Dish works to rescue $3.3B spectrum discount on AWS-3 licenses

graph of Dish's spectrum assets
Dish owns a trove of spectrum licenses. (Cowen)

Dish Network this week said it made changes to its relationships with Northstar Wireless and SNR Wireless LicenseCo, the two designated entities that won roughly $13.3 billion in AWS-3 spectrum licenses during the FCC’s 2015 spectrum auction. The moves are an effort by Dish to regain a 25% discount on those licenses—reducing the total cost by around $3.3 billion—by using the FCC’s small business bidding credit for “designated entities,” or DEs.

“Dish and its DEs are one step closer to regaining the US$3.3bn spectrum discount; a win would add ~200 licenses to Dish’s ~100MHz war chest of spectrum, further facilitating an IoT partnership or M&A,” wrote the analysts at Macquarie Capital in a note issued to investors yesterday.

The firm said that the changes to Dish’s relationship with Northstar and SNR include changes to their credit agreements, the termination of both DE’s management services agreement, an dthe termination of both DE’s trademark license agreement. Those actions were made “in an effort to cure the de facto control and prove that they qualify for the 25% (US$3.3bn) bidding credit,” the Wall Street research analysts said. “Negotiations are still ongoing, and we expect the process could last through 2H18/’19.”

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In its filing with the SEC, Dish outlined the complex financial transactions that it took in relation to Northstar and SNR at the end of March. The company also provided a clear look at the events leading up to its latest action, explaining that the FCC in 2015 sought to take away the 25% discount from Northstar and SNR because the agency argued that Dish retained a controlling interest in the firms and therefore should not receive the discount.

However, in August of last year, the United States Court of Appeals for the District of Columbia Circuit ordered the FCC to allow Dish to modify its relationship with Northstar and SNR in order to meet the FCC’s requirements on the topic and therefore regain the 25% discount. As a result, Dish said the FCC in January of this year opened an “Order on Remand” for Dish to allow it to find a “cure” for the situation—thus leading to Dish’s newly reworked financial relationships with Northstar and SNR.

Interestingly, Dish said that it has attempted to meet with FCC officials about the issue, but hasn’t been able.

“SNR Wireless and Northstar Wireless have submitted several requests for meetings with the FCC regarding a Cure. To date, the FCC has responded in writing to one of those requests by declining to grant a meeting and has not responded to the other requests. SNR Wireless and Northstar Wireless have filed a Joint Application for Review of the Order on Remand, which remains pending. We cannot predict with any degree of certainty the timing or outcome of these proceedings,” Dish wrote in its SEC filings.

During Dish’s recent quarterly conference call, Dish’s Charlie Ergen said that the company hopes the FCC’s proceeding will allow it to regain the 25% small business discount on the AWS-3 licenses.

“We're certainly pleased that the court has remanded it back to the FCC, and we're hopeful that we can address the FCC's concerns,” Ergen said, according to a Seeking Alpha transcript of the event. “Obviously we don't believe we've ever controlled these entities, but the FCC has stated some concerns, and so we're pleased that we get to negotiate. We're not really as pleased about the process and public notice, and so forth, but at least we have a chance to address with the DEs their concerns.”

The issue appears critical to Ergen. At the end of last year he stepped down as CEO of Dish in order to focus on the company’s wireless operations. Most recently, Dish said it would allocate up to $1 billion through 2020 to build out an NB-IoT network, a move that’s widely seen as a placeholder effort by Dish in order for the company to retain ownership of its spectrum licenses and meet the FCC’s spectrum build-out requirements.

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