Dish May Avoid Regulatory Snags in Proposal For Clearwire Stake

The combination of spectrum from Dish and Clearwire likely isn’t enough to create a competitive problem, said Donald Evans, a telecom attorney at Fletcher Heald who has no clients in the deal. “If anything, it possibly creates a competitive solution because it adds an additional competitor to the market.” The commission’s primary objective in the competitive arena lately is to ensure that there are national competitors to Verizon Wireless and AT&T, he said. That has driven a lot of the agency’s policy decisions, including its approval to allow Dish to use AWS-4 spectrum for terrestrial services and its attempt to allow LightSquared to build a network, he said: With the Dish and LightSquared proceedings, “they were trying to create a viable nationwide competitor.”

Clearwire said Dish’s proposal is “only a preliminary indication of interest” and is subject to uncertainties and conditions (http://xrl.us/bn94g2). Sprint Nextel had reached agreement with Clearwire to buy 49 percent of Clearwire (CD Dec 18/12 p7). Sprint said its agreement “is superior to the highly conditional Dish proposal” (http://xrl.us/bn94ku). The Dish proposal includes interdependent commercial agreements, debt and equity purchases and spectrum sales, “which together with the other conditions required by Dish to complete the transaction, makes the proposal not viable,” Sprint said. Sprint doesn’t intend to waive its rights as a stockholder of Clearwire, it added. Dish declined to comment further.

Clearwire’s spectrum would make Dish a “main player, rather than just a niche or bit player,” said Steve Goodman, an antitrust and telecom lawyer at Butzel Long who previously worked at the FCC and Comsat. “They certainly, through the [ancillary terrestrial service] spectrum, have access to a great chunk of capacity. But if they're really serious, if they want to be more than a bit player, then they need to have access” to Clearwire’s bandwidth, he said. A total Sprint buyout would “simplify things” in terms of that carrier’s access to Clearwire, Goodman said. Sprint said its bid offers shareholders “certain and attractive value.” Still, Sprint will likely need to raise its bid, Goodman said. “Otherwise they're going to have disgruntled minority shareholders who wonder ‘Wait a minute, if somebody’s willing to pay us another 10 or 15 cents [per share], then it would be highway robbery if we didn’t get that” from Sprint, he said. Concerns that Sprint’s bid undervalued Clearwire’s spectrum led Crest Financial, which owns 8 percent of Clearwire, to ask the FCC to block that bid and Japanese telecom SoftBank’s purchase of 70 percent of Sprint (CD Jan 8 p10).

Either the Dish or Sprint bids “ought to be relatively simple calls” for the FCC, Goodman said. He'd said approval of a total Sprint buyout of Clearwire would be “fairly perfunctory” (CD Dec 18 p7). “In theory, Dish would present a slightly easier sell in terms of it not increasing their current market share, since they have zero market share,” Goodman said. “It would be expanding a new entrant, and that’s the sort of thing regulators usually like.” Still, the FCC shouldn’t have any legitimate concerns about Sprint’s bid, he said. “They already have access to that spectrum in terms of the contractual rights and things like that. Sprint is certainly not dominant in the wireless arena. They're a major player, but they're certainly not as big as AT&T and Verizon Wireless."

Dish’s attempt to buy part of Clearwire shares looks “pretty clean” in terms of an approval process if the Clearwire board approves it and if Dish submits an application to the FCC, a wireless attorney said. “Dish doesn’t have wireless customers, so there’s no competitive impact in terms of the HHI [Herfindahl-Hirschman Index] analysis and there are likely no spectrum screen issues.” Antitrust doesn’t seem to be an issue in the proposal, a satellite industry attorney said. “In the post AT&T/T-Mobile world, there is a willingness on the part of the Department of Justice and the FCC to look at these things very carefully,” he said of the deal that the two carriers abandoned after DOJ sued to block it. “It doesn’t feel like that’s going to be the issue, but we'll just have to see how it rolls out when they present their case."

Although FCC approval is probable, the spectrum screen notice of proposed rulemaking may cause the commission to proceed more carefully, some attorneys said. Approving Dish’s proposal isn’t a no-brainer, Evans said. Clearwire has more than 100 MHz in some of its markets, he said. Added to Dish’s 40 MHz, which includes its AWS-4 spectrum granted last year (CD Dec 13 p8), “it’s got quite a large accumulation of spectrum in some markets and that would be enough to certainly raise some eyebrows and be something that would have to be looked at, especially while the FCC is taking a look at the spectrum screen and spectrum ownership,” he added. “The question really is would the FCC put consideration of this deal on hold until it resolves that rulemaking?” a satellite industry attorney said. “If this were a minor deal of cleaning up some licenses or shifting some spectrum around, it might be a different story.” But Dish Chairman Charlie Ergen just got an FCC order for terrestrial use of a significant amount of spectrum and now he’s potentially getting more, the satellite lawyer added. “If the FCC approves this while their rulemaking is pending, what stance does that put that rulemaking in?"

In theory, Dish’s bid “doesn’t impact the FCC’s analysis, because the FCC looks at the transaction that’s in front of it,” said Harold Feld, legal director at Public Knowledge. Crest Financial and Dish will likely ask the commission to put their approval of the Sprint bid on hold until shareholders decide which deal to accept, and Sprint will likely ask the commission to press on, Feld said.

The FCC’s decision will be influenced by the number of mergers and acquisitions it’s reviewing, Feld said. “The reality is that the FCC has a lot of work to do,” he said. “If it looks like this could turn into a serious kind of fight where there is some kind of chance that Clearwire could accept the Dish offer, then it is quite possible that the FCC staff will put this on the back burner.” It’s also possible that the FCC may choose to look at Sprint’s deal with SoftBank separately from the Clearwire bid, Feld said. The commission is currently examining them concurrently. “From the FCC’s perspective, SoftBank’s investment in Sprint is a feather in their cap,” he said. “Everyone thought this market was moribund. ... There’s something of an institutional desire to get this through, so that [the FCC] can point to an energized competitor as validation of their approach.”