Northstar claims move was politically based and goes against tenants of DE program
The Federal Communications Commission’s decision this week to revoke a $3 billion bidding credit tied to Dish Network drew a strong rebuke from one of the designated entities that actually ended up winning the licenses in questions.
Northstar Wireless, which participated in the FCC’s AWS-3 auction as a partnership between Dish Network and Alaska-based Doyon Ltd., said it was “extremely disappointed” in the government’s decision to revoke the bidding credit after Northstar had been approved prior to the auction as a DE and participated in the bidding process under DE rules.
“The DE program was intended to provide greater fairness to minority-owned businesses in an industry virtually devoid of minority ownership,” said Aaron Schutt, president and CEO of Doyon. “The FCC’s decision to deny Northstar Wireless our bid credits not only falls far short of that intent, it moves in the opposite direction. Departing from its own rules and precedent after the conclusion of the auction is patently unfair to us. We have diligently complied with all FCC rules, and structured our entity and agreements consistent with scores of other DEs approved by the FCC. We cannot see how it is possible to comply with rules that change after the fact.”
Doyon is a for-profit entity headquartered in Fairbanks, Alaska, and made up of 13 Alaska Native Regional Corporations established under the Alaska Native Claims Settlement Act. The company states it’s owned by 19,300 Alaska native shareholders and is the largest private landowner in the state.
The FCC decision to revoke the $3 billion in bidding credits was tied to Dish Network’s financial backing of Northstar and SNR Wireless, which combined ended up with more than $13 billion in potential winning bids during the AWS-3 auction proceedings. However, since the licenses were won by the previously approved DEs, a 25% bidding credit knocked down the total amount due to just $10 billion.
Following the close of the record-setting auction, The Wall Street Journal put together a graphic highlighting Dish Network’s relationship to Northstar, showing its tangential controlling stake behind the scenes. The FCC conducted an investigation into the relationship, which found that Dish Network maintained near total control of the entities.
“Dish maintains an extensive level of control over SNR and Northstar, thus eliminating any possibility that they are independent small businesses,” explained FCC Commissioner Ajit Pai, in describing the results of the FCC investigation. “To begin, SNR and Northstar are deeply indebted to Dish. Combined, the two companies generated revenues of $0 leading up to the FCC’s spectrum auction. But as a result of their spectrum purchases, they now owe Dish approximately $10 billion. This leverage alone could lead many reasonably to conclude that Dish would control these entities. But Dish went even further to cement its dominance. Dish entered into about two dozen separate contracts with the two companies. Those agreements give Dish control over nearly every aspect of SNR and Northstar, including decisive input into their policy, financial, employment, business, marketing, technology and deployment decisions. … Taken as a whole, these and the many other controls Dish put in place go far beyond any legitimate protections for an arm’s length investor. They smack instead of the wizard controlling the entire show from behind the curtain.”
The FCC’s DE program allows 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 of nearly $14 billion.
“Small businesses require an on-ramp into the mobile marketplace to provide more choices for consumers,” explained FCC Chairman Tom Wheeler in a statement tied to the bidding credit revocation. “Our competitive bidding rules were designed to do just that – give bona fide small businesses an opportunity to acquire valuable spectrum. … Our review of two winning bidders in the recent AWS-3 auction has concluded that they in fact are not eligible for bidding credits. I’m proud that our thorough, fact-based analysis ensures that bidding credits only go to the small businesses our rules aim to serve.”
Schutt said Doyon was looking into filing an appeal of the FCC’s decision.
Speaking to investors and the media following the release of its second-quarter financial results, Dish Network’s management said the company is looking at various possibilities in terms of its spectrum holdings, including the possible sale or leasing of some of those assets. Dish CEO Charlie Ergen said company options include not paying the FCC, which would incur a 15% penalty on top of potentially other charges; paying the full amount on the licenses excluding the DE discount; or filing a lawsuit against the FCC. Ergen’s further explanation seemed to indicate the company was leaning toward the second option, noting that such a move would then free up Dish and its DE partners to sell or lease that spectrum to other parties.
In looking to stymie such issues moving forward, the FCC formally adopted a Report and Order updating bidding rules for future auctions, including adjustments to the DE process. The rulemaking includes 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 upcoming 600 MHz 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.
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