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Sam Heldman


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Monday, September 23, 2002
Nos. 01-653 and 01-657 FCC v. Nextwave Communications, Inc.

This case is about the perils of the "new economy." The FCC is in charge of doling out chunks of the electromagnetic spectrum, the medium through which our radios and cellphones work. At some point it was decided that it would serve the public interest to have licensees pay for the use of the airwaves. Fair enough, but how much should they pay? Someone stepped in and suggested that the country should get whatever the market would bear for the licenses, so a system of competitive bidding was set up. At the same time, Congress was concerned that small businesses would not be able to afford the huge prices that portions of the spectrum were likely to command.

And that's where the "new economy" comes in. The FCC let small businesses bid more than they could really afford, and allowed them to make "installment payments." Naturally, these small businesses did not feel constrained in what they would bid. With the unprecedented boom and the stock market soaring, Nextwave did not hesitate to bid 4.74 billion dollars for parts of the spectrum.

Now the FCC isn't stupid . . . wait, let me rephrase that: The FCC realized that there were risks in lending unproven startups sums equivalent to the GNP of South America, so they made the licenses contingent upon timely payment of all monies due under the installment plan. Lo and behold, Nextwave could not make its payments and FCC took away its licenses.

Here is the tricky part: Nextwave filed for bankruptcy reorganization. The bankruptcy code contains a provision that ostensibly prohibits a government agency from revoking a license based on the failure to pay an obligation to the agency. Nextwave basically won with this argument in the bankruptcy court twice, which rulings were reversed twice by the Second Circuit Court of Appeals. The FCC decided to re-auction portions of the spectrum previously licensed by Nextwave. The company challenged the decision to re-auction in the D.C. Circuit, which reversed the FCC's license cancellation decision because the bankruptcy code precludes the cancellation.

Now, I know even less about the bankruptcy code than I do about the FCC, and my administrative law backround is, shall we say, sparse. Nevertheless, it seems to me that Congress did not intend to undermine the FCC regulatory scheme when enacting the bankruptcy code. The regulatory purpose of the licensing scheme precludes a finding that the FCC's revocation was "solely" due to Nextwave's inability to pay. The entirety of the spectrum auction process is designed to make the allocation of licenses as fair as possible. The payment terms and even the revocation are designed to further that regulatory purpose. (I know I am skipping a lot of analysis here, but you will just have to bear with me.) Thus, I predict the court will REVERSE.