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The U.S. Supreme Court ruled in favor of bankrupt wireless company

NextWave Telecom

, and ordered the Federal Communications Commission to return wireless spectrum licenses worth $4.7 billion that NextWave won in a 1996 auction.

In an 8-to-1 decision in favor of NextWave, the Supreme Court said the FCC had acted illegally when it took back NextWave's licenses after the debt-strapped company said it was unable to pay the government. It defaulted on payments after ponying up $500 million.

In early 2001, the government re-auctioned the spectrum to a broad range of carriers including

AT&T Wireless

(AWE)

,

Verizon

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and

Cingular

, garnering an estimated $16 billion in auction fees. Verizon was the top bidder, agreeing to pay up to $9 billion. The FCC agreed to return the deposits to the bidders this year. The airwave slices have been unused during the fight between NextWave and the FCC.

The court ruling said the FCC had acted illegally by snatching the spectrum away from NextWave, as bankruptcy law forbids the agency from repossessing licenses held by a debtor in bankruptcy.

Wall Street analysts were cautiously optimistic over the decision's impact on the wireless-services sector, as they wait to see what NextWave plans to do with its assets. It remains unclear whether the company plans to use its spectrum to re-enter the market to offer high-speed wireless voice and data services, or just sell off its spectrum in side deals with carriers. Calls to NextWave's offices were not returned.

In recent months wireless carriers have been criticized for selling cell-phone services that quite often don't work in densely populated metropolitan areas. Access to lower-cost wireless spectrum may help alleviate such subscriber overcapacity issues, say analysts. NextWave's chunk of spectrum covers an estimated 150 million potential users in several of the top markets across the nation, according to analysts.

"The fact that they issued this ruling in favor of NextWave is a marginal positive for industry, presuming NextWave will sell the spectrum for somewhat less than what the FCC auction

was charging," said Thomas Weisel Partners telecom analyst Ned Zachar.