AT&T Mobility (NYSE:T) thinks that the record-shattering AWS-3 auction proved that going forward the FCC should more skeptical of companies like Dish Network (NASDAQ: DISH) that bid for spectrum but have not commercially deployed it. AT&T also thinks Dish manipulated the FCC's designated entity system in its bidding strategy for the auction to get discounts on airwaves.
In a company blog post, Joan Marsh, AT&T's vice president of federal regulatory, wrote that the auction, which had gross provisional winning bids of $44.9 billion and net proceeds of $41.329 billion, proved that there is clear demand in the market for licensed mobile broadband spectrum. But she pointed out that Dish, which won 25 MHz of spectrum in the auction to add to its already substantial trove of spectrum, currently does not offer commercial wireless service.
"Given the demands being placed on wireless networks today, the industry simply cannot afford to have significant spectrum resources sitting idle on the sidelines," she wrote. "Auctions should be designed to ensure that licenses go to those willing to deploy networks--not speculators or stockpilers. The FCC has continued to strengthen build requirements but perhaps more is needed to ensure that new capacity is put to use quickly for American consumers."
Dish participated in the auction through three entities: American AWS-3 Wireless, Northstar Wireless and SNR Wireless. American AWS-3 Wireless is a wholly-owned, direct-subsidiary bidding entity for Dish, and it did not win any spectrum in the auction, though it did make bids. Northstar Wireless and SNR Wireless, however, made $13.3 billion in gross provisional winning bids, but they are to pay around $10 billion because they both qualify for the FCC's 25 percent discount for designated entities and small businesses.
Marsh said Dish's bidding strategy upended the auction.
"The Dish entities acting in concert triple and double bid licenses in the auction nearly 4,000 times," Marsh wrote. "During one round of the auction, because of their triple bidding tactics, the Dish entities collectively had close to $30B in bids while their actual financial exposure was only 1/3 of that. None of this suggests independent decision making by either of the DE bidders, which ultimately won over $13B worth of licenses with a $3B 'small business' discount. This conduct circumvented auction activity rules, masked actual demand and distorted the auction. As a result, Dish the corporate entity won NO licenses. The Dish DEs, who each enjoyed a 25% discount, won substantial allocations."
Dish disclosed its joint bidding arrangements with Northstar and SNR ahead of the auction, and has said it is confident that it fully complied with the designated entity rules in the AWS-3 auction, which were approved by the FCC. "Our approach--publicly disclosed ahead of the auction--was based on DE investment structures that have been approved by the FCC in past wireless spectrum auctions, including structures used by AT&T and Verizon (NYSE: VZ)," Dish said in a statement earlier this month. (Marsh rejected that argument, pointing out that AT&T and Verizon haven't used the DE rules for more than a decade.)
Marsh also wrote that "the competitive bidding rules clearly need to be revisited. Fixes can be as simple as requiring joint bidders to participate at auction as a single entity or prohibiting joint bidders from placing competing bids on the same license. Whatever the path, the type of coordinated strategic bidding we saw here needs to be addressed so similar conduct does not cloud the incentive auction."
Marsh also thinks the FCC should revisit the rules for designated entities ahead of the 600 MHz incentive auction, currently scheduled to start in early 2016. She said Dish "manipulated" a program designed to encourage spectrum ownership by small businesses and companies owned by minorities and women.
"The Dish DEs simply do not seem like the type of entities that the FCC had in mind when the DE framework was adopted," Marsh wrote. "The DEs were majority financed by Dish and other institutional investors and the discounts will ultimately inure to their benefit. And, in the end, the Dish DEs ran over other participating DEs, outbidding them repeatedly, particularly in the G-Block which was licensed on a CMA-basis to encourage small player participation. In fact, the Dish DEs outbid non-Dish DEs on 398 licenses for a total of $1.85B in net winning bids."
Marsh added that AT&T does not oppose the DE rules or the purpose for which they were created but that the "complex corporate structure and related coordinated bidding conduct of the Dish DEs merit a fuller review. The FCC should also take a closer look at who the DE subsidies will really benefit in this auction. Such a review is needed to get the DE rules right moving forward."
Dish declined to comment on Marsh's post.
- see this AT&T blog post
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