S-Band Waiver Delay May Not Be All Bad News for Dish

Dish is “disappointed” the FCC didn’t grant the integrated service authority and spare satellite waivers it requested, and the order will mean delays in making more spectrum available for broadband, the company said. “As we review our options, we will continue working with the FCC on the forthcoming 2 GHz Notice of Proposed Rulemaking (NPRM) to achieve those goals as expeditiously as possible.” Dish’s tone was, on the whole, more positive than Chairman Charlie Ergen’s recent warning that plans to start a wireless network as a fifth national carrier, using S-band spectrum, were contingent in part on quick commission approval of the waivers (CD Feb 24 p5).

"The delay and uncertainty clearly pose obstacles for Dish,” said Andrew Schwartzman, senior vice president of the Media Access Project. “The best case scenario for Dish is that suitable rules will be developed by the end of the year, but things don’t always work out for the best. Patience is not Charlie Ergen’s strong suit, and he is likely to consider another route. He typically has a plan B and maybe even a plan C.” In general, “this underscores yet again how hard it is to bring new spectrum online,” Schwartzman said. “Wireless carriers need to focus on using existing resources more efficiently. The fact that AT&T ... appears to be killing off its 2G service is an indication that carriers are starting to think more about efficiency."

"This delay signals that the FCC doesn’t want more controversy after the LightSquared debacle, and ahead of the upcoming presidential election,” said mobile satellite services consultant Tim Farrar. “It is still to be seen whether the FCC will mandate a continuation of satellite services in the 2 GHz band or if the entire spectrum band will be repurposed for terrestrial services.”

The news is not necessarily bad for Dish, said Information Technology Innovation Foundation Senior Fellow Richard Bennett. “The FCC is moving deliberately on repurposing Dish’s new 2 GHz spectrum because they don’t want another LightSquared debacle,” he said. “The agency has to protect itself from political fallout, even though the spectrum in question is better used for mobile broadband than satellite services.” A likely six- to nine-month delay “is practically nothing in regulatory time, and it’s always cleaner for the FCC to change spectrum policy via NPRM than through the waiver process,” Bennett said. “Dish has some additional holdings in the 700 MHz band that would be more attractive to bidders in the incentive auction than to Dish when the NPRM is completed, so the final result is going to make more spectrum available for mobile broadband in two separate bands, the outcome that best serves the public interest and innovation."

"It seems pretty obvious there’s more near-term downside than upside for Dish by the FCC declining to grant Dish a waiver of integrated services rules in the S-band order than would have been the case had the company secured a waiver when the agency approved its acquisition of the 40 MHz of mobile satellite service spectrum licenses. Pretty straightforward stuff,” said Jeff Silva, analyst at Medley Global Advisors. “At the same time, it’s doubtful Dish is irreparably harmed by the FCC decision. It may take a bit longer for Dish to obtain regulatory authorization via rulemaking to make flexible use ... of S-band spectrum, but the spectrum crunch and unserved/underserved broadband areas will still be there when flexibility finally comes. The biggest negative for Dish could be that an FCC ruling delay tends to be unsettling for investors."

Free State Foundation President Randolph May hopes the FCC wraps up the NPRM in short order. “On the one hand, I would like to see the spectrum be put to use sooner rather than later,” he said. “On the other hand, from a sound rule of law standpoint, it probably makes sense for the agency to conduct a rulemaking to establish the rules-of-the-road before issuing waivers of rules that likely will be changed. We are not talking here about a fairly insignificant waiver of a minor subsection of a rule, but one that goes to the core of the existing rules. So, in this instance, I prefer the agency to adhere to ‘regular order’ -- but there is no reason it should take the commission as long as it usually does to complete the rulemaking."

The FCC always has to strike a careful balance in deciding whether to make a decision only following a rulemaking, said Public Knowledge Legal Director Harold Feld. “As a general matter, the commission is always better off operating on the basis of a rulemaking unless there are compelling circumstances that go to the particular case at issue,” he said. “In the MSS band, the commission keeps getting burned when it grants waivers. Open Range was unable to deploy successfully, and LightSquared ran into unforeseen interference problems. This left the commission open to the accusation that it had sidestepped procedures that might have brought these problems to light.” A rulemaking would mean more certainty in the long run, Feld said. “It is worth six months to Dish for real rules it can rely upon. It is not worth the time for anybody if the FCC adopts rules that remain subject to a de facto veto from neighboring incumbent users,” he said. “Perversely, a rulemaking is ultimately of greater use to Dish if it intends to sell the licenses and spectrum rights rather than build a network. A waiver would not automatically transfer with the licenses in a future sale -- especially if the commission thought Dish was never serious about building out a network. But once service rules are adopted, they apply to anyone who may ultimately acquire the spectrum use rights."

Analysts agreed the development means uncertainty for Dish. “While Friday’s news is a setback, we continue to believe there is enormous value in DISH’s spectrum,” Credit Suisse said. “Whether Dish will proceed with its planned mobile broadband network, form a partnership, or sell the licenses to another company -- AT&T appears to be among those that are interested -- remains to be seen,” Stifel Nicolaus said.

"The key issue in this matter is not ‘if’ or ‘when’ DISH wins approval to operate terrestrially, but ‘with what strings attached?'” said UBS analyst John Hodulik. “We believe the FCC is likely to seek build-out requirements similar to the ones placed on LightSquared, which required that company to cover 100 [million] POPs within 3 years of the waiver, 145M within 4 years and 260M within 5 years.” Hodulik said it’s also possible the FCC will adopt conditions similar to those in the SkyTerra waiver, which effectively prevented the company from selling more than 25 percent of its capacity to AT&T or Verizon Wireless or selling the spectrum to those carriers without the agency’s sign off.