FCC Mulls Dish's Potential "Designated Entity" Rule Breach During AWS-3 Auctions

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The Wall Street Journal has reported that the Federal Communications Commission is considering rejecting credits worth $3.3 billion for two businesses that successfully won spectrum in the recent AWS-3 auction, which appear to be structurally under the control of Dish Network. This credit is associated with two of the business entities that Dish used to bid for spectrum: Northstar Wireless and SNR Wireless. These two businesses made bids amounting to a gross $13.3 billion but as they are considered as “Designated Entities” it means they receive a twenty five percent discount on spectrum purchases. “Designated Entities” are designed to help small businesses such as rural telephone companies, businesses owned by members of minority groups and women participate in spectrum auctions. The discount being asked for is a hefty $3.3 billion. The trouble is that the rules for a Designated Entity is that the bidder must generate less than $15 million annually (measured over the previous three years) and must not be controlled by another entity that makes more than $15 million annually. Dish holds an eighty five percent economic interest into both of these businesses but argues that it does not technically control them, according to the FCC’s rules.

Whilst it’s considered that the commission is weeks away from a formal decision, Dish has come in for considerable criticism from other wireless carriers, lawmakers and even FCC commissioners. It’s argued that Dish manipulated the FCC’s rules and perhaps even the auction itself in order to unjustly claim the $3.3 billion credit. The FCC is expected to put AWS-3 biggers’ “long form” applications out for comment and it’s at this point that others will have ten days to petition that these applications are denied. We understand that last week, Verizon Wireless executives met with FCC officials to express their case that Dish broke the law by utilizing the strategy at the auctions. Verizon said that a round-by-round analysis of the auction shows Dish and its Designated Entities frequently bid on the same licences in the same rounds that other biggers were active and in so doing, created the “false perception that multiple other parties were interested in those licenses…. …this conduct is indicative of a bidding ring, intended to drive out competitors and then suppress rivalry among the ring members.” A Dish spokesperson explained: “We are confident that we fully complied with all legal requirements for the AWS-3 auction, including antitrust law and the DE [Designated Entity] rules, which were unanimously approved by the full Commission.”

We do not have the full facts of the case, the information presented in the report by the Wall Street Journal would suggest that at the very least, Dish behaved in a manner against the spirit of the FCC’s rules. It also seems as though we will have to wait for the summer until we have a ruling from the Commission. Meanwhile, we also understand that the FCC is seeking comment on a range of potential changes to its bidding rules ahead of next year’s 600 MHz low frequency spectrum auction. Some of the proposals would see rule changes designed to specifically block the kind of bidding strategy that Dish employed during the AWS-3 auction.