Government vs. NextWave

Supreme Court considers cell phone license battle; decision could affect Sealaska, other Alaska Native corporations

Posted: Wednesday, October 09, 2002

WASHINGTON - The Supreme Court debated Tuesday whether the government was out of line when it seized unused wireless licenses from a young company that promised to provide better, cheaper cell phone service.

The Federal Communications Commission and NextWave Telecom Inc. have been battling over the airwaves slices since the New York company won them in an auction in 1996, then filed for bankruptcy protection before paying for them.

The case is important for consumers because it affects the future of wireless networks in many overcrowded markets.

In Alaska, the case is important because the FCC later resold licenses to several Alaska Native corporations and other companies.

The legal dispute has stalled efforts by Alaska Native Wireless - a joint venture of Juneau-based Sealaska Corp., Barrow-based Arctic Slope Regional Corp., and Fairbanks-based Doyon Ltd. - to build and operate wireless phone systems in places such as New York City, Los Angeles and Denver.

Some justices Tuesday seemed skeptical of claims that FCC rules allow the agency to cancel licenses owned by a company that is reorganizing its finances.

Justice David H. Souter said the commission let NextWave keep its licenses for months without making payments, then seized and resold them when the commission had buyers willing to pay much higher prices.

The Supreme Court's decision is expected to take at least several months. The case involves wireless spectrum in dozens of markets, including Chicago, Los Angeles, New York, Philadelphia, San Francisco, Seattle and Washington.

"This has been an unusually big mess," said Howard Shelanski, a law professor at the University of California, Berkeley. "Consumers should be concerned because any available spectrum could bring them lower prices for existing services and new kinds of wireless services."

For telecommunications companies and investors, huge amounts of money are on the line.

NextWave had agreed to pay $4.7 billion for the frequencies in 1996. The Hawthorne, N.Y.-based company failed to keep up with payments and filed for bankruptcy protection two years later.

The FCC sold the licenses last year to Verizon Wireless, VoiceStream Wireless and other companies at a second auction for nearly $16 billion, but an appeals court nullified the second sale.

The Supreme Court will decide whether the lower court was right.

Paul D. Clement, arguing on behalf of the FCC, said NextWave did not provide services to customers and the government was justified in reclaiming the unused licenses.

Donald Verrilli Jr., NextWave's lawyer, said bankruptcy laws protect companies that are reorganizing their finances from having assets seized.

NextWave was formed in 1995 and promoted a nationwide cellular calling plan and 10-cent-a-minute service, far cheaper than what was offered by large wireless companies. The company still wants a chance to compete for wireless customers.

Rebecca Arbogast, a Washington-based telecommunications analyst for Legg Mason, said the case is being closely followed by the industry, and not just because of the highly coveted licenses at stake.

"There's been an element of drama, rising fortunes and falling fortunes, that tracks the industry in general," Arbogast said. "There's a question of who's going to be left holding the bag and who makes out like a bandit."

In Tuesday's argument, justices said they were mindful that the outcome of the case could affect other situations in which someone has a government license and encounters financial trouble.

Justice Antonin Scalia gave the example of a driver's license being taken from someone whose fines were part of a bankruptcy proceeding.

The cases are FCC v. NextWave Personal Communications, 01-653, and Arctic Slope Corp. v. NextWave, 01-657.

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