FCC chair Tom Wheeler has circulated a draft order to deny the US$3.3bn in designated entity discounts sought by affiliates of DTH giant Dish Network (NASDAQ: DISH) at the recent AWS-3 spectrum auction. A majority of commissioners must approve the order…
FCC chair Tom Wheeler has circulated a draft order to deny the US$3.3bn in designated entity discounts sought by affiliates of DTH giant Dish Network (NASDAQ: DISH) at the recent AWS-3 spectrum auction. A majority of commissioners must approve the order for it to go ahead.
According to the draft order, because Dish has a controlling interest in the affiliates – North Star Wireless and SNR Wireless – its own revenues must also be attributed to them. As such, the affiliates are not eligible to receive the 25% bidding credits.
The decision was revealed in an SEC filing by Dish following its meeting with the FCC’s Wireless Telecommunications Bureau. Stanton Dodge, executive vice president and general counsel at Dish, said in the filing that company executives “respectfully disagree” with the draft order.
“Our approach to the AWS-3 auction, which followed 20 years of FCC precedent and complied with all legal requirements, was intended to enhance competition – in the auction and in the marketplace long term,” he said.
“Our investments in NorthStar and SNR helped make the AWS-3 auction the most successful spectrum auction in FCC history, and resulted in more than US$20bn of direct benefit to the American taxpayer.”
To qualify as a designated entity (DE), the bidder must have generated less than US$15m over the previous three years and must not be controlled by an entity that does not also meet that requirement.
The affiliates are, however, entitled to hold the AWS-3 licences, the draft order stated.
It also said that the FCC will not designate the matter for a hearing, or refer it to its enforcement bureau or the Department of Justice.
Dish bought US$13.3bn worth of spectrum via the two affiliates at the auction, which prompted the FCC to review the rules surrounding discounts for DEs and small businesses. Dish has insisted that it followed bidding rules, and that others have used similar DE investment structures at previous auctions.
Last week, the FCC voted to introduce the first ever cap on small business credits at spectrum auctions and prohibit joint bidding and multiple applications by parties with common controlling interests. A vote on broader procedures for next year’s incentive auction has been postponed until 6 August.
If the draft order is approved, Dish could decide to keep the licences and pay the US$3.3bn or return them, and perhaps face penalties, analysts say. The satellite TV operator could also appeal the FCC decision or sue.
New Street Research analyst Jonathan Chaplin said in an investor note that the order is likely to be voted on in the coming days and that his team expects it to be approved by at least three commissioners. Afterwards, he predicts Dish will petition the order unsuccessfully and then sue in the Court of Appeals. In Chaplin’s view Dish is likely to have to pay the US$3.3bn shortly after the order is adopted.
“According to our regulatory counsel, it is tough to handicap Dish’s chances of winning in court because many of the precedents they have relied on have not been tested in court,” he said.
Wells Fargo analyst Marci Ryvicker has said that if Dish decides to return the licences, Wheeler will be in a difficult position.
“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.
Merger talks between Dish and T-Mobile US have reportedly stalled due to disagreements over valuation and deal structure. Determining the value of the huge amount of spectrum Dish has amassed, but not deployed, is considered to be a major challenge.
