Verizon claims Dish collusion with DEs impacted fairness of Auction 97
You can add Verizon Communications to the list of companies unhappy with Dish Network’s bidding activity during the Federal Communications Commission’s recent Auction 97 proceedings.
In a letter filed with the FCC, Verizon said it had met with commission staff on Feb. 25 to discuss observations regarding Dish Network’s bidding practices. Those observations showed similar patterns to those mentioned previously by T-Mobile US and AT&T concerning Dish Network and a pair of designated entities it backed in the auction. Those entities include SNR Wireless LicenseCo and Northstar Wireless, which together walked away with winning bids totaling $13 billion, but were granted discounts that cut the total bill to less than $10 billion.
“The bidding data suggest that Dish and its DEs engaged in concerted conduct that went beyond the activity that occurs during typical bidding agreements or bidding consortia, in which two or more small bidders pool their money and form a single entity to buy spectrum,” Verizon noted in its filing. “Instead, the auction data show that Dish and its DEs frequently submitted two or three bids for the same amount on the same licenses in the same round. This pattern of double and triple bidding is unlikely to have occurred by chance (if, for example, Dish and each DE were bidding independently).”
Verizon added that Dish exited the auction “abruptly once bidding reached a certain level and be replaced by its DEs, which now claim a 25% discount.” Verizon concluded in the filing that such activity may have “deterred competition” in the proceedings, comments that were further backed by Verizon CFO Fran Shammo, who told attendees at an investor conference this week that the company stopped bidding on some licenses once they hit certain levels. Shammo stated that Verizon instead found it would be more financially prudent to tap into new network technologies rather than keep bidding on the spectrum assets.
Prior to the auction, SNR and Northstar were granted DE status as they each reported less than $15 million in annual revenue. DE rules allow for a 15% credit for small businesses, which are those with annual gross revenue of less than $40 million for the preceding three years, and 25% for a “very small business,” or those with less than $15 million in annual gross revenue. Dish Network has annual revenues nearing $14 billion.
AT&T noted similar discrepancies in Dish’s bidding activity, noting SNR and Northstar triple- and double-bid nearly 4,000 times, which at one point in the auction had the two bidders on the hook for $30 billion in total potential winning bids.
“None of this suggests independent decision-making by either of the DE bidders, which ultimately won over $13 billion worth of licenses with a $3 billion ‘small business’ discount,” explained Joan March, VP of federal regulatory at AT&T. “This conduct circumvented auction activity rules, masked actual demand and distorted the auction. As a result, Dish the corporate entity won no licenses. The Dish DEs, who each enjoyed a 25% discount, won substantial allocations.”
Marsh also stated that: “Dish incorporated two DEs maintaining an 85% ‘noncontrolling’ financial interest in both. Dish then entered into a joint bidding arrangement with both DEs,” and that following the auction Dish Network had controlled an average of 81 megahertz of wireless spectrum across the nation’s top 100 markets, with none of that spectrum currently supporting wireless telecom services. Dish has reportedly been in talks for years with established operators about setting up a network partnership in order to use its spectrum holdings running across already deployed networks, but has yet to strike a deal.
T-Mobile US, which is reportedly one of those companies in discussions with Dish, also called into question Dish Network’s tactics, with company CEO John Legere describing the auction as a “disaster for American wireless consumers,” noting that FCC rules “actually allowed companies that don’t provide wireless service at all to buy up huge amounts of spectrum and sit on it for 10 years.”
Following the close of the auction, Dish Network put out a statement highlighting its participation in the process through its partners.
“As part of the auction process, we publicly filed an application to participate as a potential bidder, and Dish invested in two entities that also publicly applied to participate in the auction as designated entities,” Dish stated.
Immediately after the auction concluded, FCC Commissioner Ajit Pai put out a statement requesting that FCC Chairman Tom Wheeler begin an investigation into the DE program, noting Dish Network’s ability to participate as a DE “makes a mockery of the DE program.”
The FCC’s DE program has been a flashpoint since its inception ahead of the PCS auctions in the mid-90s. The move was initially an attempt by the FCC to inject more competition into the mobile telecom space, with a focus on minority- or woman-owned small businesses. However, established operators have used the rules to partner with entities granted DE status to get their hands on licenses for a discount, a move that has been expected since the beginning.
The FCC has attempted to curtail abuse of the DE program by setting up build-out requirements for licenses that would force operators to put spectrum to work and keep out those that may look to sit on licenses before flipping them to larger operators. Those requirements have met with limited success as license holders have found ways to meet the rules, while in actuality not offering a commercial wireless service. A number of established operators have also tapped into DE loopholes to gain access to spectrum assets at a discount, though recent rule changes have limited those actions.
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