FCC's Wheeler vows to fix designated entity rules so that huge companies can't get discounted spectrum

FCC Chairman Tom Wheeler said yesterday the agency is going to fix its rules on designated entities to ensure that they benefit truly small businesses and are not used as a front to give discounts on spectrum to multibillion-dollar corporations. Lawmakers, a Republican FCC commissioner and carriers have said that Dish Network (NASDAQ: DISH) manipulated the FCC's designated entity system in its bidding strategy for the AWS-3 spectrum auction to get discounts on airwaves.

During a hearing of the Senate Commerce Committee, Wheeler said the FCC will address the issue before next year's incentive auction of 600 MHz broadcast TV spectrum. "We are going to fix this," he said, according to The Hill. "We are going to issue a new public notice on this to make sure that this specific issue is teed up. We are going to make sure that designated entities have the opportunity to participate and not have designated entities be beards for people that shouldn't."

Numerous lawmakers at the hearing slammed Dish's strategy, which involved partnering in bidding with two designated entities, which ultimately secured more than $3 billion in discounts in the AWS-3 auction. The FCC still reviewing the credits that were awarded and has said no spectrum will be granted to entities that violated the auction rules.

Sen. Claire McCaskill (D-Mo.) called the situation "outrageous," according to The Hill. Further, Sen. Kelly Ayotte (R-N.H.), who penned a Wall Street Journal op-ed on the issue with Republican FCC Commissioner Ajit Pai, told the FCC to "take a very thorough review of what happened here."

"Because it can't upend what we intended with the so-called designated entity program, because it's isn't benefitting truly small and disadvantaged businesses," she said.

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.

Verizon Wireless (NYSE: VZ), along with AT&T Mobility (NYSE:T) and T-Mobile US (NYSE:TMUS), told the FCC in filings earlier this month that the AWS-3 auction, and Dish's bidding strategy, show that the commission needs to take a tougher line on joint bidding.

"To prevent a recurrence in future auctions, the Commission at a minimum should reinforce the existing prohibition against collusion by prohibiting all joint bidding arrangements or other communications about bids or bidding strategies among two or more applicants for the same licenses," Verizon noted. Verizon thinks the only exception should be that "bidders may pool their resources to bid on licenses through a single consortium, subject to advance disclosure requirements."

For its part, Dish has said it "respectfully disagrees" with the criticism of the designated entity program and is confident that it fully complied with the DE rules in the AWS-3 auction, which were approved by the FCC.

"The DE program has been successful in providing much smaller entities the ability to access stronger capital structures, which has facilitated their meaningful participation in an auction process from which they would otherwise be precluded," Dish said in a statement last month after the auction ended.  "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."

For more:
- see this Broadcasting & Cable article 
- see this The Hill article

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