FCC ASKS SUPREME COURT TO REVIEW NEXTWAVE RULING BY D.C. CIRCUIT
As expected, FCC asked U.S. Supreme Court late Fri. to review June ruling by U.S. Appeals Court, D.C., that had overturned earlier Commission decision to cancel NextWave licenses for nonpayment. Industry observers had expected Commission to take step, although negotiations among stakeholders on potential $16 billion settlement involving licenses were continuing Fri. FCC filed writ of certiorari asking high court to consider whether Sec. 525 of U.S. Bankruptcy Code “conflicts with and displaces” Commission’s rules for congressionally authorized spectrum auctions. Thirty-five-page document said auctions “provide that wireless telecommunications licenses obtained at auction automatically cancel upon the winning bidder’s failure to make timely payments to fulfill its winning bid.”
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FCC cited tension between Communications Act provisions under which Commission carries out spectrum auctions and Bankruptcy Code under which FCC has been operating as creditor because of NextWave’s installment payment obligations. D.C. Circuit had ruled that Sec. 525 of Bankruptcy Code precluded FCC from cancelling licenses. Sec. 525 bars govt. units from revoking licenses of debtor or bankrupt entity solely because they haven’t paid dischargeable debt. Court concluded that agency couldn’t cancel licenses solely because indebted company hadn’t made payment. FCC had argued in D.C. Circuit that 2nd Circuit had held that NextWave license fee obligation wasn’t dischargeable debt because 2nd Circuit had held that as long as NextWave retained its licenses, its payment obligation wasn’t subject to modification. In Fri. filing, FCC contended: “The D.C. Circuit’s decision dramatically expands the reach of bankruptcy law into an area that Congress has traditionally reserved to the Commission and needlessly transforms Sec. 525 into an impediment to the regulatory objectives” established in Sec. 309 of Communications Act.
Commission argued that “the D.C. Circuit’s holding that the Bankruptcy Code supersedes those regulatory requirements and criteria, and that the spectrum licensing decisions must instead be governed by bankruptcy rules and policies designed to regulate debtor-creditor relationships, flatly conflicts with the analysis of the Second Circuit in this very case.” It said 2nd Circuit had concluded that FCC acts in regulatory capacity and can’t be treated as “mere creditor” for bankruptcy purposes when it enforces payment requirements. D.C. Circuit’s reading of how Sec. 525 applies to FCC “substantially thwarts the market-based license allocation mechanism Congress” established in Sec. 309 of Communications Act, agency argued. By overturning results of $16 billion auction of NextWave licenses, agency said appeals court decision “transfers the licenses to entities that value the spectrum less highly and that, under the FCC rules established at Congress’s direction, have forfeited any entitlement to this spectrum.” Court ruling “effectively confiscated the licenses from applicants who stood ready to put that spectrum to its most efficient use.”
Commission argued that D.C. Circuit’s decision bars agency from enforcing rules for full and timely installment payments on licenses, which “frustrates achievement of the central goal of spectrum auctions and prevents the FCC from correcting a demonstrated distortion of the bidding process.” FCC said: “Only by requiring winning bidders to make good on their bid obligations can the Commission prevent speculative or insincere bidding.”
FCC had received additional time from Supreme Court last month to file for NextWave review. Commission had asked for 8 days beyond Sept. 19 deadline, but Supreme Court Chief Justice William Rehnquist gave agency until Oct. 19 to file petition. D.C. Circuit had overturned 1998 decision that cancelled NextWave licenses, throwing into disarray results of Jan. re-auction that involved 90 NextWave licenses. While NextWave had bid $4.7 billion on licenses in 1996, re-auction had produced $15.8 billion in bids from Verizon Wireless, AT&T Wireless-backed designated entity Alaska Native Wireless, Cingular-financed designated entity Salmon PCS, others.