Dish Network’s (NASDAQ:DISH) affiliates have surrendered US$3.5bn of spectrum licences won at this year’s AWS-3 spectrum auction following the FCC’s recent decision that they do not qualify for small business discounts.
Dish Network’s (NASDAQ:DISH) affiliates have surrendered US$3.5bn of spectrum licences won at this year’s AWS-3 spectrum auction following the FCC’s recent decision that they do not qualify for small business discounts.
The US DTH provider said in an SEC filing that the two affiliates, Northstar Wireless and SNR Wireless, have incurred penalties of some US$526m.
Dish bought US$13.3bn worth of spectrum licences via the two affiliates at the auction – nearly half of those sold – controversially seeking a 25% small business discount. In July, the FCC ruled that the affiliates didn’t qualify for the discounts as they are effectively controlled by Dish.
Dish had until 1 October to decide whether to pay back the US$3.3bn worth of discounts to keep the licences or return the spectrum and incur a penalty.
While Dish has returned the licences, it insists that it is entitled to them and the two affiliates have filed a lawsuit in the US Court of Appeals in Washington asking it to overturn the FCC ruling.
The two affiliates will, however, keep US$9.89bn worth of spectrum licences won at the auction, Dish said. Specifically, Northstar will retain US$5.62bn worth of airwaves, covering about 3.7 billion megahertz per population (MHz-pops), the standard unit for measuring spectrum prices, and SNR will retain US$4.27bn worth, covering about 2.9 billion MHZ-pops.
Together, Dish and its affiliates will have about 75 MHz of spectrum nationwide, covering some 23 billion MHz-pops.
Dish noted that the developments do not preclude it or its affiliates from taking part in future auctions, including any re-auction of the AWS-3 licences returned to the FCC.
The company has maintained that it followed bidding rules and that others have followed similar practices at previous auctions. Commenting on the draft FCC order denying the discounts in late July, Dish executive vice president and general counsel R Stanton Dodge (pictured) said the company’s approach to the auction “followed 20 years of FCC precedent”.
During an August conference all on Dish’s Q2 2015 results, CEO Charlie Ergen argued that the denial of the discounts represented a major blow to competition and had made a merger between his company and T-Mobile US impossible.
He contended that allowing the discounts would have “created a lot of opportunity within the M&A space to get stronger people to compete against the top two guys [telcos AT&T and Verizon], which really have a duopoly today”.
The uncertainty surrounding the discounts, he said, made it “virtually impossible” for Dish to engage in M&A.
Merger talks between Dish and T-Mobile reportedly faltered over disagreements on valuation and deal structure. Determining the value of the huge amount of spectrum Dish has amassed, but not deployed, was considered to be a major stumbling block.
There has been considerable speculation about how Dish will monetise its spectrum.
Macquarie Research analyst Amy Yong said in a note that she thinks Dish is most likely to seek out sale-and-leaseback agreements, although this could prove a “multi-prong, multi-year process”. She predicted that Dish could generate about US$750m-US$800m per annum by leasing about 20 MHz of spectrum to Verizon, for example.
Her colleague Kevin Smithen speculated that AT&T could be interested in buying Dish’s 700 MHz spectrum.
Yong noted that Dish is running out of time to decide what to do with the spectrum as it faces build-out requirements from 2017 onward.
The Dish scenario prompted the FCC to review bidding procedures ahead of the incentive spectrum auction scheduled to begin in March 2016. In mid-July, the commission 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.
