Without Action, DISH Will Walk With $3 Billion Tax Subsidy

Mike Wendy President, Media Freedom
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Valued at $3.3 billion in taxpayer-backed subsidies, it could be the heist of the century. All the more so because it might have the approval of Uncle Sam via his beleaguered Federal Communications Commission.

You see, the FCC just completed an important phase of its “blockbuster” spectrum auction, which resulted in 1,611 new spectrum licenses, 31 winning bidders, over $41 billion in revenues to the Treasury, and a boatload of new spectrum – 65 MHz – for consumers’ mobile broadband use.

But one company – DISH – walked into the spectrum bank and yelled “stick-em-up,” demanding that the teller fork over billions in credits because its “designated entity” (DE) partners, considered small businesses by the FCC despite the fact that DISH owns 85 percent of each, won big at the auction. So confident were they in their daylight larceny, they didn’t even leave a getaway car running in the alley to speed them away from the cops.

The whole thing happened almost like it was an inside job.

How can this be?

Spectrum fuels wireless networks. As consumer demand for wireless services continues to rise, more spectrum is needed to avoid a situation where demand outstrips the capacity of networks to deliver fast, reliable service. FCC auctions are a critical way to get that valuable resource out to providers. But there’s a hitch: As warden of wireless spectrum, the FCC has to make sure spectrum gets licensed quickly to winning companies, while at the same time ensuring the system can’t be gamed by high-tech ne’er do wells.

The FCC is also concerned about the mix of players in the wireless space so that consumers benefit from competitive offerings. Its DE program broadens the base of wireless licenses, helping small, rural, minority and female-owned businesses get spectrum. The program’s primary aim – guided by congressional directives – is to promote competition in rural and underserved areas. To this end, the program allows bidding credits of up to 25 percent off of auctioned spectrum for parties that meet certain DE criteria.

Key to the program is the requirement that DE’s actually provide service, not merely passive ownership of a license to spectrum used by others. This demand prevents unjust enrichment and gaming of DE incentives by removing speculating confidence men and others whom Congress did not intend to qualify for DE status. In doing so, it further ensures that Congress’ goal of promoting independent competition by small providers to rural and underserved areas.

In the most recent auction though, it seems that the cop on the beat was looking in the other direction.

Earlier this year, the Commission disclosed that the two DE companies that DISH Network has a majority stake in won over $13 billion of spectrum in the auction. Because these DE “beards” won their bids, they’re demanding $3.3 billion in bidding credits to help the purchase go through.

This flagrant collusion harms the U.S. taxpayer because the full value of the spectrum will not be realized. Moreover, the tactic perversely amounts to a multi-billion dollar subsidy to the well-healed, $32 billion DISH Network – a company that reportedly now has 81 MHz of spectrum, but with no immediate plans for providing any service.

DISH says what it has done is all perfectly legal. Nothing to see here. Keep moving.

Republican FCC Commissioner Ajit Pai disagrees, arguing the deal “makes a mockery of the DE program,” allowing the world’s largest companies like DISH Network to unjustly enrich themselves at taxpayer expense. Pai shares an unlikely ally, too – former Democratic FCC Commissioner Michael Copps – who warned that a gamed DE program means “spectrum goes to those most willing and able to manipulate the rules of the game, rather than to the entities Congress actually intended to benefit.”

In Congress, Senator John Thune of South Dakota has launched a formal investigation into the hold-up.

Not wanting to appear like it’s a cop on the take, the FCC has begun closer examination of its auction rules, recently saying: “The applications that seek small business bidding credits are the most complex … and we have a long way to go in our review before we reach final conclusions on all of the applications. While it would be inappropriate to make any predictions or judgments about any particular application … we will award bidding credits only to those applicants who we find are eligible under the Commission’s rules.”

Let’s hope so.

DISH and its stocking-covered larcenists should be denied their purloined windfall. Not only does this theft shortchange U.S. taxpayers of forgone revenue, it subverts free markets by denying additional, small carrier competition envisioned by Congress.

The FCC should not hold the bank vault open for these hoodlums.

Mike Wendy is the President of Media Freedom.