Two months after the FCC rejected $3.3 billion in bid credits accrued by SNR Wireless and Northstar Wireless during the Advanced Wireless Service (AWS)- 3 auction, both companies informed the FCC last Thursday that they would default on 197 of the licenses they won earlier this year in the AWS-3 sale. With the backing of DISH Network, SNR and Northstar posted gross winning bids of $13.3 billion for 702 licenses during the AWS-3 event, which shattered records with a final bid tally of $45 billion. After representing to the FCC that the 85% economic stake held by DISH in SNR and Northstar constitutes a noncontrolling stake, both companies qualified to participate in the auction as designated entities (DEs), which collectively earned them a 25% discount (or $3.3 billion) off of their total combined gross winning bid. However, complaints concerning SNR and Northstar’s auction activities and questions surrounding their relationship with DISH triggered an FCC probe into the companies’ eligibility as DEs, and the FCC ultimately determined that DISH controls or has the power to control SNR and Northstar. The control was evidenced by DISH’s (1) control over the companies’ policy and financial decisions, (2) control over the AWS-3 bidding process, and (3) “domination of financial matters.” Concluding that these and other factors make DISH’s revenues “attributable to each of the Applicants,” the FCC held SNR and Northstar liable for full payment of their gross winning bids.
On the FCC’s deadline for submitting full payment, SNR notified the agency that it would default on 113 licenses of the 357 licenses it won in the AWS-3 sale. At the same time, Northstar acknowledged that it would default on 84 of the 345 licenses it won. SNR and Northstar had posted gross winning bids of $1.2 billion and $2.2 billion, respectively, on the defaulted licenses, which cover major markets such as New York City, Chicago, and Boston in addition to various smaller markets nationwide. Although SNR and Northstar are also required under FCC rules to submit interim default payments that amount to 15% of the gross value of their defaulted licenses, FCC officials confirmed that funds previously deposited by both companies are sufficient to cover these payments. As such, the FCC clarified that neither SNR nor Northstar would be classified as a “current defaulter” that would disqualify them from future FCC auctions. Meanwhile, SNR and Northstar cited pending appeals against the August bid credit order in advising the FCC that their decision to default on some of their licenses was taken without prejudice to their right to seek judicial review before the D.C. Circuit Court. The FCC is expected to conduct new auctions for the defaulted AWS-3 licenses after the incentive auction process is completed.