a heavy impact on how the government administers sales of valuable telecommunications spectrum, legal experts say.
The question the court will address is whether the nation's top telecom regulator violated federal bankruptcy laws when it revoked and re-auctioned spectrum licenses from a bankrupt company.
In addition to the legal issues at stake, the decision may determine what becomes of billions of dollars in payments promised for wireless spectrum licenses that the FCC re-auctioned in 2001.
"The FCC would like some re-affirmation that the way they acted is proper," said Roger Golden, an attorney at Fenwick & West who specializes in federal administrative law.
Although the Supreme Court usually accepts only a tiny fraction of the appeals it receives, Golden said it was not surprising the justices agreed to take on the NextWave case because it raises a number of important public policy issues.
The dispute dates back to 1996, when the FCC held an auction to sell spectrum licenses for use in wireless communications services. NextWave was the winning bidder for a large chunk of licenses designated for small businesses, and agreed to pay the FCC $4.7 billion over a period of 10 years.
After making an initial deposit for the licenses, however, NextWave failed to raise money to make installment payments on time and eventually filed for bankruptcy protection.
While NextWave was in bankruptcy, the FCC re-claimed the licenses and held a new auction, collecting nearly $17 billion in bids for rights to the spectrum.
But before the FCC could pass the licenses to the new high bidders, the Washington appeals court ruled that the agency violated federal bankruptcy laws by taking NextWave's spectrum.
The FCC is now preparing to argue before the Supreme Court that the Washington appeals court decision was flawed.
Much of the FCC's legal argument hinges upon its perception of a conflict between the Washington court and the Second Circuit Court of Appeals, another federal court that heard the case. The Second Circuit ruled that a bankruptcy court did not have authority to grant NextWave the right to the spectrum licenses for which it failed to pay on time.
But William Carnell, a lawyer at Latham & Watkins in Washington, did not agree that the two rulings conflicted. The Second Circuit merely said the bankruptcy court was not the proper venue to decide the dispute, he said. The appeals court in Washington is the traditional forum for cases involving the FCC.
Nonetheless, the FCC was predictably pleased with the court's decision to hear its appeal. In a statement issued Monday, FCC chairman Michael Powell said the move "will allow the court to clarify the relationship between public spectrum auctions and the U.S. bankruptcy laws."
NextWave, which had urged the court not to take the case, complained that the Supreme Court's intervention would add further delays to the company's plan to roll out high-speed mobile Internet services using the spectrum licenses.
NextWave's deputy general counsel, Michael Wack, said he still expects the company will prevail when it argues its case.
No timeline has been set for the Supreme Court to release a decision, but NextWave officials said they don't expect a ruling before next year.
The Supreme Court's intervention comes three months after the FCC, NextWave and winning bidders in the 2001 re-auction failed to push through a settlement proposal submitted to Congress late last year. That proposal would have paid NextWave $5.8 billion in return for giving up its claim to the spectrum licenses.
The settlement plan was rejected by members of the Senate Commerce Committee, led by Fritz Hollings (D-South Carolina) and John McCain (R-Arizona). They said the windfall offered to NextWave raised concerns and had not received a full hearing in Congress.
