Good afternoon, Mr. Chairman and Members of the Subcommittee. I am pleased to

appear before you and offer my professional opinion on the public interest merits of the

NextWave settlement, and the necessity of legislation to secure those benefits for the American

consumer.

As you consider this important matter, and its myriad provisions, I would respectfully

suggest keeping three central points at the forefront of your deliberations:

First, consider what posture the Government actually is in, as opposed to where we all

wish it stood. Under the court ruling, NextWave has a rightful claim to the licenses, and the

Commission's re-auction -- with its glittering bids totaling $16 billion -- has been nullified.

Second, given these circumstances (regrettable though they may be), we must ask if this

settlement nonetheless salvages substantial value for the American taxpayer. The Government

concluded that it does, putting the licenses to work and recovering two-thirds of the proceeds it

would have gotten, had Auction No. 35 not been undermined by the court ruling.

Third, even if the settlement is slightly bitter to swallow, we must ask if there is a better

alternative. The Government concluded that the only other alternative posed greater risks to the

public's interest than did the settlement. In my testimony today, I will elaborate on these

conclusions..2

And, finally, I respectfully request this Subcommittee and the Congress consider an

important issue related to this case-settling with NextWave still leaves a gaping loop hole for

anyone seeking to participate in an auction and then avoid the resulting government debt by

declaring bankruptcy. Spectrum belongs to the public, and I believe that, even if we never

provide for installment payments, it is important for Congress to make clear how spectrum

auctions are to be treated under the U.S. Bankruptcy Code so that these cases never happen

again. Although prospective protection for our auction program is not in the settlement

legislation, now would be a good time to consider enacting language of this nature in order to

provide certainty to all auction bidders, as well as to protect the auction process.

In 1993, Congress authorized the FCC to award licenses for spectrum through a system

of "competitive bidding," or auction. In 1996 and 1997, the Commission held initial auctions for

C-Block and F-Block Personal Communications Services (PCS) licenses. At those auctions,

NextWave submitted the winning bid on 63 C-Block licenses and 27 F-Block licenses for a total

of $4.8 billion. NextWave deposited a $500 million down-payment with the U.S. Government

and agreed to pay the balance ($4.3 billion) over ten years at a favorable interest rate.

Each license granted to NextWave by the Commission was conditioned on NextWave's

full and timely payment of all its installments, and the licenses made clear that failure to make

such payment caused their automatic cancellation. NextWave failed to pay its bid commitments,

instead filing for bankruptcy protection in 1998. NextWave filed to reduce the value of its bids.3

and later fought against license cancellation during the course of its reorganization under Chapter

11 of the Bankruptcy Code.

Over the next three years, the Commission, the United States, NextWave, and others

engaged in intensely fought litigation in numerous courts, including the U.S. Bankruptcy Court,

the U.S. Court of Appeals for the Second Circuit, the U.S. Court of Appeals for the D.C. Circuit,

and the Supreme Court of the United States. The Second Circuit upheld the Commission's

regulatory requirement that there be full and timely payment by NextWave for the licenses. The

Second Circuit also held that the Commission's decision to automatically cancel the NextWave

licenses and to re-auction the licenses was not contrary to bankruptcy law. The court did allow

that any administrative claims about the FCC's actions could be raised in the D.C. Circuit.

Relying on the Second Circuit decision, in January 2001, the Commission re-auctioned the

spectrum previously licensed to NextWave. In that re-auction (Auction No. 35), 21 wireless

carriers bid $15.85 billion for the new licenses.

Unwilling to yield, NextWave petitioned the D.C. Circuit for review of the Commission's

decision to cancel NextWave's licenses for failure to pay. On June 22, 2001, the D.C. Circuit

ruled that the automatic cancellation of NextWave's licenses violated Section 525 of the

Bankruptcy Code, concluding that the Second Circuit opinion did not squarely consider this

provision. The gravamen of the D.C. Circuit's decision was that NextWave was still in

possession of the licenses, raising questions about our having re-auctioned the licenses in

Auction No. 35. The Government has since sought review of this decision in the Supreme Court.

This matter is still pending..4

Given these circumstances, the Department of Justice and the FCC began to explore a

possible settlement of the case. The Government had to find a way to recover the licenses,

distribute them to the many companies that had won them at the re-auction, and secure as much

of the re-auction proceeds as possible. This was no simple task. The talks went on for many

months. I was personally involved in the discussions and regularly kept my colleagues informed

of the progress, so that they would be prepared if Commission action was necessary to finalize

any agreement. In the late stages of the negotiations thorny legal issues and questions of

uncertainty made it clear that it would be very difficult to effectuate any settlement without

legislative action. The parties reached a mutually agreeable set of terms in late November, and a

proposal was almost immediately forwarded to Congress by the Attorney General for your

consideration.

The settlement agreement requires that Auction No. 35 bidders pay the Government the

$15.8 billion that they bid in exchange for receiving the licenses auctioned in Auction No. 35.

The Government will then keep $10 billion in net proceeds and will guarantee by December 31,

2002 to pay $5.8 billion net to NextWave in exchange for its complete release of all claims to the

disputed licenses.

