Court gives Dish a second chance to nab spectrum

Satellite TV provider Dish Network may still have a chance to get its hands on discounts to buy valuable wireless spectrum.

A federal appeals court said Thursday that the Federal Communications Commission "acted reasonably and consistently" two years ago in the AWS-3 wireless auction when it decided to deny so-called designated entity discounts to two Dish affiliates, SNR and Northstar. The court also said, though, that Dish's misuse of the program was not so egregious that the company can't work with the FCC to satisfy its rules, leaving Dish a small opening to still get the wireless licenses it had to give up.  

"The court ruling lets Dish live to fight another day," said Paul Gallant, an equities analyst with Cowen. "There could well be a win-win here if Dish can both make acceptable changes and perhaps offer some type of sweetener that clearly advances [Chairman Ajit] Pai's wireless broadband agenda."

For several years, Dish has been amassing a treasure trove of wireless spectrum, or the airwaves that carry text messages, voice calls, streaming video and Internet content to mobile devices. The company emerged as the second-highest bidder in the FCC's so-called AWS-3 auction, which generated a record $45 billion in revenue for the federal government.

But many people, including officials at the FCC, said Dish was gaming the system when it used two smaller affiliates to claim a $3.3 billion discount on spectrum valued at $13.3 billion. After the auction had concluded, the FCC determined Dish and the smaller companies had violated its rules and it revoked the discounts, which were designed to help small businesses buy wireless licenses. Unable to pay full price for the licenses, Dish bought only a portion of the licenses it had won via the affiliates at full price and relinquished control of the other licenses.

Now the court has given Dish a chance to reclaim the licenses. In its decision, it said the FCC didn't give the companies sufficient notice to remedy their relationship with Dish to satisfy the rules. The court has asked the FCC to work with Dish and its affiliates to come up with a solution. This means that if the companies can sufficiently extricate themselves from Dish's control, they could still use the credits and claim the licenses. If not, the FCC will have to re-auction that spectrum.

The FCC sees the decision as a victory for American taxpayers.

"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, Pai's press secretary. "Going forward, we need to make sure that this program is available only to legitimate small businesses that actually control their own destinies."

Dish said it's ready to work with the FCC. "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."

Dish's participation in the sale not only helped drive up prices in the auction, which set a record for revenue for the government, it also ensured that AT&T and Verizon, which together control more than 70 percent of the wireless market, didn't walk away with all the spectrum licenses being offered.

At the time, the FCC's decision to deny the Dish-supported companies bidding credits was seen as a blow to Dish and may have discouraged the satellite TV provider from moving forward with plans to build its own wireless network, according to statements made by Dish chairman Charlie Ergen in August 2015. Still, the company has continued racking up additional licenses. Earlier this year, it won $6.2 billion worth of wireless licenses in the 600MHz auction. The company still hasn't stated its plans for using its wireless spectrum licenses. And the company continues to be rumored as a potential acquisition target.

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