FCC Possible Clawbacks of Dish AWS-3 Credits Face Challenges

Any FCC efforts to claw back Dish Network designated entity (DE) credits face a big hurdle within the halls of the agency itself. "The notion you'll get three votes on the eighth floor is far from certain," said a communications lawyer whose firm has done satellite work: "If you don't get majority approval on the eighth floor, it's nothing more than a staff recommendation."

The Enforcement Bureau is expected to look into Dish's buy of spectrum it bought in the AWS-3 auction through two DEs (see 1507160054). It's unclear under what theory the FCC could demand a refund of the rebates, said Phoenix Center President Lawrence Spiwak, as well as whether the agency will seek just a repayment of $3.3 billion in DE small business credits or whether the licenses themselves would be denied. While there have been firms doing deals with DEs in the past, Spiwak said, "What probably set this auction off was the fact it was a $3 billion number. Optically, $3 billion looks bad" -- though the auction raised $41.3 billion and the DE credits were substantially smaller as a percentage of that total than similar past auctions, the Phoenix Center said in a paper released Monday, which said Dish should receive the spectrum it bought (see 1507200065). "Anytime you set up a subsidy like this, there are going to be problems," Spiwak said. The FCC declined to comment, as did Dish.

On whether the FCC might look at past auctions and if it erroneously approved other DE abuses, "as a practicality matter, I suspect that's impossible," said a communications lawyer. Commissioner Ajit Pai has been highly critical of what he called Dish's "abuse" of the DE program (see 1503160051). The FCC last week approved putting caps on the DE program credits of $150 million for small businesses (see 1507160051).

If the FCC acts, Dish almost surely will sue, saying the agency is violating its own rules, multiple lawyers said. BTIG analyst Walter Piecyk said in a blog posting Friday that if the FCC disallows the DE credits, Dish would pay back the money while it fights the decision; otherwise it would be subject to additional penalties and the licenses could be re-auctioned.

Such a legal fight and lack of clarity about the ground rules could affect 2016's scheduled incentive auction, including potentially leading Dish not to participate, attorneys said. A finding of fraud also could prohibit Dish from taking part, though that could fly in the face of FCC aims to have as many nationwide competitors as possible, said a communications industry attorney. "While no one is happy with how Dish and its DE partners took advantage of the DE rules ... we would have thought that potential complications to the incentive auction ... would deter FCC Chairman Tom Wheeler from playing hardball," said investment research firm Washington Analysis in a report Friday. There also could be other lawsuits from parties looking to have the licenses re-auctioned, all of which could delay the incentive auction potentially into 2018 due to the upcoming election and new FCC chairman to be seated, Washington Analysis said.