The settlement agreement is contingent upon the passage of legislation, and it includes

draft legislation for Congress to consider. There are several reasons why this legislation is

necessary to effectuate the settlement..5

First, the proposed legislation ensures that Congress has authorized the settlement and the

movement of funds necessary to implement it. The FCC has no checkbook from which it could

pay NextWave to relinquish its licenses. Moreover, even if the Auction No. 35 winners paid the

Government first, it is unclear legally what they would be paying for (given the status of the

auction) and, the Government had no mechanism to turn around and transfer that money to

NextWave. This congressional action is required to empower the Government to execute the

settlement.

Finality was a second and critical factor in reaching agreement. Both NextWave and the

Auction No. 35 winners were unwilling to participate without confidence that after having

reached agreement and forgone other opportunities, the agreement would not be overturned in

court. The proposed legislation attempts to address these issues. It contains a judicial review

provision, patterned on other Acts of Congress, that provides for expedited review, limited to

constitutional claims. Any challenge to the legislation, the settlement agreement itself, or to

actions taken by the Commission would be funneled into one court of appeals (the D.C. Circuit)

and would be on a fast track for review. This provides assurance that the American public will

receive the benefits of the settlement with minimum additional litigation delay.

Third, the legislation provides the guarantee necessary for NextWave to relinquish its

claims on the licenses. In return, NextWave will be paid once the Government receives Auction

No. 35 receipts equal to the payments to be made to NextWave but no later than December 31,

2002..6

settlement agreement. This is not, as some have maintained, an effort to jam the Congress into

agreement. Congress, of course, remains free to consider the deal as it sees fit, and may modify

the terms under its prerogatives. No private contract can limit the legislative power. The date

merely reflects the fragility of the coalition and its interests. The Auction No. 35 winners need

quick resolution in order to justify forgone alternatives, finance the purchase, and plan for the

future. The bankruptcy proceeding continues to march forward and the parties each must take

positions there. Also, the Supreme Court case continues to move forward. The parties felt that

exigencies. I merely ask Congress to keep those risks in mind as it deliberates over the

legislation.

We recognize that the compressed period for analysis and reasoned discussion makes this

task difficult for you and your staff, and we appreciate the attention and care that has already

been shown by Congress in considering this settlement and legislation.

Given the magnitude of this settlement in terms of money and its complexity, it is

challenging to sort through conflicting claims about its merits. I have concluded after long and

substantial examination that this settlement is squarely in the public interest, as has the Attorney

General and the White House. I am convinced because, at bottom, the settlement satisfies three

essential Government objectives:.7

that bid in the re-auction, who can put them to use almost immediately. Increasing

spectrum in the market will partially help address the current spectrum shortage-

improving quality of service and providing capacity for new advanced services, such as

Third Generation or so-called 3G.

years, leaving the spectrum fallow and the treasury empty.

to gain from NextWave ($4.3 billion, paid in installments over 6 years). This money

flows to the U.S. Government at a time that the funds are sorely needed.

The main reason to settle is that settlement is preferable to the alternatives. If the

Commission continues to litigate and the Supreme Court declines to take the case, the decision of

the D.C. Circuit will stand and NextWave will be the licensee. In that scenario, NextWave likely

would elect to continue to pay for the spectrum over time at advantageous interest rates.

Pursuant to the installment payment program, NextWave could pay for the spectrum over six

years at a rate of 6.5 percent for C-Block licenses and 6.25 percent for the F-Block licenses.

That would leave the Treasury with substantially less than the $10 billion in revenues that would

be generated by the settlement..8

Even if the Supreme Court grants the Government's petition for certiorari, the Court

might not rule in the Government's favor on the merits. In addition, even if the Supreme Court

rules in favor of the Government, it might remand the matter to the D.C. Circuit for further

action on several legal issues left unresolved in the panel's initial decision-any of which could

result in NextWave remaining the licensee.

No matter what the outcome, litigation would likely mean years of further delay of the

Commission's ability to grant spectrum licenses for much-needed wireless services for American

consumers. The Commission first auctioned this spectrum in 1996 and 1997, yet the spectrum

has never been used. Even a favorable ruling from the High Court might not arrive until late in

2003. Without a settlement, valuable spectrum may well remain fallow at a time when our

economy and the consumer need it most.

Moreover, even if the Government ultimately prevailed in all litigation, there is

uncertainty about the future value bidders would place on the spectrum given fluctuations in the

marketplace. Several high bidders in Auction No. 35 have indicated that if the settlement does

not go forward and there is further litigation, they should be released from the obligations of

Auction No. 35. They would argue, for example, that they should be entitled to the return of the

$3.2 billion in deposits held in non-interest-bearing accounts by the Government. It is uncertain

at what price this spectrum would sell for at the conclusion of the litigation..9

The Commission and the other parties to the NextWave case have negotiated long and

hard to resolve a matter of critical importance to the American public. We have attempted to

settle this matter in a way that protects the public interest, ensures that the spectrum is put to

prompt use, and guarantees that the American people receive fair value for the spectrum. I

would like to thank the Subcommittee for this opportunity to provide information on the