The FCC adopted a Report and Order to reform its DE program following claims of fraud
While the Federal Communications Commission pushed off specific rulemaking tied to the planned 600 MHz incentive auction scheduled for early next year, the FCC did move forward with plans to reform the controversial designated entity program.
The government agency adopted a Report and Order that it said “modernizes and reforms” DE policies by ensuring only “eligible small businesses and rural service providers are the true recipients of bidding credits.” The order, which was approved on a 3-2 vote along party lines, also looks to provide a bidding credit for companies serving rural markets.
Details of the report include the establishment of a cap on the total amount of bidding credits a small business or rural service provider can receive, which will vary on a “service-by-service and auction-by-auction” basis. For the incentive auction, the Report and Order looks to adopt a cap of $150 million for small businesses and a $10 million ceiling on the overall amount any single entity can receive in smaller markets.
The Report and Order also adopts a 15% bidding credit for “qualifying” service providers offering commercial services to a customer base of less than 250,000 combined wireless, wireline, broadband and cable subscribers, and serve “predominately rural areas.”
Other provisions of the Report and Order include the elimination of rules that previously limited the amount of spectrum a small business could lease. The FCC noted this change would provide more flexibility for small businesses to leverage leasing and spectrum use agreements to “gain access to capital and operational experience.”
The FCC also amended competitive bidding rules to eliminate joint bidding and multiple applications by a single party and parties with common controlling interests except in the case of “limited circumstances.
The move comes on the heels of concerns regarding Dish Network’s participation in the recent AWS-3 auction, which resulted in the company garnering a $3 billion bidding credit tied to a pair of DEs that participated in the auction, but were financially backed by Dish. Current 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 “very small business,” or those with less than $15 million in annual gross revenue. Dish Network has annual revenue nearing $14 billion.
The FCC’s DE program has been a flashpoint since its inception ahead of the PCS auctions in the mid-1990s. 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 had 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.
The FCC earlier this week scraped a vote on detailed rules for the 600 MHz incentive auction, pushing the vote to its next scheduled public meeting on Aug. 6. The delay is reported to have been connected to concerns expressed by the FCC’s two Republican commissioners who cited recent information concerning the use of the “duplex gap” in some markets. One report noted concerns were also expressed by Democratic Commissioner Jessica Rosenworcel.
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