FCC seeks comment on new rules that would block a replay of Dish's AWS-3 auction bidding strategy

The FCC is seeking comment on a range of changes to its bidding rules ahead of next year's incentive auction of 600 MHz broadcast TV spectrum. Some of the proposed changes include rules that would specifically block the kind of bidding strategy that Dish Network (NASDAQ: DISH) employed during the recent AWS-3 spectrum auction.

The FCC is also seeking comment on how to handle joint bidding arrangements for the incentive auction.

Notably, the FCC is working to address the issues quickly--both initial and reply comments on the issues are due 28 days after they are published in the Federal Register, a much shorter time than most such comment periods.

The FCC's inquiry into bidding rules stems in part from Dish's use of "designated entities" (DEs) in the AWS-3 auction, a strategy that some have criticized as unfair. Dish however has argued that it did not violate any FCC rules. 

The FCC's public notice seeks comment on whether it should restrict "larger nationwide and regional carriers, entities with a certain number of end-user customers, and/or other large companies from providing a material portion of the total capitalization of DE applicants or otherwise exercising control over such applicants as part of the definition of 'material relationship.'"

Additionally, the FCC is seeking comment on whether to adopt a presumption that "equity interests of 50 percent or more represent de facto control of the [DE] company."

Further, the FCC wants to know if it should "limit the total dollar amount of DE benefits that any DE (or group of affiliated DEs) may claim during any given auction, based on some multiple of its annual revenues, or a set cap of $32.5 million to 'ensure that DEs cannot acquire spectrum in a manner that is wildly disproportionate to the concept of a small business.'"

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.

The FCC has yet to grant the licenses to Northstar and SNR, in which Dish holds and 85 percent economic interest. Dish's designated entities bid for 702 licenses, winning 25 MHz of total spectrum including 13 MHz of paired spectrum.

FCC Commissioner Aja Pai said in a statement that the AWS-3 auction taught the market and regulators "some important lessons," on which is that the designated entity program "has become a playpen for corporate giants."

"Indeed, allowing a company like Dish--with annual revenues of approximately $14 billion and a market capitalization of over $32 billion--to benefit from over $3 billion in taxpayer-funded discounts on AWS-3 spectrum makes a mockery of this small-business program. And Dish was not alone," Pai said.

"Abuse of the DE program has robbed actual small businesses of the spectrum they need to serve their local communities," Paid continued "Small, rural operators from Missouri to North Carolina recently explained that the DE program is having a 'devastating impact' on their ability to obtain spectrum and compete. Think about that. This taxpayer-funded program is now being used by Fortune 500 companies to disadvantage the very small companies it was intended to help. This must end."

FCC Commissioner Mignon Clyburn said the agency should not go too far and prevent true small businesses and minority-owned business from getting DE credits in spectrum auctions. "In our zeal to prevent unjust enrichment, I hope we do not lose sight of the other policy goals Congress requires us to promote," Clyburn said in a statement. "This rulemaking gives us the opportunity to address any bidding coordination problems caused by the current rules as we consider the comments in response to the NPRM's proposals. If we are careful and approach this proceeding in a fair and objective manner, I am confident that we will strike the proper balance and realize all of these important public interest goals."

For more:
- see this FCC document (PDF)
- see this Broadcasting & Cable article

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