LAWMAKERS, C-BLOCK BIDDERS SIDE WITH NEXTWAVE IN HIGH COURT CASE

Others filing on side of NextWave and against FCC included Sens. Torricelli (D-N.J.) and Schumer (D-N.Y.), who also is on Judiciary Committee. That amicus brief was joined by Assn. of Communications Enterprises (ASCENT), and on House side by Reps. Nadler (D-N.Y.), Graham (R-S.C.) and Conyers (D-Mich.), ranking Democrat on House Judiciary Committee. In filing last month, FCC had stressed tension between Communications Act provisions under which agency carried out spectrum auctions and Bankruptcy Code under which it had operated as creditor in relation to NextWave’s installment payment obligations for licenses. Among points that FCC has raised repeatedly in court arguments is that it was acting as regulator -- rather than creditor -- when it cancelled NextWave’s licenses for nonpayment. D.C. Circuit last year essentially overturned that decision by concluding that Sec. 525 of Bankruptcy Code precluded FCC from cancelling licenses. NextWave stressed to high court Fri. that Sec. 525 contained regulatory exception for Agriculture Dept. and that by failing to stipulate otherwise, Congress didn’t extend similar consideration to FCC. Supreme Court agreed to hear oral argument in case in May.

NextWave also rejected idea that there was conflict in case between Communications Act and Bankruptcy Code. When Congress directed FCC to consider using installment payment systems in helping small business bid for spectrum, it didn’t mandate any particular financing method, NextWave said. Congress also didn’t “grant the FCC any exemption from the normal operation of the Bankruptcy Code, despite the obvious risk of bankruptcy created by installment loans,” company said. “Congress has repeatedly rebuffed efforts by the FCC to obtain a legislative exemption from the Code for its auction-related activities,” brief said. “The FCC lacks the authority to override those judgments in the name of ‘auction integrity’ or any other policy goal.”

NextWave rejected FCC arguments that applying Sec. 525 in manner that D.C. Circuit did would create incentives for future wireless bidders to game auction process by submitting unrealistic bids and later filing for Chapter 11 if they couldn’t pay for them. “The [Bankruptcy] Code prevents windfalls to licensees: if the debtor’s plan of reorganization does not provide for payment of the full amount of the FCC’s claim, the licensee’s equity holders risk losing their stake in the company,” NextWave said. Carrier cited previous Supreme Court decisions that it said stipulated that regulatory condition “that can be satisfied by the payment of money is a debt, and thus the FCC’s effort to assign significance to the dual classification is unavailing.” NextWave told court: “The FCC’s approach would allow governmental creditors to treat obligations as either debts or regulatory conditions as the value of their collateral fluctuates, taking advantage of creditor protections under the Code when the value is low, and seizing the collateral when the value is high.” Separately, carrier also argued against earlier NextWave ruling by 2nd U.S. Appeals Court, N.Y., that held that bankruptcy court lacked power to alter company’s debts to FCC, so they were not dischargeable under meaning of bankruptcy law.

Brief filed by 7 senators and representatives, as well as ASCENT, stressed that Congress previously had considered and rejected proposals that would craft narrow exemption from Sec. 525 for licenses issued by FCC. “The task of balancing the many finely calibrated interests at stake in the Bankruptcy Code is committed exclusively to Congress, and where Congress has spoken plainly to an issue in the Code, the courts should not construe the Code differently for asserted policy reasons,” brief said. Filing said congressional interveners had “strong interest” in high court’s continuing its practice of interpreting Bankruptcy Code strictly as written. ASCENT, which represents wireless resellers, said its interest in case stemmed from sunset of FCC’s wireless resale rule in Nov., which may end requirements that carriers resell wireless service. ASCENT said NextWave’s plans to act as “carrier’s carrier” would provide its members with wireless services on resale basis.

Separate brief on side of NextWave was filed by original C-block bidder Airadigm, which has been awaiting FCC answer on reinstatement of its PCS licensees or clarification of their status. Commission cancelled Airadigm licenses after carrier missed payment upon entering bankruptcy protection in 1999, but unlike NextWave, it already is offering service, to 30,000 customers. Airadigm told Supreme Court that FCC took position in its proceeding, similar to that of NextWave, that licenses were subject to automatic cancellation once payment was missed. Airadigm is joint venture of subsidiary of Oneida Nation and Wisconsin Wireless Communications. Airadigm said its case underscored “absurdity” of FCC license cancellation policy. “It is difficult to see what the FCC would gain by seizing and reauctioning Airadigm’s licenses,” carrier said. “It would terminate service to more than 30,000 mostly rural Americans, reduce competition and destroy a small, rural telephone company owned in part by a minority group,” it said. “Airadigm did not ‘game’ the auction process, but went bankrupt because it forecasted wrong[ly] about the cost of its innovative new technology and how much people would be willing to pay for it.”

NextWave creditors, including official committee of unsecured creditors and BFD Communications partners, also filed in support of carrier in brief written by lawyers who included Harvard U. constitutional law Prof. Laurence Tribe. Creditors committee includes corporate investors such as Sony, Qualcomm and Hughes Network Systems, as well as array of smaller businesses that provided NextWave with equipment and services. Brief said they relied on “the FCC’s long- standing and publicly articulated position that, having chosen to create standard debt obligations as part of its installment payment scheme, it was bound by the same bankruptcy rules as all other creditors.” Filing argued that at time when licenses were increasing in value, FCC “changed its tune” and now wanted “special bankruptcy treatment.” Interveners rejected FCC arguments that applying Bankruptcy Code in way that barred Commission from revoking licenses of bankrupt entity would create incentives for speculation, in part by allowing licensees to seek to renegotiate license terms in bankruptcy court if value of licenses fell. “The government’s argument is both wrong and irrelevant,” brief said. “It is captious to suggest that, because NextWave did not have the full amount of its bid in hand in disposable cash at the time of its bid, it was merely a gambler gaming the system.” NextWave couldn’t meet its payment obligations “not because it had gambled extravagantly” but because starting in 1997, telecom sector saw extensive market downturn.

U. of Pittsburgh School of Law Prof. Kathryn Heidt, who is incoming chmn. of American Bar Assn.’s Business Bankruptcy Committee, urged court in separate brief to consider impact that ruling in support of FCC would have on other bankrupt entities. “Allowing the FCC to revoke the licenses will have profound effects in all bankruptcies in which a governmental unit has issued a license, grant, permit or similar right,” she wrote. “These effects conflict with fundamental bankruptcy goals of debtor rehabilitation, fairness, efficiency and maximization of recovery for creditors and others.”