What ought to happen when a company that bought a chunk of the public airwaves to provide cellular telephone service can't pay its bills? Should it keep its licenses, or should the spectrum revert to the federal government to be sold again?

Yesterday, congressional leaders, joined by the Clinton administration's chief budget officer, huddled inside the Capitol to try to resolve those questions as part of last-minute budget talks that were still running last night.

The dispute resides at the intersection of telecommunications policy, bankruptcy law and the highly competitive wireless telephone business. At the center sits a New York-based company called NextWave Telecom Inc., now in bankruptcy, and the national cellular provider Nextel Communications Inc. of Reston, which is hoping to buy the unused spectrum for as much as $6 billion. For the Clinton administration, now seeking to stave off budget cuts, those dollars would come in handy.

Four years ago, in an auction supervised by the Federal Communications Commission, NextWave bid successfully for the right to transmit wireless phone calls over specific frequencies in markets that together are home to 165 million people. The price: $4.7 billion. But after putting 10 percent down, NextWave declared it had paid too much. It couldn't borrow the money to build out its network. It never paid another dime. Last year, the company landed in bankruptcy.

It is not alone. NextWave secured a part of the spectrum set aside by the government for "small businesses"--defined as those with gross revenue under $40 million. But of the 56 companies that made successful bids, only about 15 are offering service and nine declared bankruptcy, according to the FCC.

The FCC has argued that the airwaves don't belong to NextWave and the licenses should return to the government so someone else can buy them and put them to use, giving consumers more choices and lower prices. The company has asserted that would amount to an unfair confiscation of its property.

So far, NextWave's claims have carried the day. Last year, a federal bankruptcy court in New York found the licenses were worth just over $1 billion, declaring that's all NextWave must pay to get out of hock. The FCC appealed to the Second U.S. Circuit Court of Appeals. There the case sits.

Meanwhile, matters have shifted to Capitol Hill. Last year, Sen. Judd Gregg (R-N.H.) attached an amendment to an appropriations bill that would have returned such licenses to the government when holders go bankrupt. The amendment died in the face of strenuous opposition in the House, particularly House Majority Leader Dick Armey (R-Tex.). He maintains the companies have been victimized by the government.

Others have suggested Armey's real interest is General Wireless Inc., a paging company in his district that claimed small-business spectrum, then landed in bankruptcy--a charge Armey rejects. "There's 50 or more companies affected," said Armey's spokeswoman, Michele Davis. "One happens to be in Texas."

This year, Gregg tried again: Same fate. But last month, President Clinton vetoed the appropriations bill. Among the dozens of reasons he cited: "Currently, $5.6 billion of bid-for-spectrum is tied up in bankruptcy court, with a very real risk that spectrum licensees will be able to retain spectrum at a fraction of its real market value." The issue was back on the table.

If the driving force behind the argument was once policy, it is now clearly about money. Nextel has floated proposals with the FCC, Congress and the bankruptcy court that would have it claim NextWave's licenses after paying the company's stockholders and creditors as much as $2.5 billion, while handing the federal government as much as $3.5 billion.

Nextel's initial proposals were tailored to make it difficult for anyone else to land the licenses, sources said, though Nextel has since removed those restrictions.

Yesterday, the Cellular Telecommunications Industry Association, which represents Nextel's major wireless rivals, floated its own proposal: It would bring the licenses back to the FCC, but allow virtually anyone to bid. The Clinton administration on Monday produced its own proposal, according to Armey's office. It would affect only NextWave's licenses.

NextWave, which is under a gag order imposed by the bankruptcy judge, has portrayed all the proposals as a violation of the original auction rules, since they would waive requirements that the licenses be held only by small businesses.

The ending wasn't clear last night. Armey again declared the issue dead. But with dollars in short supply, the possibility remained that Congress would act.