The U.S. Court of Appeals for the D.C. Circuit has backed the FCC's decision that Northstar Wireless and SNR Wireless were under Dish's control when they successfully bid $13 billion in wireless licenses in the AWS-3 auction, and thus did not qualify for the over $3 billion in bidding discounts that brought the price down to $10 billion.

The two companies teamed with Dish to acquire $10 billion worth of spectrum licenses in the auction. But the FCC subsequently concluded that Dish's majority financial interest in the companies were controlling interests that should be attributable to Dish, which meant the companies were ineligible for the $1.9 billion (Northstar) and $1.4 billion (SNR Wireless) bidding credits they had applied for.

Dish had put up most of the $10 billion.

The companies appealed the FCC decision to the D.C. Circuit, which in August 2017 upheld the finding that Dish exercised de facto control, but also held that the FCC, under then chair Tom Wheeler, failed to notify the companies that if the FCC found they did not qualify for the credits, worth billions of dollars, the FCC would not give them a chance to cure that problem and instructed the FCC to correct.

The FCC provided that chance to cure the problem, but still ruled the subsequent new filings did not change its conclusion that Dish was both he biggest investor and in de facto control of Northstar and SNR and so did not deserve the designated entity bidding credit.

Also: Dish Makes Case for AWS-3 Bids

The companies then challenged that 2020 decision (under Republican Chairman Ajit Pai) in the D.C. circuit, saying the FCC "flouted this court’s orders in SNR Wireless by not working closely enough with them to reduce Dish’s control, wrongfully found them to be controlled by Dish, and penalized them without fair notice."

Wrong, wrong and wrong, the court said Tuesday in upholding the FCC. It said the FCC had provided the requisite opportunity to cure and "reasonably applied its precedent to the companies and gave them fair notice of the legal standards that it would apply in analyzing their claims to be very small companies," claims the FCC rejected. ■

A federal court has upheld the FCC's determination that Dish had de facto control over AWS-3 winning bidders SNR and Northstar.

The FCC denied designated entity (DE) bidding credits to the companies--some $3.3 billion worth--which would have lowered the bid to $10 billion, after which the companies said it could not pay for all of the licenses, paying full price for some and turning back others, which the FCC allowed them to do.

The AWS-3 auction raised over $40 billion and paid for the FirstNet broadband emergency network in the process.

"Under the totality of the circumstances, we believe that the FCC acted reasonably and consistently with   its Wireless Bureau’s decisions when it held that DISH had de facto control over SNR and Northstar," wrote Judge Cornelia Pillard in the decision, which was rendered by a three-judge panel comprising Judges Pillard and Janice Rogers Brown and senior Circuit Judge Stephen F. Williams.

But the U.S. Court of Appeals for the District of Columbia panel also found that the FCC did not give those companies sufficient notice that, if their relationship cost them the credits, the FCC would not give them a change to cure that de facto control.

"Because the FCC did not give clear notice that such an opportunity would be denied, we conclude that an opportunity for petitioner to renegotiate their agreements with DISH provides the appropriate remedy here," the court said.

The court remanded the matter back to the FCC saying it needed to give those companies a chance to negotiate a "cure" of that control, which presumably could mean reinstating the credits.

Dish is ready to pitch in. ""We are pleased this has been referred back to the FCC," the company said in a statement. "We look forward, along with NorthStar and SNR, to working with the FCC to address any concerns they may have.”

The FCC had argued against providing a cure, saying it would disincentivize compliance since companies could just seek the credit and haggle post-auction. The court disagreed, saying "nothing in our decision requires the FCC to permit a cure. That choice lies with the FCC. But if the very opportunity to seek one is to be foreclosed, applicants must have clear, advance notice to that effect."

“Today’s D.C. Circuit decision explains in painstaking detail why the Commission reasonably determined that DISH abused a program designed to help small businesses," said Tina Pelkey, press secretary to FCC Chairman Ajit Pai. "This is an important victory for American taxpayers. In the AWS-3 auction, the two entities claiming over $3 billion in taxpayer-funded discounts were not independent small businesses, but rather under the control of DISH. Going forward, we need to make sure that this program is available only to legitimate small businesses that actually control their own destinies.” 

Dish had put up most of the money for the two to bid $10 billion on wireless spectrum licenses in the AWS-3 wireless spectrum auction. The licenses were actually worth $13.3 billion, but SNR and Northstar sought designated entity bidding credits as diverse owners. The FCC denied that credit--after they had already bid--due to Dish's investment and plans to run the network. 

The court signaled that if the companies extricate themselves sufficiently from Dish to the FCC's satisfaction, they could qualify for the $3.3 billion break and reclaim those licenses. If not, the FCC will have to re-auction that $3.3 billion worth of spectrum.

Harold Feld of Public Knowledge, which filed an amicus brief in support of essentially what the court concluded--that the FCC had the authority to deny the credits, but should have given Dish and the companies the chance to cure the problem--was, not surprisingly, pleased with the decision.

"I'm pleased the court agreed with our analysis," Feld told Multichannel News/B&C. "As we noted in our amicus, the DE credit put licenses in the hands of competitors, and into constituted the single largest win of FCC licenses by minority-owned businesses (both SNR and Northstar are minority owned as defined by the Commission).

