Answering a question that came up a lot this week in light of the C-band news, New Street Research analysts say Dish Network should be able to sell its licenses without the government taking the proceeds.
While it may sound like a stretch to tie the C-band to Dish, lines are being drawn, particularly among investment analysts who are fielding questions this week from investors wondering if Dish would be able to sell its spectrum licenses with little FCC objection or sharing of proceeds. After all, Dish's future in wireless is tied to the proposed merger of T-Mobile and Sprint, and that's not yet a done deal.
Earlier this week, Federal Communications Commission (FCC) Chairman Ajit Pai announced he is in favor of a public, FCC-run auction of the C-band spectrum. The same day, Senators Roger Wicker, R-Miss., and John Thune, R-S.D., introduced the 5G Spectrum Act, which also would require a public auction and designate at least 50% of the value of auction revenues be reserved for the U.S. Treasury.
That prompted questions about how much of the C-band auction proceeds ultimately would go to the U.S. Treasury and how satellite companies would be reimbursed for relocation costs and possibly for incentives to cooperate. For example, Bloomberg yesterday reported on FCC Commissioner Jessica Rosenworcel’s comments that the satellite companies are going to be compensated in some way.
The issue of how much money goes to the satellite companies is tied at least in part to the fact the satellite companies didn’t acquire the use of the C-band spectrum through auction. CBA members point out they’ve made a lot of investments in the use of the spectrum, but critics of the CBA continue to say they didn’t pay for it.
Follow the money
“The real issue was never about who would conduct the plumbing of the auction, or about whether the CBA (C-Band Alliance) would sell 200 or 300 MHz of spectrum. It was about who would get to keep the money,” wrote MoffettNathanson’s Craig Moffett in a note to investors Tuesday.
In addition, there’s a distinction between owning a license and owning the spectrum. Sections of the Communications Act of 1996 prohibit a licensee from “owning” the spectrum it uses, according to the New Street team of analysts led by Blair Levin, a former FCC chief of staff. “Nor does a licensee ‘own’ the FCC license granted, which grants the licensee certain ‘spectrum usage rights,’ as defined within the terms, conditions, and period of the FCC license at the time of issuance. But the usage rights conveyed do not constitute an ownership interest in the license,” he wrote in a note to investors today.
Indeed, the FCC prohibits private (non-government) lenders from taking a security interest in an FCC license, he added. “Nonetheless, the specifics of the license do grant usage rights and the FCC cannot reduce the value of those usage rights without raising statutory and constitutional issues,” he said.
All of this is relevant to Dish. While Dish is being set up to become a fourth national facilities-based operator through the merger of T-Mobile and Sprint, if that merger does not make it over the finish line—it’s being contested by more than a dozen attorneys general—then the question of what Dish does with its spectrum comes into play once again.
As both a political and legal matter, Levin said it doesn’t matter if the licenses were or were not obtained in a government auction. Many of AT&T’s and Verizon’s original wireless licenses were acquired by their RBOC predecessors with the breakup of the Bell system in 1984 and were never “auctioned,” he noted. AT&T and Verizon bought many others in private transactions in which the original owner obtained them outside of a government auction and in that way are similar to how Dish obtained its license.
“What matters is the nature of the license,” he wrote. “In the case of C-band, the license is a shared use of spectrum. In the case of the Dish license, it is an exclusive use license that, pursuant to the FCC modification, can be used for terrestrial mobile broadband.” In fact, if one looks at the actual terms of the Dish licenses, the language is largely the same as the licenses owned by the mobile services companies.
“In reviewing the relevant FCC orders, we have found nothing to support the view that Dish’s licenses are subject to restrictions or limitations on Dish’s ability to sell those licenses or that the FCC is entitled to some share of the profits if Dish were to sell those licenses,” he wrote.
Dish acquired access to spectrum in several different ways over the years, including through auctions and through the acquisition of DBSB and TerreStar.
In the case of the C-band license holders, the New Street analysts think the FCC can successfully argue that it is not required to pay more than relocation expenses because the reallocation of 300 MHz of the band still allows all the stakeholders effectively to operate as they did on the whole 500 MHz. The FCC may choose to provide incentive payments for an accelerated spectrum clearing, which likely will be the subject of future debate.
“In the case of Dish, however, we think the FCC could not take any percentage,” they wrote. “In short, the fact that Dish did not acquire the AWS-4 licenses at auction is irrelevant. As the authorized license of the AWS-4 and other spectrum, Dish would be entitled to keep the proceeds if Dish were to sell the licenses.”