Dish may have to relinquish $3.3 billion worth of spectrum

The FCC has ruled that Dish improperly received $3.3 billion in discounts on spectrum licenses, according to Fox Business’ Charlie Gasparino. If true, Dish may have to relinquish $3.3 billion worth of spectrum.

The discounts relate back to a 2015 auction of AWS-3 spectrum in which Dish received 25% discounts through a Designated Entity (DE) program. The DE program allowed some entities to get bidding credits designed for small businesses. Dish took advantage of the DE program by using Northstar Wireless and SNR Wireless to bid on its behalf. Northstar and SNR reported having less than $15 million in annual revenues.

RELATED: Dish works to rescue $3.3B spectrum discount on AWS-3 licenses

Gasparino tweeted today that the FCC voted unanimously, in a non-public decision, that Northstar Wireless and SNR Wireless were actually owned by Dish, not arms-length entities, thus they were not entitled to the small business discounts they received during the auction. According to Fox Business, Dish must pay the full cost for those licenses or pay back the government after it re-bids. 

FCC Chairman Ajit Pai, who was serving as an FCC commissioner in 2015, said at the time that giving such a lucrative break to a company as large as Dish “makes a mockery” of the small-business discount program.

Ergen is likely to appeal today’s ruling.

New Street Research analyst Blair Levin provided a summary of the convoluted history related to the DE controversy, and concluded that “both sides have a chance of winning” in an appeal.

If Dish loses, the licenses would be re-auctioned by the FCC, wrote Levin. To the extent that the licenses are sold for less than $3.3 billion, Dish would have to pay the FCC the difference between the $3.3 billion and the new sales price. If the new price meets or exceeds $3.3 billion, Dish would face no further liability.

“We expect strong bidding for the licenses; AWS spectrum now sits at the core of the networks for all three national carriers, and Dish relinquished licenses that fill holes in Verizon’s AWS-3 holdings,” wrote Levin. “Dish will undoubtedly be a bidder too. We would expect them to bid up to the $3.3 billion they bid last time around (or something very close), and either walk away with the licenses or with no further liability.”

The spectrum in question is not part of Dish’s 5G plans for its new greenfield network. But considering that spectrum is a limited resource, it has great value that Dish would like to keep.

LightShed Partners analyst Walt Piecyk posted a tweet, saying that if the FCC’s case is so strong why did it take over two years to rule?