"Second, we hope that the FCC will move expeditiously to negotiate with DISH to provide adequate independence for the DEs and put the spectrum into productive use -- especially on behalf of a potential new entrant into terrestrial wireless. Whatever personal feelings then-Commissioner Pai and others may have expressed about DISH's conduct previously, the court has made it clear that DISH is entitled to the opportunity to cure the defects the FCC found in its DE agreements. To the extent people feel DISH unfairly exploited a loophole, the FCC has long since closed the loophole. It's time to put this matter to rest and get the spectrum out as quickly as possible."

Dish Network chairman and CEO Charlie Ergen briefed about 80 analysts at a meeting in the Denver suburbs June 2, addressing some of the more pressing issues that have weighed on the company in recent months and offering hope that the time may be nigh for Dish to finally monetize its highly valuable wireless spectrum.

According to analysts that attended the meeting in a hotel near Dish’s Englewood, Colo., headquarters, Ergen didn’t offer any new information, but his reassurance that Dish is on pace to meet its spectrum buildout requirements, reinvigorated a bullish outlook for the company.     

“The time to revisit this name is RIGHT NOW,” Wells Fargo media analyst Marci Ryvicker, who attended the meeting, shouted in a note to clients June 3. Ryvicker added that “transformational talks” among wireless players could begin after the current Federal Communications Commission 600 MHz broadcast spectrum auctions are completed. In her note, she said the “path to monetization will begin in [2018] AT THE LATEST.”

That is the period when Dish can finally begin unencumbered talks with potential partners/lessors for its spectrum, to either build the network out with a partner, lease the licenses to a third party or sell them outright.

According to Ryvicker and other analysts, because of federal regulations around the auction process to prevent collusion among wireless bidders, Dish was unable to hold substantive talks with any major provider that participated in spectrum auctions. The government has held auctions for AWS-3 and AWS-4 wireless spectrum and currently is taking bids for 600 MHz of broadcast spectrum. The timing of the 600 MHz auction is a bit hazy, but regulators expect it to last at least several months. FCC chairman Tom Wheeler has signaled to Congress the auction could drag past October.

“…For the first time in three years, given restrictions around the AWS-3 auction, they will be able to talk to potential partners / lessors,” said Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak.

Dish investors were equally optimistic, driving the stock up 5.5% ($2.95 per share) on June 2 to $53.68 each. The stock is up about 22% since May 5.Dish shares fell slightly in afternoon trading June 3 to $53.60 each, down 8 cents each or 0.15% per share.

Dish’s 80 MHz of wireless spectrum has been the main reason to own the stock over the past few years, with some analysts valuing the spectrum at as much as $20 billion.

According to federal regulations, Dish has until 2020 to build out the spectrum or risk losing it. At the analyst meeting, Ergen reassured analysts that the company will meet that deadline.

In her note, Ryvicker wrote that Ergen “finally put the timing issue to bed,” telling the crowd that when other carriers begin building out their AWS-3 spectrum in 2017 and 2018, Dish will be next to them.

“Charlie could not have been clearer– he has never missed an FCC deadline and doesn’t intend to do so now,” Ryvicker wrote. She added that recent moves to incorporate its licenses in two bands – Band 66 and Band 70 – allows for the Dish spectrum to be placed in chip sets, which makes it a more attractive build-out partner.

Ergen also addressed issues brought up about a month ago by hedge fund Kerrisdale Capital Management, which has raised $100 million in a special fund for the sole purpose of shorting Dish shares. Kerrisdale estimated then that Dish stock was worth about $20 per share, or about half its price at the time.

Kerrisdale raised eight points to short Dish, and at the June 2 meeting, Ergen answered all of them, according to Ryvicker.

Ergen also quashed the idea that other carriers aren’t interested in its spectrum.

“We wish people would stop calling…..It isn’t just T [AT&T] and VZ [Verizon],” he said at the meeting, according to Ryvicker’s report, adding that foreign carriers, new media and cable operators were among the interested.

Despite the analyst optimism, Kerrisdale chief investment officer Sahm Adrangi said he still holds to the thesis that Dish is overvalued.

“The stock price movement isn’t indicative of how things will play out,” Adrangi said in an interview. “There haven’t been any actual events. Our argument is ultimately that $20 billion of value will not be realized.”

Satellite TV provider Dish Network was the big, surprise winner of wireless spectrum in an auction that garnered surprisingly large, record-breaking sums for the increasingly vital airwaves of the digital economy. The “AWS-3” auction brought in nearly $45 billion, twice the expected total, and did at least four things.

First, it reinforced what we see all around us — the continuing boom in mobile Internet devices, apps, and services. Cisco estimates that North American mobile data traffic in 2014 was 31 times the traffic of 2009, just five years ago. Just a decade ago, pre-iPhone, there was hardly any mobile at all. Yet global mobile traffic in 2014 was 30 times the entire worldwide Internet of 2000. Over the next five years, Cisco expects mobile traffic to grow at an annual rate of 57%.

