Dish and Its DEs Say They Violated No Rules in Their Bidding in AWS-3 Auction

The defenses of Dish and its DEs came as Verizon Chief Financial Officer Fran Shammo said at a financial conference Tuesday that unrealistically high prices in the AWS-3 auction may have created false expectations for the TV incentive auction.

“The [FCC's] Anti-Collusion Rule expressly allows parties to bidding consortia or joint bidding agreements (JBA) that are disclosed in the bidding parties’ pre-auction short-form application to cooperate and collaborate on, discuss, and disclose to each other, bids, bidding strategies, and settlement agreements – and that applies to applicants who apply to bid on the same licenses,” Dish said.

Thune late last month fired off a letter to Dish asking for an explanation (see 1504300032). Thune sees this scrutiny as a springboard into discussing the proper rules for the incentive auction, he said. "We want to use this to take a broader look at the way the FCC goes about this, too, and make sure that in the future there are clear rules that are fair, and that everybody complies with both the letter and the spirit of the law," Thune told us Tuesday.

Thune, who chairs the Commerce Committee, declined to say whether this broader look would mean a hearing in the coming months, saying "we'll see. … We're looking over it," Thune said of Dish's response. "We haven't determined any next steps at this point. But we're obviously going to sit down with them and want to hear their side of the story as well."

Dish offered a list of 36 examples where carriers used JBAs to bid in past auctions. Dish cited as one example Verizon’s JBA with DE Vista in auction 58, the broadband personal communications service auction held in 2005. Verizon was an 80 percent owner of Vista and their agreements “mirror closely the DISH, SNR and Northstar structure and multiple DE arrangements approved by the FCC since 2000,” Dish said.

Verizon and Vista were the two biggest winners in that auction by net dollar value, Dish said. “Verizon (Cellco) won licenses valued at $364.9 million, or 18 percent of the net dollar value of licenses sold in the auction, and Vista won licenses valued at $332.4 million, or 16 percent of the net dollar value of licenses sold in the auction, representing a combined total of 34 percent of the net dollar value of Auction 58,” Dish said. “This result was achieved through an apparent coordinated bidding strategy by Verizon (Cellco) and Vista that ensured that one entity never bid directly against the other.”

A Verizon spokesman said there are important differences relative to Dish's bidding strategy in the AWS-3 auction. Vista was bidding for spectrum in the auction otherwise not available to Verizon and the spectrum did not come with a bidding discount, the spokesman said. It was also a transparent auction, unlike the AWS-3 auction, where bidding is anonymous, the spokesman said. "Everybody knew that Vista was a DE of Verizon and everybody could see what Vista was bidding on and what their bid was, just like they could see what Verizon was bidding on and what Verizon's bid was."

Northstar “fully complied with all FCC Rules, procedures and past precedents, including the designated entity and bidding Rules, as well as antitrust laws,” the DE said. “The Commission’s anti-collusion rules expressly permit the kind of communications, coordination and cooperation between Northstar Wireless and its joint bidding partners” that have been the subject of complaints at the FCC, Northstar said. AT&T, Cingular, Sprint, Verizon and other large carriers were pioneers in establishing and using DEs to buy spectrum through joint bidding arrangements, Northstar said.

Northstar said it's "ultimately owned" by Doyon, an Alaska Native corporation owned by more 19,000 Alaska Native shareholders. “Doyon believes that Northstar Wireless represents the fulfillment of a number of the Commission’s policy objectives, including the goal of increasing the participation of minority-controlled businesses in the provision of spectrum-based service,” the filing said. Northstar reminded the FCC that the native corporations, formed by an act of Congress to settle aboriginal land claims, are prohibited from selling equity “an important capital resource for telecommunications providers as they grow.”

As a result, the native corporations have to rely on other financial relationships to buy spectrum licenses, Northstar said. “Congress recognized this reality when, as part of the Omnibus Budget Reconciliation Act of 1993, it directed the Commission to consider a variety of measures to ensure that small businesses, rural telephone companies, and businesses owned by minorities and women are given the opportunity to participate in the provision of spectrum-based services when licenses are to be awarded through competitive bidding,” the DE said. Doyon capitalized Northstar with almost $44.7 million of its shareholders’ money and formed a partnership with Dish, the DE said.

SNR, headed by former FCC Wireless Bureau Chief John Muleta, said oppositions were filed for the most part by public interest groups that had no standing to challenge the grant of the licenses. Two auction bidders, VTel Wireless and Central Texas Telephone Investments, also filed oppositions and have standing to challenge “at most two” of the 357 licenses for which SNR was the high bidder, SNR said.

“SNR’s organizational structure and investor protection provisions properly maintain de jure and de facto control in SNR’s ultimate controlling party, John Muleta, and are essentially identical to those that have been allowed by the Commission in numerous prior auctions, including those involving designated entities,” the DE said. Following previous spectrum auctions, the FCC has approved a total of $22.7 billion in spectrum licenses bought by similarly situated DEs, SNR said. Arguments that SNR, Northstar and Dish violated antitrust laws “have no basis in law, Commission rules or economic reality and should be summarily dismissed,” SNR said.

“SNR has exhaustively addressed all of the unwarranted and meritless claims against SNR's license application for AWS-3 spectrum,” Muleta told us. “SNR fully complied with the FCC regulations, rules and policies and did not violate any antitrust laws. It rightfully won its AWS-3 licenses as a vigorous competitor in the largest spectrum auction in U.S. history while also helping raise over $41 billion to the U.S. Treasury and fulfilling Congress' mandate to the FCC that it avoid concentration of spectrum. It is abundantly clear that the public interest is best served through the expeditious grant of its licenses.”

The high bids in the AWS-3 auction may have “unintended consequences,” Shammo said at the J.P. Morgan Global Technology, Media & Telecom Conference. Dish's bidding in the auction is widely seen as driving up prices. The auction prices were high “and now you have broadcasters sitting on the sidelines that believe their spectrum is worth a certain amount of money,” he said. Meanwhile, the FCC is drafting rules that would give competitive carriers advantages over Verizon and AT&T, he said. “I think you’ve created a problem for yourself,” Shammo said. “We’ll have to see how the rules come out. We’ll have to see what the rules are before we can really make a determination whether we play, we don’t play and how hard we play.”