Dish-related DEs again denied $3.3B in bidding credits

The FCC on Monday announced it has once again determined that SNR Wireless and Northstar Wireless are ineligible for about $3.3 billion in bidding credits sought during the AWS-3 auction.

It wasn’t unexpected. Reports surfaced last week indicating the commission had voted to deny them bidding credits, but the FCC didn’t release its nearly 50-page decision until Monday. FCC Chairman Ajit Pai and Commissioners Michael O’Rielly and Geoffrey Starks released separate statements.

The FCC said it found that Dish Network continues to possess de facto control over SNR and Northstar, which bid in Auction 97 as designated entities (DEs) eligible for bidding credits. As a result of their ties to Dish, the two companies continue to be ineligible for the $3.3 billion in very small business DE bidding credits sought for the licenses they won in that auction.

It’s one of the longer running sagas in the wireless industry and one where most folks have a strong opinion on one aspect or another. The DE program was designed to help smaller and minority-owned businesses participate in spectrum auctions, but critics point to a flawed design that’s led to gaming of the system.

Here’s a brief history of the AWS-3 narrative. Under Chairman Tom Wheeler, the FCC voted in 2015 to deny $3.33 billion in bidding credits to Northstar and SNR. The companies appealed that ruling to the U.S. Court of Appeals for the D.C. Circuit and two years later, the court ordered the FCC to allow the DEs to “negotiate a cure for the de facto control the FCC found that Dish exercise over them,” noted LightShed analyst Walter Piecyk in a blog post last week. Despite that order, “the FCC refused to engage or negotiate with Dish as instructed by the D.C. Circuit. No guidance. No negotiation,” Piecyk wrote.

That jibes with what Dish co-founder and Chairman Charlie Ergen said in a statement after the commission's most recent vote.  

“For Dish, the decision is a setback for an emerging competitor and we are disappointed. The ruling hurts, in part, because we have enormous respect for the FCC commissioners and their public service... We are discouraged that the agency 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. The refusal to be transparent about these requirements departed from decades of precedent governing how the FCC has treated other designated entity arrangements," Ergen said. 

"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. 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," Ergen added. 

Sarah Obed, vice president of external affairs at Northstar parent company Doyon, said Northstar is “deeply disappointed” in the FCC’s decision after following the letter and spirit of the DE laws, regulations and precedent throughout the process.

“Denying bid credits is a blow to both present and future minority-owned business participation in the wireless sector – an express goal of the current Commission and Chairman Pai himself,” Obed said in a statement. During the entire process, the FCC never provided feedback or direction to any of the parties involved, and “this is no way to provide certainty to any business, much less one in possession of a vital and in-demand resource such as wireless spectrum,” she said.

Commissioners weigh in

In his statement, Pia said as he noted in 2015, “Dish’s participation made a mockery of the commission’s designated entity program. 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.”

He acknowledged that the court did remand the matter back to the commission to give the applicants a chance to “cure” Dish’s de facto control over the entities and otherwise come into compliance with the designated entity requirements.    

“After affording the parties ample opportunity to resolve these deficiencies, today we find that they have failed to do so,” Pai said. “Indeed, the exercise has only reconfirmed that Northstar and SNR are not kings of their own destiny, but pawns. For example, even though the two entities are in significantly different positions in terms of their finances and spectrum portfolios, they curiously submitted to the Commission nearly identical revisions to their agreements with Dish Network. These agreements maintain Dish Network’s stranglehold over the two companies’ businesses and restrict the entities’ ability to raise capital, lease their spectrum, or enter into mergers or other corporate transactions.”

O’Rielly said when he first voted on the DE status in August 2015, he agreed with the analysis that Dish exercised control over these two auction participants, making them ineligible for the bidding credits. Upon appeal, the court generally agreed with the commission’s findings but gave the parties an opportunity to cure their previous filings. They did make changes in an attempt to come into compliance with FCC rules.

“While I appreciate their efforts, I agree that these revisions are insufficient to warrant a finding that Dish lacks the ability to unduly influence SNR and Northstar’s operations and decision making,” he said.

It’s not a perfect process and he’s sympathetic to the frustrations of those involved. “But, these were the rules in place at the time, and it is unfortunate that our case-by-case analysis did not give applicants the certainty or transparency they wanted, either prior to the auction or in response to their eligibility being challenged,” he added.

“These procedural flaws were exaggerated, in this case, because the process has inexplicably been mishandled and dragged out for over five years,” O’Rielly said. “All parties deserve quick responses from the Commission, whether they agree with our decisions or not, and whether we agree with the Court or not.  Entities need to be able to make business decisions not only about their spectrum needs but about capital expenditures, and we keep them in limbo by failing to adequately respond in a timely fashion.”

Starks said that while the current agreements between Dish and the companies in this case may have fallen short of the commission’s de facto control prohibitions, “I reiterate my support for the Commission’s Designated Entity program and its accompanying rules. Congress has made it clear that diversity among Commission licensees is critical. The Designated Entity program seeks to create economic opportunities so that our country’s wireless spectrum isn’t strictly controlled by a few large carriers. We must do better.”

RELATED: Verizon gets spectrum boost via Dish connections

VTel Wireless, one of several wireless carriers that opposed efforts by Northstar and SNR to secure bidding credits in the AWS-3 auction, applauded the commission’s decision.

“In one bold stroke, the FCC has upheld the integrity of both its spectrum auction processes and its designated entity program,” said VTel CEO Michel Guité in a statement. “It’s fitting that this decision comes on the heels of the Nobel Committee’s recent decision to award the Prize for Economics to two men — Paul Milgrom and Robert Wilson — who advanced critical improvements in auction theory. Their work has been foundational to the FCC’s decades-long success in raising hundreds of billions of dollars for the American taxpayer. Today’s decision makes clear their work is about more than just raising auction revenue; it’s also about ensuring that auctions are transparent and fulfill the public interest in the broadest possible sense.” 

Last week’s first report on Twitter of the FCC’s decision being a “huge blow” to Dish wasn’t exactly the case, noted New Street Research analyst Blair Levin in a report published over the weekend. In fact, he argued the FCC’s action was moderately good news for Dish and how the process unfolds in the future.

The FCC decision finally gives Dish what it has probably wanted for two years – the right to return to court, Levin wrote. While it’s impossible to know what will happen in court, “the market should understand that Dish and the DEs have a good chance of prevailing in court,” he said.

While disappointed, Northstar and Doyon remain committed to telecom and the wireless sector specifically, Obed said. “It is important to emphasize that Northstar Wireless remains an approved FCC licensee, and retains ownership of significant spectrum assets from Auction 97. We are exploring our options to ensure the door to this important industry is not closed to Doyon and others that may otherwise find the barrier to entry unreasonably high,” she added.