Second, the auction demonstrated intense competition in the wireless arena. The large sums showed active bidding by lots of parties. And Dish’s audacious move potentially brings a fifth major player into the U.S. wireless market.

Third, the auction proved the value of higher frequency spectrum. In debates over spectrum policy, many have asserted that only spectrum in the 600-800 megahertz range is truly valuable. It’s the “beachfront property,” they say. But the AWS-3 spectrum, situated at a much higher frequency, between 1,695 and 2,180 MHz, brought the highest prices of all time. 

Fourth, the surprise results of this auction may in a number of ways affect the more heralded “incentive auction” of broadcast TV spectrum. The incentive auction of the little-used 600 MHz TV spectrum was originally slated for 2015. Even before the AWS-3 auction, however, it was delayed because of complications and objections from broadcasters. The auction could be delayed further as high prices of the AWS-3 auction require time for the industry to recapitalize and as parties argue with the Federal Communications Commission over the bidding rules. 

For years, some parties have argued that in order to compete, the FCC should mold the rules to make it more difficult for large players, such as Verizon and AT&T, to acquire more spectrum — and thus make spectrum less expensive and easier to acquire for themselves. You might say this defeats the purpose of an “auction,” yet they successfully placed some of these scale-tilting rules in into the initial incentive auction order. Based on AT&T and Verizon’s winning bids of significant AWS-3 spectrum, they will probably now ask for even more favors in future auctions. 

An analysis of the AWS-3 results and the overall spectrum portfolios of mobile providers, however, suggests we should stick with true, unfettered auctions. 

In the just-concluded auction, 31 different entities won spectrum. AT&T won licenses in several expensive big city markets and thus spent the most — $18 billion. But Dish, which today operates satellites not mobile broadband networks, was the second largest bidder, at $13 billion. Dish won far more licenses, covering more of the U.S. population, than anyone. Verizon spent third most, at $10 billion, and T-Mobile was fourth at nearly $2 billion. Sprint did not participate in the AWS-3 auction but still owns more spectrum than any U.S. carrier.

Research by Cowen and Company shows Sprint is far and away the leader in spectrum portfolios among the five largest holders, followed by AT&T and Verizon, and then T-Mobile and Dish. On a per-subscriber basis, the larger two companies, AT&T and Verizon, actually have less spectrum than the smaller firms.

Some have said that the large firms blocked T-Mobile from success in the most recent auction. But the actual bids show that mostly wasn’t the case. For example, T-Mobile was outbid by smaller Dish 132 times but outbid by AT&T just 26 times, and Verizon 16 times.

Beyond these details, it’s important to understand the big picture. Why should special FCC rules block AT&T or Verizon customers from faster data and more services? Other firms may say, hey, we deserve a shot at the spectrum, too. But that’s the purpose of an auction — to encourage the best match of resources and capital. And even more competition is on the way. In addition to Dish’s possible entry, Google says it will launch its own wireless services, built on capacity leased from Sprint and T-Mobile. 

The U.S. has the most vibrant mobile Internet marketplace in the world. It’s unlikely the FCC would improve outcomes if it begins divvying up spectrum based on favorites.

Bret Swanson is president of the technology research firm Entropy Economics LLC, a visiting fellow at the American Enterprise Institute, and a U.S. Chamber Foundation scholar.

Moody’s Investor’s Service said that Dish Network’s aggressive bidding in the AWS-3 wireless spectrum auctions could affect its credit ratings.

Dish actually bid about $13.3 billion for the licenses, but because it bid mostly through designated entities, it received a discount of 25%, putting it on the hook for about $10.4 billion.

While some FCC commissioners criticized Dish for using DE’s to bid on the licenses, Moody’s said that the sheer size of the bidding could result in lower credit ratings and therefor more expensive access to capital for the satellite giant.

In a statement, Moody’s senior vice president Neil Begley said depending on how Dish finances the bids; it could negatively impact its Ba3 Corporate Family rating and SGL-1 speculative grade liquidity rating.

Dish hasn’t said what its obligations are under the auction nor how it would fund its bids. Moody’s anticipates when anti-collusion rules expire in about 10 business days after the close of the auction; the company will announce its obligations and funding intentions.

"The company could move forward with a number of options, including selling or licensing the spectrum, independently launching its own wireless service and competing as the nation's fifth major player in the wireless telecommunications space or partnering with or acquiring or merging with another wireless carrier like T-Mobile," Begley said in a statement. "In our view, a tie-up with an existing wireless carrier or a company with significant capital resources is the only possible strategy that could give Dish a chance of success in the wireless arena, and management has publicly stated its desire to do so."

If Dish funds its AWS-3 spectrum purchase with cash on hand (which amounts to about $10 billion, including marketable securities), Moody’s believes uncertainty
surrounding strategic plans and future impact on its balance sheet will continue to weigh on Dish's credit ratings. Excluding any additional financing, Dish DBS's gross debt-to-EBITDA leverage, was 4.7x as of Sept. 30 (incorporating Moody's standard adjustments). The company's ratings would come under pressure if it engages in acquisitions and investments that increase gross leverage to more than 5.5 times.