The FCC yesterday announced a settlement with NextWave Communications designed to resolve the messy, six-year spectrum dispute by allowing the bulk of the wireless company’s airwaves to be auctioned for a third time.

Under the settlement proposal, which must be approved by the court overseeing NextWave’s bankruptcy, about 72% of NextWave’s spectrum would be returned to the FCC, which an FCC spokesman confirmed the agency plans to auction. Another 18% of NextWave’s spectrum has been sold to Cingular Wireless in a deal finalized last week.

The settlement proposal would prevent further litigation against the FCC on the matter, according to a press release from the agency.

"After eight long years, we can finally end the litigation and begin the innovation," FCC Chairman Michael Powell said in a prepared statement. "This landmark agreement takes valuable spectrum resources out of the courts and will put it in the hands of consumers who can finally use it."

After bidding $4.8 billion for the spectrum in the infamous C-block auction conducted in 1996, NextWave made a $500 million downpayment but failed to meet the subsequent payment schedule for the airwaves and declared bankruptcy. When the FCC reclaimed the spectrum on the basis of nonpayment, it conducted a 2001 auction that netted bids of $15.85 billion for NextWave spectrum.

However, the winning bidders never received the licenses. Instead, courts ruled that the FCC did not have the right to reclaim the spectrum while NextWave was under bankruptcy protection, and the money bid during the 2001 auction eventually was refunded.

If the settlement deal is approved, NextWave would keep about 10% of its airwaves, which most analysts expect the company will resell as part of its plan to emerge from bankruptcy. Doing so should deliver quite a return for NextWave, because the spectrum it would keep includes airwaves in prime markets—most notably, a 30 MHz swath in New York that generated $5.6 billion in bids during the 2001 auction, according to an analyst report released today from Legg Mason.

"Overall, the spectrum rights in the 25 markets that NextWave will be keeping--which also include Los Angeles, Detroit, Denver, Detroit, Boston, Baltimore, and Washington, DC--attracted bids totaling roughly $7.4 billion in the 2001 auction, or about 46%, of the NextWave total (and a few of the licenses were not on the block that year)," the Legg Mason report states.

"In our view, the quality of the continuing NextWave spectrum will outweigh the quantity of the spectrum being returned to the FCC, which apparently only attracted bids of about $5.2 billion in 2001 (33% of that auction)."