For five years, the Federal Communications Commission and NextWave Telecom have engaged in legal wrangling over licenses to offer cellular-phone service over U.S. airwaves.
NextWave, out of Hawthorne, New York, paid the FCC a $500 million deposit on a total of $4.7 billion for 216 wireless spectrum licenses in 1996. But in 1998, it filed for bankruptcy protection and defaulted on the rest of its payments. The FCC then confiscated the licenses and resold them in an auction that ended in January 2001.
Ultimately, after back-and-forth appeals, the case ended up in the Supreme Court. On Monday, the high court ruled 8-1 that NextWave was the rightful owner of the licenses and that the FCC violated federal bankruptcy law in confiscating them.
So that means the public feud is over, right?
Not likely, telecom analysts say.
Analysts and attorneys don't rule out another rumble between the FCC and NextWave, although this time NextWave will be the aggressor, analysts say.
Compared to 1996, today's economy is not just soft, it's downright squishy. NextWave could try to argue that it was deprived of profiting from its spectrum investment while the case was tied up in court, said Seamus McAteer, an analyst with Zelos Group.
"The dynamics have shifted considerably against NextWave," McAteer said. "It could make money, definitely, but it's not going to hit the jackpot it hit after that first auction."
Indeed, for a while, it seemed as though NextWave was going to walk away billions richer for doing nothing more than filing for bankruptcy.
In the months after the FCC confiscated NextWave's spectrum, carriers -- from Verizon Wireless and Cingular Wireless to smaller companies like Alaska's Arctic Slope Regional Corp. -- lined up to take the airwaves off the FCC's hands. They collectively bid $17 billion in an auction that ended in January 2001.
Meanwhile, NextWave challenged the FCC's decision to hold that auction in federal court. After the appeals court ruled in favor of NextWave, the FCC, desperate to gain the funds from the auction and put the spectrum to use, struck a deal with NextWave in November 2001. NextWave would get $5 billion to relinquish all rights to the licenses. In return, the winners of the second auction would pay $15.85 billion and the government would pocket $10 billion for the sale.
But the deal, which required approval from Congress, didn't get a rubber stamp.
Now, it's conceivable, experts say, that NextWave could try to collect damages from the FCC to make up for the loss in value of those licenses.
"It doesn't sound totally off the wall," said Roger Golden, a telecom attorney in Washington. "The attorneys for NextWave will have to do an awful lot of homework."
However, it doesn't appear that more legal action is a high priority for NextWave.
The company, which says it has built infrastructure for a high-speed wireless Internet and calling service in the 95 markets its spectrum covers, plans to start offering its services to consumers.
"Everyone will benefit from achieving finality, putting the litigation behind us, and getting the licenses into use as quickly as possible to provide service to the public and help fuel economic recovery," said NextWave chairman and CEO Allen Salmasi in a statement. "We look forward to a constructive working relationship with the FCC as those goals are finally achieved."
FCC chairman Michael Powell said his agency, too, was "in the process of examining all of the ramifications of the court's decision."
"The commission will faithfully implement the court's mandate and looks forward to facilitating the provision of service in these bands to the American people as soon as practicable," said Powell in a statement.
But analysts say the big question is whether NextWave will be able to put all 200-plus licenses to use.
NextWave couldn't be entering the market at a worse time, McAteer said. The United States is the most competitive cell-phone market in the world with at least six big carriers vying for dominance. Smaller companies like Virgin Mobile, which have marketed their services for months now, "are struggling to sign up more than a few tens of thousands of subscribers," McAteer said.
McAteer said he wouldn't be surprised to see some consolidation among the country's top cell-phone carriers this year.
"2003 will be a year of survival," he said. "A lot of carriers will struggle to survive."
As for NextWave supplying spectrum and infrastructure to other carriers, McAteer doesn't see it coming to pass. Carriers are looking at other cheaper ways to fill gaps in their cell-phone coverage -- such as alternative technology and spectrum swaps, he said.
"It's competitive insanity," McAteer said. "Now, I am not a lawyer, but you have got to imagine that NextWave will have some claim against the FCC for civil damages. The FCC has slowed down (NextWave's) ability to monetize these assets."
Joe Laszlo, an analyst for Jupiter Research said he could see the carriers in spectrum-squeezed cities like New York and San Francisco vying for NextWave's airwaves. But, he said, "NextWave is going to have some trouble receiving the full amount they invested in those licenses to begin with."
While it isn't clear how NextWave will fare from the highest court's ruling, there is a clear loser in this case: the FCC.
For every auction of public airwaves the FCC has held since 1994, the agency has always told the bidders what they can and can't do with the spectrum.
Laszlo said the Supreme Court's message to the FCC was, essentially, that wireless spectrum becomes the private property of the highest bidder, and that the agency can't control what the company does with it.
"(The ruling) puts more constraints on the FCC and its ability to carry out some of the mandates it gets from Congress," Laszlo said. "You could end up with a situation in which all the FCC can do is sell the spectrum and use the proceeds for the public good without saying what the company can do with that spectrum."
