Dish-backed firms lose $3.3 billion in bidding credits, FCC confirms

The ruling “will no doubt complicate our efforts, but it will not affect our resolve,” says Ergen

The Federal Communications Commission has affirmed an earlier decision which found that two companies essentially posed as independent small businesses in order to receive discounted spectrum prices on behalf of Dish Network, but were in fact controlled and funded by Dish.

The two companies, SNR Wireless LicenseCo and Northstar Wireless, will officially lose $3.3 billion in bidding credits from the FCC — although they won’t actually owe the FCC the money, because they’ve already defaulted on some of the licenses at issue and used those funds to pay full price for the remaining licenses. (If the FCC auctions the licenses in the future, the companies may be liable for any differences between what they were supposed to pay and the actual amount for which the licenses sell.)

FCC Chairman Ajit Pai said that actions of the three companies in the AWS-3 auction “made a mockery of the Commission’s designated entity program” that offers taxpayer-subsidized spectrum prices to small businesses. He said that the two Dish-backed DEs “used their very small business discounts to outbid genuine communications service providers in the heartland, from Nebraska, Kansas, and Oklahoma to Illinois and Vermont. … A program designed to help small businesses was being abused for the benefit of a company worth tens of billions of dollars to the tune of billions of dollars.”

“For DISH, the decision is a setback for an emerging competitor and we are disappointed,” said Charlie Ergen, Dish Network’s co-founder and chairman, said in an emailed statement. He said that Dish believes that it, Northstar and SNR addressed all of the issues related to control and bidding credits, and that the FCC “declined multiple meeting requests over the past two-and-half years so that Northstar and SNR’s applications could be further amended if for any reason they were found to imply de facto control.” He also criticized what he categorized as a “lack of transparency” in the process.

 “Despite today’s decision, we are fully aligned with the FCC on the importance of 5G to grow the economy, promote competition, spur innovation, provide essential network security, and create jobs,” Ergen said. “This ruling will no doubt complicate our efforts, but it will not affect our resolve.  We remain committed to building out the nation’s first Open RAN cloud-native broadband network and restoring American leadership in telecommunications.” 

The dispute dates back to the AWS-3 auction, which began in 2014 and offered 1,614 licenses. Under FCC rules, “designated entities” or DEs, receive bidding credits on spectrum that are essentially discounts, in an attempt to ensure that small companies and new market entrants can compete with deep-pocketed, established players in the ecosystem. But DEs have to be able to prove that they’re independent companies, not just shells through which those large companies can collect even more spectrum; and there are rules governing how soon they can sell their spectrum post-auction so that discounted licenses aren’t just immediately sold for a profit to larger companies.

Northstar submitted winning bids worth more than $7.8 million gross for 345 licenses and SNR won 357 licenses at a gross cost of nearly $5.5 billion. The companies claimed to be “very small” businesses, which would have given them a 25% discount on those license prices — or about $3.3 billion in bidding credits.

According to the FCC, the agency found out after the fact that Dish provided about 98% of the financing for the $13.3 billion in spectrum that the two companies won and that the agreements between the companies gave Dish “extensive control over the companies’ operations, finances, technologies, employees, and policy choices.” In addition, “put” rights to the spectrum “made it inevitable that Northstar’s and SNR’s LLC Managing Members would sell their interests in the companies (and the spectrum licenses) to DISH after five years—i.e., immediately after the unjust enrichment period.” A court decision agreed with the FCC’s findings but said that the three companies should be given a chance to change their agreements so that the two DEs could actually become independent.

When the FCC found that the companies didn’t qualify for the discounts but could still hold the licenses, the two DE companies defaulted on 197 licenses and the amount they had paid for those licenses was used to cover full-price costs of the others.

While the ownership agreements among the three companies have been restructured, the FCC said, the agency said that while the form of that debt to Dish has been altered, the underlying relationships and control has not changed, and the companies are not acting as though the two smaller companies have separate priorities or strategies, right down to identical language in some of their filings.

“The parties’ endgame is as clear today as it was half a decade ago:  DISH Network and its shell bidders want this spectrum at a taxpayer-funded discount.  The Commission’s answer is as clear today as it was half a decade ago:  No,” said Pai in a written statement. “Any well-established business that wants to buy spectrum at an FCC auction is more than welcome to do so through our spectrum auctions (and this FCC has made more spectrum available through auctions and has enabled more participation in those auctions than at any other time in its history).  But they’re not doing it on the taxpayers’ dime; they’re paying full freight.”

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