Did the FCC have the right to confiscate more than 200 wireless communications licenses from NextWave Telecom when the company failed to make payments and filed for bankruptcy protection? Probably not, skeptical members of the Supreme Court indicated at a hearing last week.
The caseâs resolution may determine how much power the FCC has in enforcing the terms of auctions of publicly owned spectrum.
Under federal law, the government cannot revoke a license âsolely becauseâ the holder is in bankruptcy proceedings. The NextWave case focuses on the word âsolelyâ because the FCC contends its revocation was based on issues beyond the basic failure to make payments for the spectrum.
The FCC claims it was acting not as a creditor, but as a regulator in the NextWave case. Thus, as a regulator, the FCCâs attorney argued, it could regard NextWave's failure to make its payments âas a proxy for determining that continued possession of the licenses was not in the public interest.â Therefore, the FCC argued, NextWave's insolvency was not the âsoleâ reason for the confiscation of the spectrum.
âYou say it was a public-interest determination, but there is an economic correlation,â Justice David H. Souter responded to the FCC argument. Souter noted a sharp drop in the market value of NextWaveâs licenses after the original auction. âWhen the value dropped, you (the FCC) said we want our whole $4 billion, and then when it went up, you said we want to re-auction and get the increase in value. That's an economic decision, not regulation.â
The FCC got even less support from Justice Antonin Scalia. âYou're just making up a regulatory purpose,â he said. âThis is a classic case that the bankruptcy code is directed to.â
As the Supreme Court deliberates the case, the market value of the spectrum continues to drop.