The Federal Communications Commission is preparing to deny DISH Network more than $3 billion in subsidies meant to help small businesses purchase airwaves during an FCC spectrum auction in January, when the company bid through two subsidiaries to acquire discounts intended for small, rural and minority-owned providers.
Earlier this year FCC Chairman Tom Wheeler ordered the agency to investigate the bidding tactics used by DISH to sweep up almost half of all the spectrum licenses available at auction earlier this year. Those airwaves, reallocated from the government and opened up for bidding by wireless providers, are need to fuel Americans’ growing demand for high-bandwidth mobile applications like video streaming or photo uploading.
At the time, DISH coordinated bidding through two smaller providers it owns an 85 percent controlling interest in — Northstar Wireless and SNR Wireless — and came away with 700 of the 1,600 licenses available and $3.3 billion in tax credits intended to help “designated entities” like smaller, rural or minority-owned providers compete with larger national carriers.
DISH, the second-largest television provider in the U.S., which currently offers no wireless broadband services, has since come under heavy scrutiny from industry representatives, lawmakers and the FCC for gaming the system.
The FCC received criticism of its own for allowing DISH’s tactics, so much so the agency voted Thursday to revise the rules surrounding designated entities. Under the new rules, joint-bidding agreements, multiple applications from companies with a single controlling interest and a shared strategy to purchase spectrum are banned in future auctions.
Only small businesses will be allowed to form consortiums, receive business credits and bid as a single joint entity. The updated rules also add a 15-percent bidding credit for rural carriers with 250,000 subscribers or fewer, and place a $150 million cap on credits.
“The report and order adopts common sense reforms to ensure that eligible small businesses and rural service providers are the true recipients of bidding credits,” the agency said in a statement following Thursday’s vote. “In addition, the order provides greater flexibility to smaller companies and rural service providers to build wireless businesses that can spur additional investment in, and bring greater choice to, consumers and businesses across the country.”
While AT&T and Verizon have already received their spectrum assignments from the auction, DISH still has not. In a press conference following the meeting, Wheeler said the agency recently circulated a recommendation on how to proceed on the DISH issue, but declined to comment further.
Citing people “familiar with the matter,” the Wall Street Journal reports the agency is poised to deny the discounts for DISH, which had revenue of $14 billion last year. Its two subsidiaries will still be on the hook to purchase the spectrum at full price unless DISH acquires it directly.
“In what appears to be a major victory for taxpayers, Tom Wheeler and the Federal Communications Commission are reportedly ready to deny more than $3 billion in subsidies to DISH Network after they took advantage of a program that amounted to nothing more than crony capitalism at its worst,” president of the Taxpayers Protection Alliance David Williams said in a statement late Thursday.
“The Taxpayers Protection Alliance applauds this decision to deny these subsidies, and we also hope that going forward the FCC will focus on making sure wireless spectrum auctions preserve free and fair competition as opposed to simply making rules to pick winners and losers. This is a major victory for taxpayers and all companies who want to compete in the auction process.”
Neither Northstar or SNR existed until months before the auction, where each received a 25 percent discount on spectrum as a result of reporting their annual revenue at less than $15 million. Through joint bidding, DISH spent the third-most at auction behind AT&T and Verizon, the two largest wireless carriers in the U.S.
Industry watchers and media expect DISH to challenge any such denial in court, and DISH Chairman Charlie Ergen has maintained his position since the auction’s end that DISH followed the rules.
Any FCC action could also threaten DISH’s plan to acquire T-Mobile. Both companies have asked the FCC to set aside more spectrum exclusively for bidding by smaller carriers during the next auction in 2016 — a request Wheeler is expected to deny.
DISH has not responded to the FCC’s Thursday action.