$3.3 Billion That Belongs To The Public

Alan Daley Writer, American Consumer Institute
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In the FCC’s recent incentive auction for spectrum, a total of $41 billion was bid. As expected, the winning bidders tended to be enormous, but this time, exceedingly small Northstar Wireless and SNR Wireless LicenseCo stood out. Both have affiliation with Dish Network, the satellite TV outfit with revenues of $14.6 billion and a market cap of $32 billion. Since Northstar and SNR’s were reportedly penniless and their bids were backed by Dish, the team’s bids were logically bids from a large bidder, Dish Network.

The size of the bidder matters because the FCC gives bidding discounts to small entities but not to large entities. Small bidders meeting the “designated entity” profile earn discounts as much as 50 percent, a huge advantage when bids are in the billions of dollars. The Dish-led team claims to be eligible for $3.3 billion in such discounts. Since the constitution of the bidders was known to the FCC long before the auction, why did the FCC not squelch the attempt by Dish to qualify for a designated entity discount?

The dispute is about “control.” Discount eligibility depends largely on the scale of the entity that controls the bidding team. While Dish said it would provide 85 percent of the team’s funds, it claims to lack a “controlling interest” of the team. The outcome is important to American taxpayers because the spectrum was proven to be worth $3.3 billion more than Dish says it will pay taxpayers. More importantly, Americans do not tolerate scams.

Dish’s claimed lack of control is difficult to believe. If Dish did not fund the bids of its team, Northstar and SNR would be unable to complete the purchase and spectrum build-out. Without Dish, Northstar and SNR might have nominal control, but that control would be meaningless because they would be incapable of paying for and building out the spectrum – actions which are the central public purposes for the auction. With a glaring 85 percent ownership, Dish will recruit very few to drink the “no control” Kool Aid. Its claim belongs with other shameful weasel-wording, such as “it depends on what the meaning of the word ‘is’ is.”

This is not the first time the FCC’s inaction allowed bidders to play hijinks with designated entity discounts. In 2006, the FCC allowed the public to be victimized by an ersatz designated entity. In the wake of that humiliation, the FCC made a half-hearted attempt to change the rules, yet despite having a stadium full of regulatory attorneys to advise it, the FCC botched the case by failing on obvious requirements – “before an agency can impose new rules, it must afford reasonable notice and an opportunity to comment on them.” The Appeals Court said the FCC failed to offer either. Tragically, the appellate court halted its guidance at the procedural flaw and did not go further to help on the substance of the FCC’s rules change – rules that could prevent recent bidding nonsense.

The FCC now must block Dish’s improper claim of $3.3 billion in funds the pubic earned by selling its spectrum. Going forward the public needs smarter designated entity rules to block tactics that could shortchange the public. The FCC could also end the discounting altogether and sell the spectrum for what is it really worth, which would help assure that the spectrum goes to its highest and best use, end the corporate subsidy, and get the maximum value of the auction proceeds back to the public, where it belongs.

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