FCC TO ASK SUPREME COURT TO REVIEW NEXTWAVE DECISION

Meanwhile, Commission wants D.C. Circuit to stay issuance of its mandate that would return licenses to NextWave. Circuit court had ruled that Sec. 525 of Bankruptcy Code barred FCC from cancelling licenses of winning bidders that didn’t make timely installment payments while in Chapter 11 proceedings (CD June 25 p1). D.C. Circuit had said that conclusion didn’t frustrate intentions of Communications Act, which didn’t require FCC to select particular licensing scheme. In motion for stay, FCC for first time described how that ruling potentially would thwart underpinnings of its auction system. “The decision interferes with the use of auctions as a practical method of spectrum allocation,” request for stay said. “Although the court has before it the case of a single licensee, the holding has far broader potential consequences.”

Until now, FCC has been tightlipped about what options it would pursue following U.S. Appeals Court decision, with alternatives including filing for rehearing before full D.C. Circuit or pursuing Supreme Court appeal. Aug. 13 is FCC deadline for making decision about D.C. Circuit rehearing and day that circuit mandate would take effect unless stay were issued. “Through this appeal, I also hope the court will clarify how the important public policy goals of the Bankruptcy Code should interact with the equally important public policy goal of ensuring that spectrum is used for the benefit of the American people,” Powell said. Carriers such as Verizon, which bid nearly $9 billion in Jan. re-auction, have been urging settlement of NextWave licenses in proposal that would reimburse that carrier and allow re-auction winners to keep licenses. In recent petition, Alaska Native Wireless, Verizon Wireless and VoiceStream questioned extent to which NextWave could meet licensee requirements such as designated entity qualifications and foreign ownership restrictions (CD July 20 p2).

In request for stay, FCC warned that subsequent court could point to D.C. Circuit ruling and conclude that that interpretation of Bankruptcy Code “means that the statute also forbids the Commission to deny a license for failure by a bankrupt to pay.” FCC said there typically was lag between when auction closed and when winning bidder must make payment. “If an auction winner declared bankruptcy immediately after submitting the winning bid and refused to pay the bid price, the FCC could be forbidden from denying the license,” Commission argued. If bankruptcy court later reduced debt, bidder then would be able to retain its license for less than what it or others had bid, FCC said. That result “directly undermines the market-driven underpinnings of the auction regime,” it said. “Even the possibility that a bidder will not ultimately be held to its bid subverts the process and turns bankruptcy into an auction strategy.”

Request for stay also cited “tension” between previous 2nd U.S. Appeals Court, N.Y., ruling on NextWave and D.C. Circuit’s conclusions. Second Circuit held that NextWave’s full and timely payment obligation was regulatory condition on licenses and that underlying debt couldn’t be discharged by bankruptcy court unless licenses were returned to FCC. (Sec. 525 of Bankruptcy Code bars govt. from revoking license solely because bankrupt entity hasn’t paid debt that is dischargeable.) D.C. Circuit disagreed, holding Sec. 525 barred FCC from enforcing full and timely payment condition that Commission had placed on licenses, agency filing said. Supreme Court needs to resolve “considerable tension” between 2 rulings, it contended.

Request for stay of D.C. Circuit ruling came as NextWave was expected to file revised plan of reorganization by close of business Mon. in U.S. Bankruptcy Court, White Plains, N.Y. (CD Aug 6 p7). Plan has been expected to outline reinstatement of NextWave installment payments and to immediately pay govt. money due for licenses. FCC said that without stay of D.C. Circuit ruling, bankruptcy court could schedule NextWave’s plan to take effect before Supreme Court would have chance to decide issues. That would mean govt. wouldn’t be able to challenge plan, motion said. “That outcome would have significant prejudicial effects on the government,” motion for stay said. It said that outcome would: (1) Remove ability of govt. to ask Supreme Court to review case. (2) Violate “substantial public policy interests” in ensuring that auction participants pay bid prices in full and on time. (3) Result “in spectrum licenses’ being held by a party that has failed to fulfill license conditions.”

NextWave Senior Vp-Deputy Gen. Counsel Michael Wack said it was “extremely disappointing” that Commission had decided to appeal to Supreme Court. “It is past time for the FCC to stop its legal delaying tactics and return the licenses to NextWave Telecom, as instructed by the Court of Appeals,” Wack said. “The court’s decision confirmed that NextWave’s efforts to commercialize its licenses should not have been halted by the FCC.” Wack said this marked 3rd time since July 1999 that NextWave had filed plan of reorganization based on full payments to creditors.

Supreme Court has turned down review of two 2nd Circuit rulings on NextWave. Last year, high court rejected NextWave challenge of May 2000 ruling by 2nd Circuit that concluded Commission was acting as regulator and not debtor when it canceled carrier’s license for missed payment. It also denied certiorari when NextWave sought review of earlier 2nd Circuit decision that backed FCC on value of PCS licenses (CD Oct 11 p8). That appeals court ruling was on U.S. Bankruptcy Court decision that spectrum should be valued at $1 billion instead of NextWave’s original $4.7 billion bid.