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FCC to Refund Deposits for NextWave Spectrum

The Federal Communications Commission (FCC) will refund approximately $2.8 billion in refunds to the winning bidders for licenses previously issued to bankrupt NextWave Personal Communications Inc., NextWave Power Partners Inc. (NextWave) and Urban Comm-North Carolina, Inc. (Urban Comm). The FCC said late Wednesday the action will give the bidders access to the bulk of their money while at the same time preserving the "results and integrity of the original auction."

The refunds came after 13 wireless carriers petitioned the FCC to return more than $3.1 billion in down payments they put up as part of a (now) expired settlement deal for unused spectrum. The deposits were part of a $15.85 settlement the carriers struck with the government in November, which would have allowed the FCC to reclaim some licenses from the bankrupt holders and re-award them to other carriers.

The FCC auctioned the licenses to use spectrum previously licensed to NextWave and Urban Comm, both of which defaulted on their payment obligations. Nets bids for those licenses totaled approximately $16.3 billion, and the FCC collected down payments totaling approximately $3.3 billion. The United States Court of Appeals for the D.C. Circuit subsequently ruled in NextWave v. FCC that Section 525 of the Bankruptcy Code forbade the FCC from canceling licenses held by NextWave.

The FCC petitioned the Supreme Court to review the case, and the petition was granted on March 4. Prior public notices had made the auction contingent on the final outcome of litigation over the NextWave and Urban Comm licenses.

The Commission said the bidders continue to be bound by their bid obligations. The FCC recognized, however, that it "has some discretion with respect to the amount of down payments it maintains on deposit. The Commission found that petitioners, many of whom are small businesses, may require access to their funds to continue to operate their businesses."

To effectuate the partial refund, the FCC waived its rules requiring that down payments equal to 20 percent of winning bidders' total net bids be held by the FCC until resolution of the licensing process. Instead, the FCC will retain an amount, for each bidder, equal to three percent of that winning bidder's total net bids for the licenses. Three percent represents the minimum amount of money a bidder must pay if it defaults on its bid obligation.

The Commission will maintain the pending status of the applications for these licenses. Should the FCC prevail in the NextWave litigation, winning bidders in the auction will be required to pay the full amount of their winning bids or be subject to default under the Commission's rules.

The FCC also rejected the claim of Verizon Wireless that the delay in licensing entitles it to avoid its obligation to pay the full amount of its winning bids. The Commission stated that by participating in the auction, Verizon assumed a known risk of litigation-related delay and thus continues to be bound by the auction rules. Those rules require all bidders to pay their full bid in the event the Commission is ultimately successful in its litigation and the licenses are issued.