Behemoth Pretends to be a Small Business

AWS-3 was an auction for 65 megahertz of broadband spectrum that wrapped up at the end of January.  The winning bids drew a total of $45 billion for spectrum that is largely occupied by government agencies and TV channels.  Money from the winning bids will pay to help them move, will fund a new first responder network, and will go to deficit reduction and other priorities.  Funds would have been $3 billion higher if Dish Network had not made the preposterous claim of being a “small business.”

AT&T bid a total of $18.2 billion. Verizon was in third place bidding $10.4 billion and T-Mobile was in 4th place bidding $1.8 billion for licenses.

SNR Wireless License Co LLC, Northstar Wireless LLC and two partners won second place with a total bid of $13.3 billion for 700 licenses.  These licenses amount to 25% of all of the spectrum auctioned.   Wireless License and Northstar Wireless are bidding entities (or shells) because they had only $15 million in revenues and are 85% owned by Dish Networks.

They were able to bid billions of dollars due to the deep pockets of their Black Rock partner (manages $4.3 trillion in assets and is the world’s largest asset manager) and their Dish Network parent (the largest satellite-based cable channel service with a market cap of $33.5 billion).  The claimed status as “small business” would entitle them under FCC rules to be treated as a Designated Entity earning a discount of 25% off their winning bids.

Allegedly, Dish Network’s 85% ownership does not give them control over Wireless License and Northstar Wireless.  That carefully crafted ownership provision may help Dish tiptoe through the FCC’s Designated Entity review process, and thus shortchange the taxpayers.  If the FCC’s rules do not block the 25% discount, the other bidders deserve a re-run of the auction and perhaps damages as they are currently taking very disruptive steps to raise the billions they owe for the spectrum auction.

Behemoths must not qualify for small business discounts, and perhaps the Designated Entity needs a thorough overhaul to prevent throwing the public’s money at entities the FCC considers more equal than the others. Taxpayer funded rewards for being politically appealing should be halted.

Dish claims that it merely used a bidding structure that both Verizon and AT&T have used previously.  If that is true, then the loophole should have been plugged earlier and the FCC should have been on full alert to similar abuses such as the ridiculous $3 billion discount.  Dish’s intent to pose as a small business was made public before the AWS-3 auction.  The FCC cannot have been unaware that taxpayers were about to be shortchanged by billions of dollars.

If the FCC lets the current discount stand in the post-auction review, it will be a third major legal gaffe by the FCC.  Twice in a sloppy rush to embrace a populist Net Neutrality ruling, the FCC issued a botched order that was outside its authority and could not pass muster with the courts. Going forward, the FCC’s legal work needs to be reviewed by a competent, truly independent agency – not by political appointees who are sloppy with the public’s money.

Alan Daley is a retired businessman who writes for The American Consumer Institute Center for Citizen Research

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