WASHINGTON-The Federal Communications Commission appears to be preparing to take back 63 personal communications service licenses held by NextWave Telecom Inc.
Action could come as early as this week as NextWave is set to go to court for its final reorganization hearing. Objections to NextWave’s reorganization plan were supposed to be filed today, but were delayed to give the government more time to respond to the issue.
The FCC would not comment on the plan to take back the licenses, saying only that the commission is reviewing the opinion by the U.S. Court of Appeals for the Second Circuit and is in the process of determining the appropriate course of action.
NextWave filed for bankruptcy in 1998, rather than participate in an FCC C-block restructuring effort. The case went to trial in April. In a win for NextWave, bankruptcy Judge Adlai S. Hardin Jr. reduced the value of NextWave’s licenses from $4.7 billion to $1 billion.
However, in overturning Hardin’s decision late last year, the Second Circuit said neither the bankruptcy court nor a subsequent district court should have used bankruptcy law to tinker with the FCC’s regulatory process of awarding spectrum licenses.
While the Second Circuit’s decision seems to indicate the FCC has the ability to take back the licenses, other legal cases do not give the government that authority.
“There are previous cases that say that the FCC cannot unilaterally terminate licenses without addressing bankruptcy law,” said Ken Irvin, an attorney associated with the bankruptcy case of C-block licensee Pocket Communications Inc.
If the FCC tries to take the license, it could set in motion a series of events with legal, political and business consequences for the wireless community.
If the commission releases a public notice announcing a re-auction of the licenses held by NextWave, the company is expected to ask for a temporary restraining order, arguing that the licenses are an asset in the bankruptcy case and the bankruptcy automatic stay is still in effect.
If a court granted that order, the NextWave litigation would continue because the FCC would not be able to move forward with a re-auction.
The FCC previously has asked Hardin to lift the stay, but he has always refused.
If the FCC is able to take back the licenses, it must decide whether to keep bidding restricted to small businesses.
Congress specifically said the FCC was to set aside PCS spectrum for small businesses. In the original auctions, C- and F-block licenses were restricted to small businesses, known as designated entities. In previous C- and F-block re-auctions, bidding also was limited to DEs.
This decision likely will create some stir within the wireless community.
The Personal Communications Industry Association believes the spectrum should be reserved for DEs, while the Cellular Telecommunications Industry Association thinks it should be opened to all bidders.
“The big issue for our members is if these licenses come back, what will be the terms and who will be eligible for the re-auction. These issues are of vital, vital interest to our membership, particularly because a lot of our members are small, entrepreneurial, DE carriers,” said Mary McDermott, PCIA senior vice president and chief of staff of government relations.
CTIA disagrees. “If the [FCC] takes back the licenses, this spectrum should be available to any and all bidders. At this point, it is important to get the spectrum out to be used,” said Brian Fontes, CTIA senior vice president for policy and administration.
If the FCC decides to waive or modify its DE rules, it will have to face political issue No. 2: whether to lift the spectrum caps, which limit a wireless carrier from controlling more than 45 megahertz of spectrum in an urban area and 55 megahertz in rural areas. CTIA favors removing the cap.
While the FCC has been adamant in keeping the spectrum cap, it announced last Thursday it would auction spectrum in the 700 MHz band and bidders would not be subject to the spectrum caps.
If the commission chooses to keep the spectrum caps, but waive the DE rules, there could be a perception that only one company is in a financial position to bid and build out the licenses: Nextel Communications Inc.
Nextel announced a deal with the FCC and the Department of Justice in August to allow Nextel to buy NextWave’s licenses. However, those efforts appear on hold today.
