The FCC has voted to cap the business credits available to small businesses and other designated entities in the 2016 spectrum auction, as part of reforms to bidding rules. The move comes as the FCC is reportedly set to reject the US$3.3bn in discounts…
The FCC has voted to cap the business credits available to small businesses and other designated entities in the 2016 spectrum auction, as part of reforms to bidding rules.
The move comes as the FCC is reportedly set to reject the US$3.3bn in discounts sought by two affiliates of Charlie Ergen’s satellite TV giant Dish Network at this year’s ASW-3 auction.
The FCC said in a statement the first-ever cap on business credits will vary on a service-by-service and auction-by-auction basis.
For next year’s incentive auction, there will be a US$150m cap for small businesses and a US$10m ceiling on the overall amount that any entity, other than a small business or rural service provider, can receive in smaller markets.
After a lengthy review of the Dish scenario, the commission decided the US$13.3bn in winning bids by the two affiliates – North Star Wireless and SNR Wireless – did not qualify for the small business discounts as their conduct violated the broad spirit of the auction rules, the Wall Street Journal reported.
FCC chairman Tom Wheeler has reportedly circulated a draft order stating as much to fellow commissioners.
Such a decision would leave the affiliates, which amassed almost half of the licences sold at the last auction, liable to pay the US$3.3bn. However, Dish, which does not offer mobile services, said in FCC filings before the auction that it could take over the spectrum entirely.
Dish has defended itself against allegations that it violated auction rules, saying that other companies have employed similar practices in previous auctions.
Wells Fargo analyst Marci Ryvicker said in an investor note that it appears the FCC will reject the Dish bidding credits within the next few weeks.
If this happens, she said Dish’s options would be to pay the US$3.3bn (she believes funding wouldn’t be a problem), sue the FCC, or withdraw the licence applications, essentially returning the spectrum to be re-auctioned.
The third option is the most interesting in her view as “it puts Chairman Wheeler in a really tough spot”.
“How will T-Mobile US and Verizon feel should this swathe be re-auctioned at prices below the AWS-3 average?” she asked, adding that this might put enough money back in Ergen’s pockets to seal a deal with T-Mobile US.
Alternatively, the FCC could decide to grant Dish the spectrum under certain conditions, Ryvicker said, noting that this could work in Ergen’s favour if, for example, he is required to write a US$1bn cheque but has no restrictions.
New Street Research analyst Jonathan Chaplin said he thinks Dish is more likely to pay the US$3.3bn to keep the licences than forfeit them. He does, however, expect the satellite TV giant to take the matter to court, noting that the final outcome would not come until long after the 2016 auction, which is set to take place in Q1. He doesn’t expect the Dish case to impact the timing of the next auction unless Dish decides to return the licences, something he considers highly unlikely.
Other reforms
The FCC’s newly adopted rules also prohibit joint bidding and multiple applications by parties with common controlling interests, except in limited circumstances.
They also do away with a rule that limited the amount of spectrum a small business could lease and introduce a 15% bidding credit for qualifying, rurally-focussed operators with fewer than 250,000 customers.
Wheeler said the reforms will “enhance the integrity of the FCC’s auctions and ensure large corporations can’t game the system” as well as help small businesses and rural service providers to compete in the wireless market.
The business credits cap, he noted, will minimise the incentive for large corporations to find smaller entities to bid on their behalf.
The reforms have already attracted criticism, however. FCC commissioner Ajit Pai has argued that they reopen “loopholes” abused in past auctions.
“In particular, this order paves the way for DEs to obtain a 35% taxpayer-funded discount on auctioned spectrum and then turn around and lease 100% of that spectrum to AT&T, Verizon, Sprint or T-Mobile,” he said.
