LightSquared Conditions a Likely Starting Point for Dish-FCC Negotiations

The FCC review of Dish Network’s transfer of control and waiver applications (CD Aug 23 p5) will likely use LightSquared as the starting point for discussions on possible conditions of the deals and any resulting waivers, said observers. It will be up to the company and others to convince the agency of major differences between Dish’s situation and business plans and those of LightSquared if it hopes to see a major departure from the conditions imposed on LightSquared, they said. Many questions about Dish’s intent remain unanswered, and the commission will likely seek far more specific information on the plans before conditions are imposed, they said.

Dish is seeking International Bureau (IB) approval to take over S-band mobile satellite service companies DBSD and TerreStar, which it bought out of bankruptcy, and a waiver allowing Dish to offer terrestrial-only service in the S-band. Dish’s application said it would commit to buildout schedules like those in the Sprint/Nextel and Sprint/Clearwire deals -- somewhere around 30 million Americans within 6 years. That’s far less than what LightSquared agreed to. LightSquared agreed to build out to 260 million Americans within 6 years of the transfer of control from SkyTerra to Harbinger Capital Partners, the transaction that created LightSquared. Dish will need to explain to the FCC why its situation is so different from LightSquared’s if the agency is to impose a smaller buildout requirement, an industry executive said. LightSquared is similarly trying to use MSS spectrum for terrestrial-only service. Dish declined to comment.

Dish will also be under the same pressure as LightSquared from the FCC and potentially wireless carriers over its access to cheap spectrum, the executive said. The issue is the “quid pro quo” involved for the commission allowing Dish to control spectrum it didn’t have to buy at auction, the executive said. Wireless groups including CTIA, AT&T and Verizon Wireless complained that the IB allowing LightSquared to offer terrestrial-only service amounted to a total change to MSS/ancillary terrestrial component rules and should have been considered before the full commission. Those same complaints could show up in this proceeding, said the executive. The S-band doesn’t appear to have the same GPS interference concerns, though, that’s slowed LightSquared’s progress.

The LightSquared deal sets valuable precedent, said satellite lawyer Patrick Campbell of Paul Weiss. The deal would require any opposition to define major differences between Dish’s and LightSquared’s requests if the agency were to deny the applications because of the worry over MSS/ATC rules, he said. The FCC has “tackled those issues and made the decision,” he said. Unless someone can argue that the situations are drastically different, “rehashing those arguments won’t have much play,” he said.

Another controversial feature of the Harbinger deal was the condition that LightSquared must gain FCC approval of any spectrum leasing deal with either of the top two wireless carriers. Potentially, that same condition could still be in play here, though there are differences between the takeover of spectrum by a hedge fund -- Harbinger -- and by Dish, a better-known operation that interacts regularly with the FCC, said the industry executive.

Dish would probably be reluctant to see explicit conditions on its leasing options, said Tim Farrar, president of TMF Associates. Dish may be willing to take on a more onerous buildout requirement rather than be prevented from partnering with any of the major carriers, he said. Farrar expects the buildout requirement to be more than 30 million, but it remains unclear where the FCC and Dish can agree on a number. The Justice Department’s effort Wednesday to block the AT&T/T-Mobile deal (see separate story this issue) may have mixed effects for the Dish process, said Farrar. On one hand, if AT&T and T-Mobile remain separate, Dish will have more options for partnerships, he said. At the same time, if the AT&T/T-Mobile deal falls apart, it could change the agency’s considerations for the Dish deal, potentially prolonging the review, said Farrar.

While Dish offered to take on build-out conditions in exchange for the waiver grants, its filing is sufficiently vague to give Dish a number of options, a hallmark of Dish Chairman Charlie Ergen’s acquisition efforts, said a satellite lawyer. A number of things remain unclear within the waiver request and a “delicate dance” with the FCC awaits, the lawyer said. Dish, unlike LightSquared which has made its wholesale spectrum plans pretty clear, doesn’t exactly explain on what basis it would use the waiver, the lawyer said. Does Dish plan to use the entirety of the spectrum for its own retail service, or might it seek to provide wholesale spectrum or a combination of the two, the lawyer asked. These are important distinctions as the FCC reviews what kinds of conditions may be required, he said. Another unanswered question is the issue of pricing for a Dish terrestrial service. LightSquared explained in its waiver request that retailers using its spectrum would have to pay for the access to both satellite and terrestrial services. It’s unclear in Dish’s application if it foresees some kind of price difference between the different services, said the lawyer.

As a whole, Dish’s waiver requests are far broader than LightSquared’s, said a satellite lawyer. A number of questions involved will likely begin to come up in the comment process once the FCC places the request on public notice, the attorney said. After that, it will be up to the regulator to find the answers, typically through meetings and filings from the companies involved, the lawyer said. The agency would still have the option to approve the transfers, but not the waivers. In theory, Dish could probably then back out of the deals, though it would then become an issue in the bankruptcy courts, where Dish offered to buy the companies, rather than the FCC, said the lawyer.