Dish's designated entities in AWS-3 auction get knocked by NAACP, CWA and others

Petitions are rolling in to the FCC to deny a $3.3 billion discount to two designated entities that partnered with Dish Network (NASDAQ: DISH) during the AWS-3 spectrum auction.

The main argument against granting the 25 percent discount to the designated entities, Northstar Wireless and SNR Wireless, is that they allegedly colluded with Dish during the auction and were essentially fronts for Dish to manipulate the bidding and score a discount on spectrum purchases. The DE rules are aimed at helping small businesses, rural telephone companies, and businesses owned by members of minority groups and women to participate in spectrum auctions. 

The FCC has yet to grant the licenses to Northstar and SNR, in which Dish holds an 85 percent economic interest. Dish's designated entities bid for 702 licenses, winning 25 MHz of total spectrum including 13 MHz of paired spectrum. Dish and the DEs have said they followed the FCC's rules and should be given the DE discounts.

As Broadcasting & Cable notes, more than a half dozen petitions have been filed to deny the discount, including a joint filing by the NAACP and Communications Workers of America. NAACP and CWA, which represents about 700,000 communications workers, praised the DE program. However, they said that the financial ties between Dish and the DEs disqualify them from getting the credits, and that giving them the discount would be unjust. The National Action Network also filed a petition against the credits.

Dish and the two DEs have said they followed the FCC's rules. The comments on the issue will go back and forth until May 26--afterward, the FCC will decide whether the companies will need to pay $13.3 billion instead of $10 billion.

If the DEs do not get the 25 percent discount, Dish CEO Charlie Ergen said on Monday Dish would then be able to acquire the licenses at full price. He also said that, if the DEs do not get the discount, Dish would not have to follow the FCC's rules for DEs that own spectrum. For example, he said Dish would be able to lease more than 25 percent of the spectrum, thus bypassing the FCC rule that DEs can only lease under 25 percent of their spectrum.

The FCC is seeking comment on a range of changes to its bidding rules ahead of next year's incentive auction of 600 MHz broadcast TV spectrum. The FCC's public notice, issued last month, seeks comment on whether it should restrict "larger nationwide and regional carriers, entities with a certain number of end-user customers, and/or other large companies from providing a material portion of the total capitalization of DE applicants or otherwise exercising control over such applicants as part of the definition of 'material relationship.'"

Additionally, the FCC is seeking comment on whether to adopt a presumption that "equity interests of 50 percent or more represent de facto control of the [DE] company."

AT&T (NYSE: T) has been highly critical of Dish's strategy and has put forward its own proposed changes to the DE rules, in conjunction with 25 smaller carriers and small businesses. "In the wake of the AWS-3 auction, there has been a broad, bipartisan call to reform the FCC's Designated Entity, or DE, program," Joan Marsh, AT&T's vice president of federal regulatory, wrote in a company blog post. "When the veil of the auction was lifted, we all learned that some bidders attempted to use the rules to obtain a windfall, and, in the process, prevented the intended beneficiaries of the program--small business and rural telcos--from obtaining valuable spectrum licenses.

AT&T spent $18.2 billion for 251 AWS-3 licenses it says cover 96 percent of the U.S. population.

In a letter AT&T sent this week to Roger Sherman, chief of the FCC's Wireless Telecommunications Bureau, AT&T and the small carriers proposed that eligible auction applicants would be permitted to claim a "Small Business/Rural Telco bidding "credit of 25 percent, but to get the credit "an applicant must be in the business of providing commercial communications services to a customer base of less than 250,000 combined wireless/wireline customers." The applicants must also "have average annual gross revenues for the last three completed fiscal years of $55 million or less." The credit would also be capped at $10 million per bidding entity.

For more:
- see this Broadcasting & Cable article
- see this AT&T blog post
- see this AT&T letter (PDF)

Related Articles:
FCC still reviewing whether to grant Dish partners $3.3B in AWS-3 discounts
Report: Dish's AWS-3 partners might lose out on $3.3B in bidding credits
FCC seeks comment on new rules that would block a replay of Dish's AWS-3 auction bidding strategy 
FCC to probe changes to its designated entity rules ahead of incentive auction
FCC grants AWS-3 spectrum to AT&T, Verizon and T-Mobile, but not yet to Dish's designated entities

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