High Court Hears Arguments in NextWave Licensing Case

The Supreme Court heard oral arguments Tuesday about whether the government was out of line when it seized unused wireless licenses from a young company that had promised to provide better, cheaper cell phone service.

The case is important because it affects the future of wireless networks in many overcrowded markets.

The Federal Communications Commission and NextWave Telecom Inc. have been battling over the wireless licenses since the Hawthorne, N.Y.-based company won them in an auction in 1996, then filed for bankruptcy protection two years later without paying the full $4.7 billion it bid for the frequencies.

Some justices seemed skeptical of claims that FCC rules allow it to cancel licenses owned by a company that is reorganizing its finances. The agency’s motivations are a central question because it says its regulatory needs let it bypass the normal bankruptcy rules.

Justice David H. Souter said the FCC let NextWave keep its licenses for months without making payments, then seized and resold them when the commission had buyers willing to pay much higher prices.

“It seems that at each point where the FCC made a decision, it made an economic decision rather than a regulatory decision,” Souter said.

The FCC sold the licenses last year at a second auction to Verizon Wireless Inc., VoiceStream Wireless Corp. and other companies for nearly $16 billion, but an appeals court nullified the second sale. The Supreme Court will decide whether the lower court was right.

The high court is expected to take at least several months to decide the case, which involves wireless licenses for Los Angeles, San Francisco, New York, Seattle, Chicago, Washington and dozens of other markets.

The licenses, all but a few of which are in dispute, would give NextWave access to the 10 largest U.S. markets and 172 million potential customers.

“This has been an unusually big mess,” said Howard Shelanski, a UC Berkeley law professor. “Consumers should be concerned because any available spectrum could bring them lower prices for existing services and new kinds of wireless services.”

NextWave’s lawyer, Donald Verrilli Jr., said bankruptcy laws protect companies that are reorganizing their finances from having assets seized.

But Justice Department lawyer Paul Clement argued that the FCC was acting to protect the integrity of its auction process. The agency is seeking to “allocate the spectrum to the party who values the spectrum the most highly,” he said.

Justice Antonin Scalia pointed to a provision in the federal bankruptcy code that says government agencies can’t revoke a license “solely because” the company in bankruptcy proceedings “has not paid a debt that is dischargeable in the case.”

“I consider this a classic case for what this provision of the bankruptcy code was directed to,” he said.

Five other justices also aimed skeptical questions at Clement.

The case is being followed closely by the industry, and not just because highly coveted licenses are at stake, said Rebecca Arbogast, a Washington-based telecommunications analyst for Legg Mason.

“There’s a question of who’s going to be left holding the bag and who makes out like a bandit.”

A victory for NextWave would clear the largest legal obstacle it faces, freeing the company to finish building its network or sell the licenses to a larger company.

NextWave shares, which had lost about 90% of their value in the last year, rose 40 cents, or 26%, to $1.95 on Tuesday in over-the-counter trading.

In Tuesday’s argument, the justices said they were mindful that the outcome of the case could affect other situations in which someone has a government license and encounters financial trouble.

Scalia gave the example of a driver’s license being taken from someone whose fines were part of a bankruptcy proceeding.