FCC's Wheeler proposes auction bidding rules that would prevent rerun of Dish's AWS-3 strategy

FCC Chairman Tom Wheeler has circulated to his fellow commissioners new competitive bidding rules for spectrum auctions that would block the kind of bidding strategy that Dish Network (NASDAQ: DISH) employed during the AWS-3 spectrum auction. The proposed rules would cap for the first time the amount of bidding credits small businesses and so-called "designated entities" could get in auctions at $150 million.

Importantly, the proposed rules would also ban joint bidding arrangements between nationwide wireless carriers, something Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) pushed for. They will be barred from bidding together in the incentive auction, and joint bidding agreements that involve a shared strategy for bidding at auction will be barred. Arrangements that are solely operational (such as for roaming or leasing) will be allowed as long as they are disclosed.

Yet responding to Dish's AWS-3 strategy was a key factor in the FCC's new rules. Dish participated in the AWS-3 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. Both Northstar and SNR bid as "designated entities," a designation that receives a 25 percent 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 participate in spectrum auctions. 

Thus, the Dish-designated entity partners are seeking $3.3 billion in discounts. However, 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.

A senior FCC official said Thursday that the agency is still reviewing the designated entities' applications but offered no timeline for when the FCC will make a decision on whether to give the discount.

Dish said it and its designated entities followed the rules, while other carriers, lawmakers and FCC Commissioner Ajit Pai said Dish had gamed the system.

The new rules would limit the amount of spectrum that a designated entity may lease to any of its non-controlling disclosable interest holders, such as investors, during the five-year unjust enrichment period after an auction. The rules would also place designated entities "on notice" regarding the types of investor agreements that raise concerns about which entity is controlling the decisions of a designated entity, according to a senior FCC official.

"In addition to expanding opportunities for small businesses, the modernized rules will increase transparency and efficiency to prevent potential gaming or abuse, as well as protect the integrity of the Commission's auction process," FCC Chairman Tom Wheeler wrote in a blog post on the FCC website. "In particular, we establish the first-ever cap on the total value of bidding credits, minimizing an incentive for major corporations to try to take advantage of the program. We must also make sure that small businesses receiving credits are exercising independent decision-making authority. We will not allow small businesses to serve as a stalking horse for another party."

In terms of other joint bidding rules, the proposed rules would permit designated entities to participate in consortia with other designated entities, resulting in a single bidder. Non-nationwide carriers will be allowed to participate in joint ventures with other non-nationwide operators. However, the FCC will prohibit multiple applications by one party and by parties with common controlling interests, subject to certain exceptions, such as if a group of rural carriers form a consortium.

A rural carrier will qualify for a 15 percent bidding credit if it has 250,000 subscribers or fewer and serves primarily rural areas. The rules also remove the policy that requires small businesses to provide facilities-based service in order to qualify for bidding credits.

For more:
- see this FCC blog post
- see this Reuters article
- see this WSJ article (sub. req.)
- see this Re/code article

Related articles:
FCC seeks comment on new rules that would block a replay of Dish's AWS-3 auction bidding strategy
FCC's Wheeler vows to fix designated entity rules so that huge companies can't get discounted spectrum
Verizon joins AT&T, T-Mobile in asking FCC to take a tougher stance on joint bidding
AT&T slams Dish's AWS-3 auction bidding strategy, suggests rule changes for incentive auction
Sprint, T-Mobile urge FCC to allow for joint bidding arrangements in 600 MHz auction