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Archive for Saturday, June 23, 2001

Government violated bankruptcy law, court rules

June 23, 2001

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— The government should not have revoked wireless licenses from a company that went bankrupt, a federal appeals court has ruled, throwing into doubt the results of a recent auction that raised $17 billion for the Treasury.

The U.S. Court of Appeals for the District of Columbia said Friday that federal regulators violated bankruptcy laws when they took back the licenses won in a 1996 auction by NextWave Personal Communications. The company, which participated in a special small business auction, filed for bankruptcy and missed its payment deadlines.

The Federal Communications Commission, arguing that the valuable government frequencies shouldn't be protected by bankruptcy law, took back NextWave's licenses and put them back on the auction block.

Now, the court's action casts doubt on whether wireless firms such as the industry's top player Verizon Wireless, which shelled out billions in January for the contested licenses will get to keep them.

"The FCC and NextWave need to settle this dispute in a way that permits the FCC's auction results to stand, and this spectrum to be quickly deployed," said Denny Strigl, Verizon Wireless president. "It's time for the government to come to a fair resolution."

The commission said it was studying the opinion and its next move. The outcome will be carefully watched by industry players, which aggressively have been competing for added airwaves space to handle the growth of wireless phone, paging and Internet services.

Some analysts think the government will end up working out a settlement with NextWave so that bidders in the re-auction, which include Verizon and companies linked to AT&T Wireless and Cingular, won't lose their licenses. They paid significantly more than the $4.7 billion NextWave bid in 1996.

But on Friday, NextWave insisted that it's ready to pay for and put to use the licenses.

The company said it hopes the court's ruling "marks the end of this litigation, and that it clears the way for us to resume our deployment efforts and begin delivering high quality wireless services to consumers," said Allen Salmasi, chairman of NextWave's board of directors.

The bankruptcy court approved financing this year to allow the company to build out a national wireless network, Salmasi added.

The case, which has bounced between bankruptcy and various circuit courts, traces back to a 1996 small business auction, in which the FCC essentially loaned money to bidders like NextWave by allowing them to pay in installments.

But NextWave, which had filed for bankruptcy, missed its first payment. The commission claimed that under federal communications law, the licenses automatically had to be returned to the government because the company could not pay. The FCC also asserted that the airwaves slices a scarce resource much in demand shouldn't sit unused while the company went through reorganization.

NextWave claimed that the licenses were protected by bankruptcy laws.

Ted Olson, now the Bush administration's solicitor general, represented NextWave in the appeals court in March and cited a provision of the bankruptcy law that says the government can't cancel licenses for not paying "a dischargeable debt."

The court agreed that the FCC's action ran afoul of the bankruptcy laws.

"The commission may not escape that provision's clear command simply because it acted for a regulatory purpose," the unanimous opinion by the three-judge panel said. The court reversed the FCC's decision and sent the matter back to the agency.

The opinion noted that the commission chose to establish a creditor-debtor relationship with the bidding companies. The FCC could have instead required the company to make a full upfront payment and then take out a loan from a third party.

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