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By Lydia Beyoud
Feb. 20 — Dish Network Inc.'s use of an FCC program intended to support small businesses and new wireless market entrants is drawing the ire of wireless broadband providers both big and small, in a growing chorus calling for the agency to change its designated entity program.
The designated entity program provides bidding credits to enable smaller entities to meaningfully compete for spectrum licenses against broadband behemoths AT&T Inc. and Verizon Communications Inc.
However, a number of groups cried foul in recent days over the satellite TV provider's bidding strategy in the Federal Communications Commission's AWS-3 auction of government-occupied airwaves, which closed Jan. 29 at gross provisionally winning bids of $44.9 billion.
Thanks to Dish's use of two designated entities in which it had an 85 percent stake, Dish, with a market capitalization of over $32 billion and 14 million customers, was able to receive a 25 percent bidding credit—approximately $3 billion—for its licenses, bringing the net provisional auction proceeds to $41.3 billion.
“The competitive bidding rules clearly need to be revisited” before the FCC finalizes the rules its next auction, AT&T Vice President of Federal Regulatory Affairs Joan Marsh said in a Feb. 20 blog post.
The so-called broadcast incentive auction will be the first of its kind in the world, with high stakes for both broadcasters and the wireless industry. At stake is 100 megahertz of 600 MHz spectrum, which the commission will try to reclaim from television stations and then sell to wireless carriers led by Verizon Wireless, AT&T, Sprint Corp., and T-Mobile US Inc., with a portion of the proceeds paid back to the broadcasters.
The wireless industry is expecting valuable, low-band spectrum; Congress is expecting between $15 billion and $30 billion for the General Treasury, though a report issued Feb. 19 by an auctions economist estimated the 600 MHz auction could bring in up to $85 billion if the FCC can clear about 126 MHz worth of spectrum.
The report was commissioned by the Expanding Opportunities for Broadcasters Coalition, which is seeking to keep the auction on track for its scheduled 2016 run as well as drum up additional support for auction participation among fellow broadcasters.
Despite the AWS-3 auction's overwhelming success in monetary terms, T-Mobile CEO John Legere said the auction was “a disaster for American wireless consumers” because of Dish's designated entity bidding strategy. In a Feb. 18 blog post, Legere called on consumers to write to Congress and the FCC about what he, too, said was a need for major change to the DE program to ensure smaller providers' competitiveness against the larger entities.
T-Mobile is concerned that competitors AT&T and Verizon already control about 73 percent of the nation's “beachfront” low-band spectrum, prized for its ability to carry far distances and penetrate walls.
AT&T said it didn't oppose the use of the DE rules or the purpose for which they were created, but did call into question Dish's ability to use its two proxies to “triple bid,” thereby inflating the price of spectrum licenses to record-breaking figures.
Meanwhile, even smaller wireless broadband and voice carriers represented by the Competitive Carriers Association are worried about being able to compete against the national providers at all. CCA called for a restructuring of the program on Feb. 20.
“I strongly urge the Commission to design competitive bidding rules that ensure all competitive carriers have an opportunity to participate in upcoming spectrum auctions, especially the 600 MHz spectrum auction,” CCA President and CEO Steven K. Berry said in an e-mailed statement.
“A strong, competitive wireless industry requires multiple players, and the FCC should continue to use properly structured bidding credits to enhance opportunities for competitive carriers to acquire much-needed low band spectrum,” Berry said.
The FCC might want to consider alternative forms of bidding credits structured around facilities-based providers, he said.
The commission took steps in October to limit certain types of joint bidding efforts and make it easier for smaller and rural providers to obtain licenses in the incentive auction.
The FCC issued a notice of proposed rulemaking Oct. 10 to allow small businesses, rural telephone companies, and minority- and women-owned businesses—which are intended to make up the core of designated entities—to receive up to a 35 percent credit on the purchase of spectrum, an increase from the current maximum of 25 percent.
The proposed rules would also seek to eliminate the facilities-based requirement for DE businesses to provide primarily retail, facilities-based service directly to the public, and would allow non-nationwide providers to bid together on licenses.
In Feb. 19 remarks before the Federal Communications Bar Association, Commissioner Mignon Clyburn said she would like to see small and large businesses take advantage of those proposed changes.
However, the commission's two Republicans questioned some of the NPRM's provisions at the time as potentially allowing smaller broadband providers to pass along their licensed spectrum, obtained at a discount, to large, incumbent providers.
One of the Republicans, Ajit Pai, has emerged as the most vocal critic of the current DE program since the close of the AWS-3 auction. In a Feb. 2 statement, Pai said Dish abused the intent of the program. Dish responded that its DE affiliations were fully disclosed in advance of the auction commencing, and neither violated any rules nor differed substantially from previous uses of DEs by AT&T and Verizon.
As the FCC works to finalize the many components of its incentive auction, the designated entity issue could become a critical policy matter for the agency in its efforts to fulfill Chairman Tom Wheeler's agenda of promoting the process through “competition, competition, competition.”
To contact the reporter on this story: Lydia Beyoud in Washington at email@example.com
To contact the editor responsible for this story: Heather Rothman at firstname.lastname@example.org
Text of the AT&T blog post is at http://www.attpublicpolicy.com/fcc/lessons-from-auction-97for-future-auctions/.
Text of the report prepared for the EOBC is at https://broadcastcoalition.files.wordpress.com/2015/02/exhibit-b-cramton.pdf.
Text of the T-Mobile blog post is at http://newsroom.t-mobile.com/issues-insights-blog/wireless-future.htm.
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