New FCC Rules Would Keep Big Firms From Taking Small Business Credits

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Peter Fricke Contributor
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The Federal Communications Commission is considering new rules for wireless spectrum auctions intended to help small carriers compete and prevent abuses by large ones.

“The draft revised rules I circulated to the other commissioners today would provide greater flexibility for qualified small businesses so that they can better compete,” FCC Chairman Tom Wheeler stated in a post on the FCC’s blog. “In addition … the modernized rules will increase transparency and efficiency to prevent potential gaming or abuse.”

The new rules would address two outstanding issues facing the FCC ahead of its 2016 spectrum auction: a request from T-Mobile’s to increase the amount of spectrum set aside for “small” carriers, and DISH Network’s exploitation at the last spectrum auction of a loophole that allowed it to claim over $3 billion in bid credits meant for small businesses. (RELATED: GOP Rep. Says DISH Drove Small Companies Out of Spectrum Bids)

T-Mobile and its allies had argued that the two largest wireless providers, AT&T and Verizon, are consistently able to outbid smaller competitors at spectrum auctions, and with the upcoming auction representing one of the last opportunities to purchase valuable low-band spectrum, the companies had urged the FCC to make a greater share of the spectrum off-limits to those companies.

While acknowledging the need to ensure fair competition, Wheeler rejected T-Mobile’s request, asserting his belief that the 30 megahertz of spectrum that the commission has already reserved will prove sufficient for that purpose. (RELATED: Legere Uses Celebrity to Push Anti-Consumer Proposal, Critics Say)

The other major element of Wheeler’s proposal fulfills a promise he made several months ago to tighten the rules for the FCC’s “designated entity” (DE) program, which provides qualifying small businesses a taxpayer-funded rebate for 25 percent of the purchase price to help them compete against their larger rivals when bidding for spectrum.

At the most recent auction, DISH was able to take advantage of the program by creating two shell companies that would be eligible for the subsidies, then using its vast financial resources to keep competitors at bay before dropping out to allow one of the spinoffs to win the license (and the credits).

The strategy enabled the DISH entities to claim about $3.3 billion in DE credits on bids that were nominally worth $13.3 billion, though the FCC may yet decide to reject the claim. (RELATED: Legal Battle With FCC Not Worth $3 Billion, Advisers Tell DISH)

To prevent other large companies from following DISH’s lead, Wheeler calls for imposing “the first-ever cap on the total value of bidding credits, minimizing an incentive for major corporations to try to take advantage of the program.”

In addition, he would also eliminate a requirement that small carriers be “facilities-based” in order to qualify for bidding credits, opening the DE program to companies that do not own their own equipment and facilities, but instead lease them from larger competitors.

“In today’s mature wireless industry, offering facilities-based wireless service is no longer a viable business plan for small enterprises,” Wheeler explained. “We propose eliminating this constraint on business model innovation and freeing small businesses to make decisions that work best for them.”

Republican Commissioner Ajit Pai, however, took issue with that element of the proposal, releasing a statement claiming that the new rules would merely trade one loophole for another. (RELATED: FCC Commissioner Demolishes Net’s New Rules, in 3 Quick Points)

“Those benefiting from taxpayer-funded discounts when buying spectrum should use that spectrum for the public’s benefit—not just lease most or all of it to large carriers like AT&T and Verizon,” Pai said, intimating that the rule could enable small carriers to effectively transfer their credits to larger ones, thereby undermining the competitive benefits of the credits.

“Loopholes like this might be good for big business and small arbitrageurs,” he noted, “but they certainly aren’t in the interest of the American people, and they do nothing to further wireless competition.”

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