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By Kyle Daly
Sept. 26 — A federal appeals court ruling on a Federal Communications Commission order denying wireless spectrum discounts to Dish Network Corp. and two affiliated companies might come down to whether the court thinks the agency should have given the companies time to restructure their relationships before refusing the discounts SNR Wireless Licenseco, LLC v. FCC , D.C. Cir., No. 15-01331, oral argument 9/26/16 .
The U.S. Court of Appeals for the District of Columbia Circuit heard oral argument Sept. 26 in the case, in which the two affiliated companies, SNR Wireless and Northstar Wireless, are urging the court to invalidate the commission's order. The agency said Dish had de facto control over SNR and Northstar and couldn’t claim a 25 percent credit intended for small businesses that the companies sought in the FCC's January 2015 auction of AWS-3 spectrum .
At issue in the case are $3.3 billion worth of small-business discounts the companies tried to claim in the auction. After being denied, they gave up enough of the licenses they won to cover the difference of the denied bids and a 15 percent fee for the auction price of the unclaimed credits. If the FCC prevails, the denial stands; if DISH and its affiliates win, they might be able to get the relinquished spectrum licenses back.
The panel now must decide if the FCC should have offered more clarity on what constitutes control, and if it should have given the companies time to fix the issues the agency had with their relationship before denying the bidding credits outright. The decision will be based on the FCC's standards at the time of the AWS-3 auction, rather than expanded rules and limits on relationships pertaining to spectrum auctions that the FCC subsequently adopted in response to the DISH controversy (2015 TLN 13, 8/1/15).
The three D.C. Circuit judges questioned FCC attorney Maureen Flood at length about whether the FCC acted correctly in not giving the companies more guidance on—or chances at compliance with—its standards. Flood said it was “implausible” to think there was anything the companies could have done to legitimately qualify for the bidding credits.
Hogan Lovells U.S. LLP partner Catherine Stetson, arguing on behalf of SNR, said the FCC had unclear standards for what would count as outright control of a “designated entity” (DE), which are intended to help small-, minority- and women-owned businesses enter the wireless market. DISH treated SNR and Northstar as designated entities in the AWS-3 auction.
Flood said certain elements of DISH's arrangements violated clearly articulated standards of control. She singled out a provision that would allow SNR and Northstar to sell their acquired licenses to DISH if they prove unable within five years to pay off loans DISH provided to fund their bids. This, together with an interoperability requirement that Flood said would force the DEs to wait until DISH decides how to use its spectrum before using the AWS-3 spectrum to build out compatible networks, amounted to a virtual guarantee that the bids would result in the DEs delivering the discounted spectrum to DISH at a later date, Flood said. FCC standards prohibit designated-entity arrangements that require such sales.
Stetson said DISH and the DEs structured their agreements in line with those the FCC has allowed in the past. Without explicit guidance from the FCC on what it considered impermissible, Stetson said the companies had no reason to believe they would run into problems, especially given that they were allowed to participate in the auction and commit to spectrum buys before the FCC raised any objections.
“That's the point,” she said. “Their rules were not clear.”
The lines of questioning suggested the potential for a split ruling.
Judge Cornelia Pillard used many of her questions to challenge Stetson to explain how the DEs could reasonably be viewed as independent from DISH's influence. Judge Stephen Williams, on the other hand, appeared skeptical of the FCC. He began his questions by saying he's “not sure” he understood the FCC's position “at all.”
He later told Flood, “Maybe if you had clear rules, the problem [of denied petitions] would arise a lot less.”
Judge Janice Rogers Brown, who was less active in questioning, said that DISH, SNR and Northstar were aware ahead of time that any term in their agreements that would force effective control by DISH wouldn't pass muster.
A source close to Northstar said the company hopes that, if the FCC loses, it will return the spectrum licenses the company gave up after the agency denied the bidding discounts. FCC spokesman Neil Grace declined to comment on the FCC's plans should it lose the case.
To contact the reporter on this story: Kyle Daly in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Keith Perine at email@example.com
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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