FCC set to revoke DE bidding credits from Dish Network controlled Northstar, SNR
Dish Network looks set to lose a $3 billion bidding credit it received as part of its controversial action during the Federal Communications Commission’s recent AWS-3 auction.
Dish acknowledged in a Securities and Exchange Commission filing that it met with the FCC this week, at which time it was informed that its ownership stake in a pair of previously qualified designated entities was set to be reviewed by the government entity. If the draft order is approved, Northstar Wireless and SNR Wireless would have their DE status retroactively revoked and lose their 25% bidding credit.
Northstar and SNR were granted DE status prior to the auction as they each reported less than $15 million in annual revenue. DE rules allow for a 15% credit for small businesses, which are those with annual gross revenue of less than $40 million for the preceding three years, and 25% for “very small business,” or those with less than $15 million in annual gross revenue. Dish Network has annual revenue nearing $14 billion.
Northstar and SNR ended up with total auction bids in excess of $13 billion, which was knocked down to just $10 billion with bidding credits.
Following the close of the auction, Dish Network put out a statement highlighting its participation in the process through its partners.
“As part of the auction process, we publicly filed an application to participate as a potential bidder, and Dish invested in two entities that also publicly applied to participate in the auction as designated entities,” Dish stated.
FCC Commissioner Ajit Pai immediately took exception to the activity, followed by concerns expressed by other license winners.
The Wall Street Journal put together a graphic highlighting Dish Network’s relationship to Northstar, showing its tangential controlling stake behind the scenes. That chart also showed a relationship to Alaska native groups, which have been a part of the DE process for years.
The FCC’s DE program has been a flashpoint since its inception ahead of the PCS auctions in the mid-90s. The move was initially an attempt by the FCC to inject more competition into the mobile telecom space, with a focus on minority- or woman-owned small businesses. However, established operators have used the rules to partner with entities granted DE status to get their hands on licenses for a discount, a move that had been expected since the beginning.
The FCC has attempted to curtail abuse of the DE program by setting up build-out requirements for licenses that would force operators to put spectrum to work and keep out those that may look to sit on licenses before flipping them to larger operators. Those requirements have met with limited success as license holders have found ways to meet the rules, while in actuality not offering a commercial wireless service.
DE reform adopted
In looking to stymie such issues moving forward, the FCC this week formally adopted a Report and Order updating bidding rules for future auctions, including adjustments to the DE process.
The rulemaking, which was initially circulated last week and approved on a partisan 3-2 vote, include the establishment of a cap on the total amount of bidding credits a small business or rural service provider can receive, which will vary on a “service-by-service and auction-by-auction” basis. For the incentive auction, the Report and Order looks to adopt a cap of $150 million for small businesses and a $10 million ceiling on the overall amount any single entity can receive in smaller markets.
The Report and Order also adopts a 15% bidding credit for “qualifying” service providers offering commercial services to a customer base of fewer than 250,000 combined wireless, wireline, broadband and cable subscribers, and serve “predominately rural areas.”
Other provisions of the Report and Order include the elimination of rules that previously limited the amount of spectrum a small business can lease. The FCC noted this change would provide more flexibility for small businesses to leverage leasing and spectrum use agreements to “gain access to capital and operational experience.”
The FCC also amended competitive bidding rules to eliminate joint bidding and multiple applications by a single party and parties with common controlling interests except in the case of “limited circumstances.”
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