On January 27, 2003, the Supreme Court delivered its opinion in the NextWave case against the Federal Communications Commission (FCC). As many experts expected, the Court, affirming the decision of the Second Circuit, held that the FCC violated federal bankruptcy law by canceling the spectrum licenses NextWave had purchased in the FCC's C-block and F-block auctions. This decision ended four and half years of litigation by NextWave to retain the licenses. During this time, the valuable spectrum was not available to any wireless service providers to address service quality issues in the busiest wireless markets.
The case began in 1996 when the FCC conducted spectrum auctions for small businesses with less than $500 million in assets. NextWave acquired licenses for 63 C-block and 27 F-block licenses for just under $5 billion. NextWave made a down payment of approximately $500 million, but then, like many other wireless providers at the time, encountered difficulty obtaining additional financing. In 1998, NextWave filed for bankruptcy. When NextWave was unable to make its payments on the licenses later in 1998, the FCC confiscated the licenses and conducted a re-auction of the licenses. Other service providers bid approximately $16 billion for NextWave's licenses. However, the Second Circuit subsequently held that the FCC violated federal bankruptcy law by confiscating the licenses. After this decision, NextWave negotiated a settlement with the FCC whereby the ailing NextWave would receive approximately $5.8 billion of the $16 billion bid for the licenses in the re-auction with the FCC receiving the remainder, approximately $10 billion. The settlement would have made the important spectrum available to consumers immediately. Thus, everyone - NextWave, the FCC, and the consumer - would have benefited. The settlement was supported by the chairman of the FCC, Michael Powell, and approved by the Department of Justice. However, largely because Senator John McCain and Senator Ernest Hollings were concerned that the settlement would undermine the authority of the FCC and benefit NextWave inappropriately, this win-win-win settlement was not approved by Congress. Therefore, the case went to the Supreme Court.
As a result of the Supreme Court decision, NextWave finally controls the spectrum licenses. However, NextWave has not determined whether to use the licenses or to sell the spectrum to other wireless service providers. NextWave executives indicate that the company plans to move forward in building out its network. However, given the company's financial position, network build-out will be difficult. NextWave likely will be forced to sell off at least some of the licenses to maintain solvency. Unfortunately for NextWave, the licenses are not worth what they were when the FCC conducted its re-auction of the licenses. Experts now estimate that the licenses are worth anywhere from less than the approximately $5 billion that NextWave originally bid to approximately $8 billion. If NextWave is able to overcome the financial challenges, the company will face the most competitive wireless market in the world. Many experts consider the U.S. wireless market to be saturated. As a result, smaller carriers are having a hard time getting new customers, and many predict that the six current national providers will shrink to four in less than two years. Thus, the outlook for NextWave remains unclear.
What has this litigation meant to the wireless consumer? Consumers are justifiably frustrated that this spectrum could have been available years ago if the FCC had managed either the bidding or the litigation more effectively. However, consumers will now benefit from the spectrum finally being utilized, whether it is used by NextWave or other service providers. This much needed spectrum will address service quality issues in some of the most crowded wireless markets in the country, and consumers in these markets can rejoice that improved service quality is on the horizon.
The big loser in this litigation is obviously the FCC. The FCC's direct setbacks of the Supreme Court decision are that the FCC's control over spectrum licenses after they have been awarded has been limited, and the FCC will not collect $16 billion for the licenses from other providers. The indirect loser of this litigation, though, is the American tax payer. Congress had the opportunity to end the litigation over a year ago by approving the settlement that had been approved by the Department of Justice. However, Congress failed to follow the legal advice of the FCC lawyers, and rejected the settlement. This mistake cost the government over $5 billion, while forcing a Supreme Court decision that undermined the authority of the FCC. The only objective Congress was successful in achieving was to prevent NextWave from receiving a windfall of approximately $1 billion.
Links
http://telephonyonline.com/ar/telecom_supreme_court_rules/index.htm
http://www.cnn.com/2003/LAW/01/27/scotus.fcc.broadband/index.html
http://www.washingtonpost.com/wp-dyn/articles/A38465-2003Feb6.html
http://www.nytimes.com/2003/01/28/technology/28NEXT.html
http://www.wired.com/news/wireless/0,1382,57419,00.html
http://www.nwfusion.com/news/2001/1212fccwave.html
http://energycommerce.house.gov/107/hearings/12112001Hearing440/hearing.htm
